This business of insurance requires a certain level of clairvoyance, and no one owns a crystal-clear crystal ball. What we do own is historical data on the impact and aftermath of large-scale disasters – and like most of what’s in the rearview mirror, that image is sharp yet fleeting. Some may forget the lessons of the last disaster too soon, while others cast past events into stone as the basis for managing future catastrophes. What’s worse, however, is when a disaster prompts knee-jerk reactions that do more harm to the market than good. Just like anyone else, insurers need certainty that the rules put in place to manage risk, pay claims and protect policyholders won’t change unexpectedly and immediately after Mother Nature plays her game. After a natural disaster, “Monday morning quarterbacks” both proliferate and pontificate. Some of this can be positive. In fact, staring down disaster and deciding not to be a victim twice often triggers community conversations that lead to infrastructure improvements to help prevent such a scenario from ever getting a replay. However, not all hindsight is helpful, particularly when the rules going into the “game of risk” are not the same rules in the immediate aftermath. Think about it this way: You’ve got a team that runs drills, budgets for expenses and asks players to follow a certain game plan in preparation for the big football game. But on game day, the team arrived on the field to discover it’s not football they are playing, but lacrosse. Of course, most rules have elasticity. Yet when the rules of insurance are changed after a hurricane, tornado, earthquake or flood, what sounds like a consumer-driven move often has unintended short- and long-range consequences that are truly not consumer friendly. States make the rules Contrary to public perception, insurance companies don’t set the rules. State legislators and regulators make the rules, which are codified within state statutes and the insurance contract. While the magnitude of recent disasters has made them game-changers, more often post-disaster moves result in actions that make it hard to figure out if anyone wins. The most recent example is Superstorm Sandy. In New York, there were nearly 500,000 claims resulting from the October 2012 storm. Yet regulators mandated that claims adjusters needed to inspect properties within six days, rather than the 15 days that was in the rulebook before the storm. That may not sound like a big deal, but insurers weren’t handling Sandy claims in New York alone. There were almost as many claims in New Jersey and more than 60,000 claims in Connecticut. Getting to New York claimants faster made sense to New Yorkers, yet it sapped resources from deserving claimants in other states who also needed prompt attention. Each state understandably, and admirably, wants to take care of its own. But in the immediate aftermath of a multi-state disaster, a stampede of mandates may be as disruptive as the disaster itself. Policyholders pay the price Unexpected requirements to hurry up the claims process puts speed at odds with thoroughness. That does not just mean the process is sloppy; rushing to close out a claim also raises costs. After Sandy, there were instances when insurers felt forced to pay out more in claims than what was warranted under the terms of the insurance contract. Insurers want to pay what they owe. No more, no less. Paying more than what is owed raises costs for everyone who was fortunate enough not to sustain damage. While getting more claims money sounds great from an individual claimant’s perspective, these additional, sometimes unwarranted, claims payouts are factored into determining surplus requirements for the next disaster. That makes all policyholders pay the price. Insurance companies want to settle claims quickly. It’s in our DNA. There is little upside to drawing out the process when cause and effect are clear. But pushing speed over practicality is expensive for consumers and insurers alike. Another program promulgated post-Sandy by both the New York Dept. of Financial Services and the New Jersey Dept. of Banking and Insurance was an emergency measure requiring mandatory participation by insurers in the mediation of non-flood claims if there was a claims dispute. Policyholders had to request mediation; insurers had to pay for it. It was a well-intentioned idea to keep litigation costs in check. The process was voluntary for policyholders, mandatory for insurance companies, and confusing for everyone. Because it was rolled out after the storm, there were a wide variety of interpretations of the process. Some people who were satisfied with their claim thought they had to attend a mediation. Storm survivors without flood insurance thought they had a chance of compensation with mediation. Don’t get me wrong: Mediation is a great option, and many other states have similar programs. However, quickly making a new program mandatory, without proper vetting and understanding by all parties involved, can make things more confusing than they need to be – particularly post-disaster when less confusion is what is needed. Catastrophic events bring large losses, which causes insurers to review their underwriting performance. The only natural disaster that we can reasonably predict is a hurricane, and even before anyone knows exactly where a storm will make landfall, insurers review their portfolio of risk and determine how they’ll respond when the sky calms. Often, insurers will reevaluate their market position, which can lead to requests for rate increases, changes in coverage options, adjustments to terms and conditions and even making decisions to adjust their exposure in the market. These seemingly prudent moves aren’t easy to do and are made more complex after large-scale disaster. After Sandy, New York regulators toyed with the idea (and rejected it) of restricting insurers from non-renewing no more than 2% of