In insurance, sales are usually periodic, but risks are continuous. In personal lines, for example, annual or semiannual automobile renewals are automated, and a customer may not speak with an agent or a representative of an insurer for an extended period. Insureds do not receive continual rick consultation, because it is high-touch and high-cost, and can unintentionally retain risks. This is especially true during times of change. New activities, conditions or locations often increase exposure. This post explores how technology can be combined with a customized service proposition to deliver continuous, real-time risk management. In the process, digital technology can reshape patterns of engagement between insurers and their customers that have existed for decades (or centuries). Look at what happens every day as teenagers become drivers. As learners, their skill level is low. As drivers, they make poor decisions and crash more often. Parents try to supplement the teaching of driving schools but with mixed results. High loss frequency and severity for the 16- to 20-year-old age group, particularly males, drives insurance premiums to unaffordable levels. More significantly, many people are injured or are killed in accidents involving youthful drivers. Now look at the approach taken by Ingenie, an insurance broker founded in the UK in 2010. The founders observed the safety and affordability issues in the UK motor market and set out to design a proposition to address both issues. At that time, telematics solutions were just beginning to take shape. However, Ingenie intended to go beyond a simple black-box-in-a-car approach. It partnered with the Williams Formula 1 team and used its racing experience and data to build sophisticated algorithms that analyzed driving patterns and predicted the behaviors that were most likely to result in an accident. Ingenie also engaged psychologists at Cranfield University to understand the specific emotional and physical characteristics of youths. With insights from these sources, Ingenie built an engagement approach focused on this age group. Ingenie’s founders were veterans of the insurance software industry and had the technological skills to build a platform that blended social media, call center technology and an online app. The objective was to provide real-time feedback to influence driving behavior by communicating at appropriate intervals and in the most effective manner. As the telematics device in the vehicle reported the driving details, if the data showed that a young driver was performing better (safer) than her peers, she received a discount on her insurance. If the driving was not as safe as it could be, the driver received a text outlining what driving behavior could be improved, with a link to training videos and other multimedia sources. If the actions were severe, the driver was contacted directly by a call center employee of Ingenie. The company employs psychology majors from local universities, usually young men and women in their early 20s, in the service centers to counsel the youths and to speak to them on their own terms. The model is proving successful. Between 2012 and 2013, behaviors improved such that average premiums dropped 23% for 17-year-olds and 10% for those who were 18. The broker has earned rapid growth in the UK market -- 2013 premiums were more than $80 million. In 2014, Ingenie expanded into Canada. By going beyond pure telematics, Ingenie delivers continuing risk control that previously had not been possible or affordable. Going forward, digital technologies will continue to provide similar opportunities across other lines of business – increasing both the efficiency and effectiveness of risk management.

