During the last decade, workplace wellness programs have become commonplace in corporate America. The majority of US employers with 50 or more employees now offer the programs. A 2010 meta-analysis that was favorable to workplace wellness programs, published in Health Affairs, provided support for their uptake. This meta-analysis, plus a well-publicized “success” story from Safeway, coalesced into the so-called Safeway Amendment in the Affordable Care Act (ACA). That provision allows employers to tie a substantial and increasing share of employee insurance premiums to health status/behaviors and subsidizes implementation of such programs by smaller employers. The assumption was that improved employee health would reduce healthcare costs for employers. Subsequently, however, Safeway’s story has been discredited. And the lead author of the 2010 meta-analysis, Harvard School of Public Health Professor Katherine Baicker, has cautioned on several occasions that more research is needed to draw any definitive conclusions. Now, more than four years into the ACA, we conclude that these programs increase, rather than decrease, employer spending on healthcare, with no net health benefit. The programs also cause overutilization of screening and check-ups in generally healthy working-age adult populations, put undue stress on employees and provide incentives for unhealthy forms of weight-loss. Through a review of the research literature and primary sources, we have found that wellness programs produce a return-on-investment (ROI) of less than 1-to-1 savings to cost. This blog post will consider the results of two compelling study designs -- population-based wellness-sensitive medical event analysis and randomized controlled trials (RCTs). Then it will look at the popular, although weaker, participant vs. non-participant study design. (It is beyond the scope of this posting to question vendors' non-peer-reviewed claims of savings that do not rely on any recognized study design, though those claims are commonplace.)

Population Based Wellness-Sensitive Medical Event Analysis

A wellness-sensitive medical event analysis tallies the entire range of primary inpatient diagnoses that would likely be affected by a wellness program implemented across an employee population. The idea is that a successful wellness program would reduce the number of wellness-sensitive medical events in a population as compared with previous years. By observing the entire population and not just voluntary, presumably motivated, participants or a “high-risk” cohort (meaning the previous period’s high utilizers), both self-selection bias and regression to the mean are avoided. The field’s only outcomes validation program requires this specific analysis. One peer-reviewed study using this type of analysis -- of the wellness program at BJC HealthCare in St. Louis -- examined a population of hospital employees whose overall health status was poor enough that, without a wellness program, they would have averaged more than twice the Healthcare Cost and Utilization Project (HCUP) national inpatient sample (NIS) mean for wellness-sensitive medical events. Yet even this group’s cost savings generated by a dramatic reduction in wellness-sensitive medical events from an abnormally high baseline rate were offset by “similar increases in non-inpatient costs.”

Randomized Controlled Trials and Meta-Analyses

Authors of a 2014 American Journal of Health Promotion (AJHP) meta-analysis stated: “We found a negative ROI in randomized controlled trials.” This was the first AJHP-published study to state that wellness in general loses money when measured validly. This 2014 meta-analysis, by Baxter et al., was also the first meta-analysis attempt to replicate the findings of the aforementioned meta-analysis published in February 2010 in Health Affairs, which had found a $3.27-to-1 savings from wellness programs. Another wellness expert, Dr. Soeren Mattke, who has co-written multiple RAND reports on wellness that are generally unfavorable, such as a study of PepsiCo’s wellness program published in Health Affairs, dismissed the 2010 paper because of its reliance on outdated studies. Baicker et. al.’s report was also challenged by Lerner and colleagues, whose review of the economic literature on wellness concluded that there is too little credible data to draw any conclusions.

Other Study Designs

More often than not wellness studies simply compare participants to “matched” non-participants or compare a subset of participants (typically high-risk individuals) to themselves over time. These studies usually show savings; however, in the most carefully analyzed case, the savings from wellness activities were exclusively attributable to disease management activities for a small and very ill subset rather than from health promotion for the broader population, which reduced medical spending by only $1 for every $3 spent on the program. Whether participant vs. non-participant savings are because of the wellness programs themselves or because of fundamentally different and unmatchable attitudes is therefore the key question. For instance, smokers self-selecting into a smoking cessation program may be more predisposed to quit than smokers who decline such a program. Common sense says it is not possible to “match” motivated volunteers with non-motivated non-volunteers, because of the unobservable variable of willingness to engage, even if both groups’ claims history and demographics look the same on paper. A leading wellness vendor CEO, Henry Albrecht of Limeade, concedes this, saying: “Looking at how participants improve versus non-participants…ignores self-selection bias. Self-improvers are likely to be drawn to self-improvement programs, and self-improvers are more likely to improve.” Further, passive non-participants can be tracked all the way through the study because they cannot “drop out” from not participating, but dropouts from the participant group -- whose results would presumably be unfavorable -- are not counted and are considered lost to follow-up. So the study design is undermined by two major limitations, both of which would tend to overstate savings. As an example of overstated savings, consider one study conducted by Health Fitness Corp. (HFC) about the impact of the wellness program it ran for Eastman Chemical’s more than 8,000 eligible employees. In 2011, that program won a C. Everett Koop Award, an annual honor that aims to promote health programs “with demonstrated effectiveness in influencing personal health habits and the cost-effective use of health care services” (and for which both HFC and Eastman Chemical have been listed as sponsors). The study developed for Eastman’s application for the Koop awards tested the participants-vs-non-participants equivalency hypothesis. From that application, Figure 1 below shows that, despite the fact that no wellness program was offered until 2006, after separation of the population into participants and non-participants in 2004, would-be participants spent 8% less on medical care in 2005 than would-be non-participants, even before the program started in 2006. In subsequent presentations about the program, HFC included the 8% 2005 savings as part of 24% cumulative savings attributed to the program through 2008, even though the program did not yet exist.

