The obesity rate in the U.S. has doubled in the past 15 years. More than 50% of the population is overweight, with a BMI (body mass index) between 25 and 30, and 30% have a BMI greater than 30 and are considered obese. Less than 20% of the population is at a healthy weight, with a BMI less than 25.

On June 16, 2013, the American Medical Association voted to declare obesity a disease rather than a comorbidity factor, a decision that will affect 78 million adults. The U.S. Department of Health and Human Services said the costs to U.S. businesses related to obesity exceed $13 billion each year. With the pending implementation of ICD (International Classification of Diseases) 10 codes, the reclassification of obesity is is fast becoming a reality and will dramatically affect workers' compensation and cases related to the American Disability Act and amendments.

Before the AMA's obesity reclassification, ICD-9 code 278 related to obesity-related medical complications rather than to obesity. The new ICD-10 coding system now identifies obesity as a disease, which needs to be addressed medically. Obesity can now become a secondary claim, and injured workers will be considered obese if they gain weight because of medications, cannot maintain a level of fitness because of a work-related injury or if their BMI exceeds 30. The conditions are all now considered work-related and must be treated as such.

The problem of obesity for employers is not confined to workers' compensation. The Americans with Disability Act Amendment of 2008 allows for a broader scope of protection for disabilities. The classification of obesity as a disease now places an injured worker in a protected class pursuant to the ADA amendment. In fact, litigation in this area has already started. A federal district court ruled in April 2014 that obesity itself may be a disability and will be allowed to move forward under the ADA (Joseph Whittaker v. America's Car-Mart, Eastern District of Missouri).

Obesity as an impairment

Severe obesity is a physical impairment. A sales manager of a used car dealership was terminated for requesting accommodation and won $128,000. He was considered disabled, and the essential function of the job was walking, so he was terminated without reasonable accommodation.

The judge ruled that obesity is an accepted disability and allowed him to pursue his claim against his employer. This could have substantial impact for employers as injured workers could more easily argue that their obesity is a permanent condition that impedes their ability to return to work, as opposed to a temporary life choice that can be reversed.

The Equal Employment Opportunities Commission (EEOC) has recently chimed in on obesity. According to the EEOC, severe [or morbid] obesity body weight, of more than 100% over the norm, qualifies as impairment under the ADA without proof of an underlying physiological disorder. In the last year, we have seen an increasing number of EEOC-driven obesity-related lawsuits. Federal district courts support the EEOC's position that an employee does not have to prove an underlying condition, especially in cases where there is evidence that the employer perceived the employee's obesity as a disability or otherwise expressed prejudice against the employee for being obese.

Workers' compensation claims are automatically reported to CMS Medicare with a diagnosis. When the new ICD-10 codes take effect, an obesity diagnosis will be included in the claim and will require co-digital payments, future medical care or continued treatment by Medicare.

There is good news on the horizon. Reporting of a claim only happens if there is a change in condition not primarily for obesity. It is recommended that baseline testing for musculoskeletal conditions be conducted at the time of hiring and on the existing workforce. In the event of a work-related injury, if a second test is conducted that reveals no change in condition, it results in no reportable claim and no obesity issue. In the event of ADA issues, the baseline can serve to determine pre-injury condition or the need for accommodations.

What does this mean to employers?

Obesity is now considered a physical impairment that may affect an employees' ability to perform their jobs and receive special accommodations pursuant to the ADA.

An increasingly unhealthy workforce will pose many challenges for employers in the next few years. Those that can effectively improve the health and well-being of their employee population will have a significant advantage in reducing work comp claim costs, health and welfare benefits and retaining skilled workers.

Recent studies

In a four-year study conducted by Johns Hopkins with an N value of 7,690, 85% of the injured workers studied were classified as obese. In a Duke University study involving 11,728 participants, researchers revealed that employees with a BMI greater than 40 had 11.65 claims per 100 workers, and the average claim costs were $51,010. Employees with a BMI less than 25 had 5.8 claims per 100 workers, with average claim costs of $7,503. This study found that disability costs associated with obesity are seven times higher than for those with a BMI less than 30.

A National Institute of Health study with 42,000 participants found that work-related injuries for employees with a BMI between 25 and 30 had a 15% increase in injuries, and those with a BMI higher than 30 had an increase in work-related injuries of 48%.

The connection between obesity and on the job injuries is clear and extremely costly for employers. Many employers have struggled with justifying the cost of instituting wellness programs just on the basic ROI calculations. They were limiting the potential return on investment solely to the reduction in health insurance costs rather than including the costs on the workers' comp side of the equation and the potential for lost business opportunities because of injury rates that do not meet customer performance expectations. Another key point is that many wellness programs do not include a focus on treating chronic disease that may cause workers to be more likely to be injured and prolong the recovery period.

Customer-driven safety expectations

There are many potential customers (governments, military, energy, construction) who require that their service providers, contractors and business partners meet specific safety performance requirements as measured by OSHA statistics (recordable incident rates) and National Council on Compensation Insurance (NCCI) rating (experience modifiers) and, in some cases, a full review by 3^rd party organizations such as ISNet World.

Working for the best customers often requires that your company's safety record be in the top 25^th percentile to even qualify to bid. To be a world-class company with a world-class safety record requires an integrated approach to accident and injury prevention.

Challenges of an aging workforce

The Bureau of Labor Statistics projects that the labor force will increase by 12.8 million by 2020. The number of workers between ages 16 and 24 will decline 14%, and the number of workers ages 25 to 54 will increase by only 1.9%. The overall share of the labor force for 25- to 54-year-olds will decline from 68% to 65%. The number of workers 55 and older is projected to grow by 28%, or 5.5 times the rate of growth in the overall labor force.

Employers must recognize the challenge that an aging workforce will bring and begin to prepare their workforce for longer careers. A healthy and physically fit 55-year-old worker is more capable and less likely to be injured than a 35-year-old worker who is considered obese.

Treating chronic disease

Employers who want a healthy work force must recognize and treat chronic disease. Many companies have biometric testing programs (health risk assessments) and track healthcare expenditures through their various providers (brokers and insurance carriers).

The results are quite disappointing. On average, only 39% of employees participate in biometric screenings even when they are provided free of charge. For those employees who do participate and who are identified with high biometric risk (blood pressure, glucose, BMI, cholesterol), fewer than 20% treat or even manage these diseases.

This makes these employees much more susceptible to injury and significantly lengthens the disability period. The resulting financial impact on employers can be devastating.

Conclusion

Best-in-class safety results will require a combined approach to reduce injuries and to accommodate new classes of disability such as obesity. It is important that employers focus on improving the health and well-being of their workforce while creating well-developed job descriptions, identifying the essential functions, assessing physical assessments and designing job demands to fall within the declining capabilities of the American workers. It is important for an employer to only accept claims that arise out of the course and scope of employment. This is especially true with the reclassification of obesity as a disease. Baseline testing will play an essential role in separating work-related injuries from pre-existing conditions in this changing environment.

