With the launch of Apple's HealthKit, the pieces are now in place to enable employers to get out of the health risk business within five to 10 years, if not sooner. Notice I use the term “health risk,” by which I mean that the cost of the employee’s health insurance will not be priced by the employer. The cost will no longer be based on the average age of the employee population, claims experience or any of the standard underwriting/pricing rules used today. That does not mean an employer will not contribute to some of the cost, but the employer will not have to worry about setting budgets based on its medical renewal. Employers won’t have to worry about managing large claims, employee wellness (unless they want to), hospital networks or plan design. While I do think employers don’t mind helping employees pay for healthcare, I don’t think they ever wanted to be in the health insurance risk business, or the claims management business or the wellness business, or to wonder if the person they just hired has a wife at home expecting triplets. There are three main reasons why employer-based health insurance is coming to an end: reductions in Medicare/Medicaid reimbursements, the advancement of mobile technologies by firms such as Apple and cost shifting to employees. Medicare/Medicaid reimbursements The combination of the expansion of Medicaid under Obamacare along with the reduction in reimbursements for services provided under government programs is forcing hospital systems to change the way they do business. In fact, hospital systems are looking to get into the insurance business (a la Kaiser) because they need to get money from healthy people, not just sick people. Almost everybody wants this to happen. Employers want out of the risk business. Hospitals need and want capital. The government wants the relationship to be between the doctor and the patient. The employee wants lower healthcare costs. And, I don’t know about you, but I would prefer that my primary care physician -- not my employer -- worry about my health and wellness. So, in my opinion, the nation is going Kaiser, the staff model HMO route, because that’s what the market will want. Advancing mobile technologies If a provider system is responsible for my health care, then it needs access to my information to manage my health. Apple, with its HealthKit, and others want to make it easier to gather a person’s health information and make that information available to the provider responsible for caring for that person. Kaiser is one of the first provider systems on board with Apple. I am not surprised. Today, I can get on a scale in the morning, and my scale can send my weight via Bluetooth to my smartphone. Blood pressure tests, blood glucose tests and other relevant health information can be also easily be sent to my cell phone, which I can then make available to my doctor in real-time. The doctor would be responsible for my wellness, because she is working for the system that is responsible for keeping me healthy and, I hope, out of the hospital. Imagine the doctor having a system that would house all this information on her patients. The system could automatically send me an email or text message to call and set an appointment because I put on 10 pounds. Today, I get an email from Jiffy Lube saying I need an oil change for my car but never get an email from my doctor saying I need a physical. This is about to change. Employees want to pay less I’ve heard this before: HMOs were tried in the '80s, but they really didn’t totally grab the market. Well, things are different now. In the '80s, the employer paid close to 100% of an employee’s health insurance costs. So, the No. 1 variable when selecting a plan back then was provider access. Is my doctor/hospital in the network? That is all I ever heard. As a result, every doctor and hospital joined every network. Today, it is different. Employees are paying 40% to 50% of the costs, and the percentage is going up. Cost has become the No. 1 variable for an employee when making a health insurance purchase decision. The statistics are out there: When given a choice in plans, employees are choosing lower-cost options. They are now willing to change doctors and sign up for smaller networks for lower costs. What we have is the perfect storm: government intervention, advancing technology and a cost-conscious consumer. This storm combines with the fact that everyone wants the change: the government, employers, employees, provider systems and the technology companies. I want it, too. I don’t want my employer knowing my health information or worried about my wellness. I want my doctor to know. I want my doctor to see me because he thinks I need to see him. I want a test because I need it. I don’t know what I don’t know, so I need someone to tell me. The shift from the risk being on the employer, employee and insurance company, to the provider of care, is a welcome one. I want my physician to want me healthy, too. In this new scenario, there is a role for the insurance companies (look at what Aetna is doing), the brokers and even the employers. I do believe the government and the providers will want the employer engaged in educating employees on what, for many, will be a new healthcare system. Employees will have to learn how to use some technology. How brokers can participate in this process is another article. As the often-used quote says, “Healthcare should be between the patient and his/her doctor.” The stars are aligning for this to happen.