their book of business per territory. The current non-renewal limit is 4% on a statewide average. That’s not unlike forcing someone to put a purchase on their credit card that they know they can’t afford. Insurers decide to enter a market – or expand there – based on the rules and regulations currently in place. Where there is a pattern of restrictive, sudden rule changes post-disaster, few companies would choose to invest more capital there. If an insurer decides to retreat from or exit a market, it’s not personal – it’s prudent. Restricting the ability to adapt to changes in risk exposure makes the market constrict. Florida’s experience is the test lab, if anyone is in need of proof. The whole market suffers The severity of losses following Hurricane Andrew in 1992 caught everyone by surprise. And, the resulting market crisis got worse when the insurance industry got bushwhacked. During a special session in 1993, the Florida Legislature imposed a six-month moratorium on cancellations and nonrenewal of personal property insurance policies. Then, things got worse. The moratorium was followed by a three-year phase-out plan that allowed an insurer to non-renew only up to 5% of its property policies within a 12-month period. That meant insurers were required to continue providing coverage at rates below what they needed. Yes, it was more than two decades ago, and we have long, painful memories and existing residual damage to show how those actions forced companies to remain strict on underwriting, even today. States that have imposed exit restrictions in the past may find that insurers do not want to enter or grow their business in the future. It’s not only insurers that suffer financially from unanticipated actions. State resources suffer, too. In another special legislative session, the Florida Legislature changed the rules governing hurricane deductibles. Some people had the unfortunate experience of being hit by more than one storm during August and September 2004. To alleviate the financial hardship those storm victims were experiencing, the Legislature nixed the per event hurricane deductible and passed a law requiring only one annual hurricane season. The change cost the State of Florida money because reimbursements for multiple deductibles came from the Florida Hurricane Catastrophe Fund – the fund providing reinsurance for all insurers doing business in the state – reducing its assets by millions of dollars.** It cost all taxpayers dearly, including those who had no storm damage. Unlike most other states, Florida’s largest insurance carrier is the state itself. Citizens Property Insurance Corp. was designed to be a state-run insurer of last resort; however, the company experienced tremendous growth following the 2004/2005 hurricane seasons when multiple storms hit and private insurers once again reevaluated their portfolios. The retreat was compounded by the fact that, in many areas of the state, Citizens was charging below market rates. The gap has been narrowed significantly in recent years, but it still exists.  The politicization of insurance in Florida is what made Citizens grow into the ninth largest insurer in the U.S. in 2012. Among the top 10 writers of insurers nationally, Citizens is the only insurer with all its business – and all its risk – in a single state. Typically, insurers are expected to raise rates following a natural disaster if what happened seems to show that there is a greater chance for such an event to occur again. Florida’s hurricane history demonstrates it’s either boom or bust for insurers, and many carriers have posted losses even in the years that are hurricane-free. Making sense out of chaos Natural catastrophes are called disasters for a reason. It’s organized chaos – and sometimes, it’s unorganized chaos. To try to get their arms around the enormity of an event, regulators ask for claims data from carriers – and the thinking seems to be that more data is always better. The truth is that more data is expensive and time consuming to collect, especially when the requests entail delving into files that may not be catalogued in a format that insurance departments demand. Providing information for data reports is often not optional, and what regulators ask for after a major event is as changeable as the weather. Following Sandy, New York regulators made one-time data requests and gave insurers only a few hours to respond. Requests such as these could mean that the important work of handling claims gets delayed while employees have to divert their attention from taking care of people to taking care of paperwork. Property insurance markets do benefit from regulation, but rules that change like the wind don’t help. Natural disasters trigger emotional responses, and those responses are helpful in that they drive volunteers to show up to give both financially and physically to start the recovery process. But it’s the rational responses that bring the economic resources necessary to rebuild after disaster. The very rational action of paying claims that are owed is a responsible way to fulfill the parameters of the insurance contract in place at the time the disaster occurred. What lawmakers and regulators should know is that working according to predictable outcomes is the key to balancing the needs of policyholders and businesses focused on recovery, and insurance is one of those businesses. There will always be multiple points of view, as well as numerous options. But disaster response and recovery should not be viewed as opposing forces protecting self-interest. Our collective focus should be on agreements in advance that serve everyone in the best way possible, knowing that the real risk and true costs of natural disasters remain unknown. As we enter yet another hurricane season, it’s worthwhile to take a look at both market reaction and regulatory mandates that have proven to be, in effect, another disaster in the making.

