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3 Steps to Improve Cyber Security

In the face of growing threats, financial services firms must employ "defense in depth," early warning systems and simulations. |

In the recent science fiction film Inception, protagonist Dominic Cobb infiltrated his victim’s dreams to gain access to business secrets and confidential data. He would then use this knowledge to influence things in his (or his client’s) favor. Cobb’s success depended on his ability to manipulate victims through greater understanding of their human vulnerabilities. Just like Cobb, cyber crime perpetrators begin by identifying their targets’ vulnerabilities and gathering intelligence required to breach their systems. Armed with this intelligence, they navigate their targets’ complex systems, establish covert presence and often remain undetected for a long time.It is clear that the growth in cyber crime has continued, if not accelerated, in the financial services industry. U.S. financial services companies lost on average $23.6 million from cybersecurity breaches in 2013, which represents the highest average loss across all industries. This number is 44% higher than in 2012, when the industry was ranked third, after the defense and utilities and energy industries. While this trend is not to be ignored, these actual losses are sometimes not meaningful to firms’ income statements. The potentially greater impact from cyber crime is on customer and investor confidence, reputational risk and regulatory impact that together add up to substantial risks for financial services companies. A recent global survey of corporate C-level executives and board members revealed that cyber risk is now the world’s third corporate-risk priority overall in 2013. Interestingly, the same survey from 2011 ranked cybersecurity as only the 12th-highest priority. In Inception, although Cobb succeeded in conning most of his victims, he faced stiff resistance from Mr. Fischer, whose strong automated self-defense mechanisms jeopardized the attackers’ plans several times. However, every time Cobb’s team faced an obstacle, they persevered, improvised and launched a new attack. Real-life cyber attacks are, of course, far more complex in many ways than the challenges and responses between Cobb and Fischer. That said, the film does provide an interesting analogy that in many ways illustrates the problems that financial services companies face when dealing with cyber crime. The interplay between attacker and victim is, indeed, a cat-and-mouse game in which each side perpetually learns and adapts, leveraging creativity and knowledge of the other’s motives to develop new offensive tactics and defensive postures. The relatively static compliance or policy-centric approaches to security found in many financial services companies may be long outdated. The question is whether today’s industry can create a dynamic, intelligence-driven approach to cyber risk management not only to prevent, but also detect, respond to and recover from the potential damage that results from these attacks. As such, transformation into a secure, vigilant and resilient cyber model will have to be considered to effectively manage risks and drive innovation in the cyber world. The evolving cyber threat landscape Although cyber attackers are aggressive and likely to relentlessly pursue their objectives, financial services companies are not passive victims. The business and technology innovations that financial services companies are adopting in their quest for growth, innovation and cost optimization are, in turn, presenting heightened levels of cyber risks. These innovations have likely introduced new vulnerabilities and complexities into the financial services technology ecosystem. For example, the continued adoption of Web, mobile, cloud and social media technologies has likely increased opportunities for attackers. Similarly, the waves of outsourcing, offshoring and third-party contracting driven by a cost-reduction objective may have further diluted institutional control over IT systems and access points. These trends have resulted in the development of an increasingly boundary-less ecosystem within which financial services companies operate, and thus a much broader “attack surface” for the threat actors to exploit. Cyber risk is no longer limited to financial crime Complicating the issue further is that cyber threats are fundamentally asymmetrical risks, in the sense that oftentimes small groups of highly skilled individuals with a wide variety of motivations and goals have the potential to exact disproportionately large amounts of damage. Yesterday’s cyber risk management focus on financial crime was -- and still is -- essential. However, in discussions with our clients, we hear that they are now targets of not only financial criminals and skilled hackers but also increasingly of larger, well-organized threat actors, such as hactivist groups driven by political or social agendas and nation-states, to create systemic havoc in the markets. An illustrative cyber threat landscape for the banking sector suggests the need for financial services firms to consider a wide range of actors and motives when designing a cyber risk strategy. This requires a fundamentally new approach to the cyber risk appetite and the corresponding risk-control environment. The speed of attack is increasing while response times are lagging Threat actors are increasingly deploying a wider array of attack methods to keep one step ahead of financial services firms. For example, criminal gangs and nation-states are combining infiltration techniques in their campaigns, increasingly leveraging malicious insiders. As reported in a Deloitte Touche Tohmatsu Limited (DTTL) survey of global financial services executives, many financial services companies are struggling to achieve a level of cyber risk maturity required to counter the evolving threats. Although 75% of global financial services firms believed that their information security program maturity is at level three or higher, only 40% of the respondents were very confident that their organization’s information assets were protected from an external attack. And that is for the larger, relatively more sophisticated financial services companies. For mid-tier and small firms, the situation may be much worse, both because resources are typically scarcer and because attackers may see them as easier targets. In a similar vein, the Snowden incident has perhaps increased attention on insider threats, as well. Multipronged approach can supplement traditional technologies that may now be inadequate Given that 88% of attacks are successful in less than a day, it might be tempting to think taht the solution may be found in increased investment in tools and technologies to prevent these attacks from being successful. However, the lack of threat awareness and response suggests that more preventative technologies are, alone, likely to be inadequate. Rather, financial services companies can consider adopting a multipronged approach that incorporates a more comprehensive program of cyber defense and response measures to deal with the wider array of cyber threats. Financial services firms have traditionally focused their investments on becoming secure. However, this approach is no longer adequate in the face of the rapidly changing threat landscape. Put simply, financial services companies should consider building cyber risk management programs to achieve three essential capabilities: the ability to be secure, vigilant and resilient. -- Enhancing security through a “defense-in-depth” strategy A good understanding of known threats and controls, industry standards and regulations can guide financial services firms to secure their systems through the design and implementation of preventative, risk-intelligent controls. Based on leading practices, financial services firms can build a “defense-in-depth” approach to address known and emerging threats. This involves a number of mutually reinforcing security layers both to provide redundancy and potentially slow down the progression of attacks in progress, if not prevent them. -- Enhancing vigilance through effective early detection and signaling systems Early detection, through the enhancement of programs to detect both the emerging threats and the attacker’s moves, can be an essential step toward containing and mitigating losses. Incident detection that incorporates sophisticated, adaptive, signaling and reporting systems can automate the correlation and analysis of large amounts of IT and business data, as well as various threat indicators, on an enterprise-wide basis. Financial services companies’ monitoring systems should work 24/7, with adequate support for efficient incident handling and remediation processes. -- Enhancing resilience through simulated testing and crisis management processes Resilience may be more critical as destructive attack capabilities gain steam. Financial services firms have traditionally planned for resilience against physical attacks and natural disasters; cyber resilience can be treated in much the same way. Financial services companies should consider their overall cyber resilience capabilities across several dimensions. First, systems and processes can be designed and tested to withstand stresses for extended periods. This can include assessing critical online applications for their level of dependencies on the cyber ecosystem to determine vulnerabilities. Second, financial services firms can implement good playbooks to implement triage for attacks and rapidly restore operations with minimal service disruption. Finally, robust crisis management processes can be built with participation from various functions including business, IT, communications, public affairs and other areas within the organization. For the full report on which this article is based, click here. Kevin Bingham is sharing this excerpt on behalf of the report's authors, his colleagues Vikram Bhat and Lincy Francis Therattil. They can be reached through him.

Kevin Bingham

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Kevin Bingham

Kevin Bingham, ACAS, CSPA, MAAA, is the chief results officer of subsidiary initiatives at Chesapeake Employers’ Insurance. He has over 27 years of industry experience, including 21 years of consulting.