No insurance executive in touch with the marketplace would deny that traditional distribution is no longer a reliable way to deliver dependable sales and enduring customer relationships. The adviser-based model is under threat in most sector categories. Why? There are many reasons, but two at the top of the list are:

1. Customers are changing – the Millennial generation shops and buys differently than their Boomer parents, and even Boomer habits and expectations are changing in the digital world.

2. Technology has disrupted the distribution model, as it has disrupted everything else in its wake – the experiences, access, transparency, ability to compare and socialize at any moment from any location – dislodging practices that were deeply rooted for decades.

As a result, carriers are being forced to recast not only distribution itself, but also the entire ecosystem that enables distribution to do its job:

• Product – must be simpler, understandable to the average person and offering a real benefit worth the price
• Service – must be always available, accurate and helpful
• Channels – must be consistent on all dimensions – as a client, I want to feel I am dealing with the same company wherever I go looking for you, whether online, on the phone or in person
• Underwriting – must use data in ways that are respectful and pass the test of being reasonable in the client’s eyes

Perhaps most of all, insurers must put aside marketing myths and see marketing as more than an optional cost center that puts sponsorships in place, designs product brochures, supports trade show presence and runs advertising campaigns. Marketing done right can become the function that unifies your business around the client, and fuels answers to these critical questions:

• Whom do you really want to have as your customers?
• What are their needs, both emotional and rational?
• What are the ways you can meet those needs?
• And how can you do so better than competition, within a good economic and risk structure?

The insurance industry seems to live by a series of unfortunate beliefs about what marketing is and what it is not. These marketing myths stand in the way of putting the huge potential of this function to work to meet your business goals. To enable marketing to have the impact on your business that it can have, put these myths aside and empower a capable team to help drive growth.

Marketing Myths	Marketing Truths
“Brand” and “advertising” are synonymous.	Brand defines what your company stands for and connects people in ways that help them see you as relevant in their lives … leading to purchase and loyalty. Everything you do is a manifestation of your brand, whether or not you advertise.
Marketing is a cost center.	Marketing is an investment. Marketing is a leader in creating profitable and persistent revenue growth, by helping to identify the right customers, gather their needs and provide direction to the organization on how to fulfill those needs.
Marketing people are creative types, not business people.	Yes, as in every business function, creativity is demanded. But marketing today is a technology-driven function and drives P&L, so a close partnership between internal tech professionals and external providers is a must.
Product builds, distribution sells, marketing supports.	Insurance is an experience business. It’s not just about policy bells and whistles, it’s about the end-to-end experience of engaging with your brand from pre-sale to post-sale to continuing servicing and claims. This means internal silos must be eradicated and collaboration must be a defining attribute of your culture, or your customer will feel the negative effects of self-imposed internal barriers.
Marketing decisions are made on gut.	Marketing is a data-driven discipline, requiring a special mix of talent and skills to get the right data and use it to create customer experiences that will drive business results.

Workers' compensation is a no-fault form of insurance that an employer is legally obligated to secure, providing wage replacement as well as medical, rehabilitation and death (survivor) benefits to employees injured in the course of employment. Workers' comp is in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The lack of recourse outside the workers' compensation system is sometimes referred to as "the compensation bargain." This compromise system also establishes limits on the obligations of employers for these workplace exposures, so that the costs are supposedly more predictable and affordable.

The system is always evolving, and there are key choices in workers' comp, which I will cover here -- and update as the system continues to evolve.

First, some background:

Where did workers' comp come from?

Workers' compensation has roots all the way to 2050 B.C., where ancient Sumerian law outlined compensation for injury or impairment involving loss of a worker’s specific body parts. Beginning in the 17^th century, most pirate crews, including the one led by English privateer Capt. Henry Morgan, organized fairly sophisticated and favorable benefits for injured crew members. Injured pirates were treated on board and fitted for prosthetics - as popularized in literature and film. Furthermore, they were compensated in pieces of eight depending upon the type and severity of injury. As for modified duty, crew members were oftentimes offered non-physically demanding work on the ship. Such work could include cleaning cannons, cooking meals and washing the ship decks.

In modern times, workers' comp as we know it today was first modeled in Germany and Prussia in the late 19^th century, then adopted in the U.S. in 1908 by the federal government, then in 1911 by Wisconsin. Workers' comp spread to all states and the District of Columbia by 1948, with Mississippi as the last state to adopt the model.

Why is workers' comp coverage mandated?

At first, participation in U.S. workers' compensation programs was voluntary. In 1917, however, after the Supreme Court upheld the constitutionality of compulsory workers' comp laws, the majority of states then passed legislation that required employers to purchase workers' compensation coverage for their employees. Requirements varied -- and still vary -- from state to state. Currently, Texas and Oklahoma have voluntary "opt-out" or "non-subscription" provisions, which allow employers to provide their own formal injury benefit plan options.

How is workers' comp different from other insurance?

Workers' comp is intended to eliminate tort liability litigation arising from employee injuries or work-related diseases by providing wage replacement, vocational rehabilitation and medical benefits to employee injured in the course and scope of their employment. This is intended to minimize worker conflicts and to avoid costly lawsuits. The standard workers' compensation insurance policy is a unique insurance contract in many respects. Unlike other liability insurance policies, it doesn't have a dollar amount limit to its primary coverage. The coverage is considered "exclusive remedy," to deny employees the opportunity to sue their employee. In general, an employee with a work-related illness or injury can get workers' compensation benefits regardless of who was at fault -- the employee, the employer, a coworker, a customer or some other third party.

Why does a workers' comp policy have two parts?

Part One is the standard workers' compensation insurance policy (formerly known as Coverage A) that transfers liability for statutory workers' compensation benefits of an employer to the insurance company. If a state increases benefit levels during the term of the policy, the employer doesn't have to make any adjustments to the policy. Instead, the policy automatically makes it the responsibility of the insurance company to pay all claims due for workers' compensation insurance for the named employer in the particular states covered by the policy.

Part Two (formerly known as Coverage B) addresses employers' liability coverage. This coverage protects the employer against lawsuits brought by the injured employee or the survivor. If an employer is thought to be grossly negligent, the employer runs the risk of being sued for that negligence. Under Part Two of the workers' comp policy, the employer would be defended in such a suit. If a judgment were rendered against the employer, that judgment would be paid by the workers' comp coverage, but no more than the limits provide for in the policy. Part Two also insures an employer in cases such as third-party "over suits," where an injured worker sues a third party and that third party seeks to hold the employer responsible.