Unless you have been living on a desert island, you are aware that Greece is in the midst of trying to resolve its financial difficulties with European authorities. This is just the latest round in a financial drama that has been playing out for a number of years now. Up to this point, the solution by both euro authorities and Greek leaders has been to delay any type of financial resolution. And that is the exact prescription handed down just a few weeks ago as Greece approached a February month-end debt payment of a magnitude it could not meet. Greece has been given another four months to come up with some type of restructuring plan. At this point, we’ve simply stopped counting how many times euro authorities have kicked the Greek can down the road. Why all the drama regarding Greece? Greece represents only about 2% of Eurozone GDP. Who cares whether Greece is part of the euro? The Greek economy simply isn’t a big enough piece of the entire euro economy to really matter, is it? The fact is that the key problems in the Greek drama have very little to do with the Greek economy specifically. The issues illuminate the specific flaw in the euro as a currency and the fact that the euro authorities are very much hoping to protect the European banking system. The reason we need to pay attention is that the ultimate resolution of these issues will have an impact on our investment decision making. A key characteristic of the euro, which was formed in 1998, is that there is no one overall guarantor of euro area government debt. Think about the U.S. If the U.S. borrows money to fund building bridges in five states, the U.S. government (via the taxpayer) is the guarantor of the debt; it is not the individual debt of the five states involved. Yes, individual U.S. states can take on state-specific debt, but states cannot print money, as can large governments, so there are limiting factors. In Japan, the Japanese government guarantees yen-based government debt. In the U.S., the federal government guarantees U.S. dollar-based government debt. In Europe, there is no one singular “European government debt” guarantor of essentially euro currency government debt. The individual countries are their own guarantors. The Eurozone has the only common currency on planet Earth without a singular guarantor of government debt. All the euro area governments essentially guarantee their own debt, yet have a common currency and interest rate structure. No other currency arrangement like this exists in today’s global economy. Many have called this the key flaw in the design of the euro. Many believe the euro as a currency cannot survive this arrangement. For now, the jury is out on the question of euro viability, but that question is playing out in country-specific dramas, such as Greece is now facing. One last key point in the euro currency evolution. As the euro was formed, the European Central Bank essentially began setting interest rate policy for all European countries. The bank's decisions, much like those of the Fed in the U.S., affected interest rates across the Eurozone economies. Profligate borrowers such as Greece enjoyed low interest rates right alongside fiscally prudent countries like Germany. There is no interest rate differentiation for profligate or prudent individual government borrowers in Europe. Moreover, the borrowing and spending of profligate countries such as Greece, Italy, Spain, Portugal, Ireland and, yes, even France, for years benefited the export economies of countries such as Germany -- the more these countries borrowed, the better the Germany economy performed. This set of circumstances almost seemed virtuous over the first decade of the euro's existence. It is now that the chickens have come home to roost, Greece being just the opening act of a balance sheet drama that is far from over. Even if we assume the Greek debt problem can be fixed, without a single guarantor of euro government debt going forward the flaw in the currency remains. Conceptually, there is only one country in Europe strong enough to back euro area debt, and that’s Germany. Germany’s continuing answer to potentially being a guarantor of the debt of Greece and other Euro area Governments? Nein. We do not expect that answer to change any time soon. You’ll remember that over the last half year, at least, we have been highlighting the importance of relative currency movements in investment outcomes in our commentaries. The problematic dynamics of the euro has not been lost on our thinking or actions, nor will it be looking ahead. The current debt problems in Greece also reflect another major issue inside the Eurozone financial sector. Major European banks are meaningful holders of country-specific government debt. Euro area banks have been accounting for the investments at cost basis on their books, as opposed to marking these assets to market value. In early February, Lazard suggested that Greece needs a 50% reduction in its debt load to be financially viable. Germany and the European Central Bank (ECB) want 100% repayment. You can clearly see the tension and just who is being protected. If Greece were to negotiate a 50% reduction in debt, any investor (including banks) holding the debt would have to write off 50% of the value of the investment. At the outset of this commentary, we asked, why is Greece so important when it is only 2% of Eurozone GDP? Is it really Greece the European authorities want to protect, or is it the European banking system? Greece is a Petri dish. If Greece receives debt forgiveness, the risk to the Eurozone is that Italy, Spain, Portugal, etc. could be right behind it in requesting equal treatment. The Eurozone banking system could afford to take the equity hit in a Greek government debt write-down. But it could not collectively handle Greece, Italy, Spain and other debt write-downs without financial ramifications. The problem is meaningful. There exist nine countries on planet Earth where debt relative to GDP exceeds 300%. Seven of these are European (the other two are Japan and Singapore): Debt as % of GDP IRELAND                                           390 % PORTUGAL                                       358 BELGIUM                                          327 NETHERLANDS                                325 GREECE                                             317 SPAIN                                                 313 DENMARK                                        302 SWEDEN                                           290 FRANCE                                             280 ITALY                                                 267 As we look at the broad macro landscape and the reality of the issues truly facing the Eurozone in its entirety, what does another four months of forestalling Greek debt payments solve? Absolutely nothing. How is the Greek drama/tragedy important to our investment strategy and implementation? As we have been discussing for some time now, relative global currency movements are key in influencing investment outcomes. Investment assets priced in ascending currencies will be beneficiaries of global capital seeking both return and principal safety. The reverse is also true. While the Greek debt crisis has resurfaced over the last six months, so, too, has the euro lost 15% of its value relative to the dollar. Dollar-denominated assets were strong performers last year as a result. The second important issue to investment outcomes, as we have also discussed many a time, is the importance of capital flows, whether they be global or domestic. What has happened in Europe since the Greek debt crisis has resurfaced is instructive. The following combo chart shows us the leading 350 European stock index in the top clip of the chart and the German-only stock market in the bottom. Broadly, euro area equities have not yet attained the highs seen in 2014. But German stocks are close to 15% ahead of their 2014 highs. Why? Germany is seen as the most fiscally prudent and financially strong of the euro members. What we are seeing is capital gravitating toward the perception of safety that is Germany, relative to the euro area as a whole. This is the type of capital flow analysis that is so important in the current environment. The headline media portray the Greek problem as just another country living beyond its means and unable to repay the debts it has accumulated. But the real issues involved are so much more meaningful. They cut to the core of euro viability as a currency and stability in the broad euro banking system. The Greek problem's resurfacing in the last six months has necessarily pressured the euro as a currency and triggered an internal move of equity capital from the broad euro equity markets to individual countries perceived as strong, such as Germany. This is exactly the theme we have been discussing for months. Global capital is seeking refuge from currency debasement and principal safety in the financial markets of countries with strong balance sheets. For now, the weight and movement of global capital remains an important element of our analytical framework. Watching outcomes ahead for Greece within the context of the greater Eurozone will be important. Greece truly is a Petri dish for what may be to come for greater Europe. Outcomes will affect the euro as a currency, the reality of the Greek economy, the perceived integrity of the European banking system and both domestic and global euro-driven capital flows. For now, Greece is the word.

It turns out my grandmother was obsessed with not being a financial burden to anyone. She had bought funeral insurance years earlier from the local mortuary, though the policy only covered $1,000 of the actual $6,000 cost. She had been making payments on several health policies—all sold by the same agent—that were duplicative at best. One looked to be a legitimate, if expensive, Medicare supplement. One was cancer insurance from a no-name Alabama insurer. Another was a “catastrophic gap-filler” designed to wrap around the Catastrophic Care Act—even though Congress repealed that law years earlier. The names of the insurers seemed to change every year on the multiple policies, and she had filed away three “warning” letters from carriers suggesting that her agent may have been churning policies to collect more commissions. In her later years, my grandmother’s only income was a meager monthly Social Security check, and most of it obviously went to pay a dirtbag insurance salesman who never returned my calls. At a meeting of the National Association of Insurance Commissioners a few months after we buried her, I broached the subject with then-Mississippi Insurance Commissioner George Dale. “You wouldn’t believe the number of these guys who are out there going door to door,” he said. “It’s almost impossible to keep track of them.” I ultimately let the matter go, but that decision still gnaws at me. My grandmother’s insurance episode also informs my views on regulation. So much of my professional life has been spent trying to minimize regulation, which in this industry is invasive, all-too-often protectionist and more bureaucratic than it should be. My conscience is clear in the cause of advocating on behalf of large commercial insurance brokerage firms. It is the abuses of just a few that have resulted in a million iterations of “unfair trade practices” regulations. Near the top of the list of laws historically aimed at curbing insurance sales abuses are anti-rebating statutes. Personally, I love rebates. When I buy a car, I like the rebate from the manufacturer. But rebates in the insurance industry conjure visions of side deals, kickbacks or back-end payoffs. They are illegal inducements to purchase an insurance policy and are specifically prohibited by most state statutes (thank you, Florida and California, for getting rid of them). Life insurance sales in the late 19th and early 20th century begat these laws, as overuse of rebates led to high-pressure sales tactics, deceptive policies and excessive commissions. The practice spread to property-casualty, leading regulators and states to enact anti-rebating statutes. Fast forward to the 21st century. In the commercial insurance world, the anti-rebating laws are used mostly so small agents can turn state’s evidence against their larger, better competitors, which are offering better products or services. Do a Google search of anti-rebating statutes. The protectionist proponents of these laws always put quotation marks around the words "valued-added services," as though there isn’t really such a thing. The result: Commercial insurance brokerages (depending on the state interpretation) may not provide legal services, payroll services, referrals that involve discounts, HR compliance advice, employee benefit statements listing benefits provided to employees not relating to insurance purchased and a million other services. If the services aren't delineated in the underlying policy form, they’re illegal. I hear from Council member firms every week suffering under the enforcement of these laws, which are absurd in the commercial context. Throughout the nation, there should be delineation between business insurance and personal lines/life insurance with respect to anti-rebating laws. This is an uphill climb. These statutes are too often supported by local and state agent organizations representing smaller independent insurance agencies. They’re the ones who use "kickbacks" as an epithet and seek regulation even though they otherwise profess to be small-government conservatives. Ideally, anti-rebating statutes shouldn’t exist at all. But victims like my grandmother remind us why consumers need protection in the complicated world of insurance. We know who the dirtbags are. Laws and enforcement should be focused on them. Agents and brokers, meanwhile, provide legitimate services to businesses that require and demand value. For decades too long, agents and brokers in the commercial space have been collateral damage in America’s zeal to enforce anti-rebating laws. This must stop. This article first appeared in Leader's Edge magazine.