Making Sure What You Did Stays Done

Workers' comp has begun the crucial move toward data analytics but must do the tedious work of persevering.|

The workers’ compensation industry is often accused of resisting change. Simple observation bears this out, such as how long it has taken the industry to address analytics. Having now put its toe in the water, the industry is still light years behind other industries in implementing analytics. An opportunity can be rather simple, yet taking the necessary steps to achieve it is daunting to many. An executive was once overheard saying of a proposal, “It all makes sense, but we would need to change the way we do things to make it happen.” What is it in the industry culture that causes resistance to change? It may not be the amount of effort required. Analytics are totally dependent on data quality, so if it is inaccurate or incomplete, the analytics are of less value -- a poor trade -- but improving data quality can be intimidating because it is not an IT responsibility. Even when IT can play a part in improving data quality, it is management that must demand it. Sometimes the problem of data quality is the source of the data. Bill review data may not contain all the data fields needed, for instance. Again, only management can address the problem with the vendor organization. Sustaining change A significant amount of the effort needed for change is not so much mobilizing the action but sustaining the initiatives. Change directives must become an integral part of the organization’s process. Management must continually check to see which mandates are carried out and which have slipped. Performance accountability is key. The degree to which a change initiative is successful is positively correlated with management oversight. It is not difficult, but it can be tedious. In this regard, a definition of management is: Good management is continually making sure that what you did stays done. Initiate the change, then follow up to ensure continued practice. The real challenge is to keep doing it. Accurate and complete data is the only affordable and practical resource on the horizon to advance to the next levels of medical management and measureable cost control through analytics. And only management can change data quality.

Fasten Your Seatbelts: Driverless Cars Change Everything (Part 1)

In fact, the driverless car has broad implications for society, for the economy and for individual businesses. Just in the U.S., the car puts up for grab some $2 trillion a year in revenue and even more market cap. It creates business opportunities that dwarf Google’s current search-based business and unleashes existential challenges to market leaders across numerous industries, including car makers, auto insurers, energy companies and others that share in car-related revenue. Because people consistently underestimate the implications of a change in technology -- are you listening, Kodak, Blockbuster, Borders, Sears, etc.? -- and because many industries face the kind of disruption that may beset the auto industry, I’m going to do a series of blogs on the ripple effects that the driverless car may create. I’m hoping both to dramatize the effects of a disruptive technology and to illustrate how to think about the dangers and the opportunities that one creates. In this installment, I’ll start the series with a broad-brush look at the far-reaching changes that could occur from the driver’s standpoint. In the next installment, I’ll show just how far the ripples will reach for companies—not just car makers, but insurers, hospitals, parking lot operators and even governments and utilities. (Fines drop when every car obeys the law, and roads don’t need to be lit if cars can see in the dark). After that, I’ll explore how real the prospects are for driverless cars. (Hint: The issue is when, not if—and when is sooner than you think.) In the last installment, I’ll go into the strategic implications for every company thinking about innovation in these fast-moving times. To begin: Driverless car technology has the very real potential to save millions from death and injury and eliminate hundreds of billions of dollars of costs. Google’s claims for the car, as described by Sebastian Thrun, its lead developer, are:
  1. We can reduce traffic accidents by 90%.
  2. We can reduce wasted commute time and energy by 90%.
  3. We can reduce the number of cars by 90%.
To put those claims in context: About 5.5 million motor vehicle accidents occurred in 2009 in the U.S., involving 9.5 million vehicles. These accidents killed 33,808 people and injured more than 2.2 million others, 240,000 of whom had to be hospitalized. Adding up all costs related to accidents -- including medical costs, property damage, loss of productivity, legal costs, travel delays and pain and lost quality of life -- the American Automobile Association studied crash data in the 99 largest U.S. urban areas and estimated the total costs to be $299.5 billion. Adjusting those numbers to cover the entire country suggests annual costs of about $450 billion. Now take 90% off these numbers. Google is claiming its car could save almost 30,000 lives each year on U.S. highways and prevent nearly 2 million additional injuries. Google claims it can reduce accident-related expenses by at least $400 billion a year in the U.S. Even if Google is way off -- and I don’t believe it is -- the improvement in safety will be startling. In addition, the driverless car would reduce wasted commute time and energy by relieving congestion and allowing cars to go faster, operate closer together and choose more effective routes. One study estimated that traffic congestion wasted 4.8 billion hours and 1.9 billion gallons of fuel a year for urban Americans. That translates to $101 billion in lost productivity and added fuel costs. The driverless car could reduce the need for cars by enabling efficient sharing of vehicles. A driverless vehicle could theoretically be shared by multiple people, delivering itself when and where it is needed, parking itself in some remote place whenever it’s not in use. A car is often a person’s second largest capital expenditure, after a home, yet a car sits unused some 95% of the time. With the Google car, people could avoid the outlay of many thousands of dollars, or tens of thousands, on an item that mostly sits and, instead, simply pay by the mile. A study led by Lawrence Burns and William Jordon at Columbia University’s Earth Institute Program on Sustainable Mobility showed the dramatic cost savings potential. Their analysis found that a shared, driverless fleet could provide far better mobility experiences than personally owned vehicles at far radically lower cost. For medium-sized cities like Ann Arbor, MI, the cost per trip-mile could be reduced by 80% when compared to personally own vehicles driven about 10,000 miles per year -- without even factoring in parking and the opportunity cost of driving time. Their analysis showed similar cost savings potential for suburban and high-density urban scenarios, as well. Driving could become Zipcar writ large (except the car comes to you). Looking worldwide, the statistics are less precise, but the potential benefits are even more startling. The World Health Organization estimates that more than 1.2 million people are killed on the world’s roads each year, and as many as 50 million others are injured. And the WHO predicts that the problems will only get worse. It estimates that road traffic injuries will become the fifth leading cause of worldwide death by 2030, accounting for 3.6% of the total -- rising from the ninth leading cause in 2004, when it accounted for 2.2% of the world total. If Google could give everyone a world-class electronic driver, it would drastically reduce the deaths, injuries and direct costs of accidents. The driverless car might also save developing countries from ever having to replicate the car-centric infrastructure that has emerged in most Western countries. This leapfrogging has already happened with telephone systems: Developing countries that lacked land-line telephone and broadband connectivity, such as India, made the leap directly to mobile systems rather than build out their land-line infrastructures. China alone expects to invest almost $800 billion on road and highway construction between 2011 and 2015. It is doubtful, however, whether even this massive investment can keep up with the rising accidents and traffic congestion that the country endures. And road construction won’t deal with the issue of pollution, to which the massive car buildup contributes and which is becoming an ever more politically sensitive issue. How might China and other developing economic powers’ massive car-related investments be redeployed if fundamental assumptions were viewed through the lens of the driverless car? In sum, the Google driverless car not only makes for a great demo; it has worldwide social and economic benefits that could amount to trillions of dollars per year. Insurers will feel major effects because hundreds of billions of dollars of reductions in losses obviously mean reduced requirements for insurance in all sorts of areas: auto, life, P&C, health and more; even workers' comp needs will diminish because so many claims that would have stemmed from car accidents simply won't happen. The locus of power in some parts of the insurance industry will shift, too. Why should a driver buy insurance if the car is doing the driving? Instead, car makers will likely take on the responsibility, and perhaps as part of their traditional approach to product liability, rather than working through auto insurance companies as they are currently constituted. I'll look at those issues and others next time.

