The saying goes: The only constant is change-and, in our technologically enabled world, change continues to quicken in pace. For insurers grappling with legacy systems and striving to become more customer-centric, another shift is coming. In fact, many would argue it's already here. Welcome to the Internet of Things.

Are you ready to be an Insurer of Things?

Accenture has outlined six facets of the Internet of Things, which has begun to connect homes, cars, people, organizations and even entire cities. For insurers, these developments raise important questions, such as:

• Who or what is insured?
• Where does liability begin and end?
• What are the implications on claims in a market where an insurer's discrete business gives way to the Internet of Things, ecosystems and partnerships?

For example, Volvo recently announced that it would accept full liability for its autonomous cars. In principle, these cars would be equipped with safety features that would decrease the incidence of collisions and claims. That may drive down premiums-and will certainly force insurers to consider what a "connected claim" might look like in this new marketplace.

Over the next few weeks, I'll look at the Internet of Things and its implications for the insurance industry-and especially for the claims function.

For U.S. property-casualty insurers, 2016 will be a year of continuing disruptive change. Digital technologies, such as social media, analytics and telematics, will continue to transform the market landscape, recalibrating customer expectations and opening new ways to reach and acquire clients. The rise of the "sharing economy," under which assets like cars and homes can be shared, is requiring carriers to rethink traditional insurance models. Combined with an outlook for slower economic growth, increased M&A and greater regulatory uncertainty, the stage is set for innovative firms to capitalize on an industry in flux. Insurers that stay ahead of these shifts should reap substantial benefits, while laggards risk falling behind, or even out of the race.

Competitive pressures in the insurance industry have been building as cost-effective solutions in digital communication, distribution and infrastructure become widely available. Digital technology is eroding the advantages of scale enjoyed by established insurers and empowering smaller players to compete for market share through more flexible pricing models and new distribution channels. The recent launch of Google Compare, which enables customers to comparison shop for insurance, is the start of a larger wave of "InsuranceTech" activity in 2016.

At the same time, customer expectations and behaviors are evolving at a rapid pace, often faster than traditional mechanisms can react. Driven by their interactions in other digitally enabled industries, such as retail and banking, property-casualty customers are increasingly demanding a more sophisticated and personalized experience - including digital distribution, anytime access, premiums accurately reflecting usage and individual risk and higher levels of product customization and advice. Policyholders are also seeking coverage of broader risks, such as cybersecurity risk and under-protected property exposure.

Significant change to insurance ecosystem

Almost eight years after the global financial crisis, most major economies are still operating at well below potential. Although the U.S. is doing better than many countries, forecast growth of less than 2.5% for 2016 is unlikely to boost employment or wage growth significantly. With little sign that inflation is picking up, the Fed is intent on keeping interest rates near their current lows for the foreseeable future. Meanwhile, concern around the slowdown in China and other key emerging markets will continue to dampen U.S. growth prospects.

Despite sluggish economic conditions, property-casualty insurers should do well next year because of the favorable underwriting performance of the commercial lines sector and rising personal lines premiums. Softness in reinsurance pricing may increase opportunities for companies to cede capacity into the reinsurance and alternative capital markets, as well as achieve more stable reinsurance protection through broader terms and conditions. The industry will enter 2016 with a strengthened balance sheet and a strong base of invested assets from several years of solid reserve development and benign catastrophe experience.

But that is where the good news ends. In 2016, return on investment for firms is likely to continue to slip from its 2014 peak because of a combination of capital accumulation, competitive pricing, weakening investment returns and rising loss costs. Losses and expenses are growing faster than revenue, forcing companies to actively seek new solutions. In personal automobile and workers’ compensation, rising frequency and severity are beginning to erode loss ratio performance.

Competition is putting downward pressure on pricing, particularly in the commercial property and liability lines. This is compounded by slowing growth in commercial exposures because of economic weakness.

Regulatory headwinds ahead

In 2016, property-casualty insurers will face heightened political and regulatory uncertainty. An open presidential election for both parties, along with congressional and state elections, creates the potential for radical change with taxation and regulatory repercussions. Meanwhile, the Fed is preparing new capital standards for significant insurance companies, and HUD and the Federal Insurance Office may intensify investigations into the affordability and accessibility of personal lines insurance to customers from different backgrounds. The IAIS is also pursuing international capital standards through field testing, and the results may come into clearer focus in 2016.

The NAIC and states may separately advance their expectations of best practices in risk management, governance and solvency as current programs enter their second year of full rollout. All jurisdictions will likely push for better information, reporting and compliance in such areas as accounting, solvency, fair practices, transparency, governance and marketplace equity.

Impact of external forces on the US property-casualty market in 2016 (0 = Very low impact, 10 = Very high impact)

Coping with transformative change: priorities for 2016

In such a fluid, fast-changing environment, insurance firms need to build a road map for strategic transformation aligned to new customer imperatives. Refining legacy products and approaches is not enough - what is required is a fresh, outside-in approach that starts with the customer and carries through to digital trends and market shifts, both inside and outside the insurance industry.

1. Position Your Organization for Digital Leadership

Preparing for further digital disruption

As digital service models become more common in other industries, the property-casualty sector will need to align to the rising expectations of consumer and commercial customers. Digital technologies, such as mobility, social media and telematics, will continue to disrupt all parts of the property-casualty insurance value chain - from client acquisition to claims and servicing. Although the industry is ripe for digital transformation, many traditional insurers still display a low level of digital maturity, struggling to develop digital strategies that enhance the customer experience, extract efficiencies and drive future growth.

Priorities for 2016

Lay the groundwork for digital transformation. To meet changing expectations, insurers need to digitize interactions with customers, employees and suppliers. Building new distribution channels and working closely with existing distribution partners to enhance the customer experience is a strategic imperative.