Figure 1

Source: http://www.thehealthproject.com/documents/2011/EastmanEval.pdf The other common study design that shows a positive impact for wellness identifies a high-risk cohort, asks for volunteers from that cohort to participate and then tracks their results while ignoring dropouts. The only control is the cohort’s own previous high-risk scores. In studying health promotion program among employees of a Western U.S. school district, Brigham Young University researcher Ray Merrill concluded in 2014: “The worksite wellness program effectively lowered risk measures among those [participants] identified as high-risk at baseline.” However, using participants as their own control is not a well-accepted study design. Along with the participation bias, it ignores the possibility that some people decline in risk on their own, perhaps because (independent of any workplace program) they at least temporarily lose weight, quit smoking or ameliorate other risk factors absent the intervention. Research by Dr. Dee Edington, previously at the University of Michigan, documents a substantial “natural flow of risk” absent a program.

Key Mathematical and Clinical Factors

Data compiled by the Healthcare Cost and Utilization Project (HCUP) shows that only 8% of hospitalizations are primary-coded for the wellness-sensitive medical event diagnoses used in the BJC study. To determine whether it is possible to save money, an employer would have to tally its spending on wellness-sensitive events just like HCUP and BJC did. That represents the theoretical savings when multiplied by cost per admissions. The analysis would compare that figure to the incentive cost (now averaging $594) and the cost of the wellness program, screenings, doctor visits, follow-ups recommended by the doctor, benefits consultant fees and program management time. For example, if spending per covered person were $6,000 and hospitalizations were half of a company’s cost ($3,000), potential savings per person from eliminating 8% of hospitalizations would be $240, not enough to cover a typical incentive payment even if every relevant hospitalization were eliminated. There is no clinical evidence to support the conclusion that three pillars of workplace wellness -- annual workplace screenings or annual checkups for all employees (and sometimes spouses) and incentives for weight loss -- are cost-effective. The U.S. Preventive Services Task Force (USPSTF) recommends that only blood pressure be screened annually on everyone. For other biometric values, the benefits of annual screening (as all wellness programs require) may not exceed the harms of potential false positives or of over-diagnosis and overtreatment, and only a subset of high-risk people should be screened, as with glucose. Likewise, most literature finds that annual checkups confer no net health benefit for the asymptomatic non-diagnosed population. Note that in both cases, harms are compared with benefits, without considering the economics. Even if harms roughly equal benefits, adding screening costs to the equation creates a negative return. Much of wellness is now about providing incentivizes for weight loss. In addition to the lack of evidence that weight loss saves money (Lewis, A, Khanna V, Montrose S., "It’s time to disband corporate weight loss programs," Am J Manag Care, In press, February 2015), financial incentives tied to weight loss between two weigh-ins may encourage overeating before the first weigh-in and crash-dieting before the second, both of which are unhealthy. One large health plan offers a weight-loss program that is potentially unhealthier still, encouraging employees to use the specific weight-loss drugs that Dartmouth’s Steven Woloshin and Lisa Schwartz have argued in the Journal of the American Medical Association never should have been approved because of the drugs’ potential harms. In sum, with tens of millions of employees subjected to these unpopular and expensive programs, it is time to reconfigure workplace wellness. Because today’s conventional programs fail to pay for themselves and confer no proven net health benefit (and may on balance hurt health through over-diagnosis and promotion of unhealthy eating patterns), conventional wellness programs may fail the Americans with Disabilities Act’s “business necessity” standard if the financial forfeiture for non-participants is deemed coercive, as is alleged in employee lawsuits against three companies, including Honeywell. Especially in light of these lawsuits, a viable course of action -- which is also the economically preferable solution for most companies and won’t harm employee health -- is simply to pause, demand that vendors and consultants answer open questions about their programs and await more guidance from the administration. A standard that “wellness shall do no harm,” by being in compliance with the USPSTF (as well as the preponderance of the literature where the USPSTF is silent), would be a good starting point.