State-by-State Look at Small Medical Claims

Should an employer pay small medical claims? The answer is not simple. It can depend on several factors.|

Should an employer pay small medical claims or turn them in to the workers compensation insurance company? That is the most common question an insurance agent gets from employers. The answer to this question is not simple. It can depend on several factors, including:
  • Whether the state has approved the experience rating adjustment (ERA) in the experience modification formula.
  • Whether the employer has expertise in paying according to the state fee or reasonable and customary schedule, and whether the employer has access to discounted medical networks, as insurance carriers do.
  • Whether a small deductible to handle small medical claims might beappropriate and assist in complying with state rues.
  • State rules and penalties where the employer is located.
  • Whether the state of operation has a favorable alternative option for handling small medical claims.
  • How organized and detailed the employer is?
Experience Rating Adjustment (ERA) For years, insurance agents recommended that employers pay small workers compensation medical claims out-of-pocket and not submit them to their insurance carrier. The rationale was that frequency affects the experience modification formula more than severity does, so frequent claims would produce a higher experience modification and increase costs. When the experience rating formula was created, assumptions were built into it. One assumption is that one large claim should not have as much effect as a number of smaller claims that total the same amount. For example, a single $90,000 claim should not have the same impact as five $18,000 claims. One large claim may not reflect the insured’s overall operations. However, five $18,000 claims indicate a problem with safety or other issues. In addition, studies have shown frequency often leads to severity. The practice of employers not reporting small claims in an attempt to keep their experience modification low troubled many of the workers compensation stakeholders (insurance companies, actuaries, OSHA, National Council of Compensation Insurance [NCCI] and other state independent advisory organizations). The lack of reporting meant that the database of loss experience was not complete, possibly leading to poor statistical analysis. To address this issue, an experience rating adjustment (ERA) was introduced into the formula. In states where ERA is approved, medical-only claims (injury code 6 claims) are reduced by 70% before being used to calculate experience rating. Also, the expected loss rate and discount ratio, used to compute expected losses and expected primary losses, have been changed to reflect that medical-only claims will be reduced by 70%. Many feel the incentive to not report medical-only claims has been eliminated in states where ERA is approved. The ERA-approved states are: Alabama, Alaska, Arkansas, Arizona, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia and Wisconsin. The District of Columbia has also approved ERA. Those that have not approved ERA are: California, Colorado, Delaware, Massachusetts, Missouri, New Jersey, New York, North Dakota, Oregon, Ohio, Pennsylvania, Washington, Wyoming and Texas. After analyzing “what if” scenarios on employers either reporting to the carrier or paying medical-only claims on their own, studies conclude that the employer did not save money by paying medical-only claims. This was even truer in ERA states, particularly if the employer does not know how to apply the state fee schedule or has no access to discounted networks like those developed by insurance carriers. The above illustration is representative of the reduction that would be realized on the $13,981 in medical bills had they been applied against the state fee schedule and insurance company network discounts. After these discounts, the total claims in the modification formula at 30% would be $1,846 ($6,152 x .30 = $1,846), reducing the modification from 1.275 to 1.20 vs. the 1.18 experience modification without reporting medical-only claims. No doubt reporting no medical claims produces a lower modification; however, many employers have no knowledge of how to apply the workers compensation state fee schedules and will not have access to insurance carrier discount networks. This often results in the employer paying higher medical costs and higher overall worker compensation costs. Employers could arrange with a third-party fee schedule company to assist with state fee schedules, but this would depend on the volume of work. It may be awkward to engage a fee-schedule company without a formalized program to allow the employer to pay its own medical claims under a deductible program. Alternatively, the employer can look up the fee schedule amount by procedure code and fee schedule. The employer will have to know how to create an “explanation of benefits” for the medical provider. In summary, some knowledge is required if an employer is going to take advantage of state fee discounts in paying its own medical claims. Potential Risks and Penalties Clearly, an employer paying its own medical claims in non-ERA states presents a more attractive option than doing so in ERA states, as the impact on the experience modification is greater. However, there are several factors to consider. There is always a risk the claim could become more serious. Many states have distinct periods of time that allow for a claim denial. If the claim becomes problematic or significant medical is needed, or if an employee becomes disabled (and the condition can be tied back to the original medical claim), the employer may lose the ability to have the claim denied at a later date because of the state’s statutes. In addition, many states have penalties that apply if the employer does not report the claim to the carrier or the state. Arkansas issued bulletin warning employers, insurers and other workers compensation stakeholders against the practice of businesses paying small workers compensation claims directly, saying the practice was in violation of Ark. Code Ann. Section 11-9-106(a), which deals with making materially false representations for the purpose of avoiding payment of the proper insurance premium. The law authorizes insurers to offer a deductible to policyholders, but the law does not authorize direct payments, with or without a valid deductible program. The bulletin emphasized that even with an authorized deductible program all claims must be submitted for “first dollar” payment by the insurer. Other states require all incidents must be reported even if “notice only.” In other states, the doctor reports the claim to the state with a copy to the carrier of record so the opportunity to pay your own medical claims is certainly more challenging. An employer must also be aware of penalty situations in its states regarding timeliness of payment. For instance, in Michigan, as in many other states, the bill must be paid within 30 days of receipt. Small-Deductible Programs Most states have approved the use of small-deductible plans. Currently, 36 states (Alabama, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota and Tennessee) have state-approved small-deductible rules ranging from $500 (Oregon) to $25,000 (Missouri, Ohio and Texas) for medical and indemnity. In some states, an insurer is not required to offer a deductible if the employer’s ability to make payment of the claims under the deductible is in doubt. Some states have specific requirements for small-deductible plans while others allow insurers to file their own plans. In Arizona, Idaho, Louisiana, Michigan and Mississippi, insurers are permitted to file small-deductible programs, but most carriers haven’t. North Dakota, Washington and Wisconsin are notable exceptions as states not allowing small-deductible plans. In return for assuming a deductible applicable to every claim, the employer receives a premium credit. These plans are extremely popular as a cost-cutting tool for many employers, especially contractors. Sometimes, underwriters use deductibles as a defensive tool, or the employer reluctantly accepts a deductible, as it may have been the only way to obtain a competitive premium. A deductible is simple to manage from the employer’s standpoint. Claims are submitted to the carrier. The carrier pays the claims after applying the state fee schedules and other network discounts. The employer is billed at the end of the month for reimbursement of the claims under the deductible amount. Selecting a small deductible is not always a pricing consideration. A company may be more attractive to a carrier if it is willing to take on a small deductible. This is especially true of contractors. Whether the claims under the deductible go into the experience modification depends on the state the employer is located in. Currently there are 15 NCCI states offering net deductible options for small deductibles: Alabama, Colorado, Florida, Georgia, Hawaii, Iowa, Kansas, Kentucky, Maine, Missouri, New Mexico, Oklahoma, Rhode Island, South Carolina and South Dakota.