Build a back-office to support the digital frontline. In 2016, carriers must continue to invest in back-office systems to enable digital enterprise platforms. These should be designed to allow for future expansion, omni-channel distribution and an improved customer experience, while minimizing customer service costs and protecting against escalating cyber risks.

Start new market initiatives now. As back-office systems are being readied, leading insurers should not wait for full integration, but push forward with next-generation portals, redefining customer experience, data access, queries and navigation. With the rise of real-time risk monitoring, there is a knowledge shift taking place between customers and insurers. Insurers need to tap into client and industry data sources to take full advantage of this new risk-information flow.

2. Prepare for the next wave of M&A activity

M&A will accelerate in 2016

Uncertain economic and regulatory conditions have caused insurers to cut costs and expand product and geographic diversification. Under growing pricing pressure and competition from non-traditional sources, in 2015 insurers turned to transformative mergers to achieve these goals. This surge in M&A activity is expected to continue in 2016, as acquirers seek to build scale and access US markets.

Priorities for 2016

Establish a well-defined process for post-merger integration. Mega consolidations require immense integration of systems and data. Companies involved in M&A should assemble the necessary building blocks to create single technology platforms, self-service customer portals and omni-channel distribution systems. Replacing duplicative technology, outdated service centers and first-generation mobile-enabled distribution will remove cost redundancies and inefficient processes. Successful mergers could create lower-cost infrastructures, which will enable these combined entities to invest in data sources and analytical tools that improve pricing, risk analysis and claims management.

Gain greater access to insurance buyers through M&A. Consolidation in the insurance broker and independent agent markets has tipped the balance of power toward distribution. In response, insurers in 2016 will look to gain direct customer access by purchasing specialty distribution and continue the trend of underwriters acquiring managing general agencies with exclusive books of business to increase premiums in less price-sensitive lines. Access to captive distribution should help tilt the scales back toward underwriters.

Take steps to protect against tougher competition. Insurers that refrain from the M&A frenzy will require a strategy to compete more effectively against larger, better capitalized companies. Recruiting human capital will become paramount, as will accessing distribution that provides high-retention, profitable business.

M&A activity in 2016 will make insurers vulnerable to takeovers, particularly those with the potential to provide an acquirer with greater product diversification, wider market access, stronger analytics and increased cost efficiencies.

3. Create a culture of continuous innovation

The innovation imperative

The rise in usage-based insurance, digital distribution channels and other disruptors is shaking up the industry. Widespread data availability and advanced analytical techniques are enabling new market entrants to absorb risk that was once the exclusive territory of insurers. Larger and more efficient capital providers entering the industry are siphoning off premium that ordinarily flowed to insurers. To stay relevant, traditional insurers need to shed their conservative orientation and cultivate a culture of innovation.

Priorities for 2016

Explore new technologies and start-up models. Competition is heating up as an array of new Fintech companies offer services that were once the exclusive domain of traditional insurers. To cope, insurers will need to adopt, acquire or even fund new technologies and experimental models that may even compete with their existing businesses. Recently introduced property-casualty insurance products, such as insurance for cyber risk, ridesharing and drone exposures, suggest that insurers can rise to the innovation challenge.

Be prepared to cannibalize parts of your business, before competitors do. The property-casualty insurance industry has not been known as a change leader. A growing asset base is a vital sign of stability for clients, but, as a business grows, more processes are added, creating bureaucratic layers that stymie innovation. To offset these institutionalized barriers to change, insurers will need to develop a culture of innovation that allows for internal competition.

4. Shift from a product to a service orientation

Staying relevant in a fluid marketplace

Changing customer needs are making many of today's insurance services less relevant. With a few notable exceptions, the traditional product suite has been relatively static and has not kept pace with evolving risks. Personal lines insurers are seeing reduced demand for their services because of advanced safety technology, the growth of the sharing economy and changing demographics and customer behaviors. Likewise, commercial lines insurers are coming to grips with new industries, emerging risks and a client base with significant access to their own risk data. Access to better data and analytics empowers customers to retain more risk, and much of the risk at the other end of the spectrum has been taken by capital market alternatives, leaving traditional carriers scrambling for the leftovers.

Priorities for 2016

Think outside-in, not inside-out. To adapt to this fast-evolving marketplace and differentiate themselves from competitors, insurers must enhance their service capabilities while developing products better able to serve new customer needs and behaviors. By providing services that build on the customer experience and changing expectations, insurers can foster stronger, more holistic relationships with clients and ultimately improve policy retention and generate higher margins.

Take a value-added, advisory approach. Customers are increasingly looking to their insurance partners for risk advice, not just insurance products. To enhance their brand and improve performance, insurers must be ready to provide customer-centric services to satisfy these expectations. Insurers will need to analyze their clients' exposures and develop risk-mitigation strategies and insurance coverage tailored to their needs. The rise of real-time risk data in both personal and commercial lines provides an opportunity for innovative insurers to address uncovered or mispriced risks.

5. Build a next-generation distribution platform

The rise of omni-channel distribution

Independent and captive agents have dominated the property-casualty insurance industry for decades. Even today, many insurance buyers rely on a trusted adviser to assist them with personal and business insurance purchases. But the days of a single distribution channel are over for many insurers. Consumers are demanding omni-channel access to insurance products. Insurance buyers want the same flexibility to learn, compare, purchase and report a claim as they have become accustomed to in other industries.

Priorities for 2016

Come to grips with pricing transparency. Creating an effective omni-channel platform is critical, as it allows insurers to promote their customer service capabilities, product differences and claims-response times more widely. But the rise of aggregator and non-traditional comparison models has also made it easier for buyers to shop for the best rates. In a digitally enabled environment of price transparency, there will be further pressure in 2016 for insurers to streamline costly and duplicative infrastructure.

Consider acquiring captive distribution. As insurance products become more commoditized, insurers may want to acquire captive distribution to add customers and boost business. By acquiring managing general agents (MGAs), insurers can gain access to experienced underwriters able to secure and retain profitable business, along with the systems and tools for underwriting and processing that business. Insurers will need to integrate these systems into core underwriting platforms to avoid duplicating costs.

