A leading workers' comp insurer once asked me to review its provider network strategy. The problem was that it didn't have one.

The insurer readily admitted that after, a decade-long relationship with its preferred provider organization (PPO) vendor, the insurer could not identify a single quality medical provider in the network.

It was no wonder, because the entire business relationship with the PPO was based on discounts from network providers. The only document produced was an Excel spreadsheet showing total billed vs. total paid charges; nothing about what was paid for or to whom it was paid.

The entire foundation of the insurer's network strategy was what is known as "percentage of savings" arrangements with the PPO and corporate clients. Corporate clients typically pay 33% of these savings to insurance companies and third-party administrators, making them a major cash cow.

When I asked to see a breakdown of providers by specialty and how they matched up with the insurer's clients' work locations, I was met with blank stares. I asked, "If a client is billed for a discount on an MRI that was not medically necessary, how is that a savings?" The reply was a proud, "The more MRIs ordered, the more money we make."

Not a thing in the PPO network criteria included selecting credentialed, high-quality providers who were experienced in the diagnosis and treatment of work-related injuries and illness. That was a new concept to the insurer. It was not looking for the best doctor in town; it wanted the cheapest.

I found memos in which both the utilization review team and the unit that handled self-insured clients were completely in favor of developing a network based on the quality of care. But they were not invited to the table on corporate network strategy. Nothing was going to change that network strategy and cash cow.

Corporate clients have been paying for phantom savings for decades through these "percentage of savings" PPO arrangements.

That must change.

A corporate-wide network strategy must start at the moment of injury and consist of a pre-planned strategy at the local worksite. People say that all politics is local, and that is true with healthcare. All healthcare is local. Injured workers need to be treated by the best and most appropriate medical provider from the moment of injury. That should be the only network strategy. Period.

Paying the best provider a fair and negotiated fee, while establishing a pre-planned communication and claims process with input from local case managers and other medical providers around key work locations, is the foundation of a real strategy. This approach has been working for many well-informed and progressive companies for decades.

Why is this approach not promoted? Because there is no cash cow on discounts for managed care vendors, insurers and TPAs.

I have worked with major national corporations developing local hubs at key worksites across the country by utilizing front-line providers such as urgent care centers, primary care providers, specialists and facilities, all trained and credentialed in workers' comp and industrial medicine.

In establishing these pre-planned hubs, we were able to establish excellent working relationships with handpicked network providers that worked closely with corporate clients by actually visiting work locations or reviewing videos of job requirements. The entire process of best practices from injury notification to return-to-work was put in place.

These custom-built networks truly reduced corporate costs 30% or more, savings that were documented using various benchmarks and metrics developed during the process but, more importantly, documented by the causality actuaries in their annual FASB financial statements. Those are savings that went directly to the bottom line and stock price. Instead of paying money to the insurer or TPA for 33% of the savings arrangements on broad-based PPOs and putting millions in PPO vendor bank accounts, I put money in the client's bank account.

It is time for companies that pay for workers' compensation to put the "preferred" back in their PPO strategy. A "preferred" provider isn't offering discounts but is providing high quality medical care and better patient outcomes in compliance with evidence-based medicine practices.  Preferred providers diagnose and treat a given condition and get that injured worker on the road to recovery from day one.

That is a network strategy.