In “A Day in the Life,” by the Beatles, John Lennon sang: I read the news today, oh boy, About a lucky man who made the grade. And though the news was rather sad, Well, I just had to laugh…. I have read the news about Google Compare but found nothing to laugh about. Another day, another auto insurance comparative rating web site. And another auto insurance comparison website that misleads consumers into believing that what they’re going to get is a true product comparison on which they can make a purchasing decision. Nothing could be further from the truth or closer to potential catastrophe for American consumers and families. The news of Google Compare’s launch sent me to its official blog, where I found the following [emphasis added]: Whether it’s buying the right car insurance or finding the best credit card, people want an easy way to understand and compare financial products online. In fact, when it comes to buying car insurance, 80% of drivers think they’d find a better policy if they could compare more than two providers.* That’s why today we’re introducing Google Compare for car insurance in California, with more states to follow. This represents the newest addition to a suite of Google Compare products designed to help people make confident, more informed financial decisions. Google Compare for car insurance provides a seamless, intuitive experience for connecting with your customers online. Whether you’re a national insurance provider or one local to California, people searching for car insurance on their phone or computer can find you along with an apples-to-apples comparison of other providers -- all in as little as five minutes. You can highlight what makes your business unique, whether that’s an “A” rating in customer service or better discounts for safe drivers. And when users adjust their deductible or add additional cars to their quote, you can show updated pricing that matches their needs. They can then buy their policy online or over the phone through one of your agents. What does this tell me? First and foremost, that whoever is behind this knows pretty much nothing about the insurance industry, its products or its practices. Let’s examine each of the highlighted comments above. Comment:  “people want an easy way to understand and compare financial products online.” Response:  Nothing on this website enables consumers to “understand” or compare the product they think they’re buying. The site tells you absolutely nothing of substance about any individual insurance policy or the claims or service practices of the insurer. All it tells you is the price of an unknown product. If you were brought to a seven-bay garage knowing that a car was behind each overhead door, but the only information you had were the signs on the doors of each bay with prices ranging from $5,689 to $14,069, which would you choose? Obviously, you don’t have enough information to make an informed decision, yet in the case of auto insurance you’re expected to buy based solely on price without seeing the product. Do consumers buy anything else like this? And, if you ask to see the policy before you buy, you’re wasting your time. My attempt to do this on other websites resulted in a 100% rejection rate. Do consumers enter into any other kind of legal contract where the drafter of the contract refuses to allow the purchaser to read the contract in advance? Comment:  “80% of drivers think they’d find a better policy if they could compare more than two providers.” Response:  How could a driver possibly think they’d get a “better policy” when the only real comparative information they’re given is a price? I did a quote on the website using a hypothetical 60-year-old single California man with a four-year-old Honda Civic. I was quoted premiums for $50/$100/$50 (what they offered, not what I asked for) liability and uninsured motorist (the latter without property damage), $5,000 medical payments and comprehensive and collision, each with a $500 deductible. The quotes ranged from $569 from “one of America’s Most Trustworthy Companies” to $1,407 from a carrier with “A Great, Low Rate With Flexible Payments To Fit Any Budget.” Now, how is that comparing providers by any measure other than price? Comment:  “a suite of Google Compare products designed to help people make confident, more informed financial decisions.” Response:  How can a product comparison differentiated solely by price be considered, and lead to, an “informed” decision? Comment:  “along with an apples-to-apples comparison of other providers.” Response:  We see this “apples-to-apples” qualification in many consumer articles about shopping for auto insurance. What they mean is make sure you’re comparing the same limits of liability, UM and medical payments and the same deductibles for comprehensive and collision. They invariably say absolutely nothing about the coverages, exclusions, conditions and other features of each coverage that these limits apply to. When you’re getting auto insurance quotes, especially if some of the carriers are predominantly known as “nonstandard” auto insurers, coverage differences can be substantial and potentially catastrophic. Comment:  “all in as little as five minutes.” Response:  OK, we know that buying insurance is not a pleasant task for most consumers, especially (if we believe what we’re told) for millennials. Going to the doctor is not pleasant, either. But, if my life is on the line, am I going to choose a physician based on how cheap he or she is and how quickly the doctor can get me in and out of the office? Given that your auto insurance protects your assets and income, both of which can be imperiled in the event of a major uncovered loss, why wouldn’t you hold the seller of that product/service to the same high standards you’d want in a physician? Auto insurance policies are complex legal contracts whose terms can vary significantly from one to another. Would a first-round NFL draft choice enter into a contract without having that document carefully analyzed by an attorney or other competent professional? Then why would the same person even think about entering into an insurance contract that protects his assets without the advice of a competent insurance professional? Apparently there is some sort of contest among some insurers or agents to see how fast they can quote a policy. According to my tally, this is where we stand right now: GEICO                      15 minutes Esurance               7.5 minutes Google                    5 minutes VA agent                5 minutes  (a Virginia agent who also includes a $20 Starbucks gift card) MetroMile           2 minutes  (an Integon auto policy being marketed to Uber drivers) I went ahead and broke the quote times down to the tenth of a second because I’m sure someone is going to be offering quotes measured in tenths of seconds, not minutes. Now, think…what kind of loss exposure analysis can be legitimately offered in five minutes? Comment:  “You can highlight what makes your business unique.” Response:  This section apparently is directed at carriers that Google would solicit to be a part of their comparative rating website. What makes an insurer unique is the products it sells and the services it provides, particularly claims services. To quote Metallica, “Nothing Else Matters.” Except price, that is, and apparently it’s all that matters on websites like this. So, I went to the actual Google Compare website and got the quote I mentioned earlier. That website says: “Compare coverages, prices, and features to make an informed decision.” Exactly what coverages and features are really disclosed? What if I sometimes rent cars on business: Which, if any, of these policies cover that? What if I sometimes use my own car on business: Some policies don’t cover business use of ANY autos. Some policies don’t cover rental cars at all. Some exclude any nonowned autos. Some policies cover pizza delivery; many don’t. And the list goes on. Aren’t these coverages (or lack thereof) material to any informed decision? Yet you will not find any information like this on any online insurance quoting website I’ve ever seen. And, if you ask for a copy of the policies of the carriers being quoted, good luck. So, I say, another day, another auto insurance comparative rating website. This is not news. What would be news (and good news, at that) would be a comparative quoting website that allows you to read the contract (insurance policy) that you’re about to enter into and that discloses the material pros and cons of each quote from the standpoint of product and service. The mission of every true insurance professional should be to carry the message to consumers that auto insurance is NOT a commodity, that there are differences in products and claims practices of insurers that do matter. In the movie, “The American President,” the Michael J. Fox character Lewis Rothschild says to President Shepherd (Michael Douglas), “[People] want leadership. They’re so thirsty for it, they’ll crawl through the desert toward a mirage, and when they discover there’s no water, they’ll drink the sand.” The president responds, “People don’t drink the sand because they’re thirsty. They drink the sand because they don’t know the difference.” Consumers do not understand the many, varied and significant differences between auto insurance policies and insurer practices. Between our own price-dominated industry advertising and misleading consumer articles almost universally focused on “how to save money on car insurance,” we have conditioned the consuming public that the only thing that really matters is price. As the song “A Day in the Life” continues: He blew his mind out in a car. He didn’t notice that the lights had changed. A crowd of people stood and stared; They’d seen his face before…. It’s the face of yet another consumer whose life had been ruined financially because he bought an inferior product from a faceless online comparative rating website. Let’s stop the carnage by being honest with the consuming public.