Rethink compensation plans for distributors. Private equity-financed broker consolidation, going on for nearly a decade, will continue to shift bargaining power in favor of distributors. Agent and broker control of profitable businesses has allowed some large distributors to negotiate greater compensation. This power shift is happening at a time when rate softening has become the norm. As a result, insurers in 2016 should consider changing the industry's level-commission compensation standards in favor of greater up-front payments that reward access to new profitable customers.

6. Drive performance through analytics

The new role of analytics

Disparities in frequency and severity trends among several large personal auto insurers highlights the importance of data and analytics in driving underwriting results. Harnessing large volumes of data from real-time sources can help insurers develop new products and refine pricing strategies. When combined with a robust operating strategy, advanced analytics can significantly increase underwriting profitability and provide a valuable market differentiator.

Priorities for 2016

Apply proven analytics to the homeowners market. In 2016, personal lines insurers will increasingly apply analytical capabilities developed in the personal auto sector to the homeowners market. Greater adoption of technological innovation in the home creates an opportunity for both real-time risk assessment and pricing strategies, similar to the trend unfolding in the personal auto market. As insurers move back into the homeowner market, they will be better equipped to understand and price risks.

Use analytics to manage commercial market risks. As risks rise, small business owners are seeking broader insurance coverage and a simpler sales process. Insurers with the analytical capabilities to manage evolving risks and the technological know-how to create an automated sales experience will be better equipped to meet fast-changing customer needs. The experience in using analytics in the small commercial market will provide insurers with a blueprint for gaining efficiencies in the larger commercial market.

7. Develop and attract the right talent to lead change

Coping with a widening talent gap

Existing insurance teams often are not prepared for today's fast-changing digital marketplace. But filling the talent gap can be challenging, because the insurance industry is not often the first choice of new graduates from top colleges and universities. With finance, technology and consulting attracting most of the promising students, a talent chasm is forming in the property-casualty industry. Insurers must recruit and retain next-generation innovators and leaders - while retooling existing teams with new skills.

Priorities for 2016

Develop new roles to facilitate change. As insurers embrace innovation and adopt more advanced digital platforms, they will need to establish new business roles to drive these initiatives. For instance, the stronger focus on analytics is increasing the demand for data scientists - able to apply predictive analytics and other sophisticated quantitative tools to support underwriting and claims- handling processes.

Create an environment that rewards innovation. A culture of innovation will help attract Millennials and entrepreneurial talent with fresh perspectives. Bringing in new ideas and skills will be essential for insurers pursuing technological innovation in an industry not known for change. To acquire and retain this new crop of talent, insurers will need to set up systems to reward innovation and risk-taking in alignment with new strategic imperatives.

Expand risk advisory capabilities. Customers are increasingly interested in working with true risk advisers and finding insurance solutions that match their lifestyles. Traditional product approaches directed at individual risks are falling out of favor as customers seek more holistic solutions. In 2016, insurance teams will need to develop expertise in health, wealth and risk advisory, so that they can bundle products and provide value-added services to customers.

8. Make risk management a C-suite priority

Coping with complexity

Economic, financial and political uncertainty, combined with linked global markets and disruptive technological change, has created a more complex and volatile landscape for insurance firms - heightening the need for best-in-class risk management. Faced with a challenging environment and driven by regulatory demands, insurers have made risk management a C-suite and board-level priority, with risk managers being held accountable for improved financial performance and value creation.

Priorities for 2016

Keep on top of changing regulations. Emerging regulatory regimes include calls for greater uniformity at the state, federal and global levels, but the ultimate form of these requirements is far from settled. As always, insurers will need to stay on top of shifting regulatory frameworks, communicate the industry impacts and respond to changes as they emerge.

Watch for emerging risks, such as cyber-attacks. With access to growing volumes of sensitive data, both large and small insurers are seeking greater cyber risk protection. Corporate boards are becoming increasingly aware of the damage a cyber-attack can cause, including potential liability at the board level and the destruction of reputation and brand. Risk managers must stay ahead of the ever-increasing sophistication of hackers.

Remember, protection is only as strong as the weakest link in the chain. Even if an insurer is well insulated from cyber-attacks, its outside vendors may be vulnerable. Vendors that have access to an insurance company's systems, such as its underwriting platform, can inadvertently provide hackers with a conduit to valuable company data. Risk managers must be careful with data released to third party vendors for any reason, especially when that data is subsequently returned to the company.

This article was written by David Hollander, Thomas Cranley, Gail McGiffin and Jay Votta. To access the full white paper, click here.

This article is an excerpt from a white paper, "Capturing Hearts, Minds and Market Share: How Connected Insurers Are Improving Customer Retention." To download it, click here.

Part 1 of this series explained why retention is so much harder these days. This article explains how insurers can solve the problem.

Know Your Customers

Understand values and behaviors of your customers. Start with available data sources. Augment structured data from traditional back-end systems with unstructured data like those collected through call centers and written correspondence. With these data, you can deduce meaningful patterns and behavior-based customer segments.

Enter into active dialogues to establish meaningful relationships. Use social media analytics and conversations via social networks to increase customer touch points. Use the knowledge gained about their wants and needs to sustain intermittent conversation about things that are helpful to the customer.

Build an environment where sharing data creates mutual benefits for customer and insurer. Transparency is key. Create and publicize a "customer data policy" that specifies how and when you will use data shared directly or generated through means such as "big data gathering," and how customers will benefit. Use shared data to create extra customer value, as detailed in the next section.

Offer customer value

It is no surprise that customer value - that is, the value that a customer derives from the relationship with his or her insurer - drives customer loyalty. In a previous study, we defined customer value as the adequate response to customers' changing needs. How can insurers translate this to understand which value drivers influence retention?