While physicians are well-trained in diagnosis and treatment, most have received little or no training in how to evaluate their patients' ability to do work. Whenever asked about a patient’s work ability, physicians should think through the issues by considering three terms: risk, capacity and tolerance. This first topic, risk, I would like to explore in this communication. Risk refers to the chance of harm to the patient, or to the general public, if the patient engages in specific work activities. Familiar examples are that the Department of Transportation medical certification processes require examining physicians to disqualify individuals with uncontrolled seizure disorders from working as aircraft pilots and as commercial motor vehicle drivers. Thus, a work ­restriction is something a patient can do, but should not do, as opposed to a work limitation, which is something the patient cannot physically do. The terms "work restriction" and "work limitation" are frequently seen on work status certification forms. Unfortunately, there is little scientific literature on the real-world observed risks of working despite known medical conditions. Ideally, this would be the type of information on which to base work restrictions. Where generally accepted sound scientific evidence exists, there should logically be universal agreement among physicians about the issue in question. Sometimes, there are consensus documents that are helpful in assigning work restrictions based on risk. One example is the American College of Cardiology guidelines for physicians in approving participation in competitive sports. While this is a consensus document, and thus not scientifically proven, following these guidelines is our best approach to achieve consistency among physicians. If a patient is applying for work, a physician performing the pre-placement medical examination for the employer must remember that the Americans with Disabilities Act of 1990 permits the employer to deny the tentatively offered employment only if, on the basis of objective information, the work activities of the “essential job functions” pose a substantial risk of significant harm to self or others that is imminent. Under this law, these criteria would be the basis for physician-imposed work restrictions that would disqualify an applicant from working.  Substantial harm means an objectively verifiable worsening in the patient’s condition, and not merely an increase in previously present symptoms, like pain or fatigue. The law says that individuals may choose to work despite pain or fatigue. While physicians in pre-placement examinations generally remember and adhere to the maxim that “if there is not objective evidence of substantial risk for significant harm, the patient may choose whether or not to work despite symptoms,” many times the obverse of this principle is forgotten when physicians are asked by patients to certify work disability based on subjective symptoms without evidence of risk of harm. The decision to work with no significant risk, and despite symptoms, is the patient’s decision (and not the physician’s decision), and the decision is still the patient’s when the patient is requesting disability certification. There are recurring situations in which physicians have historically restricted patients on the basis of medically plausible risk assessment. Examples ­include heavy overhead lifting after shoulder rotator cuff repair, and heavy lifting, carrying and jumping with combined anterior and medial instability in a knee. In these cases, it is plausible to argue that recurrent cuff rupture and progressive osteoarthritis may occur, despite the lack of prospective human studies to prove that these risks are real. Until studies disprove these risks, they will be “generally accepted” and noted by consensus groups. For decades, spine surgeons placed permanent lifting and other activity ­restrictions on patients who had good results after a first-operation lumbar diskectomy. Recently, studies have shown that those with good results can return quickly to full work with no increase in the incidence of disk ­re-rupture. In the next article, I hope to explore the concept of capacity and what it means in the process of approaching patients with complaints of limitation.

A new survey by Deloitte reinforces the obvious truth that a smart CEO and her board will nurture the organization's reputation because it is critical to success (in almost every case). The survey states one other truth that should be obvious to us all: “Reputation risk is driven by other business risks.” As Miriam Kraus, a senior vice president at SAP responsible for its risk management program, is quoted as saying in the report: “Usually, reputation risks result from other risks. For example, noncompliance with applicable laws and regulations, misconduct of senior management, failure to adequately meet our customer’s expectations and contractual requirements. All of these could lead to civil liabilities and fines, as well as loss of customers and damage to the reputation and brand value of SAP, to just mention a few.” But, while the paper has many interesting numbers and charts, I think it leaves much left unsaid. I wish that Deloitte had advised that when decision-makers assess risks they should consider the potential impact on the organization’s reputation (which can be good, bad or neutral) and add this to the assessment of other (more direct) potential effects. It should be noted that the likelihood of a significant impact on reputation arising from, say, a safety issue is not necessarily the same as the impact from fines, lost time and so on. In addition, the impact on reputation may be positive while the impact on, say, cash flow is negative! For example, the decision to divorce the organization from a supplier who is found to have broken the law may raise costs and disrupt delivery of product to the market – while enhancing the reputation of the organization. I also wish that Deloitte had made it clear that organizations need to understand what is most likely to have a significant impact on their reputation. While Deloitte mentioned a few important areas, it omitted situations like failures (or excellence) in customer service, the help desk, public statements (including on social media), responses to media and regulators’ inquiries, announcements about plant closures and so on. I believe it is important to identify the more significant drivers of reputation value, both the potentially positive and negative, so that they can be monitored and treated when appropriate, to optimize reputation. Monitoring is key, and Deloitte has a sidebar that talks to some of the ways to do this. Deloitte calls the process risk-sensing. One aspect that I didn’t see mentioned is that an organization’s reputation can be affected by the actions of third parties – without any stimulus from the organization. For example, from time to time, statements are made by the CEO of Oracle that are intended to attack the reputation of SAP, its primary competitor. The organization that is attacked needs to know what is happening and assess whether a response would help or hurt. In the same way, when there is violence in some part of the world, people look to the U.S., EU, and others for a reaction. It’s not only the action that can affect reputation but the failure to act. When the media find that there have been an unusual number of apparent failures in a model of automobile, the failure of the manufacturer to react can be as damaging as or more damaging than a poorly worded press statement. Actions by third parties that are part of the extended enterprise (suppliers, channel parties, agents and even customers) can affect reputation. They need to be identified, assessed and monitored closely, as well. Reputation risk is critical. While Deloitte doesn’t make this clear, because so many decisions and actions can impair or improve the organization’s reputation, it is essential that the impact on reputation be considered in pretty much every decision, from strategy-setting to the daily operation of the business. Every manager and decision-maker -- not just the chief risk officer -- needs to own the risk. One final point: One of the reasons I like the ISO 31000:2009 global risk management standard is that it doesn’t limit the risk management discussion to preventing bad things from happening. Every organization needs to pay attention to the ways in which it can build and grow its reputation, not just protect it. Do you agree? I welcome your comments and perspectives. This article was first published on:  Norman Marks on Governance, Risk Management, and Audit.