Long-range forecasts don’t all agree on the weather or how we label it, but another winter of extreme cold may be upon much of the nation. I’m personally convinced one is because even where I live, in Tennessee, my dog, Max, is vocally rejecting his outdoor house at night -- and that doesn’t usually happen until January. While Max and I, having lived in the South all our lives, may be wimps when it comes to the cold, conditions are clearly calling for an alternate plan. And that brings me to today’s topic: From a workers' comp and safety perspective, did last year’s polar vortex provide any important lessons? Slips and falls Slips, trips and falls, according to OSHA, contribute to 15% of all workplace fatalities -- second only to motor vehicle accidents. WorkCompWire recently reported that nearly one-third of all workers' comp claims in the Midwest last year were because of slips and falls on ice and snow, doubling the rate of the previous year. This data, from the Accident Fund and United Heartland, represents only five states, so I don’t want to say we have a national trend -- but I am eager to see 2013-2014 data from the Bureau of Labor Statistics or other major sources. Would it be surprising if percentages were even higher in areas where extreme winter weather is rare? While it will be another year before the first “polar vortex” slips and falls from late 2013 show up on experience mods, I thought it would be interesting to set up a few scenarios and with the help of ModMaster illustrate how an increase in these accidents might affect an employer’s experience mod and premium. The cost in terms of mod points – and increased premium For the following scenarios, I assumed an average slip and fall on the ice would cost $22,000, which is in range of varied statistics I found on the web. Of course, an actual slip-and-fall expense could vary from very little to tens of thousands of dollars, depending on complications and time away from work. As you see below, whether the loss is kept as a medical-only loss or involves indemnity makes quite a difference – although, in actuality, an indemnity claim is probably going to be quite a bit higher than $22,000. As a reminder, in most states, medical-only losses are reduced by 70% because of the experience rating adjustment (ERA) rule of the experience rating formula. For the first scenario, let’s imagine a relatively small machine shop with about $1.5 million in annual payroll. This company’s minimum mod is 0.79, and the manual premium is $75,000. As you can see below, a single average slip and fall would increase the mod by 8 points (on a scale of 100) and increase the premium by 10% – unless the claim is kept medical-only, in which case the impact would be only 3 mod points and about 3% of the premium. In a second scenario, let’s imagine another small company, one that consists of office workers. Because this company’s expected losses (not shown) are much less than in the first scenario, the company’s minimum mod isn’t as low as our first example. Furthermore, the impact of a single slip and fall is much more significant in terms of mod points. However, this company’s manual premium is only $5,000 -- so while the premium impact of the slip and fall may not seem too significant in dollars, the percentage increase of their premium is notable. Finally, I wanted to see what kind of impact  several slips and falls might have on a larger company. My mind is already on holiday baking, so let’s imagine a cookie factory of several hundred employees and about $20 million in annual payroll. Then let’s imagine that, during a particularly bad patch of weather, seven people slip and fall in the parking lot and three more slip and fall in an entryway that has become wet with melting ice. For this company, which has a minimum mod of 0.43 and a manual premium of $500,000, those 10 slips are still a hefty impact if they’re not held to type 6. For the examples above, I’ve depicted companies whose workers are not primarily assigned to environmentally challenging conditions. Imagine the spike in injuries and cost for companies whose employees are exposed to cold stress. 'The tip of the iceberg' Slips and falls certainly aren’t the only winter issue. Workers' comp and insurance news and blogs are populated with lists and stories of all types. Consider just a couple: 1.  A recent story in Business Insurance concerns an employee injured when her employer gave her a ride in the floor of a company van during a snowstorm. While the employer was clearly trying to help out its employees, this employee is due benefits, a NY court ruled, because she was still on the clock, and the employer “took responsibility for the inherent risks of transporting its employees from the worksite.” 2.  Although it’s not mentioned as a weather-related issue, it’s easy     to imagine that a situation like this wet floor case could have developed because of rain or snow. The moral of this particular story? A “wet floor” sign is a safety device that an employer must ensure is utilized, not just made available to custodians. Regardless of the cause of any injury, a popular analogy in risk management is that the cost of workers’ compensation insurance is just the “tip of the iceberg.” In addition to direct insurance, medical and indemnity costs, the full costs include administrative expenses, potentially significant impacts to a company’s productivity and the injured employee’s overall well-being. By the most conservative estimates, an average slip of $22,000 may actually cost twice that -- and by some estimates may approach $100,000 in total costs. Summary As the examples above show, the experience mod and cost impact of winter-related accidents are sure to vary considerably from one accident and one company to the next. Regardless of exact cost, the reported uptick in slips and falls on ice and snow should serve as a flare on a snowy roadside, reminding us that every company, regardless of its size or geographic location or the type of work it does, needs some level of preparation for extreme weather in terms of policy, operations and equipment. (Broker Briefcase is a good resource to help.) Even before I read the news about the increase in Midwestern slips and falls, a prevalence of winter-related slips and falls had stood out to me in loss runs that I occasionally see in the process of assisting clients. Have you seen evidence of this, as well? How are you helping your client or company understand the potential cost of just one winter weather loss, and to prepare as much as possible for avoiding or mitigating that loss? I’d love to hear your thoughts in the comments below.

Savvy chief information and technology officers have always known that IT capabilities could deliver more than efficient, repeatable business practices. Many CIOs and CTOs understand that a well-designed and fully leveraged technology strategy can usher in breakthroughs and competitively disruptive capabilities. With this in mind, CIOs can focus on an important question: How can technology become an enabler for innovation? This is a particularly sensitive point in today’s changing business world. Easy access to technology is toppling the barriers of entry to innovation and giving rise to a new class of players that pose a threat to established companies, according to our 6th Annual Digital IQ survey. In fact, 67% of nearly 1,500 business and IT executives surveyed said they were concerned that the speed of technological change is a threat to their growth prospects. Top performers, however, take a dedicated approach to innovation, and the CIO or CTO works closely with other C-level executives to deliver greater value from innovation that drives growth. For example, top-performing companies are much more likely to report that their CIOs and chief strategy officers enjoy strong working relationships, compared with other respondents in our survey. Bridging Technology and Innovation CIOs help bridge IT capabilities and innovation objectives in a few ways.

• They create spaces for innovation and allow experimentation to happen. IT systems in companies are notoriously complex, rigid and laden with firewalls and security. But innovation requires experimentation and tweaking the status quo. Savvy CIOs create IT sandboxes for the innovation team to work in without compromising the integrity of the company’s IT system. These sandboxes can be internal or external systems for experimentation and piloting.
• CIOs generate ideas and enable innovation. Sitting on top of the stacks, servers and systems, CIOs have a unique perspective on how value is delivered to clients and the way it is monetized. Leaders don’t sit back and let others innovate.They generate ideas for innovation and join in the process of exploring the best way to make them commercial realities.
• CIOs increase value beyond the next planned IT rollout. Enterprising CIOs look at how existing or new technology can be leveraged to drive growth through innovation and increase customer value. They work with other senior executives to define the innovation strategy and recommend ways technology can support those objectives. Also, by building stronger relationships with the marketing officer and chief strategy officer, for instance, CIOs can help identify customer trends, use technology as a lever in improving the delivery of products and services and better execute on the business plan.
• CIOs foster innovation from the outside-in. Many companies set up programs and incentives internally for innovative ideas. Resourceful CIOs look outside the walls of their organizations for ideas. They encourage use of crowdfunding, maker faires and open-source communities to help spawn and foster new ideas.