How states differ

Examine your company's possible exposures to workers' compensation claims from different states. If you have employees who live and work in or who travel to other states, you need to make sure you are properly covered in each state. In most jurisdictions, employers can meet their workers' compensation obligations by purchasing an insurance policy.

Five states and two U.S. territories (North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia and Wyoming) require employers to get coverage exclusively through state-operated ("monopolistic") funds. If you're an employer doing business in any of these jurisdictions, you need to obtain coverage from the specified government-run fund unless you’re legally self-insured. A business cannot meet its workers' compensation obligations in these jurisdictions with private insurance.

Thirteen other states also maintain a state compensation insurance fund, but their state funds compete with private insurance. In these states, an employer has the option (at least theoretically) to use either the state fund or private insurance. Those states that offer employers this option are Arizona, California, Colorado, Idaho, Maryland, Michigan, Minnesota, Montana, New York, Oklahoma, Oregon, Pennsylvania and Utah.

FORMS OF FINANCING WORKERS' COMP

1. Fully Insured

There are more than 300 workers' comp insurers writing policies in the U.S., although many will only provide coverage with a high deductible. Most states have a State Fund Insurance Carrier that is the insurer of last resort and provides fully insured (no deductible) workers' comp coverage to entities operating in their state. State fund programs are also referred to as the residual markets. They are more commonly known as state insurance funds, assigned risk plans or workers' compensation pool policies. Generally speaking, state insurance funds are non-profit entities that cost more than private companies (10% to 40% higher premiums) but that guarantee availability of coverage as a "last resort" carrier.

Some common reasons that employers fail to obtain competitive quotes from private carriers include: 1) a high frequency of claims or a high cost of claims; (2) the dangerous nature of the risk or industry (based on codes from the National Council on Compensation Insurance, or NCCI); 3) prior bankruptcies or poor financial status of the business; and 4) prior cancellations because of nonpayment of workers' compensation premiums.

2. Group or Association Coverage Plans

In various states, there are options for small to medium-sized companies to obtain group coverage through their industry associations. These options include Self-Insured Groups (SIGs), which provide a true self-insured option. Group members make contributions to the self-insured group, and the self-insured group pays expenses and claims for injured workers.

SIGs directly contract for services normally performed by an insurance company. Services secured on behalf of members include: elected Board of trustees, program administration, safety and loss-control services, third-party administration (TPA), independent accountants and actuaries and excess insurance carrier.

Companies must apply for membership and generally indicate adherence to effective risk management and loss control programs.

3. Large-Deductible Plans

This is a form of self-insurance where the employer is responsible for reimbursing the insurer for claims up to a certain dollar amount and the insurer is responsible for paying claims in excess of that deductible. The insured funds an account (loss fund) to pay losses, and the insured reimburses the fund as losses are paid. The insured must collateralize, usually by letter of credit, an amount approximately equal to the difference between paid and ultimate losses. The actuary is typically one assigned by the carrier.

With the advent of the high-deductible program in the early ‘9Os, actuarial efforts focused principally on pricing issues. Employers are able to save significant premium expenses if they manage their loss-control and return-to-work programs effectively. The "deductible" is a sum that is subtracted from the insurer’s indemnity or defense obligation under the policy. Importantly, the responsibility for the defense and settlement of each claim rests almost entirely with the insurer, and the insurer typically maintains control over the entire claim process.

Large-deductible programs were slow to find favor in the U.S. In 1990, only six states approved of such deductibles. Currently, at least 45 states utilize large-deductible programs for workers’ compensation.

Deductibles are based on a per claim or per occurrence basis, with self-insured retentions of $100,000 to $1 million. The insurer sets the minimum deductible allowed. Insurers initially developed this program to provide both themselves and insureds certain advantages, including:

• price flexibility, by passing risk back to the insured
• reduced residual market charges and premium taxes in some states
• better cash flow
• coverage options for aggregate limits
• broadest choice of insurance carriers
• the possibility that a separate TPA may be allowed as an option to the carrier
• that certificates of insurance issued to the employer’s key business partners show full coverage and policy limits

With a well-designed and -managed, loss-sensitive product, companies can potentially lower costs by assuming a greater proportion of their risk. You get increased cash flow and lower costs and improve claims outcomes for the business and its employees. What’s important with a loss-sensitive program is that the organization is committed to fully leveraging the insurer’s loss control, claims, medical and pharmacy management programs.

Additionally, it is critical to choose the right risk-financing structure. That involves having the business itself, you, the agent and the carrier carefully examining the organization’s current financial situation and short- and long-term goals.

Because the carrier is legally responsible for the employer’s claims, the carrier will require collateralization of existing and future claims covered by the policy period. Collateral is usually a letter of credit, surety bond or cash.

Keep in mind, however, that choosing a high retention is all about the frequency and severity of your workers' comp claims as well as the responsiveness and quality of your claims administrator. In essence, the employer is giving the insurance company an open checkbook with respect to the handling and disposition of claims.

4. Retrospective (Deferred) Premium Options

Retro programs are written through an endorsement on your large-deductible workers' comp policy. It is the ultimate amount of money you will owe your carrier for the contract period. It can be broken down into installment payments. It consists of basic premium and converted losses, both of which get adjusted by the tax multiplier, which are the taxes and assessments due to the state. The insurer provides you a written agreement that defines the terms of your contract. It will show the basic and maximum and minimum premium, how the premium will be paid during the policy year, how the retrospective premium will be calculated and, most importantly, when you will be eligible for a premium refund. The agreement also defines any penalties associated with a midterm cancellation of the contract.

The two major retro payment plan options:

A.   Incurred Loss Retro:

You’ll pay the same up front as with a guaranteed-cost program, but you’ll be refunded money if your loss experience is favorable. The risk, however, is having to pay additional premium if your loss experience is unfavorable. The cost of the insurance program is determined by the actual incurred loss experience for a specific policy period. Incurred costs include paid costs as well as future expected costs (reserves). The premium is adjusted annually until all claims are paid and closed.

B.     Paid Loss Retro:

Premiums are determined using paid only loss amounts rather than incurred (reserved amounts). Timing of premium and loss payments are negotiated before inception, and disbursements are made as costs are realized and billed. Because this option is typically the favorite of insureds, this option is typically only offered to large entities paying in excess of $1 million in premium.

How is the basic premium determined?

Basic premium is basically the insurer’s cost of doing business plus expected profitability. The amount is determined by multiplying the standard premium by a percentage called the basic premium factor. This factor varies based on your actual premium size and the amount of risk you are assuming. In general, if you take on more risk for your claims, the amount you will pay for the basic premium decreases.

What are converted losses?