Small-Deductible-Programs Reference Table

The following NCCI table provides a summary of the small deductible programs in the states where the Basic Manual applies. For complete details regarding the rules of any program, refer to the appropriate state pages. Alaska, District of Columbia, Idaho, Louisiana, Mississippi and Oregon have not filed programs with NCCI. So what does net vs. gross mean? Assume the employer is in Kentucky, a net small-deductible state. The employer signs up for a small deductible and gets a small premium credit. It sends the bills to the carrier, and the carrier bills for the amounts under the deductible at the end of the month. When the claims activity for this employer is reported to the NCCI, it is reported “net” AFTER the deductible has been applied. If the employer had a $500 deductible, a $400 claim would show up at the NCCI as $0 and a $1,000 claim would show up as $500. (Remember this is after the state fee schedules and carrier cost containment networks have been applied, so it could have started out as a $3,000 medical claim). Some states require insurers to report losses on a gross basis, which is the full amount paid by the insurer, irrespective of deductible reimbursements received from the employer. In a gross state, say Indiana, an employer can sign up for a small deductible and get a small premium credit. When this employer’s claims are reported to the NCCI, they are reported “gross” -- as if no deductible existed. Assuming the same claim scenario -- a client with a $500 deductible -- the $400 claim is reported to NCCI as $400 and a $1,000 claim shows up as $1,000 for experience modification purposes even though the insured is reimbursing some of the claim under the deductible. Gross means reported without regard to the deductible. Net means reported after the deductible is applied. Net reporting of losses may allow an employer to receive a premium discount up front and favorably affect its experience modification factor by eliminating all losses below the deductible from experience rating. So what does it mean when a state is a gross and net state? The NCCI Basic Manual will refer you to the state pages for further explanation. It can be for several reasons:
  • In Florida, for instance, only a $2,500 deductible is “net.”
  • Some states are net for medical-only and gross for indemnity.
With so many states offering small deductibles for medical-only claims, it is difficult to understand -- particularly in an ERA state -- why any employer would not formalize a small-deductible plan and take the advantages of the state fee schedule and carrier network medical bill discounts as well as the carrier premium credit allowed for small deductible plans. This is especially true in those states that have approved ERA, have net deductible plans and also give a credit for the deductible program. These include Kansas, Kentucky and New Mexico. With the expanded format of the unit statistical report approved in most states, losses are reported on both a gross and net basis. Thus, insurers report the same information in all states regardless of whether gross or net losses are used to calculate experience modifiers. State-Specific Variances There is usually a reason why a state did not approve ERA. Some states have a mechanism in place to handle employers paying small medical claims that reduce medical claims included in the experience rating calculation. Ohio Employers are allowed to pay the first $15,000 of any medical-only claim. Ohio also allows employers “salary continuation” which allows an employer to pay an employee his or her regular wages after a workplace injury or illness occurs. No salary continuation payments or medical-only claims paid by the employer under the $15,000 go into the modification calculation. Oregon  Oregon has a medical reimbursement option that allows interested employers to reimburse medical-only claims up to $1,500. Any reimbursed medical losses are removed (or reduced) from the experience rating. Missouri  Missouri law allows employers the right to direct the medical care for their injured workers and to pay first-aid-type claims that are $1,000 or less out-of-pocket. By paying claims under $1,000 out-of-pocket, the frequency and cost of these claims are not included in the calculation of the experience modification. There is a special NCCI endorsement that is attached to the policy. The bill is submitted to the carrier. The carrier reprices the medical bill according to the state fee schedule and network discounts. This is true even if a bill is $1,200 but ends up being $800 after re-pricing. The claims under $1,000 do not get reported on the experience modification. Some carriers operating in Missouri that have a higher deductible plan (i.e., $2,500) in place with an employer will allow the employer to reimburse the bill and not report the entire bill to the experience modification. They count the first $1,000 under the Missouri law and the balance of the deductible as subrogation. Any lost time claim or a claim where it is known that a permanency rating will apply (i.e., fracture) must be reported even if under $1,000. The Missouri system has worked well for employers. It is an example of how an employer may have a different approach to paying small medical claims or decide not to pay them at all depending on the state they are located in. Washington  Medical-only claims are subject to a deduction equal to twice the average medical-only claim cost. The amount changes each year (2014 is $2,610). The claim cost will be deducted from the loss amount before beginning any other calculations on the claim. Ultimately it reduces the regular experience modification calculation. No employer’s experience modification can increase or decrease more than twenty-five percent during any one year. However, if an employer’s experience modification factor is calculated to be below 1.00 without this twenty-five percent limitation and that employer had an experience modification factor greater than 1.333 in the previous year, then the experience modification factor shall be set to 1.00 California  California employers have an option to self-pay certain workers compensation claims. Specifically, first-aid claims. Even though there is no premium reduction to pay first aid claims out-of-pocket, this practice may have a positive effect in minimizing the impact on future experience modifications, and reduce the future cost of premiums. Several states – Alabama, Kansas, Kentucky, New Mexico, Oklahoma and Rhode Island) offer a unique opportunity in that they approved ERA (70% discount for medical-only claims), they allow a credit for the small deductible and they do not include claims under the deductible in the experience modification. Advanced Monitoring of the Experience Modification It is important to note that the 70% reduction applied to medical claims for the experience modification in ERA states is only for a medical-only claim. As soon as an indemnity (lost wages) payment is included, the entire medical portion of the claim goes into the experience modification formula. Once the waiting period has passed to collect lost wages (anywhere from 3 to 7 days depending on the state) lost wages are paid back to day one. There are occasions when a claim may result in only 5 or 7 days off or $300 to $900 of indemnity payment but the medical is high (i.e. $10,000). Hernia operations are an example of short time off but large medical expense. If the employer were to continue to pay this individual for the week or two off and report only the medical to the carrier, only $3,000 of the medical would apply to the experience modification. This feature of the formula highlights the importance of returning employees to work as soon as medically possible and when not medically possible, managing that one-to-three week period of wages. There is software available that can calculate a variety of “what ifs” to determine the cost saving advantages to paying close attention to this issue. Once again the employer and agent must be aware of what the state of operation allows. Wisconsin issued a warning to employers that they cannot pay wages to injured workers to lower their experience modification. The claims must be paid by the workers compensation carrier. Wisconsin does not allow deductible plans and this action constitutes use of a deductible which has not been filed by the bureau and approved by the Office of the Commissioner of insurance for use in Wisconsin. The office warned it will pursue appropriate enforcement action about any practices noted as improper. Medicare -- Responsible Reporting Entity In addition, employers must now contend with the rules from the Center for Medicare and Medicaid Services (CMS). But first, a little history. Federal Medicare set-aside has been in force for many years. What is in place is a process that was activated when a workers compensation settlement on a claim was imminent on an individual who was collecting Medicare because they were of Social Security age or disabled or when there was a reasonable expectation an individual would be eligible for Medicare within 30 months of the settlement time. When these circumstances existed on a settlement of a workers compensation claim, the carrier or TPA was required to assemble medical records on this individual and send them to a company that would assess the future medical and prescription drug use only relative to the workers compensation injury (not everything covered by Medicare is covered by workers compensation). When the employee receives his/her lump-sum workers compensation settlement a non-interest bearing bank account is also set up with the assessed amount for future medical and prescription (but no indemnity or impairment). The settlement “set-aside” (hence the name) pays bills and the employee keeps receipts. Any medical bills not paid but eligible for Medicare are then paid by Medicare. The Secondary Payer Act was passed by Congress under George Bush. Medicare was always intended to be a secondary payer not primary but the only time this was getting done was in workers compensation settlements. Usually a denial or a delay (by way of lawsuit) of a workers compensation, general liability or automobile claim sent an eligible individual to Medicare. Medicare conditionally pays with the expectation of being reimbursed if and when a lawsuit is resolved with the workers compensation, general liability or automobile carriers. Unlike workers compensation settlements set-aside, there was no formal method to recover what Medicare paid when the lawsuit settled. Medicare is now requiring reporting of all open general liability, automobile and workers compensation claims if another primary source of recovery is available for Medicare eligible claimants. So this brings us to employers paying their own small medical-only claims or lost wages. An employer risks becoming the responsible reporting entity with all the burdensome reporting requirements when paying their own claims unless they adhere to the strict rules where workers compensation is exempt under ongoing responsibility for medicals (ORM) for minor incidents. Workers compensation claims are excluded from reporting indefinitely if they meet all the following criteria:
  • Claim is for “medicals” only.
  • The associated “lost time” for the worker is no more than the number of days permitted by the applicable workers compensation law for a “medicals only” claim (or 7 calendar days if the applicable law has no such limit).
  • All payments have been made directly to the medical provider.
  • Total payment for medicals does not exceed $750.
The employer needs to evaluate whether saving a few dollars on their experience modification is worth tracking and carefully following these rules. If the employer pays any medical over $750 and the employee is Medicare eligible the employer could be creating more headaches with reporting/tracking etc than the experience modification savings is worth by paying the bills instead of sending to the carrier. The carriers and TPAs have experts that have implemented these new rules and will have this streamlined. There are many companies now offering reporting services. Failure to report a claim carries a $1,000-a-day per claim penalty. Conclusion The variances among states dictate that there is no one, simple answer to the employer’s quandary of whether to pay small medical-only claims or turn them in to the insurance carriers for payment. An employer must weigh the advantages and disadvantages of paying small medical claims after:
  • Obtaining a complete understanding of their state’s laws.
  • Understanding the CMS rules.
  • Evaluating the staff’s ability to effectively manage their own medical bills.
  • Reviewing the insurance alternatives available (small deductibles) that take paying small medical claims into consideration.
Information in this article is provided as a reference only. While I strive for accuracy, the workers compensation world is constantly changing. Consultation with the governing authority or an attorney for verification is advised.