The fairness zone: The first component of customer value we will discuss is - again - price. For most of our respondents, the absolute level of premiums mattered less than individual perception of price fairness - a too-low price has the same negative effect on loyalty as one that is too high (see Figure 5). This means that a customer to whom the price seems right is two to three times less likely to switch in a given year. The fairness of premiums is also an emotional component that insurers need to get right (and tools like social media analytics can support this).

What is the power of brand? The second value factor we examine is brand. What is the retention value of a good brand? According to our data, it's less than expected. Only 21% of our respondents name "reputation" as one of the factors that cause them to stay with their chosen insurers. Could brand still be an implicit value driver?

Our recent consumer products industry study, "Brand enthusiasm: More than loyalty," showed that brand consciousness and brand loyalty are changing, and our data echoes those findings. Only 12% of respondents have a high brand consciousness, and that is the only bracket where it has a strong effect on loyalty in the insurance world (see Figure 6).

This suggests that an extra investment in brand creates limited loyalty returns; a great brand only matters if your customers belong to the few who are brand conscious to begin with. Moving customers to the "high" consciousness bracket might prove difficult to achieve.

So how can insurers, many of whom already have a strong brand, make this work to their advantage? We propose adopting the concept of "brand enthusiasm." Brand enthusiasm is influenced by the level of customer engagement, which we will explore in the next section, and again leads to the increased emotional involvement with the insurer that we call "heart share."

Transparency, not complexity

Last but not least, we examined other product-related value drivers. We suspected that the often high complexity of insurance products has a negative effect on loyalty, but our data proved this hypothesis wrong. Although product complexity might be a deterrent to purchase (which was outside the scope of the survey), even those who perceived the product they bought to be highly complex did not show a higher propensity to switch.

In contrast, transparency about the product strongly influences loyalty in a positive way. Transparency leads the customer to understand and be more comfortable with the product (and the insurer) even when it is complex. Seventy percent of respondents who reported that their product understanding was high expressed high loyalty - almost three times as many as those with low product understanding. High transparency leads to rational involvement: the "mind share" in our study title.

What current technology can help insurers promote customer value? To give customers an emotional connection and involvement with a fair price and a transparent product, telematics is ideal. Regarding fairness, customers can see that the rate is based on their personal risk and influenced by their personal actions. Examples include a "pay-how-you drive" auto product or the use of exercise tracking devices in health insurance. Transparency of this sort of auto product is high, and for many telematics offerings, there is an additional fun factor by seeing how well you drove, thus competing against yourself for better driving scores.

Recommendations: Offer value

Support your customers in areas they personally value, even if they are not directly related to your core business. Offer information to your customers in useful areas that are widely related to their coverage: for example, traffic or weather information for auto insurers. Create communities of interest - in social networks or directly hosted by you - to share news, tips and enhance exchange among like-minded individuals and your organization.

Add risk mitigation or prevention into your products and services. Commercial insurers have been doing this for years. Start offering these at the outset of the contract relationship. Later, add tracking via telematics, plus assistance services.

Personalize offerings and provide pick-and-choose product options. Product flexibility starts in the back end. Your application architecture must enable a modular approach to products and services. Build a roadmap for flexibility using industry standards such as IAA. From the front end, add in-depth analytics to flexibly balance the offered options with market needs.

Fully engage your customers across access points

Incumbents at risk

One characteristic of the Millennial customer is the desire for omni-channel shopping for their goods and services. For insurance shoppers, this extends well beyond using traditional insurers - many Millennials are open to using adjacent providers and new entrants into the market (see Figure 7).

In the short run, offerings like Google Compare mainly replace existing aggregators; insurers still cover the actual risk. In the long run, online service providers - given their good customer knowledge across many products and services - could start to accept risk themselves. In this case, customers' already-stated willingness to switch would become a real threat to incumbents.

In addition, the reason respondents gave for considering those providers should be troubling to insurers: They describe non-traditional providers as faster, more transparent and easier to reach (see Figure 8). To counter this, carriers need to engage with their customers across a broader range of access points than ever before.

The age of mobility

One option is to be more accessible on the go. Ninety-six percent of our respondents own some form of mobile device, most often smartphones (owned by 82 percent of respondents) and tablets (owned by 49 percent); they have become commonplace modern accessories throughout the world. Still, only 13 percent of respondents who bought their insurance online, either directly or via an aggregator, used their mobile devices to buy. On the other hand, 29 percent of all respondents stated they would like their insurers to offer an option to buy through a mobile device, and that this would increase their loyalty.

Expanding mobile offerings outside of searching and buying is an instant accessibility increase with potential loyalty gains. The biggest effects would be in submitting claims (42 percent) and in simple communication (43 percent). Many insurers have already invested in apps for claim submission, but again, they seem to be either unknown or too hard to use.

The effect of expanded mobile offerings differs widely by country, with the more empowered customers in developing markets increasing their loyalty more (see Figure 9). Still, given the larger market sizes in mature markets, investment in mobile services are still expected to generate returns.

Connecting everything, everywhere

Looking toward the longer term, insurers will also need to consider investing in the Internet of Things (IoT) to enhance customer engagement. A growing number of consumers either own or can imagine owning an Internet-connected device like a refrigerator or a washing machine (56 percent of millennials, 36 percent of boomers).

Currently, only a small percentage of customers told us they would be comfortable with insurers using the data from these devices (21 percent of millennials, 15 percent of boomers.) Still, for those respondents, the greater accessibility and convenience of the IoT would lead to an increase in loyalty. Insurers can make use of the IoT if they sell it right: with high transparency regarding how the data is used (and not used).

Recommendations: Fully engage

Embrace mobile to enable constant access for your customers. For your main set of lines of business, envision "customer journey maps." These maps document the typical steps a customer must take during the provider relationship, from needs discovery through information gathering and purchase, all the way through after-sales services and claims processes. For each step, identify interaction options to generate a complete picture of potential mobile touch points.