The top 25 insurers consume 70% of the market share in workers’ compensation, and, as the adoption of data and predictive analytics continues to grow in the insurance industry, so does the divide between insurers with competitive advantage and those without it. One of the largest outcomes of this analytics revolution is the increasing threat of adverse selection, which occurs when a competitor undercuts the incumbent’s pricing on the best risks and avoids writing poor performing risks at inadequate prices. Every commercial lines carrier faces it, whether it knows it or not. A relative few are actively using adverse selection offensively to carve out new market opportunities from less sophisticated opponents. An equally small crowd knows that they are the unwilling victims of adverse selection, with competitors currently replacing their best long-term risks with a bunch of poor-performing accounts. It’s the much larger middle group that’s in real trouble — those that are having their lunch quietly stolen each and every day, without even realizing it. Three Warning Signs of Adverse Selection Adverse selection is a particularly dangerous threat because it is deadly to a portfolio yet only recognizable after the damage has been done. However, there are specific warning signs to look out for that indicate your company is vulnerable:

1. Loss Ratios and Loss Costs Climb – When portfolio loss ratios are climbing, it is easy to blame market conditions and the competition’s “irrational pricing.” If you or your colleagues are talking about the crazy pricing from the competition, it could be a sign that your competitor has better information to assess the same risks. For example, in 2009, Travelers Insurance, known to be utilizing predictive analytics for pricing, had a combined ratio of 89% while all of P&C had a combined ratio of 101%.
2. Rates Go Up, and Volumes Declines – As loss ratios increase along with losses per earned exposure, the actuarial case emerges: Manual rates are inadequate to cover expected future costs. In this situation, tension grows among the chief decision makers. Raising rates will put policy retention and volumes at risk, but failing to raise rates will cut deeply into portfolio profitability. Often in the early stages of this warning sign, insurers opt to raise rates, which makes it tougher on both acquisition and retention. After another policy cycle, there is often a lurking surprise: The actuary will find that the rate increase was insufficient to cover the higher projected future losses. At this point, adversely selected insurers raise rates again (assuming their competitors are doing the same). The cycle repeats, and adverse selection has taken hold.
3. Reserves Become Inadequate – When actuaries express signs of mild reserve inadequacy, the claims department often argues that reserving practices haven’t changed, but their loss frequency and severity have increased. This leads to major decreases in return on assets (ROA) and forces insurers to downsize and focus on a niche specialization to survive, with little hope of future growth. The fundamental problem leading to this occurrence is that the insurer cannot identify and price risk with the accuracy that competitors can.

Predictive Analytics Evens the Playing Field The easiest way to prevent your business from being adversely selected is starting with the foundation of your risk management — the underwriting. Traditional insurance companies rely only on their own data to price risks, but more analytically driven companies are using a diversified set of data to prevent sample bias. For small to mid-sized businesses that can’t afford to build out their internal data assets, there are third-party sources and solutions that can provide underwriters with the insight to make quicker and smarter pricing decisions. Having access to large quantities of granular data allows insurers to assess risk more accurately and win the right business for the best price while avoiding bad business. Additionally, insurers are using predictive analytics to expand their scope of influence in insurance. With market share consolidation on the rise, insurers in niche markets of workers’ compensation face even more pressure of not only protecting their current business, but also achieving the confidence to underwrite risks in new markets to expand their book of business. According to a recent Accenture survey, 72% of insurers are struggling with maintaining underwriting and pricing discipline. The trouble will only increase as insurers attempt to expand into new territories without the wealth of data needed to write these new risks appropriately. The market will divide into companies that use predictive models to price risks more accurately and those that do not. At the very foundation of any adversely selected insurer is the inability to price new and renewal business accurately. Overhauling your entire enterprise overnight to be data-driven and equipped to utilize advanced data analytics is an unreasonable goal. However, beginning with a specific segment of your business is not only reasonable but will help you fight against adverse selection and lower loss ratio. This article first appeared on wci360.com.

If you want to deliver a great customer experience, you better be prepared to pay up…  right? Maybe not. Conventional wisdom suggests that with an enhanced customer experience comes greater expense. But that’s not always the case. The fact is, a better experience and lower costs can actually go hand-in-hand. The origins of that unlikely pairing lie with a fundamental principle that many businesses fail to appreciate: Broken, or even just unfulfilling, customer experiences inevitably create more work and expense for an organization. That’s because sub-par customer interactions often trigger additional customer contacts that are simply unnecessary. Here are some examples:

• An individual receives an explanation of benefits (EOB) from his health insurer for a recent medical procedure. The EOB is difficult to read, let alone interpret. What does the insured do? He calls the insurance company for clarification.

• A cable TV subscriber purchases an add-on service, but the sales representative fails to fully explain the associated charges. When the subscriber’s next cable bill arrives, she’s unpleasantly surprised and believes an error has been made. She calls the cable company to complain.

• A mutual fund investor requests a change to his account. The service representative helping him fails to set expectations for a return call. Two days later, having not heard from anyone, what does the investor do? He calls the mutual fund company to follow up on his request.