Maureen Gallagher

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Maureen Gallagher

Maureen Gallagher is the Michigan managing director and national real estate and workers compensation brands leader in Neace Lukens. Gallagher previously held the position of president and CEO of Acordia of Michigan (Wells Fargo). Gallagher is on the national teaching faculty for the National Alliance for Insurance Education and Research.

Are You a Safety Crusader or Leader?

Safety Crusaders don’t encourage learning. They jump to conclusions and shut down conversations with fixes and answers; only their view counts.|

The way that we engage with other people about safety and risk will determine our effectiveness. If our aim is for others to lead on safety, we must be prepared to suspend our own agenda and let go of control. This allows us to hear, understand and respect their views, and for them to take control. If we don’t suspend our own agenda, then we project it onto others, which will mean that they will not lead; at best, they may just follow instructions (some of the time!).A recent incident, in which a vehicle struck a customer in a parking lot, shows the importance of being willing to step back, of finding the most effective way to be a leader on safety and not just a crusader.When I approach an incident like this, I usually go armed with a checklist of things in my mind as to what I look for, along with suggestions for actions based on what I’ve seen work well before. For traffic incidents, this usually involves high visibility signs, line markings, bollards, pedestrian crossings, speed bumps and the like. This is not an unusual approach for people in the safety and risk industry where we are considered subject-matter experts. However, when we take our agenda into conversations with others, we shouldn’t be surprised when they don’t appear interested in safety. This is particularly evident when our agenda is about control, compliance and binary (black and white) thinking -- as in, this is the rule, the law, the code, and this is what we need to do. On this occasion, I approached things differently. While I was busily working through the checklist in my mind, along came George, the site manager. As George started talking, I was conscious of the need to suspend my own agenda, to put that checklist away, hand over control, "hear" what George had to say and engage with him. Suspending my own agenda meant going into the conversation not only prepared to hear George's views, but more importantly resisting the temptation to impart my own ideas and suggestions (control). This can be difficult for some people in safety and risk. It is different than how I see some people operate, in an approach that I call the Safety Crusader Model. This is where people feel the need to be the only one with the answers and, worst of all, feel that if they were not there things could not be safe (control). This is a very dangerous model and one that leads to "ownership" of safety being with the safety and risk professional (control) and not with others. Safety Crusaders don’t encourage learning. They tend to jump to conclusions and shut down conversations with fixes and answers, for theirs is the only view that counts (control). The Safety Crusader isn’t really interested in others; he is armed with the Act, the Codes, the Standards. His focus is on compliance with these things (control). We need to be cautious of the Safety Crusader;these guys will tell you they are safety nuts, that they have a passion for making sure others are safe, and that it is their job to ensure safety. But what does this mean for others and how they manage safety? For people like George, who has a real interest and enthusiasm for safety at his site, if he were faced with a Safety Crusader (control) on this day, he would simply have shut down and done as he was told. Safety Crusaders tend to have strong opinions and leave little room for others to participate in conversations (control). George wouldn’t have learned anything other than what the Safety Crusader imposed on him. He would not have "owned" the actions; he would have just followed directions. We have to ask what value the Safety Crusader adds to an organization and consider whether this model really improves safety in the workplace. The Safety Crusader can’t be there all the time, and if his approach is focused on compliance with laws and The Code (control), rather than facilitating learning, engaging with people and providing support, how will others learn about safety? I did suspend my agenda when talking with George. It would have been quicker and easier for both of us if I had just told George what to do. That is, how to comply. But safety is not just about compliance It can’t be. This is not what motivates people. Safety is about how we deal with everyday and changing situations. It’s about leadership, culture and, importantly, learning. But where does the learning take place when the Safety Crusader is focused on what’s right or wrong, or on what she feel needs to be done (control)? How could George have learned if his agenda was trumped by my superior knowledge of legislation and codes? Instead, I supported George as he thought through various options, prompting him with questions about his ideas, and encouraged him to explore as many options as he and his team could think about. Importantly, I didn’t judge these ideas against my own agenda. I handed control to George. He and his team came up with actions; they weren’t what I had in mind, but they were their ideas, and they were keen to implement them. I participated in the discussion, asked questions and prompted their thinking that helped them explore different ideas. That was my job; it was not to control George. When a Safety Crusader goes into a conversation with the agenda of “I must get them to take safety seriously,” he cannot be open to the agenda of others and really understand what they are thinking, because the Safety Crusader thinks that his views are the only ones that count (control). I hear regularly from people in the safety and risk industry who say things like, “Managers don’t take safety seriously”; “They always opt for production over safety”; and “They never walk the talk.” It seems to me that we often take the approach that it’s us (the safety and risk professional) against them (anyone whose first words in the morning aren’t, “Let’s be safe!”). This us-and-them stereotypical thinking is a real problem, and it is dangerous. It limits our thinking and learning because "we" feel "we" have the answers (control), and "they" don’t see them as a priority. You see, George didn’t feel the need to “make sure others are safe”; instead, his focus was to make sure others knew about the risks and to keep them mindful, rather than try to control their behavior. I could have considered George one of "them," especially if his response was not filled with the same enthusiasm for safety as mine. This was not the case, though. George did care; he just didn’t express it as openly and enthusiastically as I hear some safety and risk professionals do. George is a smart operator. He knows that people can’t be controlled through rules, policies and procedures. He knows that people are motivated by feeling autonomous and in control of their own actions. His role is to develop relationships through effective leadership and engagement with people who will manage their own safety. George is not a crusader; he doesn’t feel the need to control a person’s every move. He allows mistakes and learning, and he provides support; he is a leader. Are you a Safety Crusader or a Safety Leader?