 Converted losses are the total claims, also called incurred losses, adjusted by the tax multiplier (see below) and multiplied by the loss conversion factor (LCF), which is negotiated with you prior to the inception of the coverage. As the loss conversion factor increases, you assume more risk, so the basic premium decreases.

What is the tax multiplier?

This is a factor that is applied to the basic premium and converted losses to cover state taxes and assessments that must be paid by your insurance carrier.

What is the maximum premium?

Maximum premium is the most you will have to pay under a retro plan. It helps protect you by placing a limit on the impact of any substantial losses you could have. It can range from 100% up to 150% of audited standard premium. For example, if the audited standard premium was $100,000, and you selected a 125% max, the most you could pay for the total of all retro charges under the specific contract period is $125,000.

When will my money be returned if losses are low?

After completing the full contract period, the first adjustment for a possible refund is usually calculated six months after the policy expiration date. The premium is adjusted according to the retro formula, using the basic premium, converted incurred losses and taxes. If your claim losses are better than expected, you will get as much as 50% of the total estimated refund. Another adjustment is usually made in 12 months, with as much as 25% of the total estimated refund. The final adjustment is at least 12 months after that, with the final 25%. If, however, you have complex indemnity (lost-time) claims that are unresolved, the adjustments may drag out for years.

5. Captive Insurance

A captive insurance company is an insurance company formed by a business owner to insure the risks of related or affiliated businesses. A captive permits a business to manage its risks while potentially providing substantial benefits to that related business. More than 75% of the Fortune 500 now utilize some form of captive insurance, but captives are usually not a viable alternative for most small to medium-sized companies.

Is a captive still a viable alternative?

The number of captive insurance entities is growing worldwide. Today, nearly 10,000 businesses in the world employ some form of captive insurance coverage. Those totals are expected to triple over the next 10 years as more companies further examine comprehensive and well-targeted risk-management plans. More than 5,750 large companies have their wholly owned captive insurance entities that were formed to insure the risks of the parent company and its subsidiaries.

What risks does a captive typically underwrite?

Captives are formed in 30 domestic locations (state) or in foreign ("off-shore") domiciles like Bermuda and the Cayman Islands. Vermont is the most popular state. Each domicile has its own set of laws and regulations. To be successful, captives usually cover disparate types of risk, with a good geographical or industry spread. Captives are intended to build financial strength over time and help insulate the parent company from price fluctuations in the traditional insurance market. Increasingly, captives' owners are also looking to their captive to provide broader coverage, including unusual or emerging risks, where risk transfer is either expensive or unavailable.

The type of risks that captives cover is expanding rapidly, from the more common property damage and casualty coverage, to employee benefits, environmental, cyber, business interruption and other non-traditional covers like operational risk and supply chain. Captives typically provide large companies an opportunity to insure against risks that are generally uninsurable or exotic.

Are there different types of captives?

There are at least 10 types of legal insurance captives, including:

• Pure captives (single parent)
• Industry group captives
• Agency captives
• Association captives
• Risk-retention groups (RRGs)
• Rent-a-Captives
• Segregated and protected cell captives
• Special-purpose reinsurance captives
• Series LLC captives
• Internal Revenue Code 831b captives.

How is workers' comp coverage provided in each state?

A commercial insurance company ("fronting company"), licensed in the state where a risk to be insured is located, issues its policy to the insured. That risk is then fully transferred from the fronting company back to the captive insurance company through a reinsurance agreement, known as a fronting agreement. Thus, the insured obtains a policy issued on the paper of the commercial insurance company.

The cost varies for a fronting carrier, which legally assumes the workers' comp risk it fronts, in the event of default by the captive. The fronting company will almost always require collateral to secure the captive's obligations to the fronting company under the fronting agreement, in addition to a 4% to 10% fee.

Is there a tax advantage to using captives?

While the tax advantages from captive arrangements should never be at the top of any company’s list, captives can offer accelerated premium deductions, unlike most self-insurance programs. However, if the IRS believes that a captive has been established purely for tax purposes, the agency may challenge the captive status of the company. Comprehensive documentation of the objectives of the captive structure is important.

6. Self- Insurance

A self-insured workers' comp program is one where the employer sets aside an amount to provide for any workers' comp claims and associated expenses—losses that could ordinarily be covered under an insurance program. Self-insurance is a means of capturing the cash flow benefits of unpaid loss reserves and offers the possibility of reducing expenses typically incorporated within a traditional insurance program. It involves a formal decision to retain risk rather than transfer (insure) and allows the employer to pay workers' comp associated expenses as incurred.

A self-insured workers' comp plan is one in which the employer has legal approval from the one or more states to assume the financial risk for providing workers' comp benefits to its employees. In practical terms, self-insured employers pay the cost of each claim "out of pocket" as necessary. The employer maintains its ability to settle or adjudicate each claim within its self-insured retention – assuming it has excess insurance.

Importantly, key decisions, including which vendors to use to treat injured workers and to administer claims, remain with the employer and not an insurer.

How many employers currently operate a self-insured workers' comp program?  It is estimated that more than 6,000 corporations and their subsidiaries nationwide operate self-insured workers' comp programs. Many other smaller employers participate in Self-Insured Groups (SIGs), where they pool their risks with other companies.

How large do you have to be to self-insure?

Each state sets its own minimum standards for eligibility. For example, in California, you only need to have at least $5 million in shareholder equity and a net profit of $500,000 per year for the last five years. Eligibility is not based on the number of claims.

Keep in mind that each state is a distinct entity, so a company might be self-insured in one state where it has a high concentration of employees and have a large-deductible policy in another state with fewer employees.

Does the state require collateralization?

Every state, except California and North Carolina, has mandatory minimum security deposits that consist of: letters of credit, surety bonds, securities or cash. In many states, the amount posted by the self-insured is less that that required by an insurer or captive.

Can self-insured employers protect themselves against unpredicted or catastrophic claims?

Most states, except California, require self-insureds to purchase statutory (no limit) excess insurance from a state-licensed workers' comp insurer. Where available, a negotiated, aggregate stop-loss ("attachment point") endorsement protects an employer to a specific policy period dollar cap regardless of the per-claim self-insured retention or number of claims incurred.

Is self-insurance typically only used by large entities?

No. Employers of all sizes typically choose to self-insure because it gives them the greatest opportunity of any workers' comp funding alternative to manage their own destiny. A self-insured can control its costs by choosing and managing various program vendors and by implementing a wide variety of loss-prevention and return-to-work programs that serve to greatly reduce workers' comp claims. Self-insureds choose program components that they feel are the most cost-effective and responsive.

Who administers claims for self-insured workers' compensation programs?

Self-insured employers can either administer the claims in-house (if allowed by the state) or subcontract to a TPA. Other medical treatment or claim-related services can be "unbundled," or obtained through TPA contractual services.