• A student researching a laptop purchase on the manufacturer’s website can’t see the difference between two closely related models. To be sure she orders the right one for her computing needs, what does she do? She calls the manufacturer.

• An insurance policyholder receives a contractual amendment to her policy that fails to clearly explain, in plain English, the rationale for the change and its impact on her coverage. What does the insured do? She calls her insurance agent for assistance.

In all of these examples, less than ideal customer experiences generated additional calls to centralized service centers or field sales representatives. The tragedy is that a better experience upstream would have eliminated the need for these customer contacts. There are both real and opportunity costs incurred as a result of these unnecessary inquiries. Every incoming call, e-mail, tweet or letter drives real expense – in service, training and other support resources. Plus, because many of these contacts come from frustrated customers, they often involve escalated case handling and complex problem resolution – which, by embroiling senior service professionals, managers and executives in the mess, drives the associated expense up considerably. Layer on top of that all of the associated opportunity costs: the diversion of company staff from more valuable, profit-enhancing activities, because their time is consumed handling customer inquiries that shouldn’t even exist. Studies suggest that, at most companies, as many as a third of all customer contacts are unnecessary – generated only because the customer had a failed or unfulfilling prior interaction (with a sales rep, a call center, an account statement, etc.). In organizations with large customer bases, this can easily translate into hundreds of thousands of expense-inducing (but totally avoidable) transactions. Take into account the additional opportunity costs, and it’s enough to make a CFO cry. To avoid this profit-sapping outcome, consider these three tips:

• Really understand why customers contact you. Whether your company handles a thousand customer interactions a year — or millions — don’t assume they’re all “sensible” interactions. Identify and drill into the top 10 reasons that customers contact you. You’ll likely find that, for some subset of those categories, these contacts can be avoided with upstream changes, in the form of streamlined procedures, simplified communications or revised marketing materials.

• Drill the importance of ownership into all sales and service staff. How many of your customer contacts are really just follow-up inquiries – generated only because a staff member failed to keep a promise or honor a commitment to the customer? Absence of ownership drives customers crazy. Yet, with good training and executive support, it’s one of the easiest ways to improve service and reduce costs.

• Promote a balanced orientation on quality and quantity. A single-minded focus on volume measures (e.g., how many calls you answered, how many sales you closed) can compromise quality. The resulting errors – by triggering unnecessary contacts and driving corrective re-work – will offset any productivity gains you thought you were realizing.

Great customer experiences can be powerful drivers for a firm’s top line. Even small improvements in customer loyalty, retention and repurchase can have a huge impact on revenues. What gets far less attention, though, is the fact that better experiences can also translate into expense reduction and avoidance, given that poor customer interactions spawn lots of unnecessary work that consumes organizational resources. So the next time you’re looking to control costs, consider a counterintuitive approach: deliver a better customer experience. It’s a great way to turn customers (and CFOs) into raving fans.