In response to a great piece here by Barry Rabkin, I have a strong opinion. That doesn't mean to say I'm right here, but I'm reflecting all the customers and partners I have spoken to at length on this topic over the last many months. Barry, really interesting piece. I hear this question nearly every day, about whether Google, Amazon and other tech giants will enter the insurance business. I have heard this nearly every day for the last 24 months now, maybe longer. This question won’t go away and will continue to spark ideas and pique the interest of individuals and boardrooms up and down the country, fearful for the large, digital, (perceived) nimble enterprises that could engulf them in a swift clean swipe. I think if you break the question down further -- to personal and commercial lines -- the story may evolve even further. Take the small and medium-sized enterprise (SME) side, particularity the S part of this. These organizations (and I include our traditional carriers here) have an ideal opportunity to further leverage what they do so well today, but, as you point out, it's well known what they do and how to imitate or improve on that. While I agree with you that Google, Amazon, et al. are highly unlikely to become direct insurers themselves, they are already heavily involved in the insurance value chain as creators and orchestrators of data. These organizations are data companies, and we are an industry of risk-based data. We have some good examples already of Google in the U.S. providing advanced weather data and subsequently crop insurance. In the UK, Google has an insurance price comparison site, albeit loss-making at present – however, don’t let this fool us. These are the guys who help create the data, the Internet of things (IoT), Internet of customers or Internet of everything (whatever today's buzz word is) -- from your mobile location (Nexus, Android), your home (Nest, Google TV), your location (driverless cars, maps, Android), your health (wearables) and so much more! This volume of data on us as individuals has immense value and power in the right hands to reduce the inconvenience in our everyday lives. However, what if Google and Amazon were to partner in the same way they do with hardware providers for mobiles and other devices with a re-insurer, not having to worry about the things you clearly highlight and instead focus on the one thing they do well – the customer (Google), the supply chain (Amazon), the experience (Apple) and the community (Facebook)? You would have a very powerful story! (Queue scary music!) What if this community were to all club together with the digital networks and relationships that exist today? It could use the platforms these giants have created to break down the sequence and focus on the parts they truly dominate in, disrupting the very tenants that have formed the backbone of this industry for decades. The worrying situation here, therefore, would mean the traditional product manufacturer is further removed again from creating and maintaining customer and brand loyalty. We simply disappear into a land of brand unknowns. The only thing I would add to your list would be there are two customers here – our customers and our shareholders -- and we have a clear obligation to both. I think they could be here anytime they want; however, like you, I don’t believe it will be anytime soon. In my view, they will only enter when our margins are good enough or theirs are bad enough. Just don’t rule out the partnerships or consortiums on the personal lines side. It will be a harder debate in the complex commercial world. Disruption is coming!