A fresh approach may be needed to address how best to protect Medicare’s interest in a workers’ compensation settlement. Today, the Workers' Compensation Medicare Set-Aside Arrangement (WCMSA) is a routine part of most settlements. The WCMSA takes a part of the workers' compensation settlement and allocates it specifically for future medical expense. If this is done correctly, the Medicare beneficiary is then free to spend the non-allocated portion. The widespread acceptance of the WCMSA is based on a recommendation by the Centers for Medicare & Medicaid Services (CMS), the agency responsible for the administration of the Medicare Trust Fund.  The WCMSA has become the de facto rule because CMS can ignore a workers’ compensation settlement agreement between parties if it believes there has been an attempt to shift responsibility to pay for future medical care to the Medicare Trust Fund. In recent years, however, some have objected in certain types of claims because changes to the review process have increased the dollar amounts that need to be set aside for the WCMSA, to preserve the Medicare Trust Fund. Some feel that the amounts have become unreasonable.  The result has been some failed settlements, contrary to a public policy that favors settlements. In establishing a WCMSA, information is submitted to the Workers’ Compensation Review Contractor (WCRC), and it is evaluated to provide an allocation number for the set-aside that CMS will accept. There are obvious tensions. For instance, the contractor may require extensive documentation for medical care that goes beyond what is necessary for the workers’ compensation claim. This requirement can delay the process or even require the parties to the workers’ comp claim to start over. The contractor may also increase the amount that has to be allocated for the WCMSA, as medical treatment that is unrelated to the workers’ compensation claim can make it into the set-aside. CMS allows for the use of structures to fund the allocation that can save some money by avoiding the need for an up-front, lump sum payment. However, there is little flexibility to discuss disputes over treatment, prescription use and costs. H.R. 1982 is the legislation, supported by the insurance industry, that represents the present attempt at reform. Introduced on May 5, 2013, by Republican Congressman Dave Reichert from Washington’s 8^th Congressional District, and co-sponsored by Democrat Congressman Mike Thomas from California’s 5^th District, the bill was immediately referred for consideration to two House Committees with jurisdiction over Medicare issues:  Energy and Commerce and Ways and Means. But little else has occurred. Today, as the close of the 113^th Congress draws near, H.R. 1982 has 14 co-sponsors, evenly split between Republicans and Democrats, but no companion legislation exists in the Senate. It is difficult to imagine a path for this bill to become law. Members are getting ready for the August recess, to campaign. When they return, larger issues of foreign policy and immigration will take center stage. Passage is not impossible, and it is important to continue support through the end. It is also important to plan ahead, as about 9,170 bills are currently pending, and only about 5% are expected to become law when this congressional session ends on Dec. 31. Revisiting the strategy of H.R. 1982 is important to improve chances of success should re-introduction be necessary. Revision would necessitate assembling likely stakeholders. This meeting should take place as early as possible to allow for an early introduction in the 114^th Congress. The process should follow that adopted by the Medicare Advocacy Recovery Coalition (MARC), which led to the successful SMART (Strengthening Medicare and Repaying Taxpayers Act) at the close of 2012. Broad-based support is critical to success in a Congress that is expected to be even more divided in the next session. The purpose of H.R. 1982 is to increase the number of workers’ compensation settlements with Medicare beneficiaries. This must be an important goal of any rewrite. Because H.R. 1982 is designed to amend the Medicare Secondary Payer Act (MSP), already considered to be “one of the most impenetrable texts within human experience” (Parra v. Pacificare of Arizona, Inc., 2013 U.S. App. LEXIS 7861), another goal must be to have it be easy to understand. A third objective must be to avoid unintended consequences, by clearly defining terms and reconciling conflicts with existing MSP terms. There can be no doubt that H.R. 1982 favors the workers’ compensation plan. The workers’ compensation industry would go from having no ability to raise legitimate disputes to being freed from constraints. CMS, neutered by the proposed law, could do very little to seek increased protection for the Medicare Trust Fund. This is most likely the Achilles heel of the present legislation. Congress enacted the MSP law in 1980 to stem the red ink of the Medicare Trust Fund. Congress passed the Medicare & Medicaid SCHIP Extension Act of 2007 in furtherance of that objective. Any succeeding legislation must be consistent with such protections. This can be achieved and still provide immense benefit for all stakeholders. To see how, here is a look at the major areas covered by H.R. 1982 and how they could be revised to increase the likelihood of adoption: Thresholds H.R. 1982 may be too aggressive in codifying what is already well-established CMS policy for situations where Medicare’s interest need not be considered. Already, in situations where the claimant’s treating physician does not reasonably expect continuing medical treatment, the parties are free to settle without an allocation for a set-aside. All that is required is documentation from the treating physician. Similarly, no allocation can be required if medicals, as alleged or claimed, are not being released (in other words, if the medical portion of the claim is not being settled). Rather than have legislation codify where Medicare’s interest need not be considered, a better approach would be to require CMS to adopt regulations. One issue that can only be addressed through legislation is a value-based threshold that involves a release (or settlement) of medicals. The H.R. 1982 threshold value includes settlements of as much as $25,000; below that level, Medicare’s interest would not have to be taken into account. Today, CMS does not review such settlements but expects that they will “consider” Medicare’s interest. The necessary analysis can be expensive and so time-consuming that contractors will exceed CMS limits on workload. A way around the analysis of smaller settlements could be for Congress to authorize the CMS actuary to determine a threshold based on the cost to the government of review. The threshold should work out to at least $25,000. Qualified Medicare Set-Aside The term “Medicare Set-Aside” is not currently codified in the MSP law. Stakeholders should study the potential unintended consequences of codifying the term in ways that have the force of statute. CMS has established policy and procedures that it recommends on when to submit a WCMSA for approval. H.R. 1982 does not add any benefit by adding definitions and can be simplified by omitting them. The critical component that should be discussed by stakeholders is whether the rewrite should establish a “safe harbor” settlement amount in which a certain percentage is paid to CMS by lump sum or stream of annuity payments that legally “considers” Medicare’s interests. This approach prevents codification of the WCMSA and still achieves the objective. The percentage of the settlement amount would need to be analyzed to maintain cost-neutrality of the bill. As a starting point to demonstrate neutrality, Medicare Set Aside stakeholders should be able to provide Congress data on the ratio of the MSA allocation to the amount of the settlement. Authorizing CMS to Receive Allocation Amount This is long overdue. While it sounds like such a feature would add revenue to Medicare, helping the bill to pass, government accounting won’t recognize this approach. The Congressional Budget Office must score each bill to determine if it costs or saves money, and the CBO doesn’t count as revenue money that is received in advance of when it needs to be paid out. This method is counterintuitive, but stakeholders must take it into consideration. Nonetheless, for the benefit of the injured worker, and non-interruption of Medicare or Social Security benefits, letting CMS receive the WCMSA allocation amount is important and would make sense to Congress.  It is important to have the legislation authorize both a lump sum and stream of annuity payments. Limiting Conditional Payments to the Fee Schedule Stakeholders should discuss the issue of healthcare providers that, under present CMS regulation, may collect more than is allowed under the fee schedule. H.R. 1982 is designed to deal with considering Medicare’s interest in workers’ comp settlements, and it might be wise to limit legislation to that area rather than also taking on the issue with fee schedules. Simplifying the legislation might avoid drawing unintended adversaries who might lobby against it. Applicability of Fee Schedule CMS already accepts the workers’ compensation fee schedule or, in its absence, the usual and customary rate. H.R. 1982 would like to extend the use of the workers’ compensation fee schedule, but some plans may already have better rates. Stakeholders should discuss how medical services and items, including pharmacy, should be priced. There must be no cost to the Trust Fund because of any legislation. In fact, there are ways in which the fee schedules could benefit the fund. Right of Appeal Last year, the Strengthening Medicare and Repaying Taxpayers Act (SMART) became law, providing for an appeals process for workers’ compensation laws or plans. The legislation requires appeals over any “determinations” by CMS. Because an approved WCMSA is a CMS “determination,” it would logically be subject to the appeals process. But, because the WCMSA process is recommended and not required, the appeals process may not be triggered. When parties use the WCMSA, they also waive any right of appeal. The appeals process specified by SMART therefore has no applicability unless the WCMSA is required by an actual law. Stakeholders should consider adding legislation to strengthen the SMART right of appeal. A fair, two -way process to discuss legitimate disputes is essential to increasing settlements. Respecting State Decisions Recently, CMS issued an updated user guide for WCMSA submissions. A section was added that has resulted in confusion on the application of state law. Section 4.4.1 states that CMS will respect the allocation of non-medical portions of a settlement by a board with appropriate jurisdiction, after a hearing on the merits. By implication, what’s left over in the settlement is for medicals, and CMS likely would respect that allocation, as well. But CMS may disagree. Stakeholders should discuss clarification of how state law should work with the Medicare Secondary Payer Act. This may require an analysis of pre-emption rules, as well as defining the types of hearings. H.R. 1982 has both positive and negative implications, creating mixed support. CMS will most likely oppose it if it moves in the present Congress, as it prevents CMS’ ability to enforce the MSP and protect the Trust Fund. Providers, MSP compliance companies and structured-settlement companies would also line up to oppose the bill. It is not clear where beneficiaries and beneficiary organizations will line up – while, in the short run, H.R. 1982 would cause more cases to settle, the adverse impact to the Trust Fund may result in delay in the delivery of benefits as well as their reduction. Nonetheless, there are positives to H.R. 1982. A fresh approach is needed with all stakeholders involved to secure broad-based support to resolve problems for the injured worker, CMS and the workers’ compensation law or plan. With the right legislation, a fix can happen, and one is sorely needed.