Robert Sams

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Robert Sams

Rob is an experienced safety and people professional, having worked in a broad range of industries and work environments, including manufacturing, professional services (building and facilities maintenance), healthcare, transport, automotive, sales and marketing. He is a passionate leader who enjoys supporting people and organizations through periods of change.

New Wellness Plans: for Employee Finances

Companies are rolling out wellness programs focusing on employees' financial health, to combat lower productivity and greater absenteeism.|

Employee wellness programs no longer just mean healthy office potlucks, pedometers and stress balls. These days, more companies are rolling out wellness programs focusing on the financial health of their employees. The change in tack comes as American workers are struggling to keep their financial houses in order. Companies are acting because financially stressed workers can mean lower productivity and greater absenteeism, among other problems. But, to be effective, a financial wellness program must address the individual needs of workers and their different learning abilities. It also must actually boost workers’ financial management skills, and keep them engaged over the long term. The Opportunity In January, benefits consultant Aon Hewitt released a survey of 400 national employers representing nearly 10 million workers. Three-quarters of respondents said they are “somewhat to very likely” to implement a program this year targeting their workers’ financial health and educational needs. Previously, the survey found, companies were most concerned about whether workers were participating in 401k plans. Today, however, employers are expanding their focus  to help workers improve their overall financial health. “A growing number of companies are offering tools and services to help employees make smarter financial decisions, which can help improve employee engagement and productivity as workers focus less on financial stressors,” Aon Hewitt noted. The survey also found that “employers understand that workers can’t adequately save for retirement if they don’t have their financial house in order.” These findings come after other surveys have highlighted how financially stressed workers can zap a company’s bottom line: lower productivity, unscheduled absenteeism, turnover and rising health care costs from stress tied to basic money management. It isn’t known if employers are just  becoming aware of these facts -- or if it’s the growing fallout that is spurring employers to seek financial wellness programs. Regardless, it’s clear employers want a solution. The History Why did financial wellbeing become such a hot workplace issue? The answer is simple. Unless you were raised in a home that practiced and taught sound financial management skills, it’s unlikely you possessed these skills by the time you entered the workforce. Think of your own primary educational experience. Was it void of education in personal financial management? Most would answer, “Yes.” Consider “the Greatest Generation,” who fought in World War II and kept the home front intact. These men and women worked for companies that provided pensions ensuring a comfortable retirement. They lived in a time when a successful and peaceful life wasn’t dependent on acquiring more things. This generation lived through the Great Depression, resulting in a lasting emphasis on frugal living. For most, this experience was their financial education; but they were unprepared for teaching the next generation about managing financial complexities. Baby Boomers raised by this generation entered the workforce when the economy was growing. Jobs were plentiful, and so were mortgages, auto loans and credit cards. For many, living with debt became the new norm; however, understanding how to manage that debt was largely dependent on the family environment in which a person grew up. Generation X saw even greater access to debt. In fact, as if the allure of accumulating more than their parents wasn’t enough, the cultural message suggested that people should spend their way to happiness. Lacking financial management education, many Gen Xers found themselves leaning on employers to solve their personal financial challenges. They requested 401k loans and hardship withdrawals, payroll advances, etc. Most of America’s working class were living beyond their  means and using the equity in their homes to bankroll their lifestyles. But then the stock market crashed in 2008, resulting in massive losses in retirement and other types of investment accounts. Millions of workers lost their jobs, and many more suffered losses in income. And, in the blink of an eye, the equity in their homes was gone. In fact, a big percentage of these workers suddenly found they owed more on their mortgages than their homes were worth. For most among the working class, the new reality meant living with more debt, less income and fewer assets. Even now, the Millennials approach the workforce with similar cultural conditions as Gen Xers. But there are two added wrinkles. First, Millennials are entering a more competitive job market. Second, they do so with much higher expectations of what employers will do for them. Economists agree that navigating our financial system is becoming more complex. In each of the last three years, the American Psychological Association has found personal finances to be the leading cause of stress in this country. And medical research continues to point to stress as a leading cause of disease. We aren’t suggesting that financial wellness programs are the only answer to these problems. But  the facts suggest such an approach is very important to dealing with them. The Solution Employers have made it clear they plan to help employees manage their finances. In fact, 70% of employees have indicated they prefer to get such assistance through their employer. What does the right solution look like? For starters, companies must actively promote their financial wellness programs and ensure they’re readily available to all employees. There’s a misperception that wealthier workers have less need for such assistance. Unfortunately, very few people are immune to economic hurdles: The problem transcends income, job classification and educational background. The right solution will offer a multidimensional learning format, given that people have different learning styles and preferences. The solution also needs to be communicated in a way that appeals to most people. In addition, the right solution will seek to keep workers engaged over the long term. Establishing and increasing basic knowledge of personal financial management is mandatory. However, given the ebb and flow of life and its changing circumstances, workers will continue to encounter new financial conditions. As they do, having an objective financial voice available to them will ensure that past mistakes aren’t repeated. How to gauge success? Workers will no longer get distracted by their financial challenges, thereby increasing their productivity and decreasing unscheduled absences. Workers who get spending and debt under control are saving enough for retirement -- rather than extending their employment years and expanding employers’ costs. Helping workers make better healthcare choices in terms of benefits selections as well as lifestyle decisions also will help with costs. Overall, financial wellness programs will have a positive impact on workers’ quality of life -- as well as companies’ bottom lines.

Brad Barron

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Brad Barron

Brad Barron founded CLC in 1986 as a manufacturer of various types of legal and financial benefit programs. CLC's programs have become the legal, identity-protection and financial assistance component for approximately 150 employee-assistance programs and their more than 15,000 employer groups.

The Key to Success: a Workers' Comp Audit

TPAs and insurers do their own reviews, but when is the last time such a report concluded, "We need to do a better job"? |TPAs and insurers do their own reviews, but when is the last time such a report concluded, "We need to do a better job"?

Third-party administrators (TPAs) promise to manage workers' comp costs for employers through vigilant review and through discounts on medical care that they can provide because of their access to preferred provider organizations (PPOs), but consider the experience of a Fortune 25 client of mine. My analysis found that, despite the discounts, after all the TPA charges for medical bill review the company was paying $1.10 for every $1.00 in workers comp medical bills submitted for payment.My report showed my client could get a 10% savings on its workers' comp program by not having a bill review program with its TPA and just paying all bills at 100%!

To avoid similar problems and to find maximum savings, employers should, at minimum, conduct an annual review of their claims handling. TPAs and insurers do their own reviews, but when is the last time such a report concluded, "We need to do a better job"? Although long-term relationships with TPAs or insurers are generally a good thing, employers should adopt the President Reagan admonition to "trust, but verify."

The need for claims audits is especially great in times like the present, because a weak economy has historically correlated with increased potential for fraud and abuse. In a report released last year by the National Insurance Crime Bureau, the number of questionable claims was up 28% in 2012. The three major reasons were: workers filing claims based on prior injuries not related to the workplace; malingering; and just plain old fraud.

The annual reviews should employ four standards. The first should be verification that the TPAs/insurers performance measurements and contractual obligations are being met. An outside independent claim audit should identify all the things that the claims administrator is doing well, along with identifying areas for improvement.

The audit should actually help TPAs and insurers that have performance bonuses built into their contracts. I have also found that an independent analysis often discovers that the employer causes many of the problems by reporting claims late, by communicating poorly or by lacking a return-to-work program. Such barriers are difficult for even the best claim administrators to overcome. Claim administrators often find it difficult to tell the employer that the emperor has no clothes. A good consultant can, through an independent audit.