Disruptive influencers are surrounding the insurance industry. Speed and intensity are increasing, challenging industry practices, assumptions and business models. According to a Forbes article in January 2013, the revenue flowing through the shared economy directly into peoples’ wallets in 2013 would surpass $3.5 billion, with growth exceeding 25%. At this rate, peer-to-peer sharing was moving from an income boost to becoming a disruptive economic force. Just look at a recent profile by Silicon Valley Business Journal, where Uber Technologies CEO Travis Kalanick confirmed that Uber raised another $1.2 billion following a record year of growth in which it expanded the number of cities it serves by more than 400%, to 250 cities in 50 countries. Astonishingly, Uber, founded just four years ago, had a "post-money" valuation of $18.2 billion after a round of financing in June; today's post-money valuation is about $41.2 billion. Now that is a disruptive economic force! The shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere and at any time based on a need for point in time. It is disrupting existing business and industries while spawning new business models, leveraging the combination of crowdsourcing, open innovation and technology to create companies like Uber, Lyft, Airbnb and many others across different industries. Traditional companies  (including insurers) and their brands cannot afford to be left out of the shared economy. Insurers must reorient their business practices from product development to services aimed at meeting the needs of this new market segment and creating more value and a deeper customer experience. For a recent report, we asked insurers to think about key questions and issues: How will shared-services business models redefine risk or identify new risk? What new products and services can you develop for these emerging new businesses? For your customers who are less interested in ownership and more attracted to access, rental, reuse or subscription, how can you personalize products and services for them? Most importantly, how could the shared economy concept be used to create a new type of insurance company, challenging the traditional view? One CEO of a start-up who had just received another round of funding and was preparing to launch his business, shared this frustration: “I just wanted to let you know that I have found the hardest problem to solve as the CEO, is that after talking with 12 different insurance companies, I am still stuck on finding someone to write a policy for me! I am not sure you can overstate the tsunami of change that insurers are trying to avoid. It is frustrating to me as a CEO trying to get my company going.” His statement says it all. Insurers either can’t or won’t see the influencers and levers of change, and in failing to do so are closing their eyes to the impact to their businesses in terms of revenue and customers. Meanwhile, they are leaving the door open for competitors to fill the need, especially those from outside the industry. One company, Erie Insurance, did announce that it is offering what it believed to be a first-of-its-kind coverage to protect drivers who use ride-sharing services like Uber and Lyft. Erie initially offered the insurance in two states and would make it available in others states, depending on consumer response. The new insurance coverage is designed to solve a problem for drivers in the ride-sharing economy by eliminating confusion over what's covered and when it’s covered. While encouraging, the announcement seems rather late in the game, given that companies like Uber have been around for four years. And the coverage does not address the growing set of other business models. But a new company has stepped forward to meet the need! In the Dec. 4, 2014, Silicon Valley Business Journal, it was reported that Peers  is developing products and services for workers in the "sharing economy." Peers was founded and funded with money from a number of founders of “sharing economy” companies and has a membership of 250,000 in just a year. Peers has rolled out its first two offerings, including a home rental liability insurance policy, which works for any short-term rental platform. The policy provides as much as $1 million for personal injury or damage to property sustained by a renter and includes compensation for lost income up to $5,000 as a result of damage to a home by a renter or their invitee. The policy costs $36 a month, can be purchased for a single month, is available nationwide from insurance broker Porter & Curtis and is underwritten by United Specialty Insurance. Shelby Clark, the CEO of Peers, said in the article, "While sharing economy workers are finding new ways to fill their income gaps, they are also encountering challenges they've never had to deal with before, such as an inability to find the financial products they need or concern over the stability of their income. By combining the collective purchasing power of the Peers community, Peers is able to pioneer innovative solutions to new problems. Sharing economy workers are not alone, and they shouldn't feel that they need to navigate these issues alone.” For insurers, the Peers announcement should be a wake-up call on many fronts, from the lack of seeing and responding quickly to new market needs to seeing the emergence of a new competitor in Peers. While Peers is partnering with an insurer to underwrite the products, it has a growing customer base for which it is meeting insurance needs with innovative products and the services. In the process, it is gaining customer loyalty and potentially owning the customer in a fast-growing, new market segment, one that may be replacing existing segments. The overriding and most critical question for insurers is not if, but how, they will embrace the shared economy, crowdsourcing and open innovation – first to get in the game, then to influence change and ultimately to win. Well, one insurer is in the game. And one new competitor with a large and growing customer base is now in the game. This outside-in move by Peers is a game changer. What will your next move be?

“We have met the enemy, and he is us.” Walt Kelly, Pogo To conclude this four-part series on setting your agency up for what it needs to be in 2020 (the first three parts of which can be found here, here and here), I asked a longtime friend to describe the surprise he experienced when it came to leading just such an effort. Many of you will face the same surprise, so what he says is well worth reading. I'll follow his thoughts with two exercises that will help you avoid nasty surprises and will help leaders and agencies make the necessary transition. Here is what my friend wrote: "Like many independent insurance agencies, ours is a family business that has been passed through successive generations. Entering our 85^th year, we are in the midst of a transition from the third generation of family ownership/leadership to the fourth. "Like most agencies, we face an array of challenges. We face looming retirements for our most successful producers and most experienced staff. The decision-makers at both our clients and our insurance carriers are also retiring, and their younger replacements are unaware of all the great work we have performed on their behalf for all of these years. On top of that, we can add increasingly cumbersome regulations — especially in employee benefits — the dizzying array of new, complex product offerings from our carriers and the need for massive technology upgrades. "The pace of change has been accelerating within our agency, but only recently have we begun to deliberately chart a course that will prepare our agency to thrive in the competitive landscape we anticipate in the year 2020 and beyond. Within our partnership group, the concerns and deliberations usually focused on our staff’s willingness and ability to adapt and grow into the roles we will need them to perform in 2020. We focused on planning and communicating our initiatives to garner staff support. We stressed the mutual benefits and long-term opportunities available through our Agency 2020 initiative. Conventional wisdom said the main threat to our success would be skeptical, change-adverse staff members. "The conventional wisdom was wrong. "The main threat to our success was the commitment we had not secured from each other, the agency partners. Midstream, we discovered that we all had different levels of faith, commitment and desire in an initiative that would last beyond some influential partners’ tenures. We were faced with two paths. One involved structural, compensation and leadership changes, and it held the potential — but not a guarantee — of internal perpetuation. The other path meant an immediate and reliable payout by an outside buyer, but also working for someone else and the end of our 85 years of tradition." How to avoid the nasty surprise This article is not a debate on the pros and cons of selling your agency. This article is about unity of effort. This article is about a willingness at all levels to change. This article is about committing to a common goal. If you want to perpetuate your agency in the next five years, your entire organization must be committed to this goal, starting with your ownership. The same is true if you want to maximize your agency’s sale value in the next five years. However, if your ownership’s main goal is to maintain the status quo — the compensation model, the production model, the vacation time — then you do not have real commitment, and you are destroying your agency’s value through inaction with each passing day. To really ascertain your ownership group’s commitment, I believe you need to have a frank and open conversation. Ask each member to independently complete the following exercise. Leave space after each question, and require the respondent to explain her answer. Exercise #1 Relative Value

There are 20 points available in this section. Have each owner assign these 20 points to the following items. Ask which two items he would be willing to sacrifice to protect his top two items.