The CIO Balancing Act But even as CIO roles evolve toward having a stronger innovation focus, they also must manage the more routine IT tasks involved in keeping their companies agile, efficient and flexible. Here are some things CIOs might think about as they try bring these two worlds closer together:

• How can we rapidly prototype and use demos to show innovative ideas rather than just telling about possible concepts?
• How can our IT platform be better used to incubate breakthrough innovation?
• How can my team and I use data analytics to identify hidden opportunities?
• What IT best practices can we leverage to accelerate growth?
• How can we align IT metrics to business outcomes and integrate IT performance metrics into innovation scorecards? CIOs are already masters at using IT capabilities to deliver organizational improvements. Couldn’t they use that same know-how to drive innovation forward, too?

This post, co-written with Rob Shelton, also appeared on the PwC Growth Leaders Blog.

As we are all too familiar, the handling of workers' compensation is dictated by statutes in all states. Only Texas and Oklahoma offer the freedom to “opt out” of the statute, and their approaches are quite different. In Texas, “non-subscription” has been around for more than 100 years. Practitioners have achieved dramatic costs savings and better outcomes for many claims. Over time, non-subscribers also often experience significant reductions in frequency and length of disability. All of these outcomes are what we work hard to help our clients achieve, but we are often frustrated by the statutory requirements of many states that bring bureaucracy and controversy to many claims. In February 2013, the state of Oklahoma enacted workers’ compensation legislation, SB 1062, which allows any employer to exit, or opt-out of, the state’s statutory workers’ compensation system. While not exactly like  “non-subscription” in Texas, this new statute is a significant move forward in giving employers more options in how they respond to and finance employee injuries and related benefits. A key focus is on ensuring injured employees are treated respectfully and compensated fairly. Just as there are significant differences between what Oklahoma has done and what has been in place in Texas for more than 100 years, there are state-specific opportunities to improve in many other states. Enter the Association for Responsible Alternatives to Workers' Compensation, or ARAWC (pronounced “A-Rock”). This national coalition of employers and workers' compensation system providers has formed after many realized the benefits achieved in Texas and those anticipated in Oklahoma. Where SB 1062 offers Oklahoma employers that choose to opt-out of the state system the opportunity to substantially reduce work-injury costs and avoid both the statutory system’s extensive regulation and litigation risk, similar goals for other states are being established by the leaders of ARAWC for the benefit of both employers and employees. Two key statistics show why Oklahoma changed:

• Oklahoma employers said that workers' compensation costs were the #1 reason they were either leaving the state or adding jobs at facilities located in other states, such as Texas.
• National Council on Compensation Insurance (NCCI) statistics for 2012 showed Oklahoma loss costs to be 225% higher than those in neighboring states.

ARAWC is now developing strategies and plans that will identify the states where statutory change can bring the most benefit to both employers and employees through a more effective, efficient mechanism. The founders expect that their efforts will enable the delivery of better medical outcomes to injured workers and give employers more choice on how employee injuries will be managed. The organization will be announcing its first target state at the first of the year. Currently, all but Oklahoma and Texas effectively mandate workers’ compensation insurance as the sole option for employers to cover employee injuries. The Texas and Oklahoma options are not currently available elsewhere. ARAWC’s mission is to expand the delivery of better medical outcomes to injured workers by expanding employer choice in other states. Experience under these alternative employee injury benefit platforms has proven to dramatically reduce employee injury costs, while achieving higher employee satisfaction and substantial economic development. Over the past two decades, Texas non-subscribers have achieved better medical outcomes for hundreds of thousands of injured workers and saved billions of dollars on occupational injury costs. While ARAWC is not necessarily taking the Texas model forward into other states, it will leverage the learnings from more than 100 years of having options in Texas and from what emerges from the changes from Oklahoma’s new statute, to drive a strategy for process improvements and lower costs in selected states where change is overdue. It is important to remember that ARAWC views an option as a positive, competitive complement to workers' comp, not necessarily a replacement to the current system. Some of the core benefits that ARAWC will be seeking include:

• Delivering better medical outcomes and higher process satisfaction for injured workers without the cost and burden of traditional workers’ compensation.
• Driving state economic development through the attraction of employer savings.

This newly minted organization was established and is governed by a founding board that includes many Sedgwick clients that, in some cases, have tens of thousands of employees throughout the U.S. and have an intense interest in seeing those employees helped by a better-designed and -managed system. The member companies of ARAWC aspire to refocus state-based mandates in response to growing gaps in quality medical care, efficient risk financing, effective return to work and other gaps in many current systems. Some of the other expected benefits of ARAWC’s strategy for employees are expected to be:

• Improved workplace safety and training supporting injury prevention.
• Expanded access to quality medical providers providing exceptional care.
• Opportunity for expanded benefits through custom-designed plans.
• Opportunity for reduced waiting periods for wage replacement, with greater benefits.
• More expedient medical treatment and more immediate referral to specialized medical treatment to enhance recovery.
• Early identification of potentially complicating medical conditions and securing appropriate medical treatment to aid recovery.
• Improved communications with injured workers to address benefit questions and assist early return to work.

Nationwide, the experience under alternative employee injury platforms will provide employers the option of alternative mechanisms, which can result in:

• A more competitive insurance marketplace -- experience shows significant rate reductions when choice is introduced.
• Improved incentive for existing workers’ compensation providers to improve services and pricing, knowing the employer has an option to be more engaged in helping injured workers recover and return to work more quickly and efficiently.
• Incentives for medical providers to act in the best interests of the employee and improve levels of service
• Expanding employee access to medical providers who do not accept workers’ compensation patients because of low fee schedules and paperwork.
• An injury benefit plan that can more efficiently deliver care to and achieve better medical outcomes for injured workers.

ARAWC shows what an often inefficient system can motivate: change that can benefit all participants while reducing bureaucracy and many other negative elements. As the conversations that ITL is driving are focused on disrupting the status quo, what better place to start than with choice in workers' compensation?