Support decision making throughout each step of the sales process at the convenience of your customers. Create one unified front end for the customer, whether they come in through an agent, call center, the Internet or mobile devices. Make customer data and product information equally available at all touch points.

Have information available anytime, anywhere to support instantaneous fulfillment of client requests. Equip tied agents, underwriters, claims adjusters and other fulfillment roles with mobile technology like tablets and other handheld devices. This allows you to abandon a fixed workplace in favor of greater fulfillment flexibility - for example, claims can be adjusted directly on-site.

Ready or not - are you capturing the hearts and minds of your customers?

How are you using your in-house sources of customer knowledge? In what ways are you gathering and adding external information, such as that from social networks? How are you combining internal and external information? How is it used to generate greater customer value and loyalty?

Where and how are you using needs-based or persona-based segmentation approaches? How will you deepen your level of understanding individual customers?

To what degree can your customers pick and choose options from your product portfolio? What is your plan to remove the barriers to further customization?

How do you communicate with your customers? What is your approach to staying abreast of the ways they prefer to communicate, now and in the future?

In what ways are you engaging millennials? And how will you stay updated to address the customers of the future, such as Generation Z and beyond?

This article is an excerpt from a white paper, "Capturing Hearts, Minds and Market Share: How Connected Insurers Are Improving Customer Retention." To download it, click here.

There's no shortage of evidence that homeworkers appear to make happy employees, because of, among other things, flexibility, empowerment and better time management. According to experts (http://globalworkplaceanalytics.com/resources/people-telecommute), an estimated three million American professionals never set foot in an office outside of their own home, and 54% say they are happier that way. But what about the 46% who aren't happier?

Almost 12 months ago, I wrote (http://www.riskandinsurance.com/struggling-stress/) on the topic of stress, and how the increased use of homeworking might be good for productivity, but not necessarily so good for the employee. Isolation, work insecurity and lack of personal contact are good ingredients for increased work-related anxiety. Beyond this are the issues of poor working conditions, bad posture, working through sickness and substance abuse (which may be as simple as excessive caffeine but could be worse, much worse).

Employers usually seek to discharge their obligations by providing guidelines to homeworkers, and the better ones also encourage self-appraisals, which are shared with managers. But to what degree are these processes merely lip service? Isn't self-appraisal a dodgy process at the best of times? To what extent would a homeworker be candid about a medical or emotional condition, which might hurt their bosses' view of them? Are homeworkers really best placed to comment on their own posture? What other risks might emerge from homeworking, which don't feature in a self-appraisal, such as tripping over the dog?

Legislation places a duty of care on employers. Losses arising because of failure in discharging that duty of care give rise to liabilities that may be covered under an insurance policy. It's a fine balance between an organization empowering its employees, and leaving itself open to liability, and there's little doubt that homeworking carries with it a significant amount of trust.

There's no clear answer. Some suggest that answers might rest in site visits, furniture provided by the employer, enforced breaks, fixed working hours and wellness programs as an integral part of an employment contract. But don't options like these create other issues?

How does the idea of fixed working hours apply to individuals working across multiple time-zones, which often result in exceptionally long days? In the absence of fixed working hours, could an employee successfully argue that almost any injury in the home has occurred during the course of their work?

How proactive can and should employers be? Providing office furniture that allows an employee to sit, stand or even walk brings new risks, especially where ergonomic experts cite potential injury problems. Wellness programs can compensate for sedentary lifestyles, and normally injuries that occur through work-funded wellness programs are not a matter for insurers as they have occurred outside normal working hours - but what if the wellness program has been mandated by the employer as part of an employment contract?

It's clear that employers cannot contract out of their obligations, and, with the number of homeworkers predicted to rise by 63% in the next five years, doesn't the insurance industry need to think more about this particular aspect of the future? Is there a role for technology as part of the solution? Perhaps some form of workforce analytics has a part to play - maybe even telematics for teleworkers - but were such a thing to emerge, wouldn't the concept of "home" and "work" as two separate entities disappear completely?

The Affordable Care Act (ACA) was created to expand healthcare coverage. Unfortunately, the act has overstepped its bounds and will dip into the workers' compensation coffers by requiring mandatory reporting for Medicaid beneficiaries.

Medicaid originated in 1965 to cover low-income people with children who had disabilities. State and federal governments fund Medicaid, with the state being the primary administrator. Each state receives direction for the program from the federal government, but eligibility for the program is based on income and assets.

Now the new twist. As of Oct. 1, 2016, state Medicaid programs will be able to recover all of the proceeds from a settlement that were expended on a beneficiary's behalf. Medicaid will be able to attach a beneficiary's third-party liability settlement (including workers' compensation) for the entire amount of the beneficiary's award - not just the amount allocated to medical expenses. This means funds intended to compensate beneficiaries for pain and suffering, lost wages or any damages other than medical expenses could be subject to the reach of state Medicaid agencies seeking recovery.

This will affect many employers because adoption of ACA has afforded broader coverage under state Medicaid programs, which now include individuals within 133% of the federal poverty level (roughly $32,252.50 for a family of four in 2015) and under the age of 65 years. Medicaid now covers a greater percentage of the workforce.

Since the inception of the Secondary Payer Act (MSP), the primary focus for Centers for Medicare and Medicaid Services (CMS) has been on Medicare reimbursement, primarily because there was a lack of federal direction to the states to recognize Medicaid's rights and because, before ACA, the majority of Medicaid recipients were unemployed. The lack of recovery process has placed a tremendous burden on state Medicaid programs, because many of them are paying for treatment for individuals who are now covered by workers' compensation. Medicaid needs to be reimbursed for these expenditures, because voluntary reimbursement has not been successful, resulting in many state programs experiencing insolvency.

The federal laws regarding the rights and responsibilities of recovery from parties in injury cases such as workers' compensation had to change. These changes translate into digging deeper into an employer's pockets and taking away more control from the employer.