• Individual production income
• Total agency profit
• Total agency value
• Ability to influence agency decisions
• Ability to craft agency culture
• Lifestyle (vacation time, ownership perks, etc)
• Maintaining the agency as an independent, going concern

Production

Ask each owner to rate the agency on these criteria on a scale of 0 to 10. Scores of 0 to 6 mean, “I’m pretty doubtful about this”; scores of 7 to 8 mean, “We can probably do this”; scores of 9 to 10 mean, “I am very confident we can do this.”

• We have the producers in place or can recruit, train and retain the necessary producers to achieve our year-over-year sales goals for the next five years.
• We have the carrier appointments/relationship or can develop the necessary carrier appointments/relationships to support our agency’s growth over the next five years.
• We have the profit centers or can develop the profit centers we need to support our agency’s growth for the next five years.
• There are enough clients/prospects within our reach that need our products and services, or we can develop that marketplace to sustain our agency’s growth over the next five years.
• The marketplace, industries and populations we serve are in ascendancy.

Infrastructure

Ask each owner to rate the agency on these criteria on a scale of 0-10. Again, scores of 0 to 6 mean, “I’m pretty doubtful about this”; scores of 7 to 8 mean, “We can probably do this”; scores of 9 to 10 mean, “I am very confident we can do this.”

• We can retain, attract or develop enough qualified staff to sustain our agency for the next five years.
• We can evaluate, install and utilize the necessary technology and workflows to keep our agency efficient and competitive for the next five years. We can remain profitable even if commission levels are reduced.
• We can accommodate the physical space needs of our agency for the next five years.

Leadership

Ask each owner to rate the agency on these criteria on a scale of 0 to 10.  Again, scores of 0 to 6 mean, “I’m pretty doubtful about this”; scores of 7 to 8 mean, “We can probably do this”; scores of 9 to 10 mean, “I am very confident we can do this.”

• We have or can develop the leaders and managers our agency will need for the next five years.
• We have sufficient alignment and commitment from our ownership group to sustain our efforts for the next five years.
• Our ownership group is willing to innovate, delay gratification and make personal sacrifices to enable the agency to reach its goals for the next five years.

Now aggregate your data. You will need to identify both trends and outliers, and you must depict the data in a manner that best speaks to your group (narrative, spreadsheet, graph, interpretive dance...). Then gather your group together and facilitate a discussion on each section. Allow all sides to be heard, especially the outliers — they may be out in left field, or they may be on to something. When you get to the end of the list, step back and look at the responses as a whole. Now ask each member to complete the next exercise by providing a detailed response to these questions: Exercise #2 Five years from now:

• This is what I plan to be doing and how I got there.
• This is what the agency will look like:

i.      Volume

ii.      Number of people

iii.      Location(s)

iv.      Products

• This is who will be serving in leadership positions.

Ten years from now:

• This is what I plan to be doing and how I got there.
• This is what the agency will look like:

i.      Volume

ii.      Number of people

iii.      Location(s)

iv.      Products

• This is who will be serving in leadership positions.

Again, aggregate your data and look for those trends and outliers. Ask each member to talk through their vision for the agency. It is unlikely that every vision will be similar, so you will probably have two or more “camps” that form. Ask each camp to contrast its vision with the group’s results from Exercise #1. Are they compatible? Which vision from Exercise #2 best aligns with the reality you determined in Exercise #1? Can your group coalesce around this as the common vision? You probably now see yourself in one of three states: 1) everyone is clustered around a common, viable vision (best-case scenario); 2) a majority feels one way, with a united or fractured opposition group (most likely scenario); or 3) everyone is all over the board (worst-case scenario). If you’re lucky enough to be in Group #1, go out there and get to work making your vision a reality. If you’re unlucky enough to be in Group #3, I suggest girding yourself for a long, frustrating process, and recommend you bring in some professional facilitation. For the majority out there, you will have to find a way to resolve the gap between your majority and minority opinions. Search for compromise. Approach each perspective with empathy. Work to achieve the best possible solution, not just the solution that best suits your personal situation. Here are a few thoughts I recommend you keep in mind: 1) Debate, disagreement and compromise are positive features of any high-performing organization, but the majority must be able to make decisions. A minority opinion cannot hold the agency hostage. 2) The agency’s path forward cannot be responsible for compensating for past mistakes. Your past mistakes are sunk costs. Resolve not to repeat them in the future, and move on. You also don’t have to fix everything at once. 3) Don’t fight over problems that will fix themselves with time. If you can afford to accommodate something for the short term that will benefit the agency in the long term, then make that deal. Working through these exercises will allow your ownership group to agree on the vision that best builds your agency’s value. These are hard, personal conversations, but exercises like this are part of being agency stewards, and as agency stewards it is your responsibility to constantly build agency value. What you choose to do with that value is also up to you. That is the ultimate privilege of ownership.