The term, “ban the box,” refers to the question on hiring applications that asks if the applicant has a criminal record/conviction; if so, he has to check the “Yes” box. “Ban-the-box” laws are laws designed to restrict employers from including questions that ask about prior arrests or convictions on initial employment applications. The purpose behind the law is to reduce unfair barriers to the employment of people with criminal records. The ban-the-box movement requires employers to act and fast. Numerous states and cities have enacted such laws, and we expect more to follow in the near future. Illinois’ ban-the-box equivalent, titled the Job Opportunities for Qualified Applicants Act, takes effect Jan. 1, 2015. Illinois is prohibiting private and public employers from asking about an applicant’s criminal history until after the employer selects the applicant for an interview or provides the applicant with a conditional offer of employment. Illinois’ act applies to all private-sector employers with 15 or more employees. There are exceptions. The act does not apply to: (1) jobs that cannot be held by convicted criminals under federal or state law, (2) jobs  requiring licensing under the Emergency Medical Services System Act and (3) jobs requiring fidelity bonds. The act gives the Illinois Department of Labor (“IDOL”) the power to investigate alleged violations and authorizes IDOL to impose civil penalties up to $1,500. We expect that IDOL will start fining employers as soon as the act goes into effect. Private-employer ban-the-box laws currently exist in California, Colorado, Connecticut, Delaware, Illinois, Maryland,   Massachusetts, Nebraska, New Jersey, New Mexico and Rhode Island. Numerous cities have passed similar laws. Pending legislation exists in Florida, Georgia, Louisiana, Michigan, New Hampshire, North Carolina, Ohio and numerous cities. Some states’ laws prohibit employers from asking about criminal history in the initial employment application before conducting an interview, while other laws prohibit such inquiries until after the employer makes a conditional offer of employment. Be wary, as ban-the-box laws vary in terms of what types of criminal-history questions employers may ask applicants. For example, some laws only allow employers to ask about specific convictions and explicitly prohibit employers from asking about non-conviction arrests or expunged records. Exemptions can vary as well, with exclusions for facilities or employers that provide programs, services or care to minors or vulnerable adults. As each state’s ban-the-box law may vary, it is important for employers to reevaluate their pre-employment and hiring practices. Employers affected by ban-the-box laws that do not update their applications and pre-employment processes risk being investigated and fined on an individual and potentially class-wide basis. Employers that operate in different states need to be diligent to make sure their applications are tailored to each state and city. The takeaway: Have your HR department or labor counsel review your employment applications and company policies to ensure that questions regarding an applicant's criminal history comply with applicable laws. Additionally, employers should consider providing compliance training to employees involved in interviewing and hiring to make sure they are knowledgeable about the new laws. Laura Zaroski wrote this article with her colleagues Joseph M. Gagliardo, Lily M. Strumwasser and Laner Muchin.

Even if you’ve been hiding under a rock the past 25 years, it’s almost impossible to avoid hearing about how companies are turning around their results through better modeling or how new companies are entering into insurance using the power of predictive analytics. So now you’re ready to embrace what the 21st century has to offer and explore predictive analytics as a mainstream tool in property/casualty insurance. But misconceptions are still commonplace. Here are the top six myths dispelled: Myth: Predictive modeling is mostly a technical challenge. Fact: The predictive model is only one part of the analytics solution. It’s just a tool, and it needs to be managed well to be effective. The No. 1 point of failure in predictive analytics isn’t technical or theoretical (i.e., something wrong with the model) but rather a failure in execution. This realization shifts the burden of risk from the statisticians and model builders to the managers and executives. The carrier may have an organizational readiness problem or a management and measurement problem. The fatal flaw that’s going to derail a predictive analytics project isn’t in the model, but in the implementation plan. Perhaps the most common manifestation of this is when the implementation plan around a predictive model is forced upon a group:

• Underwriters are told that they must not renew accounts above a certain score
• Actuaries are told that the models are now going to determine the rate plan
• Managers are told that the models will define the growth strategy

In each of these cases, the plan is to replace human expertise with model output. This almost never ends well. Instead, the model should be used as a tool to enhance the effectiveness of the underwriter, actuary or manager. Myth: The most important thing is to use the right kind of model. Fact: The choice of model algorithm and the calibration of that model to the available data are almost never the most important things. Instead, the biggest challenge is merely having a credible body of data upon which to build a model. In “The Unreasonable Effectiveness of Data,” Google research directors Halevy, Norvig and Pereira wrote: “Invariably, simple models and a lot of data trump more elaborate models based on less data.” No amount of clever model selection and calibration can overcome the fundamental problem of not having enough data. If you don’t have enough data, you still have some options: You could supplement in-house data with third-party, non-insurance data, append insurance industry aggregates and averages or possibly use a multi-carrier data consortium, as we are doing here at Valen. Myth: It really doesn’t matter which model I use, as long as it’s predictive. Fact: Assuming you have enough data to build a credible model, there is still a lot of importance in choosing the right model -- though maybe not for the reason you’d think. The right model might not be the one that delivers the most predictive power; it also has to be the model that has a high probability of success in application. For example, you might choose a model that has transparency and is intuitive, not a model that relies on complex machine-learning techniques, if the intuitive model is one that underwriters will use to help them make better business decisions. Myth: Predictive modeling only works well for personal lines. Fact: Personal lines were the first areas of success for predictive modeling, owing to the large, homogeneous populations that they serve. But commercial lines aren't immune to the power of predictive modeling. There are successful models producing risk scores for workers' compensation, E&S liability and even directors & officers risks. One of the keys to deploying predictive models to lines with thin policy data is to supplement that data, either with industry-wide statistics or with third-party (not necessarily insurance) data. Myth: Better modeling will give me accurate prices at the policy level. Fact: Until someone invents a time machine, the premiums we charge at inception will always be wrong. For policies that end up being loss-free, we will charge too much. For the policies that end up having losses, we will charge too little. This isn’t a bad thing, however. In fact, this cross-subsidization is the fundamental purpose of insurance and is necessary. Instead of being 100% accurate at the policy level, the objective we should aim for in predictive analytics is to segment the entire portfolio of risks into smaller subdivisions, each of which is accurately priced. See the difference? Now the low-risk policies can cross-subsidize one another (and enjoy a lower rate), and the high-risk policies will also cross-subsidize one another (but at a high rate). In this way, the final premiums charged will be fairer. Myth: Good models will give me the right answers. Fact: Good models will answer very specific questions, but, unless you’re asking the right questions, your model isn’t necessarily going to give you useful answers. Take time during the due diligence phase to figure out what the key questions are. Then when you start selecting or building models, you’ll be more likely to select a model with answers to the most important questions. For example, there are (at least) two very different approaches to loss modeling:

• Pure premium (loss) models can tell you which risks have the highest potential for loss. They don’t necessarily tell you why this is true, or whether the risk is profitable.
• Loss ratio models can tell you which risks are the most profitable, where your rate plan may be out of alignment with risk or where the potential for loss is highest. However, they may not necessarily be able to differentiate between these scenarios.

Make sure that the model is in perfect alignment with the most important questions, and you'll receive the greatest benefit from predictive analytics.

The firestorm over comments made by MIT economist Jonathan Gruber has not helped the cause of the White House and defenders of the ACA in Congress. The historical landslide in the recent mid-term elections will also bring a major legislative backlash in the new House of Representatives and U.S. Senate early in 2015.

I had high hopes for the ACA. I have been a supporter of healthcare reform dating back to my college days and at graduate school many decades ago. The goals of universal coverage, elimination of pre-existing condition limitations and allowing dependents to stay on their parents plan until age 26 are all things I fully support.

However, the rollout of the ACA was a debacle. The campaign promise that, "You can keep your plan if you like it" and that "you can keep your doctor" was given 4 Pinocchios by the Washington Post, not exactly a friend of the GOP. Ask Nixon.

Now after the self-proclaimed architect of the ACA touts the lack of transparency in the design of the ACA to fool the American voters and how stupid "we" are, don't expect a warm and fuzzy reaction in a GOP-controlled Congress. House Democratic leader and the White House are now busy "misremembering" the major role that Gruber played in drafting the ACA and are hoping the public will eventually, too.

What's next? Both the House and the Senate will vote to repeal Obamacare in January. The House has already done this a few dozen times, but now Harry Reid can't block a vote in the Senate. The president will veto this legislation. There will be political grandstanding with press conferences and dire predictions on both sides. Nothing will happen. There is a very little, if any chance, the GOP will have the votes to override a presidential veto.

What will most likely pass is a repeal of the tax on medical device manufacturers, which reportedly has bipartisan support. This will be problematic to the president and ACA supporters, because this will directly affect the proposed financing of the ACA. That lost revenue will have to be accounted for. Let me guess? Higher costs to consumers and companies providing health benefits to employees and their families? Is that correct, Mr. Gruber?

What will also likely pass Congress is a bill repealing the little-known provision providing a safe harbor to health insurance companies under the ACA, which essentially allowed a federally financed bailout if they end up losing money.

The ACA is here to stay, in my opinion, but incremental changes will be attempted. The GOP will support legislation to lower malpractice costs, allow small employers to band together in purchasing cooperatives, allow health insurance to be sold across state lines and make the implementation and administration of the ACA a state responsibility and not run by the federal government.

The president's own recent in-house advisory group recommended that the ACA be run by the states, because healthcare, like politics, is all local. This received very little, if any, play in the mainstream media. In fact, at least two major, national, mainstream news outlets have yet to even mention the controversy surrounding Jonathan Gruber's videotaped comments and the firestorm it has created.  I guess they misremembered to run the story.

Finally, for other possible changes, see a previous article of mine at Insurance Thought Leadership on April 9, 2014, regarding how the ACA has gutted major elements of the bipartisan healthcare reform efforts in Massachusetts by virtually eliminating experience rating for small to mid-size employers.

Gruber predicted health insurance premiums are going down because of the ACA. Please tell that to all the small and mid-sized employers across the U.S.  I have not heard from one whose costs are going down. Maybe they misremembered.

It's time to fix the ACA with a bipartisan effort and study what works and what doesn't, and certainly not be based on what someone in an ivory tower believes. He thinks we all are stupid anyway.