The National Conference of Insurance Legislators (NCOIL) is developing a model for legislation to assist in recovery efforts. If adopted, this legislation would apply to all workers' compensation and personal injury claims for medical payments coverage and third party payments for bodily injury from insurers and self-funded primary plans. Rhode Island, West Virginia, Vermont and Kentucky are already exploring "intercept" programs to help comply with the mandatory reporting requirements. Employers that operate in many jurisdictions may have to navigate many different programs as each has distinct reporting and repayment provisions.

Workers' compensation was never intended to be part of Medicaid. It is only because of the expanded benefit rights from ACA that more employed individuals are Medicaid recipients. Now, not only do employers have to be concerned with MSP rights for Medicare, but they also have to be concerned with Medicaid. While Medicare is a standard set of federal rules, Medicaid will vary from state to state, so compliance is not consistent.

Employees and carriers alike have to be concerned that any settlement arising out of a work-related injury could be subject to "interception" on behalf of the state Medicaid program. No winners here.

While there is no escaping the law, employers can minimize problems by ensuring that they only accept claims that arise out of the course and scope of employment (AOECOE). If an injury did not occur at work or if work did not exacerbate a condition, then it is not a work-related injury and is outside the scope of the Medicare and Medicaid Secondary Payer Acts.

The EFA-STM Program, a book-end solution for the diagnosis and management of soft tissue injuries, has proven effective in helping all stakeholders - employers, physicians and employees - by helping deliver better care for the work-related injury and identifying whether there is a change in condition; i.e. is it work related or not? The program not only is of benefit for the reduction of workers' compensation claims, it is instrumental in helping all stakeholders navigate the Secondary Payer Acts.

Please join us for the Emerging Trends in Workers' Compensation Summit in Carlsbad, CA, on Jan. 28, 2016. To get the special ITL rate of $175, use this promotional code: EMERGE2016.

Those who are familiar with the California workers' compensation system are aware that much of the fraud, and a very high percentage of the liens, in the state are in Southern California. These three articles (here, here and here) show why workers' comp fraud is making a home in Southern California.

Before the passage of SB-899 in 2004, there was one back fusion surgery for every laminectomy (surgery to reduce pressure on the spinal cord or nerves) provided in workers' compensation in California even though only 3% of laminectomies by group health providers resulted in fusions.

Prior to SB-899, it was almost impossible for the payers to say no to physicians' requests for multiple surgeries. Back then, six and seven unnecessary back surgeries on a patient were not uncommon -- and, apparently, for the benefit of the doctors, not of the injured workers.

To compound the problems for the injured worker, when the multiple back surgeries were not successful, the employee was then given opioids for the intractable pain. This resulted in a large number of injured workers who are now opioid addicts.

Opioid-addicted injured workers now account for a high percentage of the complex and advanced IMRs (independent medical reviews done by Maximus).

Pending regulations from the Division of Workers' Compensation for a pharmacy formulary (using evidence-based medicine) will help reduce the number of inappropriate requests and questionable denials.

Already, passage of SB-863, with a focus on evidence-based medicine and medical decisions made by medical professionals, helped significantly reduce the abuses and improve the care for the injured workers of California. The IMR process outlined in SB-863 takes medical decisions away from non-medical professionals. It helps protect the injured workers from abuses like those outlined by the FBI in the articles I linked to above.

It would be interesting to see how many of the millions of the liens filed in the system are associated with the indicted doctors mentioned in the article.

The IoT in Insurance event just concluded in Miami with an impressive lineup of 32 speakers over two days (including yours truly). Above all, the event demonstrated that the IoT is alive and well in insurance. Insurers are exploring, strategizing, investing, piloting and putting real value propositions into the marketplace. Most, if not all, of the participants believe that the industry is paddling into a huge wave - those companies that are aggressive will catch the wave and enjoy a great ride. The rest will get swept under. The industry is in for major disruption and transformation over the next three to five years ... and the IoT will play a big role. Although the potential opportunities and threats are vast and varied, a number of important themes emerged at the conference.

Customer Experience Is Key: Customer expectations are a driving force of change. The IoT creates many opportunities to transform interaction with customers: Real-time data enables more active advice and communications, and there is big potential to shift from a few touchpoints a year to daily interactions. Insurers that are already leveraging IoT devices in policyholders' homes, vehicles and businesses are learning how to offer new value.

It's All About the Services, Not the Things: So much cool stuff is happening out there! There are so many new IoT-based companies, devices and services that it is almost impossible to keep up. Insurers need to search out the "things" that make sense and create services around them that are valuable to customers. The Ring doorbell, the Roost smoke alarm battery, the Google/Nest thermostat, the leakSMART water detection device and many others are interesting as separate devices but provide even more value when integrated with an insurance offering.

Behavioral Science Is Increasingly Important: Since the dawn of the industry, insurers have relied on actuarial science to develop and price products and plan for losses. Loss experience has always been king in terms of understanding and evaluating risk. The IoT now provides the opportunity to leverage real-time data and interactions to shape behavior and change the risk equation, with the goal of improving safety and helping individuals live longer, healthier lives.

Ecosystem Participation Is Essential: Insurers are not going to be at the center of the universe in the connected world. In fact, the whole notion of the connected world leads to a blurring and overlapping of traditional industries. Networks of partnerships - ecosystems - are being built around the connected car, connected home, connected agriculture and many other domains in the connected world. Each ecosystem is loosely defined and rapidly evolving - and insurers must determine how they participate and contribute to a particular domain.

Data, Platforms and Standards Form the Foundation: One thing is certain. The IoT generates mountains of data - both structured and unstructured - orders of magnitude more than insurers and others are used to capturing, routing, storing, analyzing and leveraging. Insurers must create standard platforms and new standards for data exchange to avoid yet another set of operational silos.