Just as the Bear Stearns implosion presaged the 2008 financial crisis, the events of the last few days, building on earlier events, are presaging the collapse of the “pry, poke, prod and punish” wellness industry. For those readers still living in Biosphere 2, here is a brief review of how we got here: First was Honeywell’s self-immolation with the Equal Employment Opportunity Commission (EEOC). We’re not sure how Honeywell's benefits consultants failed to advise that all the company needed to do was offer a simple wellness program alternative that didn’t require medical exams, and there would be no way Honeywell would get hit with an  EEOC lawsuit. But they didn't. Second, the Business Roundtable (BRT) decided to go to the mat with the president over this EEOC-wellness issue. It is possible that there is some conspiracy at work here, where large companies really want to retain the ability to shame and fine overweight employees into quitting (because you can’t fire people for being overweight). But we lean toward a less sensationalistic interpretation: that the BRT is simply getting lousy advice, likely from consultants whose business model depends on more companies doing wellness. Because the BRT’s member CEOs have actual day jobs, they can be excused for taking the BRT’s word for the benefits of wellness and not investigating this industry on their own; if they did, they would find that the wellness industry attracts more than its share of well-intentioned innumerates and outright scoundrels, perhaps because the industry lacks adult supervision. Third was our popular Health Affairs posting, which spurred see-we-told-you-so pickups by the Incidental Economist and Los Angeles Times, the latter of which helpfully added the word “scam” to the discussion. Thus, we bore witness to a perfect storm, the first-ever lay media feeding frenzy on wellness, from both the right-leaning Federalist and the, uh, non-right-leaning All Things Considered. Those would be the first times wellness in general (as opposed to specific programs like, for instance, the Truven/Highmark Penn State debacle or Nebraska’s falsified outcomes) has attracted the lay media. Additionally, the comments, even on the typically erudite All Things Considered, were merciless. Skeptics that we are, we still underestimated employee resentment of forced screenings and risk assessments. The wellness true believers’ rebuttals were quite in character. As we say in Surviving Workplace Wellness, in this field you don’t have to challenge the data to invalidate it. You merely have to read the data. It will invalidate itself. Because most of the true believers’ “A Team” are ethically compromised, they had to go to their bench to find a rebutter. Against all those eviscerations in the major national media, they countered with: Siyan Baxter, a graduate student at the University of Tasmania, who claimed a positive return on investment (ROI) for wellness. She wrote in a journal that contains the words “health promotion” in its very title and has never once published a negative article about wellness savings. Publication bias, anyone? That isn’t even the punchline. The punchline is that, as our book predicted, Ms. Baxter self-invalidated. She says, right in the article: “Randomized controlled trials show negative ROIs.” How did she still come up with a positive assessment of wellness? Because she “averaged” those ROIs with studies she herself describes as low quality, to get a positive ROI. (These 5- to 30-year-old studies were conducted in an era when, as the award-winning book The Big Fat Surprise observes, the American Heart Association bestowed a “heart-healthy” endorsement on every box of Kellogg’s Frosted Flakes.) Her approach is, of course, is like averaging Ptolemy and Copernicus to conclude that the earth revolves halfway around the sun. The other rebuttal was from Professor Katherine Baicker, who is considered a deity in this field because she basically launched it with a claim, published five years ago in Health Affairs, that wellness achieves a very precise 3.27-to-1 ROI. (As with Baxter, the wellness programs where Baicker found savings were conducted during the era when the AHA apparently conflated Tony the Tiger with Dean Ornish). Having recently stated she no longer had interest in wellness and having more recently blamed readers for relying on the headline “Workplace Wellness Can Generate Savings” and not reading the fine print, she nonetheless decided to defend her legacy. Her defense on NPR is worth reviewing. Baicker said: “There are very few studies that have reliable data on the costs and benefits.” That, of course, is not the case – the wellness true believers’ own meta-analysis above shows that in well-designed assessments, the programs lose money. Baicker also said: “It could be that when the full set of evidence comes in, it will have huge returns on investment, and the billions we’re spending on it are warranted.” This all sounds a little different from the three significant digits of: “Wellness achieves a 3.27-to-1 ROI.” And it is invalid because, as any epidemiologist knows – and as Dr. Gilbert Welch elegantly explained in Overdiagnosed -- if an impact is truly meaningful, it would show up in a small or medium-sized sample. This means that, if indeed there were “billions” to be saved, we'd know it based on the hundreds of millions of employee-years that have been subjected to wellness in the last 10 years. The “full set of evidence" is already in….and it’s game, set and match to the skeptics.