Having just returned from another industry gathering where practitioners are trying to get a read on the keys to success in risk management, I thought I’d share some thoughts that I often include in my presentations and RIMS workshops. Suffice it to say, no two practitioners are doing exactly the same thing nor following a template-based strategy if they’re having much success. I offer this introduction  to say two things: There is no one right way to practice risk management, and, by extension, the best risk strategies are those that are aligned with, if not custom-designed to fit, the priorities of the organizations for which they are intended. One thing is nearly certain: A risk strategy can’t be successfully executed without a risk framework to make actionable those strategies that inform success. A framework might best be guided by one of the risk standards that are increasingly informing how the work can best be done, but a standard is not a prerequisite to success. By contrast, a risk culture is a prerequisite. Your corporate culture represents the ways in which management and governance prefer employees to behave. It is typically tied to a set of values such as honesty, integrity and excellence. But do you realize that you also have a risk culture, even if you haven’t purposely defined and implemented one? Whether your organization is risk-averse, risk-assumptive or somewhere in between these two extremes, your employees have risk taking and managing behaviors that, without a specific design and strategy for the risk culture you desire, will not likely be the behaviors or culture you most need and ideally desire. Therefore, communicating on risk culture can be most valuable to your long-term risk-management effectiveness. What matters most in achieving this desired state? Well, rather than produce another list of top 10 items, here are 11 things that, in my opinion, matter most in effectively managing risk. If you operate with these elements in place, you will be more likely to have an effective strategy that other leaders will both contribute to and enable through resources. Downside Protection: This is job one. The first priority is to make sure reasonably preventable loss is addressed through both mitigations and financing tactics. Management and governance rightly assume this is under way. Influence and Gumption: Every senior risk leader must have the respect to be heard and the gumption to push back on risk owners and stakeholders with whom he may disagree. Consistency: With risk process and sub-processes being the way in which the work gets executed, it is essential that they are consistently applied by all users. Process Rigor: Processes that produce results and have impact require a rigorous approach to how they are designed, measured for effectiveness and continuously improved. Data Interpretability: There must be actionable information about results and impact. Communication Clarity: Beginning with a clear definition of risk itself, an entire sub-strategy for communicating your messaging will ensure you reach the ”right recipients at the right time with the right message.” Reliable Measurability: Not every risk can or should be quantitatively measured, but, when you do, make sure the measure is as believable as possible. Value Creation: Recognizing and leveraging risk for gain is the necessary evolution of the discipline’s practitioners if they ever hope to move beyond the tactical. Embedded Risk Culture: Driving consistent and aligned risk-taking behaviors and decisions across the enterprise can only be achieved by embedding a well-defined and disciplined risk culture. Managing to Appetite and Capacity: Risk cannot be effectively managed without a clear view into how much risk you are taking, want to take and have the capacity to take or assume. Aligning Risk and Performance: The ultimate outcome for risk professionals is to manage risk relative to performance. Alignment, if not integration, between risk and performance is essential to achieving short- and long-term goals. So there you have it: the 11 things that matter most in managing risk effectively. Sure, there are many other tactical elements of a good risk strategy and framework, but I believe they will naturally flow out of these elements when put into practice with the  proper senior level mandate and regular reinforcement of the strategy.

Never underestimate the ability of the human species to adapt to changes in its environment. All humans are engineers. If there is too much friction in a system, they will fix it, or they will replace it. When banks add overdraft penalties, incur service fees, constrain capital, restrict mobility or compromise the public trust in any way, all those engineers will make a “correction.” Money, after all, is a social agreement.

Today, young people are encountering a financial game that they cannot win playing by the rules that are presented to them. The result should surprise no one – they will either not play the game, or they will change the rules. In fact, innovation in banking is happening at an astonishing rate; unfortunately, bankers are not necessarily doing it.

Because banking touches every part of our lives, so, too, will any innovation that occurs in the domain of banking.

Look at Bitcoin. It is more than just a cute new social app like Facebook or Twitter – it is a new idea called decentralization. If it is possible to decentralize banking, it would also be possible to decentralize everything; insurance, engineering, education, production (i.e., corporations), education, legislation and even governance. Nothing is immune from the next wave of Internet innovation that is bearing down -- and right now, not tomorrow.

Because this is an insurance audience, allow me to mention that, the easiest (technically) and likely the first big innovation that will arise from the decentralization movement will be decentralization of insurance. With the advent of smart contract platforms such as Ethereum and Ripple Labs, people can form their own risk-sharing pools to cover a whole suite of perils now in the domain of insurance. (For the lawyers and politicians out there, it is also nearly trivial to set up voting, escrow, contract enforcement, etc., via the sort of block chain protocol that is the basis for Bitcoin.)

Last year, I published an article called “What if everyone was a BitCoin”? The core idea was that there are several problems with Bitcoin:

• Concentration of wealth is worse than the dollar.
• The proof of work that creates coin is trivial except for the fact that it is difficult.
• The valuation was speculative.

Today, there are hundreds of companies forming, and being funded in the millions of dollars, that are investing in innovations that would create thousands, if not millions, of alt-coins with characteristics of Bitcoin, except iterated without the impracticalities of Bitcoin.

For example, MaidSafe was able to introduce a currency called Safecoin that provides a way to take unused computational capacity that members are willing to contribute and build a decentralized server network. This network encrypts data flowing through it, creating a secure and anonymous Internet. What happens to big data when people stop sharing the streams of information available on today's Internet?

Further, innovations such as Curiosumé (by this author) could have wide-ranging implications on everything from education to corporate HR and factors of production -- Curiosumé is an open-source development project designed to replace the resume as a means for describing one's interests, skills and abilities; the tag line is, "Because the resume must die."

Swarm.co allows individuals to invest time and money in decentralized innovations without banks, insurance, corporations, etc. A new generation of venture capitalists such as DApps Fund is already funding new startups in crypto-currencies and demonstrating high convertibility and liquidity.

Every month, thousands of people are coming together at Meet-up  (itself an earlier social innovation) to learn, teach and collaborate on open-source platforms such as Ethereum, Bitcoin, Ripple and many others. Every day, with each article warning of the dangers of Bitcoin, there is another article of an ex-CEO banker coming out strongly in favor of the financial innovation in the crypto space. What is certain is that every impression placed on the public regarding these new technologies is bad for the status quo for banking and insurance.

Resistance predictably comes from the public voice of banks and governments, which have the most invested in the way things are. This is not to say that they are bad and wrong, just that they have the greatest infrastructure in place to support the existing system. Changing their minds is like pushing electric cars against the tide of Big Oil; lines have been drawn in concrete.

What we are seeing is not a “revolution” with a central army in a field of battle; there is simply a natural progression happening fueled by rational efficiency and nothing else. But change is inevitable.

As with previous financial innovations, my guess is that some trader may discover that the true risk associated with a particular crypto-asset is less than what the risk-adjusted market valuation indicates it is. Then, a financial instrument will be developed to exploit the risk-arbitrage. Some readers may recall the saga of Michael Milken, who correctly observed that companies with low credit scores were in some cases less likely to fail than their risk valuations indicated. This led to the creation of junk bonds and, ultimately, the idea that risk valuations can be skirted. To Milken’s credit, the assumption held until greed set in (which is not the fault of the asset).