7. Opting Out of Workers Comp

The opt-out concept is appealing to those who believe that statutory workers' comp systems are hopelessly complicated, burdensome to both employers and their injured employees and out of touch. Privatized opt-out programs are intended to better integrate into the matrix of existing employee health plans and benefits.

Just two states have laws that allow employers to opt out of the state-regulated system: Texas and Oklahoma.  Texas has always had this law, with 114,000 employers (about 1/3 of the total employers) choosing to forgo workers' comp coverage. Oklahoma recently adopted a variation where employers can choose an alternative to workers' comp coverage.

Practically speaking, "Opt-Out" ("non-subscription") gives employers enormous discretion to decide under what circumstances to compensate an injured worker under the employer’s own benefit plan. To protect the employer from most negligence lawsuits, as a condition of employment the employer can force the employee to sign a contract so all cases are resolved through an employer-designed, secret arbitration system rather than in court.

One crucial aspect is the adoption of federal standards under the Employee Retirement Income Security Act of 1974 (ERISA) for administering work-injury benefits. A state insurance or self-insured guarantee fund would not back up an opt-out employer that defaults.

With continuing legal challenges to workers' compensation, including recent lawsuits against Uber and Lyft seeking court approval to mandate workers' compensation benefits for "app assigned" work, traditional workers' comp may give way to modern versions of the opt-out programs. The goal would be to create a more seamless benefit program that participants hope will take out the litigation components that have haunted the "no-fault compensation bargain" that began just more than 100 years ago.

As an engineer (at least that's what my university degree says), I must say I like to solve problems. Big, ugly, complex problems can a great challenge.

We all know what has been happening with insurers' core systems over the past several years. To respond to the challenging needs for product agility, customer-centricity and operational effectiveness, insurance companies are moving toward new core systems and away from the constraints of their legacy systems. And there are oodles of problems to be solved. Product modeling and patterns, configurability and customization options, integration and connectivity, external data sources, testing automation…it's a tasty list, my friend.

And yet…and yet.

Even if these complex problems are nicely solved, many insurance companies fail to achieve the anticipated returns with their new core systems.

Over the past years of these types of projects, when we at Wipfli analyze the root causes, we find that the following risks have not been properly managed or mitigated:

1. Expectation risk – Are we all looking for the same things? 2. Acceptance risk – What could prevent us from leveraging this investment? 3. Alignment risk – What could prevent us from achieving the value we expect? 4. Execution risk – Are we getting things done effectively and efficiently? 5. Solution risk – Will this solution deliver on its potential? 6. Resource risk – Have we accounted for the total investment required for success?

What's most enlightening about these risks is that five of them are about people and not technology. Only solution risk encompasses technology. As the engineer once said, "This project would have been a roaring success except for the people!" Don’t be that guy….

The desired future state following an implementation is only achieved when individual contributors do their jobs differently.

So, yes, systems projects are about the people.

Many C-suite insurance executives complain about how difficult it is to find leaders in their organization. Many people believe leadership can't be taught. "You know it when you see it" is a common observation. Finding a consistent definition for leadership is difficult. How do you develop/teach/articulate a core set of traits of great leaders if it is so difficult to even define leadership? After leading various organizations ranging in size from several people to several thousand, I realize that there are fundamental core requirements needed to be an effective leader. Whether you are an entry-level employee or the chief executive of a large organization, you need these characteristics to lead. Leadership doesn't come from your title. It comes from how you act. People follow leaders; they don't follow titles. As technology allows companies to be leaner, and as Millennials become a bigger part of the work force, we live in a less hierarchical and more collaborative work environment. Leadership no longer comes with a title. Today, companies need leaders at every level. You don't need to be outgoing or have the loudest voice in the room. People with low-key personalities can also be outstanding leaders. Personal leadership is not about self-promotion; leadership is the ability to get others to follow what you are advocating. To trust you. To respect you. To feel that your direction and requests are in everyone's best interests, not just your own. So what are the traits of great leaders? Here are five core personal leadership competencies that anyone must practice to be an effective leader. 1.         Integrity: Make sure you do the right thing for all the right reasons. In any leadership role, you will be called on to make difficult decisions. If you act with integrity, you will be respected. People might disagree with your decision, but they will accept your direction. One of my mentors told me, "People can spot someone who takes moral shortcuts." Never forget: A reputation lost is a career destroyed. 2.         Courage: All leaders have courage. The courage to ask why. To challenge the status quo. To go out on a limb. To do what others are afraid to say and do. Many years ago, when  eight bottles of Tylenol were found to have been tampered with, leading to seven deaths from cyanide poisoning in the Chicago area, the CEO of Johnson & Johnson, which produced Tylenol, immediately directed that all bottles of the pain reliever be removed from every shelf in every store. He vowed that Tylenol wouldn't be back on store shelves until the company knew that every bottle was safe. It was a bold move with a large negative impact on the company’s short-term sales. But when Tylenol did return to the counters and shelves, so did their customers. 3.         Lead by example: Don't ask anyone to do something you wouldn't do yourself. If you are asking others to stay late, you had better, too. When I ran a new business unit, our initial office space couldn't accommodate an office for everyone. So I sat down with my senior team, and we defined objective criteria for an office. I didn't qualify, and, much to everyone's surprise, I sat in a cubicle alongside the other employees. It made a statement -- I play by the same rules as everyone else. Likewise, any rule or policy we adopt, I make sure I also abide by. You can't act one way and expect others to act differently. You have to be a role model. 4.         Be a great listener: You can't understand what's going on around you unless you listen to others. Listening is how you learn. Listening is how you gain perspective. Listening is how you understand what's important and what's not. Listening is how you discover opportunities. A good listener sends a strong message to others: “I respect and care about what you say. I'm not a tyrant.” Throughout my career, the best ideas always came from people closest to the core operations I was looking to improve. You can't find those answers unless you ask a lot of questions and listen carefully to the answers. 5.         Be a great communicator: Leaders learn to master the form and substance of communication. Let's start with the form of communication: the way you communicate. You can't lead unless people understand you. Language, tone, facial and other physical expressions all send messages that affect what you are saying. (This also applies to listening. If you look away while people are talking they know you are not listening.) Here are a few tips to master good communication form:

• Keep your message clear and concise. We live in a world of short attention spans. People get drawn away quickly. Spend time thinking about what you want to say and how best to communicate it quickly. I like to pretend I only have 30 to 60 seconds to talk. That forces me to get right to the point.
• Use examples. They reinforce your points by tying them to real life instead of dry theories.
• Think like a teacher. Great communicators understand that, when they are speaking to someone or to a group, they are in effect teaching others what they want them to understand.