Innovation Is Mandatory: The possibilities are virtually endless. Many insurance professionals see the possibilities and are dreaming up offerings and services. In the end, the winners will be those that can create a culture of innovation, with a continuing commitment to reimagine the business, and the willpower, brainpower and resources to bring ideas to fruition - quickly.

One last observation: Many are excited about the opportunities for the industry but fearful that insurers will not move fast enough. Innovative start-ups, as well as the global behemoths of the digital age (i.e. Google, Amazon, Facebook), go from idea to implementation in days or weeks. There is the potential that insurers will be relegated to back office administration while others own the customer experience. Despite that fear, it is heartening to see so many insurers making aggressive moves, so many Millennials being given the latitude to innovate and so many partnerships established that would have been unthinkable even five years ago.

The industry is not going to go away, but there will clearly be winners and losers in this era - and probably many surprises along the way.

For President George W. Bush and Congress to get Medicare Part D drug coverage passed in 2003, they had to make significant concessions to big business, including the drug industry. One of the law's provisions forbids the government from setting rules for negotiating better drug prices. The "noninterference" section says:

In order to promote competition . . . the secretary [of Health and Human Services]: (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs. 42 USC 1395w-111(i)

The result, according to a new policy brief from the Carlton University School of Public Policy and Administration, is that Medicare Part D plans pay on average 73% more than Medicaid and 80% more than the Veterans Health Administration for brand-name drugs. If Part D plans could negotiate drug costs the way Medicaid and the VA do, savings could reach $16 billion a year.

The study shows that the average per capita expenditure by Americans for pharmaceuticals is more than double the average of 32 other industrialized nations. Contrary to their publicity, American drug companies do not devote the wealth gained from Part D on new research initiatives. Half of new medical research initiatives come from non-profit entities such as universities. Rather, drug companies have spent their millions in recent years on increased lobbying. If drug costs decreased, Medicare beneficiaries could expect Part D premiums to also decrease.

Although private insurers pay Part D medical expenses, workers' compensation professionals are painfully aware that anticipated Part D-covered expenses must be included in a Medicare Set-Aside. The increased use and rising cost of pharmaceuticals has torpedoed many a proposed workers' compensation buy-out. If the purpose of an MSA is to protect Medicare, why are Part D expenses that are paid by private insurers included in the allocation anyway?

Casualty insurance companies and the American Association for Justice are big political players. With the 2016 election cycle coming up, now would seem to be the time for their lobbyists to twist some arms to modify the noninterference provision for the benefit of all Americans.

I can't stop thinking about algorithms. I am obsessed, and I want to tell you why.

Let's be clear: I am not a data scientist. I am a guy who finds technology and applications of technology fascinating. I am not writing this for technology nerds. I am writing this for professionals who want a working knowledge of technology.

If you are reading this, then you understand computers. A computer is nothing more than rules programmed by a human. Those rules are then executed and create an output.

But algorithms are so much more; they are breathtaking. An algorithm is a computer writing its own rules and then creating output from those rules.

It's easy to focus on the scary part of algorithms. In the Avengers movie, a super algorithm results in a machine - Ultron - bent on destroying the world. I will leave those scenarios to the Elon Musks of the world.

Algorithms can do so much good

Think about any repetitive task you do. An algorithm can be created to solve that task. Some algorithms are used for fun. For example, Facebook uses algorithms to suggest friends for you to connect with. Google Photos uses an algorithm to identify faces and group pictures of the same person together (which can lead to terrible results).

Algorithms are already being used in the insurance industry. Take a look at CoverHound or PolicyGenius; the algorithms behind these applications quote personal lines of insurance based on your needs.

How algorithms work (and why they are awesome)

Again, I am not a data scientist, but here is my simple explanation of how most if not all algorithms are created:

1. Create a seed set.

First, you identify a seed set, which is the core learning that is taught to the algorithm. Yes, that's right, even a computer algorithm has to be taught something from a human! For example, with the Facebook algorithm, I'm almost certain that the algorithm was first fed a giant spreadsheet that contained information about individuals and how they were connected (you do know your data created Facebook, Google and every other big data company you can think of, right?).

2. Feed the seed set to the algorithm.

The algorithm then reads all of the information it is fed and starts making its own rules. For example, the Facebook algorithm may determine: "Oh, I see, Jimmy likes Teenage Mutant Ninja Turtles, and he is connected with Bobby from the same city, and Bobby also likes Teenage Mutant Ninja Turtles. I bet Jimmy also knows Steve from the same city who also has a love for Donatello. They should connect."

3. A human reviews the results.

A human (see, you are still needed!) then reviews the output of the application of the algorithm rules. In the Facebook example, a human might determine if Jimmy and Steve should actually connect on Facebook. Maybe they are part of rival gangs, and the algorithm didn't recognize this. The human would then add this data to the spreadsheet and feed it back to the algorithm.

4. The algorithm rules are improved based on new input.

The algorithm creates rules to account for the new information. "Don't connect rival gang members even if they live in the same city and like the Teenage Mutant Ninja Turtles."

5. Steps three and four continue indefinitely.

Now stop for a second and think about all the rules that are built up in your head about people you connect with. Maybe you prefer to hang out with people who brew beer or read Harry Potter. There are literally hundreds of millions of personal preferences that human beings use to associate with people.

What if you could store all of those preferences and use them to connect people?

That's Facebook.

Algorithms are good for insurance workers

Now think about your work and all the stuff you know and all of the stuff your colleagues know. What if all of that information could be fed into an algorithm and used to create rules. You could then use those rules to more quickly do your work.

I can hear you thinking "But then I will be out of a job." Therein lies the rub, one that has been discussed ad nauseum (more than 9 million results for a Google search on "technology will destroy jobs"). Fatalists argue that algorithms and the advanced software programs they create will destroy jobs. Famous technologist and investor Marc Andreessen expressed as much when he proclaimed in 2011 that "software is eating the world."

But what happens if software starts doing repetitive tasks previously done by humans? I believe humans find new ways to be productive. And, I believe history supports my theory. But that's a blog post for another day.