The second standard of review should be to determine if the claim administrator is meeting its own internal standards, policies and procedures, such as caseloads per adjuster, quality controls, activity checks and timeliness of benefit payments.

The third level of review should be to compare the claim administrator's standards, policies and procedures to widely accepted industry best practices, such as: initial claim investigation, three-point contact, return-to-work action plans, referral to medical case management and use of independent medical examiners.

The fourth level of review should be comparison to an ideal vision of a workers' comp program. If you could play Santa Claus and had an unlimited budget, what changes, resources and areas of improvement would you like to see? You would be surprised what great ideas spring from that question, that actually don't cost a lot of money to implement.

My experience in the workers' compensation industry began with learning the business from the treating provider's viewpoint. To this day, that occupational medical practice's 24-hour medical triage program to local employers is the best model I have ever seen: Get the injured worker to the best provider and facility from the moment of injury based on the nature and severity of the injury. All claimants by definition are patients who have a work-related injury or illness before they become claimants, or at least say they do. (Excuse me for being cynical, but I grew up in tough industrial town in New Jersey where committing workers' comp fraud was apparently easy and was considered a badge of honor at the neighborhood tavern.)

Virtually every expert agrees that the most effective cost-containment activities should take place within the first 24 hours of a worker's seeking medical treatment, yet this is rarely the focus of the multibillion-dollar managed care industry. Instead, that focus has been on generating huge profits by selling "percentage of saving" arrangements based on PPO "discounts." Audits can help return the focus to where it should be.

Audits can also provide the setting for spotting lots of other problems. For instance, a large, self-insured and self-administered trucking company went through every group health medical claim with a fine tooth comb, but all workers' comp medical bills were stamped to be paid at 100%. When I asked why, the risk manager replied, "Because workers' comp requires us to pay 100% of medical." I pointed out the golden rule, that his statement only applied for reasonable and necessary care related to the injury or illness up to the point of maximum medical improvement (MMI). I felt like Thomas Edison when I saw the light bulb go on above his head. That was the beginning of the end of the policy to pay all workers' comp medical bills at 100% of billed charges.

One of my favorite career moments stems from an interview with a senior executive at a TPA, on behalf of its largest client. I asked him about his quality-assurance program. His answer was, "As you know, we are historically weak in this area." Weeks later, the client asked why I gave their quality-assurance program such a poor grade. My written response was: "Because they are historically weak in this area."

I begin consulting engagements with corporate clients by asking, "It is 9:00 a.m.; what will happen if you have a work-related injury at 10 a.m.?" Two of my favorite responses were: "That's a good question. I have no idea"; and, "We send everyone to the emergency room." I replied to the second answer with, "And then what?" The silence was deafening. That type of response is always dynamite for my claim-audit/cost-containment reports.

First three things I want to know are: Who is the treating provider? Where are the medical reports and documentation? What was done with them?

I have always told my clients that the first time they see a doctor and a lawyer on the same claim file, it is a coincidence. The second time, it is a conspiracy.

Why conduct a workers' comp claim audit? Because it is where the rubber meets the road.

Daniel Miller

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Daniel Miller

Dan Miller is president of Daniel R. Miller, MPH Consulting. He specializes in healthcare-cost containment, absence-management best practices (STD, LTD, FMLA and workers' comp), integrated disability management and workers’ compensation managed care.

How to Make Your Numbers Jump

Take the time to contact as many quality people as you can in a given week. It's really that simple: Make connections.

Do you want to know a secret? Want to know how to make your numbers almost jump right off the page? It’s a simple idea, really, but most insurance professionals don’t know it. When they find it out, they keep the idea under lock and key. But I’ve never been one to keep secrets, especially if they can help others get ahead in business.

So, are you ready? Here it is, the big secret: Make connections.

That's it. Just take the time to contact as many quality people as you can in a given week. Plant some seeds, as if in fertile ground. It really is that simple.

But remember, just as plants need time and nurturing to bear fruit, your potential sales leads can only become sales customers with the right mixture of time and effort on your part.

One of my favorite books is How I Raised Myself from Failure to Success in Sales by Frank Bettger. He provides a wealth of information and some extremely valuable insights. Here are a few that still offer a new look or inspiration every time I read them:

“You can’t collect your commission until you make the sale; you can’t make the sale ‘til you write the order; you can’t write the order ‘til you have an interview; and you can’t have an interview ‘til you make the call!”

As Bettger points out, very directly, it all begins with the call. Yes, sometimes you will be rejected, but other times you won’t be. You simply won’t know until you pick up the phone or send that email. Don’t think of the potential risk, which is really rather small. Rather, think of the potential reward.

Here’s another one of my favorites:

“Selling is the easiest job in the world if you work it hard -- but the hardest job in the world if you try to work it easy.”

More than any other activity in the world, selling is about preparation and consistency. It takes effort and time to bring in potential clients; sometimes a good insurance professional will spend a month or two on one client, learning their needs, their wants, their various habits, all to make sure that the sales presentation and product will meet the client’s needs without question. A good insurance professional realizes that this business is not a get-rich-quick scheme. It’s about making money over the long term so that you and your family can be provided for.

So… once you have identified your target audience, and what tools you are going to use to connect, engage and communicate with your audience, you move on to your tactics, which determine how you are going to make meaningful connections.

Tactics has six parts:

1.   Approach. Approach is the most critical part of the entire process. The approach sets the stage for all future conversations by phone, email or otherwise. Always respect other people's time, and realize that you never know where you have caught them or what frame of mind they are in.

2.   Purpose. Remember this: The purpose of the call, tweet, email, voicemail is to keep the purpose of the call the purpose of the call. Confused people will not respond with action.

3.   Questions. Design questions to engage or guide your audience. Questions are the answer to the entire sales process. Think of questions like a piece of jigsaw puzzle. With each piece that you put together, the picture becomes clearer and clearer.

4.   Listening. In every conversation or connection, something is being revealed to you. How you respond will determine where the relationship goes from there.

5.   Objections. Working with objections is easy when you see things from another person's point of view. Don't argue, don't do battle and don't contradict everything prospects say. It doesn't work. Their perception is their reality. The only way to understand their reality is to ask questions.

6.   Action. What action do you want this person to take? Will your product or service benefit this person? If not, don't ask. Always treat others as you would want someone to treat you. That is the Golden Rule.

Think about the last time someone really took the time to connect with you. They approached you positively and with purpose. They asked questions to learn more about you, genuinely listened to your answers and tried to see things from your point of view. Then, they walked you through a process or a sale. It may have taken time and effort for them, but how did that make the experience for you?  Probably very pleasant. And, what are the chances you will recommend them to someone else because of that connection?

So here's your Sales Nugget: See how you can integrate all six tactical components and make connections.

Does Knowledge Really Matter for Agents?