Mastering the substance of communication means the ability to move people to react to what you are saying in the way you want. In other words, you want your words to motivate, educate and inspire.  By motivate, I mean the ability to get people to want to do something as a result of what you say. Your words ignite your listener to want to react in the way you desire. Educate means you explain why you are asking them to do something. People will follow direction -- but only grudgingly if they don't understand why they are being asked to do something. Good leaders know how to get people to understand why they should take a specific action. Inspire means the ability to touch someone with your words. Engender a positive emotion that enables them to do something they otherwise might not have done.   Inspirational leaders provide the fuel to allow others to find success. Today's ever-changing work environment is creating opportunities for people at all levels of an organization to lead. Those who master the personal leadership competencies that I've described will enrich their work experience and create wonderful opportunities for themselves and others. Enjoy the journey.

Your clients and prospects are inundated with information online to help them solve their problems. Some of the information is genuinely educational; most of it, though, is self-promotional or generic. How do you stand out and get noticed as the one they should turn to for help? One way to break through the clutter is to focus on thought leadership.

What is a thought leader, and why do you want to be one? There are lots of definitions, but I like this one from Forbes:

"A thought leader is an individual or firm that prospects, clients, referral sources, intermediaries and even competitors recognize as one of the foremost authorities in selected areas of specialization, resulting in its being the go-to individual or organization for said expertise … [and thereby] significantly profit[ing] from being recognized as such. "

As the go-to expert, you’re likely to profit in many ways. Regardless of whether it directly brings in new business, thought leadership helps to differentiate you from competitors, expand your reach and build relationships and trust with your audience. You’re also educating people and promoting deeper and more informative discussions, which is a public service.

That all sounds great, but how can you be a thought leader?

1. Understand your sweet spot. In his book, Epic Content Marketing, Joe Pulizzi defines the sweet spot as “the intersection between your customers’ pain points and where you have the most authority with your stories.” Take the time to really research your audience’s needs and concerns. Then consider what expertise and insights you can offer to help them. Don’t spend time talking about areas where you are not well-informed and don’t have much value to add. Focus on what you know best that can assist your clients.

2. Differentiate your message. Your strongest competitors will be trying to do the same thing you are doing – providing valuable content. Know what they are saying and doing and look for ways to be even better or different. For example, focus on a narrow niche, survey the industry and share research, have an opinion, identify trends and provide insights. Give specific and actionable strategies taking into account whatever new developments are occurring. The point is to go beyond sending out a typical client alert that sounds just like the ones from every other firm. The Forbes article provides a great example, but we’ve all seen examples of thought leadership. We know who is going above and beyond.

3. Have a strategy and goals and align the two. Being a thought leader is a lot of work, and you want to be clear about what you’re doing, why you’re doing it and what you hope to get out of it. Seems pretty obvious, but the reality is that too many firms start down a path without thinking it through. For example, you have an attorney who happens to be a prolific writer and speaker in a specific area of the law. The problem is that area is not very profitable or high-priority for the law firm. How much effort do you want to put behind promoting expertise that isn’t a good fit for the firm? Or maybe the thought leadership is great and would be good for the firm, but it’s not being seen by the right niche audiences. Sometimes, firms focus on getting the content piece right but spend less time making sure the promotion and distribution is getting to their target market. You need to bring both parts together in a strategic way; otherwise, how are you going to profit from being a thought leader?

4. Write, speak and share information consistently. You can’t be a thought leader if you don’t put your thoughts out there. Write articles, blog posts, whitepapers and books. Curate and comment on other people’s content. Speak at online and live events. Create video. Use social media. You don’t have to do them all, but put out content in different formats to maximize your reach and appeal to different audiences. And do this regularly. Thought leadership is a long-term strategy. People have to hear from you on a consistent basis. An occasional article or speech isn’t enough, even if it’s really great. Of course, there are lots of ways to repackage that great content to get more life out of it, but make sure you’re doing that. You must be visible on a regular basis.

5. Cultivate relationships with other experts, influencers, industry professionals and media. As you develop your thought leadership, reach out to other authorities. Gather and share their insights with your audience, make introductions and give referrals and offer to help them with their content. By assisting others, you’re getting your name out to key contacts in your field and developing deeper relationships, and it’s likely at least some people will reciprocate by helping you. It will also make your thought leadership better-informed because you’re incorporating insights from others.

Becoming a thought leader is a long-term commitment and a lot of work. However, successful firms know the investment is worth it, to not only survive but thrive against the competition.

Workers’ compensation claims and medical managers are continually challenged by upper management to analyze their drivers of workers' comp costs. Moreover, upper management wants comparisons of the organization’s results to that of peers. The request is appropriate. Costs of doing business directly affect the competitive performance of the organization. Understanding drivers of workers' comp costs is key to making adjustments to improve performance. Still, it’s not that simple. Executing the analysis is the lesser of the two demands. More challenging is finding industry or peer data that is similar enough to create an apples-to-apples study. In a recent article, Nick Parillo states, “Regardless of the data source, whether it be peer-related or insurance industry-related, risk managers must be focused on aligning the data to their respective company and its operations.” Parillo emphasizes that the data should be meaningful and relevant to the organization. Aligning the data to the situation can be challenging. Industry or peer data may not be situation-specific enough or granular enough to elicit accurate and illuminating information. State regulations vary, as do business products and practices, along with a multitude of other conditions that make truly accurate comparisons difficult. Variability in the data available for benchmarking can be especially disconcerting when considering medical cost drivers, which now account for the majority of claim costs. Differences in state fee schedules and legislation such as required utilization review (UR) and the use of evidence-based guidelines can produce questionable comparative results. Additionally, whether the contributed data is from self-insured or self-administrated entities can skew the results. Other variables that make comparing industry or peer data less valid are unionization, physical distribution of employees, employee age and gender, as well as industry type and local resources available. Potential differences are unlimited. External sources such as local cultural and professional mores, particularly among treating medical providers, can play a significant role in disqualifying data for comparison. For instance, my company’s analysis of client data has uncovered consistent differences in medical practice patterns in one large state. In one geographic sector, referrals to orthopedists with subsequent surgery and higher costs are far more frequent than in another sector of the state for the same type of injury. Parillo continues, “Given the uncertainty and limitations on the kinds of peer group data a risk manager would need to perform a truly “apples to apples” comparison, the most “relevant and meaningful” data may be that which a risk manager already possesses: His own.” Analyzing internal data can be highly productive. First, the conditions of meaningful and relevant are guaranteed, for obvious reasons. The geographical differential across one state was found in one organization’s internal data, which ensures that data variability is not a factor. Analyses can be designed that dissect the data at hand. Follow up to the above example might include looking for other geographic variables in costs, in injury types and in medical practice patterns. Compare physician performance for specific injury types in the same jurisdiction and then look for differences within. To gain this kind of specificity and relevance, drill down for other indicators. Evaluate how costs move. Look at costs at intervals along the course of claims for specific injury types. In this case, utilizing ICD-9s is more informative than the National Council on Compensation Insurance (NCCI) injury descriptors. One client found that injury claims that contained a mental health ICD-9 showed a surge in costs beginning the second year. Now, further analysis can begin to discern earlier indicators of this outcome. In other words, dive further into the data to find leading indicators. Industry data is not likely to contain the detail necessary to evoke subtle mental health information during the course of the claim. Most analysis ignores the subtlety and sequence of diagnoses assigned. Few would uncover the mental health ICD-9 because few bother with ICD-9s at all. Drilling down, analyze claims that fall into this category for prescriptions, legal involvement and other factors that might divulge prophetic signs. It is an investigative trail that relies on finite internal data analysis. Too often people disrespect their own data, thinking it is too poor in quality, therefore of little value. It’s true, much of the data collected over the years is of poorer quality, but it still has value. Begin by cleaning or enhancing the data and removing duplicates. Going forward, management emphasis should be on collecting accurate data. Benchmarking data sourced from the industry may be useful but should not necessarily be considered the most accurate or productive approach. Internal data analysis may be the best opportunity for discovering cost drivers.