I believe something similar may or must happen in finance to spawn internal innovation. For example: the insurance industry does not necessarily care about risk per se; the industry cares mostly that the risk is priced correctly. Soon, the insurance industry may realize that the risk of assets backed in crypto-currencies is lessened because of increased liquidity, fewer restrictions and regulations and rapid convertibility and because they are underwritten by better fundamental assets than the dollar. The industry will develop financial instruments that exploit this risk arbitrage and profit considerably.

But if the insurance company does not innovate in this future form of value, then people will build their own instruments. These new ideas and the technologies will enables millions of entrepreneurs and billions of engineers to print their own money one social agreement at a time. My advice to the insurance industry is to get in, help out and adapt before your customers leave you behind.

(Editors note: You are invited to join the author at The Future of Money and Technology Summit in San Francisco, Dec. 2, 2014, for his panel: Everything that Can Be Decentralized Will Be Decentralized.

The description is:

Much of our society today is based on centralized organizations that allocate our land, labor and money to create the things that we need. Today, we have an opportunity to specify and design any number of decentralized applications that also can produce all the things that society needs -- except with stunning efficiency. This is a conversation about what is not only possible but is becoming increasingly probable. This group of speakers represent innovations that decentralize: data, venture capital, productivity, currency, contracts and knowledge -- and that’s just the beginning.

The speakers are:

Paige Peterson - Maidsafe

Sam Onat Yilmaz - DApps Fund

Joel Dietz - Swarm.co

Christian Peel - Ethereum

Moderator: Dan Robles, The Ingenesist Project)

Property insurance claims require significant time, effort and attention from risk management, finance and operations personnel. From the moment the loss is reported, insurers will have what seems like endless requests for information, and they'll scrutinize every figure presented. Then the insured has to put the claim together and present it to the property insurers. The amount of activity is often more than the policyholder anticipates. Insurers understand the burden this places on the policyholder, and it is the reason most insurers offer professional fees coverage. This minor endorsement can be a major difference maker both in effort and outcome.

Here's an example of professional fees wording from a recent policy referring to the coverage for actual costs incurred by the insured: "reasonable fees payable to the insured's: accountants, architects, auditors, engineers and other professionals; for producing and certifying any particulars or details contained in the insured's books or documents, or such other proofs, information or evidence required by the company resulting from insured loss payable."

As you can see, the wording is intended to cover the additional costs associated with the claim.

Here's what's generally not covered:

1) "attorneys, public adjusters and loss appraisers, including any of their subsidiary, related or associated entities either partially or wholly owned by them or retained by them for the purpose of assisting them,

2) "loss consultants who provide consultation on coverage or negotiate claims."

The specific wording of the endorsement will vary and should be carefully reviewed before engaging outside claim services. Some wording is broad and will cover most consultants. Other wording is more restrictive and eliminates certain classes of consultants. To determine what's best for your business, consider the available service providers and evaluate who would best represent your interests.

Often, policyholders don't fully understand the nature of this coverage. Some don't know of it. Some are unaware if they have it. Others may not know if or when to involve a specialist in their claim.

Don't confuse the purpose of this coverage with the "free" help that the insurance adjusters offers. The adjuster's job is to confirm coverage and audit the claim. It is the responsibility of the insured to measure, document and present the claim. If the adjuster's consultants offer to help measure the loss and put the claim together, it would be like having the IRS prepare your taxes. As a courtesy, you should notify the adjuster that you plan to use a claim preparation firm and disclose billing rates and proposals, but the decision is yours to hire, and if the work matches the coverage the insurance company is required to pay for it within reason. The consultant is engaged by the insured, and invoices are reimbursed by the insurance company as part of the claim.

So who is the best choice to help you prepare your claim? Forensic accountants are the most common and appropriate service provider for claim preparation. Forensic accountants can help with:

1. the tedious and burdensome tasks associated with the claims process
2. expertise on the adjustment process
3. efficient interface with policyholder data gathering resources
4. maximizing recovery and expediting claim resolution
5. making the formal claim presentation

While the policyholder still needs to produce information, the claim preparers will efficiently package the information in the form of claim presentations. Some brokers have a claim preparation unit, but there could be a conflict of interest there, as well. The broker is an intermediary between the insured and the insurer. It is difficult to walk that line and truly be supportive of the insured. Most brokers accept contingent commissions based on the profitability of an engagement during the policy year, and the client executives have incentives to use their own services. While not a clear conflict, it certainly has potential to influence the position of the insured.

The good news is there are firms that won't come with baggage -- i.e., conflicts of interest. The best solution is a third party, independent firm that has ample experience and can represent your interests with a specialized skill set. Remember, the firm must be skilled in the complexities of property damage and business interruption claims.

It is critical to have your claim preparation team vetted ahead of a loss. Finding time to interview forensic accountants and review proposals after a loss can waste precious time and derail a claim before it even gets going.

"Do your due diligence and find the best fit for your organization by arranging introductions to your finance/accounting leadership. It is worth the effort when you find the right partner," says John Lafferty, manager, risk and insurance management, at Air Products & Chemicals.

If you have property exposure, it's wise to have your forensic accountants in place and to have the coverage for their services. Risk managers should include professional fees coverage in their discussions with underwriters. With most carriers, it should not materially affect your premium -- if at all. As the market continues to soften, many policyholders are enjoying rate reductions with improved terms, so this is the perfect market climate to explore professional fees coverage if you don't have it. If you do have coverage, look for increased limits. A good benchmark for limits would be to 1% to 2% of your probable maximum loss. This should easily cover the costs for claim preparation from a reputable firm.

If you apply this information and incorporate these recommendations, the next time you have a property loss with business interruption the process will be smoother and results will impress you and your executives. So find your team and get that coverage. You'll be prepared to recover whatever loss comes your way.