Imagine that your job involves negotiating with international criminal organizations or, at the very least, assisting those who do. No, you do not work for some mercenary military force or in illicit arms and drug deals; you work in insurance. It may seem like the start of a movie, but it is a very real segment of the insurance industry, generating hundreds of millions of dollars in premiums annually. What is this line? It’s kidnap and ransom (K&R) insurance, which, in the modern world of global expansion and technological revolutions, is a virtual necessity for major players in every market and a major opportunity for the insurance industry. An emerging line K&R insurance originated following the kidnapping (and eventual murder) of Charles Lindbergh’s baby in 1932. It remained a niche coverage form, covering celebrities and their families, and was relatively unused in the U.S. until the Patty Hearst abduction in 1974. From that point on, policies became more and more popular among the Hollywood elite. Today, the major purchasers of this coverage are large companies with a significant international presence. The policies are designed to protect individuals and corporations operating in high-risk areas around the world. Over the years, policies have evolved from covering named individuals to covering named categories of persons (family, employees, employers, etc.) of a covered individual. The coverage is typically offered along with other management liability lines such as directors and officers. Lloyd’s of London, which has a reputation for focusing on just this kind of specialist insurance in the international market, has a long tradition of providing kidnap and ransom policies. While there is personal lines availability for persons such as freelance journalists, mission workers or high-net-worth families, this article focuses on commercial K&R coverage. There are four major perils covered by the typical K&R policy: kidnapping, extortion, detention and hijacking. Some policies now cover cyber-threats under their extortion coverage, which may overlap with companies’ cyber-perils policies. Overlapping cover can also occur in the context of piracy at sea, where traditional marine cover may meet the cost of the ransom but will not meet the (usually very substantial) costs involved in the crisis management process. K&R policies are indemnity policies; they reimburse for losses incurred by the insured. Types of losses can widely vary, and include: ransom payments, loss of ransom in transit, medical expenses for the victim, psychiatric expenses, reward payments, asset protection, funeral expenses, child care expenses, business interruption expenses and, perhaps most importantly, the fees and expenses of crisis management consultants. All major K&R policies include the cost of services of crisis management and security consultants, which can be thought of as loss mitigation teams. These consultants provide advice to the insured’s family or employer on how best to respond to the incident. Should the local authorities be contacted, or even trusted? How can you make the kidnappers prove they have your employee? Where should you meet with the kidnappers? How should you deliver the ransom? These are not easily answered questions, and most likely should not be answered by someone at your company. Crisis managers have accumulated a wealth of expert knowledge about economic kidnappings. They take the tremendous burden of dealing with kidnappers away from a company or a family and prevent emotions from taking over and exacerbating an already tenuous situation. These firms have a relationship with kidnappers. They know who to trust, who can be bribed and how much resolution is going to ultimately cost. Typical policies do not cap the expenses that can be paid to crisis management teams. Coverage for a unique population A unique feature of K&R policies is that the personnel covered by a policy most likely do not (and cannot) know that they are covered. Policies are typically purchased by a company to cover key personnel traveling in dangerous areas of the world. If those covered were aware of it, it would likely change their activity, potentially increasing the risks they take. In extreme cases, it could even lead to collusion between kidnappers and potential victims. For instance, if a covered individual knew that a company had coverage and would pay in the event of a kidnapping, he or she might work with kidnappers for a portion of the payout. Clearly, it is in the best interest of the companies that those covered remain unaware of the coverage or, more realistically, unaware of the limits and conditions of the specific policy purchased. This scenario leads to some obvious ethical questions and some unusual adverse selection questions. Does the existence of this coverage actually increase the propensity for organizations to commit kidnappings? While evidence exists that the number of kidnappings has increased dramatically over the last 20 years, especially post-9/11, it is not possible to differentiate between the potential moral hazard inherent in a K&R policy and the increased “riskiness” of doing business because of globalization, population increases and global financial unrest. In the 1980s, the United Kingdom’s Prime Minister Margaret Thatcher launched an investigation into the policies. She was concerned that the existence of the coverage might encourage policyholders to pay ransom and might allow them to be less cautious about the amount of ransom they paid. Nothing came of that investigation and, while tension between governing authorities and insurance providers remains, the coverage continues to grow today. Another potential dilemma arising from the existence of this coverage is whether a victim’s company will even inform the insurance company. The vast majority of kidnappers demand that no one be informed about the occurrence. Companies need to balance this demand with the need to contact authorities or the insurance company. If a company does not inform its insurer of the kidnapping, the insurer will likely try to deny coverage; however, if it does inform their insurer, it is potentially jeopardizing the employee’s life. As mentioned, there is also the potential ethical dilemma of negotiating with, and potentially making payments to, kidnappers. In the event that the kidnapping is perpetrated by a known terrorist organization, as is becoming more common in Middle Eastern states, the victim’s company may be placed in the awkward position of having to negotiate with terrorists, against the advice and publicly stated goals of Western democracies. It is important to remember that negotiating with terrorists is not encouraged. Financing kidnap and ransom policies Typical K&R policies are relatively inexpensive (when compared with directors and officers coverage) but are also very profitable because of the low frequency of the losses. Basic policies start as low as $500 a year, though pricing depends on the situation. Underwriting a K&R policy is like underwriting any other type of insurance. There are pricing incentives for good (less risky) behavior and penalties for bad (riskier) behavior. Underwriting characteristics used vary from company to company but often include the nature of a company’s business, total revenue, number of employees, travel patterns and foreign locations of employees, as well as previous loss experience. The market, while still small, is growing. Kidnapping is estimated to be a $500 million a year criminal activity (as of 2010), a large portion of which comes from K&R payments, most of which is funded by insurance companies. At the same time, it is nearly impossible to know how many policies are in force worldwide. This is primarily because of the secrecy of the coverage. The presence of the coverage will never be mentioned in stories about a kidnap victim’s release. The policies are not paying the ransom; they are almost always reimbursing the company that does. Because of the secret nature of the policy, information about specific cases is hard to come by. Beyond that, according to Red24, a non-broker specialist in crisis management circles, it is estimated that 30,000 “traditional” kidnappings (i.e., those with ransom demands), occur every year worldwide, though the New York Times reports that only 10% of kidnappings are reported to the authorities. While it is difficult to gauge potential future markets for this coverage, it is also difficult to determine who already has the coverage in place. What is not difficult to see is the financial impact the kidnappings themselves are having on companies. The non-profit group Oceans Beyond Piracy reports that maritime attacks by Somali pirates alone cost the shipping industry more than $5 billion in 2011, and the Economist estimated that Somali pirates alone generated more than $200 million in annual premium at the peak of their attacks in 2010. Most common targets of kidnappers are the oil and gas industry, because of the perception that energy companies are exploiting Middle Eastern nations’ wealth for their own benefit. Media outlets are also prime targets, primarily because of the exposure a kidnapping would generate. A new breed of kidnapping risk It is not just kidnappings for ransom and pirate attacks that companies need to be cognizant of. A relatively newer phenomenon is that of the “express kidnap,” of which there are on average 6,000 a year in Mexico alone. In these instances, there is no demand for a ransom made by a third party. Instead, the kidnappers take their victim to an ATM or a hotel room and make the victim access cash or personal valuables. The vast majority of these instances go unreported, mainly because of the corruption of the local law enforcement. In fact, studies say that half of the express kidnappings in Mexico are perpetrated by law enforcement agents themselves. So, not only do kidnapping and ransom policies have to cover the low-frequency, high-severity, kidnap-for-ransom losses, they also must cover (relatively) high-frequency, low-severity, express kidnappings. An evolving risk It appears that kidnappings are increasingly being thought of as a business opportunity. Groups that have previously kidnapped purely for political purposes are now realizing the economic value. Most kidnappings are now orchestrated by professional gangs and groups, and dealing with them is more similar to a business negotiation than with a criminal organization. Kidnappers are getting smarter and are, on an increasing basis, being aided by crooked politicians and law enforcement agents. Kidnapping victims are seen as inventory and, as with any other business, the goal is to sell the inventory, not destroy it. As kidnappers get smarter, companies that deal in areas that present a high risk for kidnapping must also learn to prevent losses. Having a kidnapping and ransom policy protecting key employees is common sense and should be regarded as an industry best practice for risk management. As globalization continues to expand, companies should see the need to take precautions to protect their “human capital.” Clearly, avoiding zones with a high level of kidnappings is ideal, but in the event that your company must do business in these areas K&R coverage can provide an important backstop. Kidnap insurance will always be veiled in secrecy out of necessity, but that does not mean there is not a place in the industry for growth and innovation. As the demand for the coverage increases and the market continues to grow, it is natural to expect innovation in pricing. Clearly, there is very little historical loss data from which to develop reliable models, and most pricing is done on the basis of expected loss ratio. However, there is likely value to be gleaned from analyzing travel patterns, regional economic/political unrest and companies’ international strategies. K&R coverage is currently buried in the “other liability” line of the NAIC annual statement. At present, it is an extremely profitable coverage. But, like other lucrative practices, as more and more insurance companies see the potential for profits, loss ratios will go up as premium rates are minimized. A company that can most accurately forecast aggregate kidnapping activity and price policies accordingly stands to gain significant profits. The goal, of course, is to reduce the opportunities for kidnapping. K&R policies encourage those who have personnel at risk to manage that risk more effectively, by providing rate relief for firms that engage in less risky activity. Insurers want to do all they can to minimize their policyholders’ risks, to reduce the likelihood they will have to pay out at all. The insurance companies do not profit from the loss occurrences; they prevent their insureds from having to liquidate assets because of acts of terrorism. The policies align with the government goals of reducing terrorist activities. They do not exacerbate the problem; they play a necessary role in reducing the impact of traumatic events. This coverage will grow significantly as the number of companies operating internationally increases and as international markets in which companies operate continue to expand. It is vital that these companies obtain this coverage for their key employees. It could save their business…or an executive’s life.