It’s a sad day when your local water utility or parking enforcement offers a better mobile or online customer experience than your auto or life insurer. Customers cannot easily quit their local utility or government. They can readily switch their insurance carrier -- and customer defection now exceeds 10% (according to J.D. Powers & Associates), awakening CEOs and investors to the need for substantive change. Consumer markets have changed dramatically. PRNewswire reported in December that 89% of consumers prefer online to in-store shopping. A decade ago, 80% of personal auto policies were placed with an agent, according to McKinsey. Those days are gone.  In addition to the alarming rate of customers who have already defected from their insurance carriers, a full 20% of customers are “at risk” of leaving their current carrier, according to J.D. Power & Associates. With the higher costs of acquiring new customers, these trends are expensive and troubling. Customers have been sending loud and clear messages about their expectations and their willingness to change providers. Customers expect and demand all of the following from their insurers:

• Price transparency
• Self-service
• Multi-channel access
• Enriched and consistent customer experience
• Personalized and painless service

Without all of the above, customers are likely to be dissatisfied and, ultimately, leave. New entrants are making it even easier for consumers to change carriers. In one industry survey of 6,000 insurance customers, nearly one-quarter said they would consider buying insurance from Amazon, Google or another online provider. Moves to online sales and service are accelerating, and new entrants have added a greater sense of urgency to knowing their customers and innovating to better serve them. Customer loyalty is the key to long-term growth and economic performance for insurers. Bain research shows that the value of a customer who is a loyal promoter of her carrier is worth an average of seven times that of a customer who is a detractor of the carrier and two to three times that of a passive customer. Loyal promoters “stay longer, buy more, recommend the company to friends and family and usually cost less to serve,” according to Bain. The economic imperative is clear. Insurers are hurrying to transform from product-centric business models to customer-centric business models. Many insurers have made, or are in the process of making, this transformation. Keep reading to discover how and why to jump-start your own digital transformation and evolution from product-centricity to customer-centricity. The New Normal Dozens of factors have changed how insurers must sell and service in today’s marketplace. Smart phones, Facebook, telematics and online quotes are only some of the factors. Demands for customer intelligence and customer engagement have never been higher. The requirements for baseline customer engagement are significant, including integrated and realigned internal technology. The basic technology and data required to support seamless customer experience across channels can also be leveraged to do much more. But, for starters, insurers must implement:

• A single view of the customer across silos, including third-party data and attitudes/preferences
• Cross-channel interactions and access via more channels
• Customized, personalized content
• Continuous technological improvement

Enterprise-wide, comprehensive customer intelligence is the baseline. Gartner reported in August 2014 that insurers are most underinvested in data initiatives targeting customer intelligence (57% of survey respondents indicated that customer intelligence was the area most in need of greater budget). Most insurers continue to lack a single view of their customer -- the major prerequisite to customer intelligence. Without the single, 360-degree customer view, insurers are ineffective at generating better service, segmenting, profitability and loyalty. Achieving a complete and reliable enterprise-wide view of a customer is only the first step. The real business opportunities emerge when you synch your enterprise view with the 360-degree online and social media view of your customer or prospect. Prerequisite:  The 360-degree View Insurance CEOs agree that data and analytics will be the backbone of the transformation required in their industry, with 86% telling Gartner that this is one of their top priorities. The first application for data and analytics in customer intelligence is a single view of the customer. Yet it is estimated that only 25% of carriers have a single customer view. The 360-degree view is essential for improving both bottom-line and top-line performance. Reliable, unified customer views enable major gains in customer service (retention) and marketing effectiveness (cross-sell and upsell), not to mention claims and fraud. The consumer 360 was the backbone and first step one insurer took to drive cross-sales revenue. This large insurance and financial services firm was able to quantify marketing effectiveness and audience behavior, enabling the company to make informed tactical decisions that ensure more efficient marketing spending. In this case, the development and implementation of closed-loop marketing analytics across key enterprise business units, utilizing predictive models, segmentation algorithms, churn analysis, modeling and funnel analysis, delivered the ability to continuously analyze  and understand data from more than 25 million customers and prospects every week. With 360-degree customer views, insights can be delivered from data that allow this insurer to clearly see how enterprise marketing efforts can improve cross-sell and boost revenues. Personalization Once an insurer has a reliable customer view, the work of improving customer experience and satisfaction can begin. Consumers value personalized experience. Two-thirds of consumers are more likely to trust and engage with brands that allow them to customize and share personalization and contact preferences. More than half of consumers feel more positive about a brand when messages are personalized. According to Harris Interactive, 86% of consumers quit doing business with a company because of a bad customer experience, up from 59% four years ago. That statistic should serve as a wake-up call to invest in personalization -- the key to enhancing consumer engagement. Implementing advanced consumer engagement (ACE) via a variety of data management and analytic strategies and solutions, there are five key elements of personalization:

• Profile-based:  Move from generalized segmentation to personalization customer demographics, providing a “segment of one.”
• Behavior-based:  Determine customer affinity through individualized understanding of customer insights coming from interactions, enterprise assets, dark enterprise assets and external assets, not just observations. Use these assets and customers’ behaviors to truly understand your customer and drive personalization.
• Collaboration-based:  Customization should extend to integration with relevant tools, relationships and touch points (including experiential).
• Adaptive:  Personalization features should leverage explicit consumer feedback as well as implicit feedback from closed-loop consumer responses and be flexible to changing behaviors and attitudes.
• Channel-optimized:  Identify and personalize combinations of markets, segments and media tactics to adjust integrated marketing efforts to optimize market-specific channel effectiveness.