Much to the disbelief of some, Google does not offer all the answers -- and there is a great opportunity for agents willing to put in the work.|

What does an agency sell? The answer to this question will make or break many an agency.One might say an agency sells price. Fair enough. But what is it selling for price? An insurance policy? Any policy? Is whether the policy provides the coverages the insured needs secondary, to be discovered in court together? Is an agency selling insurance I.D. cards and evidences of insurance for a price? That is all some insureds want, and it makes sense to only sell them what they want, right? Do these insureds then even need an agent? What value does an agent selling pure price really provide that software cannot? Consumers do get two benefits. First, they benefit from the agency’s E&O policy when coverage proves inadequate. Second, they gain false comfort by believing agents know what they are doing. Computer processing is so fast and powerful today that, when combined with massive advertising, the agent is often obviated. This is a fact. It is not an opinion, no matter how much many readers may protest. The I.D. card portion of the insurance market is already lost. Agents obviously still write this business, but the future is dire. The rest of the market can be saved if knowledge, rather than price, is sold. Computers can bring price faster and more cheaply than humans. The human value is knowledge. Fortunately, a great percentage of the market still cares about buying from a resource that offers personal knowledge. Unfortunately, I see too many producers literally running away from knowledge. Here is the proof: When I ask producers why they do not use coverage checklists, they regularly tell me they’re afraid the customer will ask about a coverage for which they do not have knowledge! Think about this! They think the consumer values knowledge but refuse to gain the knowledge the consumer wants! Those producers should just find another career. Think about this a different way. Do you want a doctor who, because he does not understand cardiac medicine, refuses to test or discuss cardiac issues? Consumers want to buy from a professional who understands their needs and can match their needs to the prices and products available. At the moment, only professional independent agencies can do this. These people and businesses are the market. Do not run away! Embrace this market and gain the knowledge required to meet it. A key difference between the younger generation and older generations in the industry is that knowledge used to be less important, because company underwriters knew much more, and producers could rely on their knowledge. Company underwriters today, as a rule, do not know coverages nearly as well. Deficiencies create opportunity, and this is a great opportunity because a majority of people never will expend enough effort to gain adequate technical knowledge. Those who do will have a competitive advantage that will endure. Much to the disbelief of some, Google does not offer all the answers. Consumers cannot competently look up coverages and apply them correctly. Truly understanding coverages and forms requires a full context. This is what a large and important consumer segment and a huge proportion of the B2B segment clearly want from their agent, so why not give them what they want just like so many agents are willing to give I.D. card shoppers what they want? The alternative is that if knowledge is not advertised and emphasized, the rest of the market will eventually turn into commodity seekers, too. Several new research studies suggest the small commercial market is already turning that direction. The small commercial market is the bread and butter of many agencies. Are you ready to lose those clients, too? Technical insurance knowledge is a great asset. Sometimes, the people possessing the most are not the greatest salespeople, and sometimes the best salespeople are just not geared to possess considerable insurance knowledge. This is no reason to ignore the opportunity. In fact, ignore the opportunity at your peril because, if you do not provide the client knowledge, someone else eventually will. Perhaps the best solution is to create a team that combines knowledge with sales skills. Creating a team may result in less commission to the producer but will gain the producer more sales, more than making up the difference. Knowledge makes a difference. Gain and use knowledge, or let the competition take advantage of your ignorance. NOTE:  None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.

Chris Burand

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Chris Burand

Chris Burand is president and owner of Burand & Associates, LLC, a management consulting firm specializing in the property-casualty insurance industry. He is recognized as a leading consultant for agency valuations and is one of very few consultants with a certification in business appraisal.

Two Checklists for Getting Referrals

Potentially one of the easiest ways to set more appointments and generate more sales is through referrals. Notice I said "potentially." If you are asking a friend, family member or an established customer to suggest the names of your next prospects, the whole process is somewhat easier. You already have built the rapport that you need to acquire the names you want. If your relationship is still being formed, asking for referrals is a little more uncomfortable. People want to make sure that their friends and associates will be treated well before they refer you. Whether a prospect or client gives you a referral depends on how they relate to you and what they think of you, as a business professional as well as a person. How you present yourself and your products or services can either lead to more referrals or more dead ends. The choice is truly yours. Many don't even ask for referrals because they fear rejection. The simple question, "Do you know of anyone who would be interested in hearing more about our investment opportunities…retirement community…or printing services?” can be so daunting that 89% of insurance professionals don't even ask for referrals. Even if we find the courage, inexperience can cause us to approach the whole process incorrectly, forgetting an important step. To get the process right, you must first believe in your product, your message and the value that you can bring to your clients and prospects. You must then present and deliver your solution in the best light possible. There are a select who can improvise and succeed. For the rest of us, it takes detailed preparation to get to the point where we know enough to be comfortable to present our solution with a reassured smile. One of the easiest ways for the sales person to gain increased confidence is to be prepared and, if needed, script the calls or at least create an agenda or outline to follow. Scripting is used by a number of different professionals to get their message across. Movie actors and directors follow a script, and an off-Broadway play isn’t very enjoyable without the script. A well-written, well-organized script will provide your prospects and clients with the right information and reassure them that you know what you are talking about. When you sound like you know your product or service, you can give others confidence in both yourself and in the product you offer. In the end, though, we have to earn the right to ask for a referral. A recommendation is a direct result of how effective you have been at gaining someone's trust, often by delivering a product that fits her needs. People must know, like and trust you. Think for a moment. If you had a friend or a family member, someone you wanted the best for, would you refer that person to someone like you? If you are paying attention, you should know when to ask for a referral. Often, if someone provides a referral, he feels that the actions of that sales person will reflect on him, for good or bad. For example, a client of mine asked if I knew of an individual or organization that worked with sales people on their image, or how they should interact with a prospective customer. I provided one of my contacts, knowing full well that she was more than capable. I called my contact to prepare her for this client, who was not one for flash and showy materials. I felt good about connecting these two people. About a week later, I got a call from my client asking me what in world I was thinking. Despite my warning, she had shown him a number of risqué ideas and suggested liberal techniques. It was as if my words fell on deaf ears. From that experience I learned to be much more careful about making referrals. The dynamics of human interactions are often complex, and it is important to understand and honor our customers' reluctance to share information. Being patient can create respect that can help strengthen the relationship with those we serve. It’s easy to ask for a referral. Let me share with you a simple, five-step process.
  • Step 1: Somewhere in a conversation, I ask, "Can you do me a favor?" A majority of the time, the person will respond with something like: "Well, that depends. What do you need?"
  • Step 2: I simply ask, "Who do you know whom I should be talking with about the type of work I do?" Expect the response, "I can't think of anyone."
  • Step 3: Identify the type of person you are looking for. Say, "I am looking for someone very similar to you." Then describe what that means.
  • Step 4: "If we were at a social gathering right now, having a conversation like we are now, and a friend of yours walked up, would you introduce us?" Expect this response, "Well, of course I would."
  • Step 5: "That's all I am asking for today, an introduction to someone you know, a nice person who may be in a similar situation. You can be confident that I will treat them with the same respect that I have always shown you. Is that fair enough?"
If the person still doesn't want to refer you to anyone, let it go. You want to always leave the person you are talking to better than you found him. The question we all need to ask ourselves is, ‘Am I referrable?"
  • Do I show up on time?
  • Do I follow up on the things I say I’m going to follow up on?
  • Am I prepared for each call?
  • Am I confident?
  • Are my prospects and clients confident in me?
I haven't personally made a cold call in more than 15 years. Over that time, my business has prospered on a steady stream of referrals. If you’ve done the work of effective relationship building, gaining referrals is very simple. Are you asking for referrals? How can you apply these simple steps to your process and begin getting more referrals today?

Steve Kloyda

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Steve Kloyda

For more than 30 years, Steve Kloyda has been creating unique selling experiences that transform the lives of salespeople, prospects and customers. As Founder of The Prospecting Expert, Steve helps his clients attract more prospects, retain more clients, and drive more sales.