In the 1920s, Hollywood had a pretty good grasp of what it took to be a leading lady. She had to be able to use exaggerated gestures and facial expressions to convey what was going on without the benefit of sound, and she had to look attractive onscreen. Nobody cared what her voice sounded like – and then came the talkies. Suddenly, the established actors and actresses had to learn brand new skills and adapt to a new paradigm, because no movie studio was going to continue putting out silent movies when the other studios were putting out talkies. Some stars did well, like Mary Pickford, a silent film star who won an Oscar for her first speaking role. And then there were actresses like Jean Hagen, playing Lina Lamont in "Singing in the Rain," who sounded like someone stepping on a rubber ducky that had a head cold. Even for the film stars who successfully made the transition, moving from silent movies to talkies was a challenge unlike anything faced before. Every industry encounters these moments, although some are not as obvious as the talkie revolution. The good news is that insurers, as a whole, are starting to execute on their transformation paths. Customer service is improving, business models are morphing, products are becoming more sophisticated and the core systems that support the full breadth of the company’s business are changing – and all these changes continue to accelerate. As I mentioned in our last core blog, SMA’s recent research on policy administration systems found that 94% of insurers require robust configuration capabilities from a new PAS, because these capabilities provide the foundation for the ability to increase speed to market and speed to service, and solution providers have gotten the message. There are more and more systems on the market that are adopting these dynamic configuration capabilities. In fact, they have now become table stakes when core systems are replaced. But there needs to be a transformation of the full core, including people and processes – not simply a system replacement project. The full core transformation includes modern policy, billing and claims systems, advancing business capabilities and an adaptive and agile organization. Among the important ingredients for organizational transformation are the ability to adjust to required new skills, to determine where these skills will be located in the organization and to decide how the delivery of product changes will occur. For example, will you rely on the technology alone to create the differentiation, or will you adjust the organization and the skills? The new configuration capabilities can be used by people who have been trained as business analysts – and these resources are often in short supply at most companies. I have experienced demos where I hear that the configuration capabilities can be used by the business professionals to expedite product deployment. The assumption is that there are resources available in the business to perform this work. In many cases, the reality is that the business does not have the skills, processes or time to perform this work. Often, the technical areas do have the process and some of the necessary resources, but, if the work shifts to the technical side of the business, then the IT pipeline is just being filled with the same volume of change requests that existed in the past. This is the Gordian knot that must be worked through. Insurers that have previously dealt with forms and rating engines have figured this out – they have a handle on reality and how to manage it. Many have reorganized to centralize the resources that will perform these services. They have architects that understand the hazards of configuration and can help create the "bumper guards" that are necessary to ensure success. In SMA’s research note, Policy Administration: P&C Plans and Priorities, 52% of insurers stated that it was difficult to find the right mix of business and technical skills to work on the configuration capabilities provided by modern policy, billing and claims systems. New skill sets are required to fully capitalize on the advantages of responsive and agile product development – new hybrid skill sets that include a combination of business analyst skills and an understanding of technical principles. Some insurers use business analysts. Others turn to IT users who have a strong understanding of business capabilities. In today’s environment, there are not many resources that meet these qualifications. Companies that are investing in training are advancing quickly. A certain flexibility is inevitably needed to cultivate these truly skilled configurators. Insurance companies are organized around yesterday’s capabilities. Insurers need the ability to shift staff between departments – to create new working groups, to manage new priorities, to adapt to new business processes and to engage new skill sets. This flexibility equips an insurer to seize opportunities in the market, establish new modes of customer service and build business models that deliver value-added services that extend well beyond reaction and restoration. The whole point of core transformation is that changes at the micro level can be used as a stimulus for changes at the macro level. Organizations able to address the technical and business capabilities that transformation demands can also make organizational shifts with enormous impacts. The key is to recognize that you must use some creativity and be willing to take some risks by challenging long-established traditions. There is a happy ending to "Singing in the Rain," and it is not through the solution that Jean Hagen’s studio recommends – that being traditional diction training. Jean finds that what she does best, using her unique voice, leads her down the road to success in the new world of the talkies. In the transformative new world, insurers can also find their own road to success, heading toward the ultimate goal of becoming a Next-Gen Insurer. Core transformation, with its combination of synergistic organizational, business and technical capabilities, is a key ingredient to getting there.

The music industry is in chaos. It’s a dinosaur stuck in the tar of old vinyl. Musicians are no longer knocking on record labels’ doors, asking to get their album out there. Consumers are no longer buying their music from record stores. And, with Taylor Swift withdrawing her entire catalog from Spotify, things get even crazier. The Age of the Customer continues. And if you don’t acknowledge this -- whether in music or in just about every other industry, including insurance -- you could end up loved as much as a set of tangled headphones. You Really Got a Hold on Me In a time not so long ago, musicians had no choice but to go through record labels to even think about reaching their audience. The industry had a three-step process:

1. Song creation
2. Marketing
3. Distribution

This meant artists created their album with the record label’s supervision; the record label then marketed it via in-house or through a third party; the radio stations then played it; and then, finally, customers could buy it at their local record stores. Thus was created a multi-layered model that greatly benefited the record labels. So what happened to this model? They Say You Want a Revolution The Internet happened. By the late ‘90s, when the Internet started to catch fire, people began realizing its potential power, such as the ability to digitalize entire music catalogs. This ultimately led to the birth of music piracy, which drastically cut into record labels’ pockets, creating a rippling effect felt throughout music – within the industry and among music lovers. But when the iPod was introduced in 2001 it shattered the traditional model of the music industry. Musicians could now bypass all the old steps and start putting out their own music through digital sites like iTunes, opposing music piracy and giving royalties back to artists. Then, fans starting getting into the act. As record labels worked to stay relevant, they had to offer artists new partnerships, such as 360° deals. A 360° deal assured artists a share from their music, concerts, merchandising, publishing and licensing income – ultimately creating a five-step model:

1. Recorded music
2. Merchandising
3. Fan sites and ticketing
4. Broadcast and digital rights management
5. Sponsorship and management

Any Way You Want It Enter the Age of the Customer. To combat piracy, stream-based cloud services began to emerge (see news on Spotify and Beats Music). Consumers now have the option to listen to any of their favorite songs, on multiple platforms, any time they want – for free even, if you’re willing to put up with commercials. So now consumers can choose to pay to download a song, buy CDs or records, stream their favorite radio stations or stream their favorite music without breaking the law. This, once again, is shattering the music industry’s business model. And, boy, the times they are a-changin'. Consumers now connect globally to their favorite bands through the Internet and bypass exclusive record label channels. The majority of consumers don’t buy albums, they download songs. There’s been a greater attendance at concerts (Live Nation’s ticket sales are up 17%) . Fans seem to be more loyal. Consumers have it made right now, and things seem to be getting even better. Spotify, the online streaming service, started contacting record labels for a possible negotiation. The labels offered a share in their company for a band’s catalog. The big boys started jumping on board, giving listeners gold record bands, such as Led Zeppelin and Pink Floyd – for free. And the record labels are happy, because it’s the first time someone has offered them equity for their band’s music. Which means that, if Spotify goes public, well, it’s more money for them. Everybody wins. However, not everyone is happy with the online streaming service, especially Taylor Swift. After “trying” her music out on Spotify, she decided it wasn’t the best medium for her music, so she pulled her catalog from the streaming service. She also believed her music wasn’t valued as much, because Spotify has no regulations on who gets what – and lack of earned royalties. It’s an interesting situation right now. With artists pulling music from Spotify (even Jason Aldean recently joined the Swift bandwagon), the music industry must ask itself – is online music streaming the future of music mediums? Ch-Ch-Ch-Changes In today’s market, technology has placed the ball back in the consumer’s court. The music industry is reeling and desperately trying to get back in the game, but the game keeps changing. Technology is transforming everything, we all know, but how is your company preparing for the inevitable? Are you creating a customer-centric culture that embraces the new? Or are you waiting to see how your competitors fare?

Overcoming cultural barriers and convincing foreign capitals to open their economic borders is a struggle that has plagued proponents of economic globalization for decades. The Council has long advocated for opening foreign markets to allow for more competition, to build economies and to drive down prices for consumers. We know countries with open economic borders see healthier competition and cheaper services for their citizens. But isolationism and nationalism are often synonymous, and overcoming these barriers can take years. Rep. Joe Crowley, D-N.Y., vice chairman of the House Democratic Caucus and chair of the Congressional Caucus on India and Indian Americans, for years has championed India relaxing its limits on foreign direct investment. “Raising the cap [is] a win for both the Indian and American economies and our citizens,” he says. “I am hopeful of the new changes being pushed by the new Indian prime minister and urge they be fully implemented. I hope it will come to fruition and expand the partnership between our two great countries.” Victory has a hundred fathers, and this victory has millions. The Indian election in May had the highest voter turnout in the young democracy’s history, with more than 550 million votes cast. The election broke records in terms of dollars spent campaigning, and it included high-tech hologram campaign stints, which might now be in the future for U.S. campaigns. In India’s case, the proposal to increase the FDI caps to 49% had been on the table for six years. Political backlash in the Indian parliament kept the issue from gaining momentum. But this time is different. We would like to say it’s because of the Council’s efforts. We’ve advocated, alongside our global counterparts, for increasing the current cap for insurance intermediaries, and our friends at the World Federation of Insurance Intermediaries have underscored the issue for European FTA negotiators as they work on an economic agreement with India. This work has certainly helped put the issue on the BJP’s agenda, but it was the past election, which swept the BJP to power, that brought it to a head. The BJP’s win over India’s Congress party is akin to the Republican revolution in 1994 in the U.S., when the GOP broke the Democrats’ rule of the House of Representatives for the first time in 40 years. I should note the measure will not be perfect (results of the political process rarely are), but it will be good. Frankly, we would love to see the foreign direct investment limit not just increased but abolished altogether. We also expect the FDI limit to include a stipulation requiring management control of intermediaries and insurers to remain with Indian investors. These are no doubt olive branches to ease the transition. The take-up rate of both commercial and personal insurance coverage in India is significantly low, given the size of its economy. Measured as a percentage of GDP, penetration in the non-life sector was a staggering 0.78% in 2012. Life coverage was slightly higher, at 3.17%. Considering the Indian economy—the 10th-largest by nominal GDP and the third-largest by purchasing power—there’s a ripe opportunity for market penetration. There’s also convincing policy and political need for the coverage to keep the country’s growth sustainable. I’m again reminded of the adage: “Insurance is like oxygen to the economy.” The Council wrote the new government to ensure its understanding of our business and the strengths our industry offers the Indian economy. To underscore our value, Council President Ken Crerar wrote: “Insurance intermediaries are distinctly different from insurance companies and do not pose any systemic risk to the insurance sector as a whole. Intermediaries serve the needs of individual and commercial insurance consumers, helping the purchasers of insurance navigate markets that can be extremely complex, particularly for consumers of commercial insurance products. “Intermediaries not only assist with the purchase of insurance, but also assist consumers with maintenance and claims processes, offering consumers an array of expertise and proficiency in the global market. I would like to highlight the following points as you review the merits of increasing FDI limits:

• Insurance brokers work for the policyholders and help in risk management, maintaining market efficiencies and protecting consumers.
• Increasing the exchange of market intellect and expertise on risk management and process efficiency between different countries (and markets) will benefit Indian consumers.
• Most countries across the globe allow 100% foreign direct investment in the insurance intermediary market, strengthening local markets and keeping costs down.
• Strengthening the Indian intermediary market will also encourage international reinsurance to the domestic market, as it eases the exchange of risk and insurance products between countries and markets. This further helps consumers as it increases competition and drives costs down.”

Our message didn’t fall on deaf ears this time. Arun Jaitley, India’s new finance minister, told the upper house of parliament that Indian insurers need help maintaining a healthy capital base so they can offer a wider range of products, protect consumer interests against insolvency and deepen insurance penetration in India. “The insurance sector is investment-starved,” Jaitley said. “Several segments need an expansion.” Jaitley predicts India’s private insurance industry needs an estimated $6 billion (Rs360 billion) of additional capital over the next five years. I’m optimistic India's borders are opening, further increasing its international opportunity and economic strength.