I will leave you with two questions.

What repetitive tasks do you despise?

Wouldn't it be great if you could offload these tasks to a computer?

In 2006, UCLA Professor of Urban Planning Donald Shoup compiled the results of 16 surveys carried out between 1927 and 2001 on the time spent looking for a parking space. He reported that the average time spent looking for on-street parking was approximately eight minutes - a figure that has remained relatively unchanged since the 1930s.

This research also demonstrated that, on average, one vehicle in three in traffic is actually searching for somewhere to park. This figure has been confirmed more recently by a study from the San Francisco City Council, which concluded that an estimated one-third of weekday traffic was because of drivers looking for a parking space.

While solving the problem of road congestion via accurate traffic information has been looked at for decades - the RDS TMC protocol was invented in 1988 - and has already reached a good level of sophistication and accuracy, solving the parking problem via connected services is quite a recent topic and is still very much a work in progress.

As a matter of fact, most pure players in this field have been founded quite recently: as an example, JustPark in 2006; Parkopedia, ParkMe, Worldsensing and Anagog in 2009; and Parknav in 2011. The only companies to have emerged earlier are the parking payment companies, PayByPhone and Parkmobile, in 2000 and Pango in 2005.

On-Street and Off-Street

Parking essentially divides in two markets with two very different problems to solve: off-street and on-street. Connected services taking care of off-street parking are now quite advanced. In the three steps of information, booking and payment, the first is largely available (even if real-time data remains partial), but booking and advanced payment are still works in progress. Very few cars on the road today - or navigation apps - are able to find, book and pay seamlessly for a parking space in a garage.

The on-street parking problem is, by nature, more difficult to solve because detecting free parking bays in real time, at scale is complex and requires many sources of information. There are very different approaches to create this data.

Leveraging Traffic Probe Data for Parking

One is to make sense of the existing probe data currently used for real-time traffic. For example, Garmin is using this data to calculate the inflow and outflow of cars for each road segment in large cities and estimate availability (read here). The company has partnered with Parkopedia to include off-street parking information in their data model.

The GPS company launched this service in their mobile app during the third quarter in six German cities and is now adding cities in more countries: London, Amsterdam, Vienna and a few others coming in the U.S.

Inertial Data From Smartphones

Detecting parking and "unparking" events through inertial sensor data from drivers' smartphones is another approach used by Anagog, which built a software development kit now embedded in several million apps (watch here). Through a signal processing algorithm, the company detects out of gyroscope, accelerometer and location data (GPS, etc.) parking events that are fed to a big data cloud that is now nearing 1 billion historical parking events.

Data From Car Sensors

Car makers such as Volkswagen (read here) or General Motors are also looking at producing data using car sensors.

In the case of Volkswagen, a pilot launched by the company uses the existing ultrasonic proximity sensors (used for parking) to assess the availability of free parking spaces on the side of the road when the car drives along a street. The data is uploaded in real-time and matched against map data to eliminate false positive (parking space for disabled people, etc.).

Parking Meters

Using data from on-street parking meters is another opportunity to get real-time, on-street parking information. Because a significant number of these meters are connected to the cloud, it is possible to build predictive data based on historical trends. Parkeon, a worldwide leader in parking meters, is among the companies enabling that opportunity and rendering this data through a mobile app, Path To Park (read more here), which is now available throughout France and in a number of cities in the U.S. and Germany.

Street-Based Sensor Infrastructures

Lastly, companies such as Worldsensing are placing sensors on each parking bay in the street, which obviously provides the most accurate data, but at a cost. Worldsensing, based in Barcelona, just closed a series B round of funding (for an undisclosed amount). Its largest deployment to date was in Moscow, where the company covered 13,000 spots. The next stage of the deployment will include more than 50,000 sensors.

Image processing is also a technology that could be used to sense free parking bays in streets. Data from fixed CCTV (used for security or traffic monitoring), smartphone apps, connected dash cams or even cars could be used for that purpose.

Obviously, the best information will come from the aggregation of these data streams (historical and real-time). Inrix, which announced in June that it will supply on-street parking data to BMW, combines data from cities, mobile payment companies, real-time parking data, connected car-sharing services and Inrix's database of real-time vehicle GPS data (read here).

Parknav, a start-up based in the U.S. is also using a very diverse set of data (car-sharing, telecom, fleet, crowd-sourcing), including POI data (bars, schools, etc.) to infer probabilities about parking availability.

Accurate information about free on-street parking bays is a complex matter that will take many more years to solve, but the opportunities are huge for the whole car industry and beyond. The first opportunity is the time saved for drivers and the alleviation of stress and frustration. Once this first opportunity will be realized for drivers, its overall social impact will be big: less traffic, less pollution, less money spent on fuel.

Unused Parking Inventory

The last market opportunity in smart parking is to further eliminate barriers between the offer and the demand, between people circling in streets and empty parking bays, in enabling yield management of underused private parking inventory.

Residential buildings, companies, hotels, schools, hospital or churches have parking spaces that are empty or partially used during workdays, nights and weekends, vacations, etc. Companies like JustPark (UK) or Zenpark (France) are targeting this segment using connected technologies to unlock the value of this inventory and grow the total parking spots available.

On Jan. 28 in Brussels, the ConnecteDriver conference, in partnership with consulting firm Inov360, will gather the brightest minds and the most innovative companies to discuss the fascinating topic of smart parking:

- Hans-Hendrick Puvogel, COO at Parkopedia
- Anthony Eskinazi, head of product and co-founder, JustPark
- William Rosenfeld, CEO, ZenPark
- Bertrand Barthelemy, president of Parkeon
- Ruth Portas, sales manager, Worldsensing
- Ofer Tziperman, CEO, Anagog
- Martin Treiblmayr, product manager, Garmin
- Vincent Pilloy, co-founder and CEO, Inov360
- Parknow (speaker name to be confirmed)