The following guidelines will also help ensure success, when embarking on an advanced consumer engagement (ACE) program: Choose platforms that will allow you to grow by scaling hardware, rather than doing costly rewrites. Assume that your next step is market domination. This allows the enterprise to focus on innovative customer experiences rather than performance tuning. Invest in architecture and standards that enable agility. Solutions should be as simple as possible. Quality should always trump quantity, when it comes to data. Value your data by focusing on core data-quality issues, first. Information will always be more valuable to your consumers than data. Reliable information comes from quality data in context. Position your ACE program to engage with consumers and quickly adapt to consumer feedback. Build in processes to show you value consumer feedback. Provide updates and enhancements quickly in smaller releases, continually enhancing the customer experience. By 2020, the customer will manage 85% of the relationship with an enterprise without interacting with a human, according to Gartner. There is plenty of room for improvement via quick iteration, especially in the realm of customer self-service. Seek partners who specialize in applying a data and analytics mindset to customer engagement. With ACE and robust data and analytics, the options for business optimization and growth are practically limitless. Three main areas for insurers to make strides in are cost management, customer acquisition and retention and new products/pricing. Cost Management With baseline programs in place (360-degree customer views and personalization), digital- and data-mature insurers can make significant gains in cost management. For starters, satisfied and loyal customers cost less to serve. Technology is a critical component of cost management, segmentation and customized pricing goals. Let’s start with cost management. Customer Acquisition Digitally mature insurers can improve customer acquisition by leveraging segment differences uncovered from a new wealth of customer intelligence. Opportunities are exposed by consumer analytics and competitor information gleaned from internal and external data sources. Real-time consumer and competitor data can be a goldmine for uncovering segment opportunities. McKinsey has reported that while the motivation for insurance companies to invest in analytics has never been greater, firms should not underestimate the challenge of capturing business value. New Products and Pricing Real-time and third-party information is increasingly having an impact on pricing. Only insurers with robust customer and competitor data and analytics can take advantage of this. Insurers with ACE across multiple channels are best poised to exploit opportunities for new products and customized pricing to drive business growth. An enterprise-wide, validated, timely view of all consumer interactions with the enterprise (from structured, semi and un-structured data) composes the first 360. Integrating this internal view with the consumer’s relevant online interactions adds another 360 degrees and far more data and touch points for influencing consumer behavior. Online is where buying decisions are being influenced and, often, made. Do you know which brands your consumer‘s friends are touting or bashing online? Can you predict a spike in demand or a specialty product, before your competitors? Developing a full 720-degree view of consumers is the next level of advanced consumer engagement. Imagine having the ability to tap into customer behavior with the help of a self-teaching solution that continues to learn over time with each customer interaction, enriching each profile. This is the reality of today, supporting a comprehensive platform for consumer identification, attribute enrichment and engagement that enables personalized consumer conversations that evolve and improve throughout the lifecycle of the relationship. The ability to develop new products that can be delivered to consumers who want them, through their preferred channel, at a lower cost, is here today.

Did China orchestrate the massive hack of Anthem, the nation’s No. 2 healthcare insurer, to steal intellectual property it needs to jump start a domestic healthcare system? That’s one scenario being discussed by the security community and would fit the pattern of not just China, but other nations, stepping up cyber attacks to pursue geo-political goals. CrowdStrike's 2014 Global Threat Report details how China remains by far the most active nation conducting cyber espionage campaigns. Hot on China’s heels, in terms of executing concerted hacks for nationalistic gain, are Russia, Iran and North Korea, the nation President Obama blamed for the Sony Pictures hack. “China is a giant vacuum cleaner for intelligence,” Adam Meyers, CrowdStrike’s vice president of intelligence, tells ThirdCertainty. “They’re targeting dozens and dozens of organizations, going after intellectual property and trade secrets.” 3C’s  newsletter: Free subscription to fresh analysis of emerging exposures One particularly active Chinese hacking collective, dubbed Hurricane Panda, specializes in cracking the networks of Internet services, engineering and aerospace firms. Hurricane Panda uses "an arsenal of exploits" and has pioneered ways to slip into a network, then stealthily escalate privileges to roam deeper. While some of the data stolen by nation state-backed hackers most likely gets sold for profit, these attackers exist primarily to pursue strategic goals -- in China’s case to accelerate the development of domestic infrastructure to serve its massive population, which is rapidly becoming more Westernized. CrowdStrike’s threat report follows news pointing to Chinese hackers, referred to as Deep Panda, as the culprits behind stealing healthcare personal information for 80 million Anthem plan members and employees. CrowdStrike is not directly involved in the Anthem investigation. That said, Myers tells ThirdCertainty that his firm has monitored Deep Panda targeting other healthcare organizations in the past. China is dealing with a rising middle class for the first time in its history, he says. Smoking, drinking and poor eating habits are on the rise, with associated medical conditions sure to follow that are all too familiar in the West. “They are dealing with diabetes, heart conditions and cancers at a large scale for the first time,” Meyers said. Rather than import healthcare services, China prefers to rapidly build a homegrown system and appears to be willing to steal intellectual property to do so. “They want to be able serve their own domestic market for heart splints, diagnostic equipment and the like,” Meyers says. Hacking healthcare organizations could give China “the ability to leapfrog the design, test and build phases.” New attack model While China may run the most focused cyber spying operation, smaller nations, like Iran and North Korea, are discovering how cyber attacks can tilt the balance in geo-political disputes against a much more powerful adversary, namely the U.S. In response to economic sanctions imposed by the U.S. to stem Iran’s development of nuclear capability, Iran-backed hacking groups heavily targeted the financial sector in 2013, and in 2014 turned their focus to U.S. aerospace, defense and energy targets, CrowdStrike reports. And North Korea appears to have derived a model that could stir smaller nations to develop cyber attack strategies to gain political leverage on the global stage. The Sony Pictures hack embarrassed a Fortune 100 company and compelled President Obama to chastise North Korea. Cyber attacks have become a kind of twisted diplomacy. “It’s a viable way to coerce an adversary into doing something,” Meyers says. “I think we’re going to see this practice continue.”