News and comments about the recently announced Apple and IBM partnership is flooding the mediasphere. As it should. But for me, this partnership will only succeed if both firms have come together to perceive and support the corporation as a consumer writ large. That means enabling corporations to compete in a mobile-first, customer-driven mediasphere. There are so many technology capabilities flying at us as consumers and as employees in corporations that the nature of commerce is changing; the nature of entertainment (at least the delivery of it) is changing; the nature of collaboration and communication is changing. At the core of all of these changes is the mobile device, which we keep closer to us than our one true love. In some cases, the mobile device may be our one true love. We are a mobile-first society. As consumers, we know this. We live it, we love it … mobility is us. But do the companies we do business with know it? Are they showering us and our mobile devices with the love we (rightly) demand? Remember “City Slickers?” Curley made a big deal of there being one truth. I don’t remember his ever revealing it, but I’ll reveal what Curley’s one truth would be now: Every firm is a media firm. Regardless of industry, every firm generates, consumes, stores, manages and “publishes” information. If that isn’t the essence of a media firm, then I don’t know what is. For those of us in insurance, our industry is entirely information (well, with a legal wrap around a financial promise of paying a claim, but even all of that – legalese and money – is entirely information flows). Insurers are being bombarded with waves of unstructured – and semi-structured – data from customer calls, agent/broker calls, social media sites, blog posts and sensor-embedded tangible assets. Enough data to choke a mainframe or two (or three). Big Data indeed! But how are insurers handling all of these waves of data (big, small or in between) - other than running and re-running the same view against refreshed data? (I readily admit I’m shunting aside the catastrophe modeling and pricing models that property and casualty (re)insurers are doing. But I don’t think that I’m doing all that much damage to the insurance industry’s analytical reputation.) Now we’ve arrived at the heart of the matter: what the Apple-IBM partnership can bring to the table.

• Apple is a consummate media consumption technology firm. Apple lets you explore, intuitively create and expose your verse, whether it is composed of text, still pictures, sound, video or mix of any of these media components.
• IBM is an applied research-driven enterprise-focused technology firm. (Its acquisition of PwC consulting only made IBM stronger in the enterprise space).

Without knowing exactly what the apps will be for the insurance industry, I fully expect that the apps will be:

• elegant, usable and fun
• secure
• well-mannered -- the data serving as the foundation of the apps will be well-governed, well-defined and well-understood.

Because all of the above is what re-perceiving corporations as consumers means to me. In fact, all the above are my table stake expectations from this partnership. But it’s not a strawberries-and-cream world. Our newly announced partners will not find smooth sailing in the insurance industry. Why? I think that our partners will find that insurers do not consider ERP systems to be systems of record. That honor falls to the 30- to 40-plus-year-old policy administration, billing and claim management systems. Additionally, agency management systems and other channel management systems are important sources of customer and prospect data. Apple and IBM will find that insurers expect, or should expect:

• the security of the apps to be doubly or triply proven
• to be able to easily clean, govern and otherwise manage stored data and data flowing into the company through the multitude of value chains
• employees to be able to use the mobile apps as collaborative platforms to discuss, annotate and analyze data
• employees to intuitively interact with the analytically driven visualizations.

Finally, when will this partnership deliver IBM’s Watson on-demand, through a click on an app? (I would like a silhouette of Sherlock Holmes on the app, please.)