The risk management and insurance industry has become very concerned about how to attract young people and encourage them to pursue careers there. The industry has taken steps, including with programs such as MyPath  and InVEST, which educate students and young professionals about the industry and career paths that could fit their interests. Looking at the issue from the standpoint of a Millennial working in the industry (I'm 21 years old), I'd like to suggest three other ways to spark curiosity in the “Next Generation”: 1. Auto Insurance 101 Classes Most of the youth population hasn’t considered pursuing a career in insurance or is completely turned off by the prospect. Who could blame them? For many, their only exposure to the industry stems from paying high premiums for car insurance. When I started driving, I paid around $1,200 annually for insurance on a car I bought for $8,000. I didn't understand why I couldn’t just save the money and, if something happened to my car, use it to buy a new one. I didn't realize the exposure I had because I might damage someone else’s car or hurt another person. An insurer could use this lack of understanding to design an auto insurance 101 course that would have two benefits. The course could explain coverage and create intelligent customers for the future. The course could also be designed to spark curiosity in some to learn more about how insurance works and about all the good it can do. Some will begin to ask their parents questions or even pursue studies in risk management and insurance in college. Try adding incentives for taking the classes, such as reducing premiums or providing lower deductibles for the same price. Building intelligent consumers should reduce their risk as drivers, so the incentives might even pay for themselves. 2. Sponsoring Sports Teams, Clubs, etc. Sponsoring sports teams, clubs and other youthful groups in a community or at a high school or college could be strategic in attracting the “Next Generation.” In addition to generating name recognition and positive PR, a company could expose some youthful minds to the industry. For example: Someone sponsoring a local high school soccer team could create a competition to answer the question: How much are David Beckham’s legs insured for? The winner gets a signed jersey from a local Major League Soccer player. Someone sponsoring a local college’s political clubs could create a competition around the question: How much would it cost to insure the White House? The winning club gets a paid trip to the state’s capital and a luncheon with some state officials. 3. Partnering with Teachers to Make “Classroom Insurance Policies” This can be a fun twist on teaching a classroom about insurance. After working with the InVEST program to gain relevant teaching material, reinforce the concepts through a simulation that students can relate to. Create basic “classroom insurance policies” and give students an amount of “money” they can spend to buy different policies and endorsements. This would take some time initially to build the program but would be an enjoyable way for students to learn and get some exposure to reading a policy, applying endorsements/exclusions, etc. An example: Forgetful Student Policy A policy could include protection against forgetting that an assignment was due and would allow the assignment to be made up that night for half the credit (actual cash value). An endorsement could be bought to upgrade the policy so that the assignment could be made up for full value (replacement cost). Exclusions could include large projects or papers. Creating interest and reinventing the image of the business must be an industry-wide, collaborative effort. Understanding that learning can be exciting for these young students and professionals should greatly increase the success of efforts to attract the “Next Generation."  

It seems the only people made “well” from corporate wellness programs are those who collect $6 billion in annual costs. Still, all is not lost. If we use the most basic workings of human nature as a guide we can salvage a more reasonable realm for the notion of employer-sponsored “wellness.” Corporate wellness is seriously flawed on the grand scale it once proclaimed. Here are four reasons why, in my opinion: First: Wellness costs too much and thereby sets a high threshold for return on investment (ROI), which begs failure by any score based on savings. Let’s say you have a 500-person workforce. After a couple of years of “wellness,” 10 smokers legitimately quit for life, and five obese employees legitimately get to normal BMI and sustain it. For these individuals, the wellness program is an amazing success with great implications for future health. Unfortunately, with the average cost per employee in corporate wellness programs at more than $500 per year, two years costs more than $500,000, and a calculation of ROI depicts an abysmal failure. Second: The profit motive of wellness purveyors supersedes common sense. Their sweeping approach provides incentives for assessments to identify candidates at risk and assumes that simple potential indicators of unhealthy lifestyle or other conditions create a savings opportunity. This is absolutely false. One fact is missing. Of the persons targeted, only a precious few are at a personal decision point and have the will to actually attempt difficult lifestyle changes. Targeting must take human nature into account. We can properly diminish the presumed footprint of wellness if we look back and study individuals with actual historic success. Let us understand what indicators of personal human attitude that handful of successes gives us to use as a second-step screen. How much easier is it to realize ROI when only spending $500 per head on a smaller number of likely candidates? Third: There is an absurd, blind thirst in both the private and public sectors to find believable reductions in projected future healthcare costs. The hype of wellness is perfectly suited to quench this thirst. Unfortunately, the absurdity is legitimized by governmental acceptance of the fool’s gold of claimed lower healthcare costs to gain leverage in negotiating state-worker union contracts, rigging budgets and passing federal legislation. (Can you spell ACA?) The term “fool’s gold” has the word “fool” in it for a reason. Fourth: The wellness industry ignores lessons that should be learned from success in its sub-area of  disease management -- specifically, that human nature feels no call to action until mortality comes knocking. Disease management savings can be documented in examples like the PepsiCo program called Healthy Living, initiated in 2003 and providing real savings today. Why does disease management work? In my opinion: People with a disease feel their mortality and are inclined to follow any program that might help. Disease management supports a population with more personal incentive and will. Conversely, the debunked lifestyle approach targets an abundance of people who are personally happy while smoking or overeating. Fewer are suffering the acute implications of their lifestyle. “Wellness” money spent on them is useless. Quick Tip: Trade “Big Wellness” for disease management with limited lifestyle programs Don’t throw the baby out with the bathwater. There are many people who need and will accept disease management. As far as lifestyle, there are but a few people ready to commit to change. The good news is that over time, and organically with no cost, these few might spark an interest by others in any employer population. Keep the doors open for them and keep awareness high. In the meantime, don’t waste real money or use gimmicks on them. I suggest wellness vendors create a new approach that unlocks the psychology of raw lifestyle change, targets the few and is willing to take on smaller footprints. Accept less money but stay for the longer haul. You owe it to the tarnished notion of “wellness” to fix what you broke.