Plaintiff lawyers can teach us something about the limits of predictive modeling when it comes to workers’ comp claims processing. Simply stated, it is better to presume than to predict. Lawyer advertisements blatantly tap the mindset that employers, insurance companies and adjusters cannot be trusted to pay benefits. Notice that the advertisements do not have to prove this as factual because the advertisements correctly presume this notion is a societal norm. In fact, the mindset is so prevalent that the advertisements do not even have to depict a claimant’s current frustration, but only need to describe what might happen if claimants don’t hire a lawyer. Essentially, the ads address a void of employee confidence that causes concern even though there has not been any direct harm yet. Consider an injured employee who hires counsel right out of the gate. No advertisement is required. The employee is already in a “fight back” frame of mind. What makes that employee different from others who, weeks or months later, might be swayed by advertisement to retain counsel? The difference is that the employer had a chance to act on the employee’s natural concerns in a positive way but lost it. The lesson here is that lawyers do not need predictive analytics or predictive models to screen for complicated claims. Lawyers presume that every injured worker has doubts that can be transformed into feelings of pending injustice. Making the claim complicated is easy once they get the claimant roped in. Everybody knows that attorney representation often increases claim complexity and potential dollar value simply because the claimants often accept a dark notion of fairness and are willing to do more than what common sense and medical research supports to maximize their claim. I contend that there is a stark vulnerability in today’s industry reliance on analytics and predictive modeling. Automated models seek to assess new cases and save resources by assigning low-level indicators to a fast-tracked category. The models assume a claimant is emotionally fine. Instead, we should realize that every fast-tracked claimant is subject to lawyer advertising and cautionary comments by relatives or co-workers that agitate the claimant’s natural fears and suspicions. We must also accept the poor societal image of insurance adjusters as a reality. We all experience claims that start as medical-only, then turn bad. I contend that the aggregate cost of these missed opportunities obviates any argument that predictive modeling is good for WC claims. Quick Tip: Presume and Act, Don’t Predict and Wait Presume: Like plaintiff lawyers do, consider that each and every injured employee, even with the smallest injury, is a potential litigation candidate. They all have some degree of caution, low confidence, confusion and fear. Be First: Strive to be first in exposing and defusing even the most minor employee concerns. At the outset of an injury, all employees should know they will have an open forum and a direct line of communication in the course of their claim should any concerns arise. Take Responsibility: The employer, not the adjuster, should provide this open forum and line of communication. The employee must be confident because of some historical degree of trust established with the employer. The adjuster is simply not capable of creating that atmosphere. Straightforward Methods: Creating a proper forum is not complicated. Immediate meetings with relevant parties such as the supervisor, WC coordinator, human resources, safety, etc. should investigate the claim as well as alleviate any employee concerns. Nurse triage, as a vendor process, can add a powerful layer of assistance and confidence. Bottom line: It might take all of 15-45 minutes to make sure an injured employee feels his WC claim is being handled fairly and is very important to the company. This added effort is peanuts considering the cost of claims that go rogue. The Only Prediction That Counts: While claim vendors perpetuate the false notion of efficiencies in predictive modeling, you only need to make one prediction: that your injured employees need to be satisfied so they won’t be sucked in by presumptive lawyer advertisements.

At WCRI 2015, the panel of Vennela Thumula (Workers Compensation Research Institute), Dongchun Wang (WCRI) Alex Swedlow (California Workers' Compensation Institute) and Artemis Emsilie (myMatrixx) tackled physician dispensing. Eighteen states have made changes to their rules regarding physician dispensing, with a focus on pricing. Four states (Pennsylvania, North Carolina, Tennessee and Florida) also put limits on the timeframe in which physicians could dispense. According to WCRI studies, the prices paid for medications dispensed by physicians decreased significantly after regulations were reformed. However, the prices paid after reforms were still significantly higher than for the same drug from a retail pharmacy. The exception was Ilinois, which saw the costs of physician-dispensed medications increase after reforms. This appears to be because of a change in prescribing patterns as physicians shifted to reformulated medications, which reimbursed at a much higher rate. So, it was this change in prescribing patterns that caused the cost increase, not the reform bill. Another study focused on whether physician dispensing increased opioid use. The results were somewhat inconsistent. There was an increase in pharmacy-dispensed stronger opioids, but overall the number of prescriptions for stronger opioids dropped. However, the frequency of physician-dispensed nonsteroidal anti-inflammatory drugs (NSAIDs) and weaker opioids increased slightly post-reform. Overall, there appears to be a drop in the total opioid prescriptions after physician-dispensing reforms, but not as significant as you would expect. A study by CWCI focused on whether injured workers had adequate access to retail pharmacies. Access was clearly not an issue, as almost all injured workers had multiple pharmacies within a short distance of their homes. The CWCI study also showed a greater delay in return to work and an increase in overall claims costs when there were physician-dispensed medications. This increase in costs was not simply the increased cost of medications but also increased disability and more frequent office visits. The final speaker focused on differences between workers’ compensation and the commercial marketplace with regard to physician dispensing. The biggest difference is that on the group health side the process is integrated. The focus is on speeding the care to the patient, not increasing the overall costs. The group health physician checks the insurance formulary and drug utilization protocols prior to dispensing. In workers’ comp, these different processes are siloed. The main reason for physician dispensing in workers’ compensation is the increased profits to the physicians, not integrated speed of patient care. Audience members reminded everyone that the focus around management of opioids needs to be mostly on the appropriateness of the medication, not who is doing the dispensing. There was a recent New York Times article on this subject that I encourage readers of this blog to review.

American employers will dispatch hundreds of staff members to an April gathering in Washington, DC, on corporate compliance issues. In all likelihood, hardly any CEOs in the workers’ comp industry are fluent in these issues, even though by the end of this decade they may change the direction of the workers’ comp businesses, separating the successful from the laggards. A change for workers’ comp leaders hides in plain sight. 

Claims have been declining in frequency by about 3.5% a year. It’s prudent to expect continued decline, as jobs become safer every year. Average claims costs, which used to bump up by more than 5% a year, aren’t growing beyond a few percent. Meanwhile, the typical employer’s agendas of employee leave, disability management and wellness have been surging in scope and complexity.

A few workers’ comp companies have already repositioned themselves to provide a broad array of solutions for these agendas. Most workers’ comp CEOs appear to think these burgeoning workplace concerns have little to do with their company’s future. They may be right. Or they may be whistling past the graveyard.

Since the beginning of the Great Recession, demographic, technology and legal trends visible in recent decades began to accelerate in the direction of smaller work injury risk and larger non-occupational employee risks. Frank Neuhauser of the University of California at Berkeley estimated that for most workers it is more dangerous to drive to work than to be at work.