Few complaints about the U.S. healthcare system are as common as the claim that we spend too much on healthcare and get too little in return, especially compared with other industrialized nations. A new Commonwealth Fund report is the latest to indict U.S. healthcare. It pegs the American system dead last in a survey of 11 developed countries. But, like virtually every other study that trashes the U.S. healthcare system, Commonwealth’s rankings rely on questionable assumptions, like giving weight to those systems that treat people equally rather than well. At the same time, Commonwealth ignores the problems that countries with socialized healthcare systems have with treating people once they’re sick. And on that metric — that is, actually delivering care to those who need it — the U.S. is without peer. The Commonwealth Fund report begins by asserting that the U.S. healthcare system “is the most expensive in the world.” It’s true that the U.S. spends a larger share of its gross domestic product — 18%, or almost $3 trillion – on healthcare than other countries do. But by itself that statistic means nothing. The U.S. also happens to be one of the richest countries in the world. Once basic needs are taken care of, an increasing share of each extra dollar will go to what were once considered luxuries. You can only spend so much on food, after all. That assertion is borne out by national spending data. Between 1990 and 2012, for example, spending on healthcare climbed 290%, significantly faster than GDP growth of 171%. But household spending on pets climbed 353% over those same years; on live entertainment, it went up more than 500%. Americans spend 639% more on telephones and 900% more on computers. By the Commonwealth Fund’s logic, America also faces a pet-care spending crisis. In contrast, spending on staples like food, clothing, housing and furnishings all climbed more slowly than GDP. The Commonwealth Fund concludes that the U.S. “underperforms relative to most other countries on most other dimensions of performance” despite having the most expensive healthcare system in the world. But a closer look at those “dimensions” calls that claim into question. Take infant mortality rates, where the U.S. typically places far down the list behind France, Greece, Italy, Hungary, even Cuba. This comparison is notoriously unreliable because countries either use different definitions of a live birth — or fudge their numbers. The U.S. counts every live birth in its infant mortality statistics. But France only includes babies born after 22 weeks of gestation. In Poland, a baby has to weigh more than 1 pound, 2 ounces to count as a live birth. The World Health Organization notes that it’s common practice in several countries, including Belgium, France and Spain, “to register as live births only those infants who survived for a specified period beyond birth.” What’s more, the U.S. has significantly more pre-term births than other countries. That fact alone accounts for “much of the high infant mortality rate in the U.S.,” according to a report from the Centers for Disease Control and Prevention (CDC). The CDC found that if the U.S. had the same pre-term birth rate as Sweden, our infant mortality rate would be cut nearly in half. What about life expectancy, where the U.S. ranks below its peers, as well? International measures of longevity typically fail to account for differences in obesity, accidental deaths, car accidents, murders and the like, all of which shorten lives no matter how good a nation’s healthcare system is. The U.S. murder rate, for example, is more than four times the United Kingdom’s — and far higher than all the other countries in the Commonwealth Fund study. The U.S. has a worse highway death rate than all but one of them. And U.S. obesity rates are more than double Canada’s and more than four times Switzerland’s. A far more meaningful comparison of international health systems would take stock of how people afflicted with diseases such as cancer fare in different countries. And on this measure, there’s no question the U.S. stands above the rest. Five-year survival rates for breast cancer are higher in the U.S. than in England, Denmark, Germany and Spain, according to the American Cancer Society. In the U.S., the survival rate for prostate cancer is 99%. In Denmark, it’s 48%. For kidney cancer patients, the survival rate here is 68%. It’s just 46% in England — which the Commonwealth Fund ranked as the No. 1 healthcare system in the world. Finally, the Commonwealth Fund study also ignores massive problems with actual access to care in the countries it heralds. Every citizen of a country with socialized medicine may have insurance. But that doesn’t mean they can get the care they need. Treatment delays were so chronic in the United Kingdom, for example, that the government had to issue a formal requirement that patients shouldn’t have to wait more than four months for treatments authorized by their general practitioner. The Royal College of Physicians found that poor care — including doctors trying to keep costs down — caused nearly two-thirds of asthma deaths in the U.K. in 2012. In Canada, the average patient seeking an elective medical service has to wait four-and-a-half months between being recommended for treatment by their primary care physician and actually receiving it. Waiting for care is the norm in Canada, even though Madam Chief Justice Beverley McLachlin of the Canadian Supreme Court declared nine years ago, in a ruling holding a ban on private health insurance in Quebec illegal, “Access to a waiting list is not access to healthcare.” The Commonwealth Fund is right about one thing — the U.S. healthcare system is too expensive. But rationing care — as Commonwealth’s favored systems do — is not the answer.

An industry known for embracing paper and shunning change, the property and casualty insurance market struggles to keep pace with the modern business world, which is full of personally owned mobile and other portable devices, and concepts such as advanced persistent threats (APTs), the Internet of Thingsand the “cloud.” While insurance companies are known for creating bespoke policies to address new risks not initially contemplated within the confines of traditional property and liability policies (see Y2K, environmental legal liability and employment practices liability), insureds are within their right to see how those current programs address 21st-century risks. If only one of Target, Snapchat, Facebook, Google, Twitter, Yahoo! Adobe and so on and so forth had suffered a serious data breach within the last few months, that would be sufficiently troubling. Yet data breaches have become so ubiquitous that a single week (if not days) without one hitting the headlines seems almost strange. By now every organization should appreciate that—no matter how robust and sophisticated its network security is—it remains a vulnerable target for cybersecurity breaches and the host of negative consequences that typically follow, including class action lawsuits (so far, dozens of suits have been filed against Target), substantial breach notification costs, and other “crisis management” expenses, including forensic investigation, credit monitoring, call centers and public relations efforts, as well as potential regulatory investigations, fines and penalties. This article will briefly look at how an organization’s commercial general liability—specifically, the personal and advertising injury coverage—may currently address privacy risks. Although there can be substantial overlap between the concepts of cybersecurity, network security liability and privacy, as they typically are understood in the industry, this article will focus on those risks associated purely with privacy risks, or the “unauthorized access, collection, use or disclosure of personal information.” Therefore, we will not be covering those issues related to cyber liability, or “breach-related expenses, including forensic investigations, outside counsel fees, crisis management services, public relations experts, breach notification and call center costs.” This article will also not be addressing the recent first-party bodily injury, property damage and business interruption coverage associated with the damage attributable to unauthorized access of operational technology (SCADA systems). We will first summarize the current industry standard form key coverage grant, definitions and exclusions. We will then discuss the recent Sony decision and the new 2014 industry form exclusionary endorsements targeted at eliminating coverage for data breaches under standard-form CGL coverage. Current standard-form CGL coverage The Coverage B “Personal and Advertising Injury Liability” coverage section of the current standard-form Insurance Services Office, Inc. (ISO) CGL policy states that the insurer “will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury,' which is caused by an Id. §1.b.offense arising out of [the insured’s] business.” “Personal and advertising injury” is defined in the ISO standard-form policy to include a list of specifically enumerated offenses, which include the “offense” of '[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.'” The policy further states that the insurer “will have the right and duty to defend the insured against any ‘suit.’” The CGL Coverage B can indemnify and provide a defense against a wide variety of claims, including claims alleging violation of privacy rights, such as data breach cases. Coverage disputes have generally focused on whether there has been a “publication” that violates the claimant’s “right of privacy”—both terms are left undefined in standard-form ISO policies. Courts generally (although certainly not universally) have construed the language favorably to insureds and have found coverage for a wide variety of claims alleging breach of privacy laws and regulations, including, for example, in respect of claims alleging violations of the Telephone Consumer Protection Act (TCPA), claims alleging violations of the Fair Credit Reporting Act (FCRA), claims alleging violations of the Fair and Accurate Credit Transactions Act (FACTA), claims alleging violations of the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act, claims alleging violations of the California Confidentiality of Medical Information Act (CMIA), and claims alleging violations of the California Lanterman-Petris-Short Act. Courts have found in favor of coverage in data breach cases, although the recent decision in Zurich American Insurance Co. v. Sony Corp. of America et al. highlights the issues that insureds may face in obtaining coverage for data breaches under CGL policies. Zurich v. Sony Arguably the most visible legal case surrounding the applicability of the CGL personal and advertising injury coverage to claims alleging data breach came about because of Sony’s massive 2011 PlayStation data breach. Zurich American and Mitsui Sumitomo had issued primary CGL policies to Sony. In April 2011, hackers broke into Sony networks and stole personal and financial information of more than 100 million users. Sony was named as a defendant in numerous class actions immediately following the breach. Mitsui denied coverage, and Zurich responded by filing a declaratory relief action seeking a declaration that Zurich had no duty to defend. At issue in the case is whether Sony or the hackers were responsible for the actual “publication” of the personally identifiable information (PII). A New York court recently held that there was no coverage, essentially because it was the perpetrators of the breach who ultimately “published” the private information, rather than Sony itself. Legal experts have argued both in favor of and against the court’s decision, arguing, among other things, that the trigger for the personal and advertising injury coverage must be an affirmative act by Sony or, conversely, that coverage is triggered to the extent Sony has liability. The case is currently under appeal, and its final decision will potentially be an indicator of how insurers and courts will view data breach coverage under the personal and advertising injury coverage. In the meantime, however, the decision underscores the difficulties that insureds can face in pursing data breach coverage under their traditional CGL policies. Although this endorsement appears to have quietly flown in under the radar, it in reality is even more sweeping than the 2014 data breach exclusionary endorsements because it entirely eliminates coverage in the first instance. Conclusion Over the years, the commercial general liability policy has been the proverbial “catch all” for claims subsequently determined to be outside the intent and scope of the underwriters. Past examples have included pollution liability, asbestos, employment practices liability and professional liability. Cyber and privacy liability may well be heading in the same direction. Insurers are stating publicly that this exposure was never contemplated when the policy language was drafted. And, of course, cybersecurity and privacy liability has recently risen to potentially catastrophic levels of potential liability (e.g., Target). Insurers, therefore, are increasingly seeking to separately insure the risk, subject to separate underwriting criteria. In the end, before a cybersecurity or privacy incident, companies should take the opportunity to carefully evaluate and address their risk profile, potential exposure to cyber and privacy risks, their risk tolerance, the sufficiency of their existing insurance coverage and the potential role of specialized cyber risk coverage.

Imagine the unimaginable – you accidentally injure a passenger or pedestrian with your car. How much insurance do you carry to protect them or yourself? Like many, you may carry only $15,000 per individual injury (the minimum, unchanged since 1967, required by California). If your income is low enough to qualify, you may carry a Low Cost Auto policy with only a $10,000 limit. Such minimum limits are a compromise. Insurance is expensive, and states try to balance the utility of car use against insurance costs that, if too high, would reduce that utility. You may, of course, carry higher limits. Or, perhaps, you are like approximately one in seven California drivers, and you illegally drive with no insurance. Now assume that you are among the many auto owners who have joined the “sharing economy.” You use a smartphone app to match yourself and your car with others willing to pay you for a lift. Uber, Lyft, Sidecar and others (“Transportation Network Companies,” or TNCs) offer these apps, share the fees with you and make this popular service available to thousands. Again, imagine the unimaginable – a collision injuring your passenger or a pedestrian. Keeping in mind that any insurance cost is ultimately passed on to the passenger, how much insurance should be required for a TNC driver?  $10,000? $15,000? $50,000 (the maximum required for private autos in any state and the minimum required in California if you allow others to rent your auto)? Or perhaps $106,841 (the value in 2014 dollars of $15,000 in 1967)? $750,000 (the minimum required of limousine companies)? Some other figure? Put another way, the question about how much insurance to carry is asking: How much should those who benefit from the sharing economy share the burden when the activity damages them or others? Unlike most driving for personal reasons, TNC driving generates cash flow. To many, it seems only fair that some of that be used to extend additional protection to those injured by the activity. What should trigger the additional protection – when one turns on the TNC’s app to seek a fare, when a “match” is made or when a passenger enters the vehicle? Also, who should carry the insurance - the TNC, the TNC driver or some combination? Currently, these questions are debated among legislators, regulators (such as the California Public Utilities Commission, or CPUC), TNC operators and others. Requiring lots of insurance by setting a high limit may chill innovation; setting the limit too low unnecessarily burdens injured parties or others (e.g., taxpayers, who support Medi-Cal or Medicaid and may end up paying for expenses not covered by private insurance) and may unfairly create a disadvantage for competing sources of transportation that may be subject to higher insurance limits. Raise the price of insurance, and the price of a ride goes up. (This issue is hardly unique to TNCs. Congress is also debating whether to raise the federally mandated $750,000  truckers’ minimum insurance limit.) Not only might an increase in insurance costs for TNCs stifle a popular and convenient form of transportation, but it may lead some less safe drivers back into their vehicles (e.g., teenagers, intoxicated drivers, impaired drivers, poorly insured drivers, uninsured drivers or drivers with unsafe driving records). This, in turn, may lead to the unintended result of even more unnecessary injuries and deaths. Much of the debate about TNCs is colored by a New Year’s Eve accident in San Francisco that occurred when a TNC driver with his app on (there is some evidence he may have been looking at it) struck and killed a pedestrian and injured several others. This is a tragic accident, but it also gives the debate an emotional overtone that may make it difficult to strike the correct balance. This accident could also have happened while a non-TNC driver was texting or talking, and there may have been minimal or no insurance available in that case. In this author’s view, comprehensive legislation or regulation shaping the future of TNCs is premature. These fast-moving innovations are new enough that insurers, legislatures and regulators have been caught on the back foot. At the same time that policy makers are moving forward with regulations, insurers and TNCs are developing new products and strategies to address these issues. While there is no shortage of those eager to express their opinions (perhaps this author included), there is little credible data on which to base sound policy decisions. Here are some of the many open questions: --On average, how much would different limits add to the cost of a 10-mile ride? Ten cents? Ten dollars? --How much will new insurance products cost? --As the use of TNCs expands, will overall accident rates rise, or will they fall? --If you drive to a ballgame with your daughter and a fare, will your daughter’s injuries be covered if you have an accident? (Your liability would not be covered under most personal auto policies – surprise!). Put another way, what terms and conditions will appear in any new insurance products or endorsements? --Does the display of a TNC’s trade dress (essentially, its visual appearance) create ostensible or apparent authority should a passenger suffer injury? Would liability extend to an injured passenger who hailed a car displaying the TNC’s trade dress, even though the driver did not engage the TNC's app so he could keep the entire fare? If the TNC is liable, could it seek reimbursement by claiming indemnity against the driver? --If you drive 12,000 miles a year, but 2,000 of those miles are driven as a TNC driver and are insured by some form of TNC policy, should your personal auto insurer base your rate on 12,000 miles or on 10,000 miles? If the latter, how are the different miles to be confirmed? --If you carry higher limits on your personal auto policy (e.g., $300,000 plus a $1 million umbrella), will the protection for you and anyone you injure drop to a lower TNC policy limit when you act as a TNC driver? --One current bill in California (AB 2293 -- Bonilla) provides that the TNC must assume ALL of the driver’s liability, without limit. By contrast, the CPUC’s proposed rules do not provide for unlimited liability. When is it appropriate to impose liability on the provider of an app as if users of apps were employees or agents of the app provider? Would the operator of an app that matches homes with those who want accommodation (e.g., Airbnb) be liable should a guest trip on an unsafe carpet or step? Would the operator of an app that matches car sellers and buyers be liable for an accident during a test drive? Would an app marketing tickets be liable if the bleachers collapse or the cruise line runs aground? --Should liability turn on whether the app provider is more than passive? If so, what more is required? A profit motive? This would sweep up many apps. What if the app provider imposes rules on its users (e.g., vetting drivers for their safety record, adopting a zero-tolerance alcohol policy and reviewing ratings by customers)? If so, then forcing app providers to assume unlimited liability may discourage them from taking measures that could enhance safety. For these reasons, this liability provision in AB 2293 could have enormous implications and should be carefully considered. --If, under AB 2293, the operator of the app is liable without limit, what purpose is served by mandating policy limits? If the operator of the app has sufficient net worth, it would be liable regardless of any policy limits that might be imposed. --How, if at all, should one weigh the evolving existence of near-universal healthcare under the Affordable Care Act (Obamacare)? Covered parties who suffer injuries will at least have access to healthcare without limit and regardless of fault. Depending on any number of factors, the bulk of these health costs may fall on health insurers, liability insurers, the public or some combination. Who knows answers to any of these questions? Without answers to these and related questions, it is likely that regulating in a partial vacuum will strike the wrong balance. Like emergency physicians, legislators and regulators should stabilize the patient but “Do No Harm.” In the meantime, the public deserves protection. There should be no gaps in coverage (whatever trigger or limits are chosen). To keep rates reasonable and predictable, insurers also need clarity with respect to which insurers are responsible. Prudence, however, suggests that any current legislation or regulation should have a firm sunset date. Otherwise, like barnacles, awkward legislation sticks and impedes progress. During this initial period, the legislature should require (not just request) that the Public Utilities Commission and the Department of Insurance gather appropriate data and report back to the legislature before the legislation or regulation reaches its sunset. Regulators and legislators may, then, make informed, data-driven decisions that strike the most appropriate balance among all of the legitimate interests.