And notice the rise in employee leave benefits and the greater emphasis on wellness (despite deserved criticism of overselling that concept). Perhaps this is how Occupy Wall Street ends: not in a revolutionary bang, but a paid parental leave benefit and a worksite yoga studio.

The Disability Management Employer Coalition puts on the April conference as its annual problem-solving exercise for the Family and Medical Leave Act and Americans with Disabilities Act. In addition to these federal mandates, states and localities have been promulgating leave-related mandates by the dozens. In January, for instance, Tacoma, WA, enacted a law requiring employers to offer at least three days of paid sick leave come January 2015. ClaimVantage, which sells absence management software, reports there are about 140 federal and state family leaves across the nation. When adding ancillary leaves like jury duty and blood donor leaves, the numbers rise to about 400.

Paid family leave is gaining momentum to become a mandated benefit. The U.S. is the only high-earning country that does not offer paid leave after the birth of a child and only one of eight countries in the world that doesn't mandate paid leave for new mothers.

According to the Integrated Benefits Institute, workers’ comp accounts for a mere 11% of all work absences involving a medical condition. Legally mandated and voluntary benefits, disability accommodation, wellness and other employee-centric programs have by intertwining themselves raised their visibility in corporate C-Suites. No single, memorable descriptor today captures them successfully.

Phrases such as “health and productivity management” and “total health” are bandied about. I suggest a simple term, “absence management,” in a report I wrote called “Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers' Comp,” which WorkCompCentral published in February.

The absence business beckons

Although the labels will evolve, the need of employers for expert outside assistance to address their agendas is bound to grow. Will workers’ comp companies deliver solutions?

The employers most ready to ask for help include those with relatively large workers’ comp costs to begin with: middle- to large-sized employers. Workers' comp claims payers today will process about $65 billion in workers' comp benefits this year. Perhaps 15% of these benefits involve very large employers. A further 25% involve employers that are not that large yet incur workers’ comp losses of about $200,000 a year or more.

Combined, these employers account for 45% of workers’ comp benefits. In other words, about half of the workers’ comp business today is with employers big enough to know they have a complicated absence management problem on their hands. Their human resource executives and legal counsel have been telling CEOs that the compliance risks of government mandates can’t be ignored. The mandates have grown into an elephantine mass so thick that without expert outside assistance an employer has a high probability – say, 100% -- of violating some law or other.

The more alert and early-adapting segment of employers tends to affiliate with the San Francisco-based Integrate Benefits Institute. Their individual staff members join the San Diego-based Disability Management Employer Coalition. These membership organizations feed the demand for training, resource networking and applied research. Broadspire, ESIS, Sedgwick, York and perhaps other third-party administrators already market services to manage at least some aspect of non-occupational absences. Workers' comp claims payers can manage non-occupational absences because they already possess the needed core competencies.

Pared down to the essentials, the workers' comp claims payer does six things:

• It processes claims.
• It assists at some level of intensity in reducing the rate of incidents that end in claims.
• It coordinates medical treatment and vocational recovery
• It understands return to work.
• It prices its product.
• It complies with pertinent laws.

Absence management does basically the same things. Further tying together workers’ comp and non-occupational absences in a workforce is the vital role of health behaviors of employees. The workers’ comp claims executive is acutely aware that health behaviors of injured workers often drive up claims costs. It is increasingly clear that smoking can be a more costly unsafe act than, say, distraction. Not that smoking precipitates an occupational or non-occupational injury (there’s scanty evidence of that), but that smokers are at more sharply higher risk to heal slowly and to become dependent on opioids in treatment.

The Integrated Benefits Institute has for years carefully analyzed patterns in non-occupational absences. It says that employers can and should use a coherent master plan for absences of all kinds, wellness initiatives and claims management.

In a phone and email exchange, IBI President Tom Parry suggests that workers’ comp claims payers think through their strengths in medical care, disability management and return to work.

“These all are key parts to an employer’s strategy in taking a comprehensive approach to lost work time management,” he says. Also, he advises, be prepared to benchmark and compare. Get hold of industry-specific benchmarking data across lost time programs, workers’ comp, FMLA and short and long-term disability. Become fluent in plan design terminology on the non-occupational side. Review the research literature on the cross-program impacts of health and a total absence management approach. IBI just published research on claims migration across programs, “Crossing Over -- Do Benefits and Risk Managers Have Anything to Talk About?”

Why companies may hold back

A workers’ comp claims payer might not enter the absence business because it does not believe that the workers’ comp industry is shrinking. For instance, the average cost of claims may, as it has in the past, grow faster than the reduction in injuries, leaving claims payers with an ever-larger pie.

But in recent years average indemnity and medical costs have greatly slowed their growth and in some jurisdictions declined. And the incidence of lost time compensable claims continues to decline, the one clear exception being the island of all exceptions, Southern California.

Also, workers’ comp executives might say there is no apparent demand from their clients for non-occupational services. This sort of flies in the face of the experience of TPAs that have launched non-occupational service units. (True, they focus on the higher end of the employer market.) But the observation also doesn’t jibe with the workers’ comp industry’s experience with emerging services in the past.

In instances of innovation, from medical bill review to pharmacy management to Medicare set-asides, large-scale and profitable services emerged after initial years of puzzlement. The fog banks eventually lift.

Then there are impediments in the broker community. It’s almost inevitable that absence management involves insurance products sold through benefits brokers and products sold through property and casualty brokers. They don’t talk a lot, even when working under the same roof. This complicates the work of product design and marketing.

Another reason to say no to opportunity is the challenging learning curve that absence management brings. But look at how the TPAs handled that. Those that have expanded their service offerings beyond workers’ comp claims all appear to forge alliances with, or acquire, servicing partners already steeped in some aspect of absence management.

It may be too harsh to equate workers' comp claims payers with the railroad industry, which 60 years ago asserted that it was in the railroad, not the transportation, business. Perhaps too harsh, but there may be a lesson in that story.

The decline of work injuries

Injuries requiring at least 31 days away from work

year	1993	2015	2022 (projected)
injuries	450,000	250,000	175,000
Total employment	110 million	133 million	148 million