When it comes to technology, the boardroom has been learning a new language: mobile, social, cloud, cyber security, digital disruption and more. Recently the National Association of Corporate Directors released an eight-part video series on the board’s role: The Intersection of Technology, Strategy and Risk. We have spent much of the past year focused on cyber security, an essential discussion given the widespread theft of intellectual property, privacy invasions and data breaches. A report on cyber crime and espionage by the Center for Strategic and International Studies (CSIS) in Washington, D.C., last year estimated that cyber crime costs the global economy $300 billion a year – an entire industry is growing around hacking! Research by PwC shows cyber insurance is the fastest-growing specialty coverage ever – around $1.3 billion a year in the U.S. As our boardroom agendas often get filled with discussions on risk, I asked Frontier Communications board director Larraine Segil how to shift the conversation to strategy. Larraine has a keen focus on opportunity and suggested we delve into solutions for governing “The Internet of Things.” What exactly is the Internet of Things, and what are the implications for business strategy? Think about connecting any device with an on and off switch to the Internet and to each other. This includes everything from cell phones, thermostats and washing machines to headphones, cameras, wearable devices and much more. This also applies to components of machines – for example, the jet engine of an airplane. If the device has an on and off switch, then chances are it can be a part of the Internet of Things. The technology research firm Gartner says that by 2020 there will be more than 26 billion connected devices. Think about Uber, the company that connects a physical asset (car and driver) to a person in need of a ride via a website. That simple connection has disrupted the taxi industry. Airbnb has done the same for the lodging industry by directly connecting people with spaces to rent to those in need of accommodations. What does this mean to for our companies? Larraine, what are you thinking when you hear about the Internet of Things for business opportunities? As a director, how can you help directors govern in this fast-moving digital age? Frontier Communications provides connectivity services to a national customer base primarily in rural areas and is integrally involved in the Internet of Things. Frontier has a number of strategic alliances with companies that develop and market those very devices – or “things” – such as the Dropcam camera, a cloud-based WiFi video monitoring service with free live streaming, two-way talk and remote viewing that makes it easy to stay connected with places, people and pets, no matter where you are. Other alliances expanding the “things” will be introduced in the rest of 2014. As a director, it is critical to be educated constantly about new trends, products and opportunities – competition is fast-moving, and customers are better-educated about their options than ever before. Strategically, the board has to think way ahead of the present status quo – and with the help of management and outside domain experts, explore opportunities for alliances. This requires using strategic analysis at every board meeting (not just at one offsite a year) and welcoming constant director education and brainstorming both within and outside of the company’s industry. The board should continually identify and evaluate strategic directions to keep the company fresh and nimble. Remembering that we’ve only just begun, here are some critical questions boards should be asking about technology and the Internet of Things: 1. Are you including strategic discussions around technology at every board meeting? 2. Do your strategic directions include alliances within and outside of your industry? 3. How would you assess your current level of interaction with the chief information officer and chief technology officer? What can be done to improve the effectiveness of communications with them? 4. As a board, how are you helping to guide your company in innovative directions, taking into consideration disruptive technologies, competitor alliances and new ideas or skills coming from outside your industry?

There is no such thing as "free" healthcare in the U.S. There are people who access healthcare at low (sometimes even no) cost, but the people delivering the service aren't providing it for free, or, if they are, it's an ad-hoc charitable donation. There is one exception that I know of, but the clinics typically only run over weekends (when providers can donate their time and skill). The exception is called Remote Area Medical and is staffed with clinical volunteers, so there is no charge to patients -- and no payment to providers. It's as close to "free" as I think we'll ever get. Here are some images of what a weekend RAM clinic looks like: RAM has been featured on "60 Minutes" and other news-magazine shows. It's run by Stan Brock, who founded it. It derived its name -- Remote Area -- from the idea that it would deliver healthcare to remote regions of the globe. In fact, it started with medical "expeditions" to Latin America in 1992. Today, 60% of RAM clinics are held in rural or urban America. I encourage everyone to watch the 13 minute 60 Minutes episode - from 2012. (60 Minutes - RAM Medical Missions in the U.S. - A Lifeline.) RAM aside, the argument that EMTALA (Emergency Medical Treatment and Labor Act of 1986) is "free" care delivered through the emergency room is flat-out false. The costs accrued through every emergency department (for every patient, service and supply) is simply rolled into the books under a category called "uncompensated care." Uncompensated care is among the three categories of healthcare that for a hospital amount to negative margin. The other two are Medicare and Medicaid. The only remaining opportunity for "positive" margin (and keeping the doors open) is through commercial insurance. That chart (courtesy of L.E.K. Consulting) looks like this:

As an adviser on behalf of the CEO and the board, I recently found myself working with an insurance industry executive suffering from FD&H Syndrome—that’s short for “Fat, Dumb and Happy.” You know the type—the classic myopic naysayer who would rather ignore every outside message and shoot every messenger than to stay lean, smart and open to new insights, including the necessary medicine that may not go down so tastefully? Let me be clear: This is not a personal attack on one individual, but rather a call to awareness of a broader industry leadership concern. As such, here are several symptoms of FD&H I’ve observed in interacting with this executive over the past six months:

• Not Invented Here – If he personally, someone on his team or an industry insider didn’t think of something, it can’t possibly be viable. But isn’t it interesting how often Invented Elsewhere sparks real innovation?
• Smartest Guy in the Room – In several situations, he exhibits a rather obvious need to convey his intellectual prowess. No question he’s an intelligent individual, but astute leaders tend to listen much more than they pontificate.
• That Can’t Possibly Be True – Results of interviews with his staff highlighted key areas for improvement. For each, he had an excuse, a rebuttal or a personal attack against the perceived person who made the comment.
• Entirely Too Input-Oriented – Calls, meetings, focus groups and even some research are all means to an end. But he was so consumed by the input (what and how something was done) that he often lost sight of the outcome (desired business results).
• Paralysis by Analysis – “We need to further discuss that point at the next annual meeting,” “we’ll wait and see” and my favorite, “we need to have more people look into that point,” were all too common responses to uncomfortable findings. Great leaders are action-oriented!
• Don’t Have the Budget – Another common excuse that surfaces often with this executive is budget objections. “Don’t have it”– the budget for this tool, that person, this event or that effort  –  seems to be the de facto response. Don’t misconstrue my point – I’m a strong believer in financial stewardship of limited resources. In my experience, however, budgets are often an issue of setting priorities and seldom strictly a financial issue. Think about it – we’ll prioritize and invest in concerns or opportunities we deem to be important.

It probably won’t surprise you that this COO doesn’t care for outside consultants or advisers. After all, it takes them way too long to get up to speed on the insurance industry nuances, they couldn’t possibly have any good ideas and they often do little more than reiterate what we already know anyway! The first time I expressed my candid view that his product was stale and offered some ideas to reinvent a portion of his business, I got the facial equivalent of the Blue Screen of Doom. “Great, not interested,” he said. When I pressed for deeper insight, he added, “That’ll never work!” Why? “Because we tried it 10 years ago!” What this executive with FD&H doesn’t realize is that he’s quickly working himself out of a job. You see, the board has brought in a visionary CEO who deeply believes in thinking and leading differently. He is out spending time with brokers, attending and speaking at industry conferences. He’s visiting with end clients with the agents and is writing insightful pieces as executive summaries to distribute across the industry. Meanwhile, back at the ranch, the COO is busy covering his behind, demonstrating to peers and subordinates alike his lack of confidence in his operational stewardship. He seems particularly threatened by entrepreneurial thinking by people around him. Whatever his reasons, unfortunately what he is neglecting to see is that he’s a danger to his company, the firm’s clients and the industry. An organization with too many FD&H sufferers will die of stagnation. Allowing “Fat, Dumb and Happy” attitudes to exist within an organization—or worse, spread—leads to increasing irrelevance to your broker community, end customers, agents, investors and other stakeholders. Markets evolve, and so must you. The cure: independent perspective To prevent FD&H syndrome, regularly inoculate your key leaders with independent perspective. They must attend gatherings of senior executives at industry conferences and executive education sessions at respected universities. On a regular basis, they must invite thought and practice leaders (from both within the industry and outside) to host roundtable discussions  or go off-site to work on the business and break the routine. Unlike doctors, independent advisers make house calls. Consultants, thought and practice leaders alike can spark new ideas and unique perspectives and suggest a different lens through which to view the same challenges or opportunities. And if FD&H sufferers stand in the way, overtly or covertly sabotaging every attempt at forward motion, maybe it’s time to retire them to the irrelevant pasture they belong in. My favorite example from my COO interaction is his justification for inaction: “Look how much money I saved us!” As professional interventionists, we come with no agenda. We’re not after anybody’s job. We often bring unique insights and, most importantly, independent perspectives. As outsiders, we can ask, say or do things others within the organization may not be able to for fear of political retribution. Mr. COO has been explicitly directed to evolve the organization, but his severe case of FD&H renders him powerless. I’m trying to give him the vaccine and guide him into alignment with his positional role to lead his organization’s evolution, but it appears my intervention is too late. Invest in relationships that matter Moral of the story? Time is an incredibly effective filtering mechanism. If this particular executive doesn’t change his irrational and protectionist behavior, he cannot continue to be employed by a forward-looking enterprise with a visionary CEO. (And, by the way, the CEO has recently replaced two other FD&H sufferers in the senior leadership team.) Those in the insurance industry who refuse to evolve, as their organizations must, are simply on borrowed time. Sooner or later, this myopic thinking or antagonistic posturing against outsiders will cause him to shoot himself in the foot. “Time wounds all heels,” the joke goes. In this case, the wound is to the entire organization, not just the heel. The critical point for any of his direct reports, as well as several of us outsiders who are genuinely trying to help the organization move forward, is to continue to build productive relationships, up, down and across the organization. If I have the ear of the CEO and the mandate by the board to identify dysfunctions within the organization and recommend opportunities for innovative thinking, a more agile culture and growth strategies, I can appeal to the logical self-interest of this roadblock COO’s peers to think and lead differently. Today’s global, always-on insurance industry is simply too competitive for sufferers of FD&H to last forever. When he’s gone, others will be there, ready to offer fresh and independent insights. For the organization, Fat will become Lean, Dumb will become Smart and Happy will be replaced with Results, as the organization leverages its greater efficiency and effectiveness. Public health warning: If you recognize that someone in your organization is a sufferer of FD&H, don’t wait. Get help now. Takeaways 1. Sufferers of FD&H Syndrome (Fat, Dumb, and Happy) are unacceptable baggage because the insurance industry is boarding maglev trains – and the FD&H folks are still searching for the horse & buggy! 2. The cure for FD&H Syndrome is frequently outsiders’ unique insights and independent perspectives. 3. Time will eventually remove FD&H sufferers, but not quickly enough to meet the demands of today’s agile insurance industry demands.