Businesses should heed the expansion of the Internal Revenue Service voluntary classification program (VCS) as yet another warning to clean up their worker classification practices and defenses for all workers performing services for the business in any non-employee capacity. When businesses treat workers as nonemployees, yet they render services in such a way that they likely qualify as a common law employees, the businesses run the risk of overlooking or underestimating the costs and liabilities of employing those workers. The U.S. Department of Labor's Wage and Hour Division has an ever-lengthening record of businesses subjected to expensive backpay and penalty awards because the businesses failed to pay minimum wage or overtime to workers determined to qualify as common law employees entitled to minimum wage and overtime under the Fair Labor Standards Act. Originally announced on Sept. 22, 2011, the VCS program as modified by Announcement 2012-45 continues to offer businesses a carrot to reclassify as employees workers who had been misclassified for payroll tax purposes as independent contractors, leased employees or other nonemployee workers. That carrot came with a stick: the IRS’ promise to zealously impose penalties and interest against employers caught misclassifying workers. And the IRS is only one of many agencies on the alert for worker misclassification exposures -- worker misclassification also affects wage and hour, safety, immigration, worker’s compensation, employee benefits, negligence and a host of other obligations. Private plaintiffs are also pursuing businesses for misclassification. All of these exposures carry potentially costly compensation, interest and civil and in some cases even criminal penalties for the businesses and their leaders. Consequently, businesses should act prudently and promptly to address all of these risks and manage their misclassification exposures. Because most businesses uniformly classify workers as either employees or nonemployees for most purposes, business leaders must understand the full scope of their businesses’ misclassification exposures. VCS Program offers limited relief Worker misclassification affects a broad range of tax and non-tax legal obligations and risks well beyond income tax withholding, payroll and other employment tax liability and reporting and disclosure. A worker classification challenge or necessity determination should prompt a business to address the worker reclassification and attendant risks in other areas. Typically, in addition to treating a worker as a nonemployee for tax purposes, a business also will treat the worker as a nonemployee for immigration law eligibility to work, wage and hour, employment discrimination, employee benefits, fringe benefits, workers' compensation, workplace safety, tort liability and insurance and other purposes. Healthcare reform increases risks Businesses can look forward to these risks rising when the “pay or play” employer-shared responsibility, health plan non-discrimination, default enrollment and other new rules take effect under the Patient Protection & Affordable Care Act (ACA). Given these new ACA requirements and the government’s need to get as many workers covered as employees to make them work, the IRS and other agencies are expanding staffing and stepping up enforcement against businesses that misclassify workers. Businesses must understand how workers are counted and classified for purposes of ACA and other federal health plan mandates. ACA and other federal health plan rules decide what rules apply to which businesses or health plans based on such factors as the number of employees a business is considered to employ, their hours worked and their seasonal or other status. The ACA and other rules vary in the relevant number of employees that trigger applicability of the rule and how businesses must count workers to decide when a particular rule applies. Consequently, trying to predict the employer shared responsibility payment, if any, under Internal Revenue Code (Code) Section 4980H or trying to model the cost of any other federal health benefit mandates requires each business know who counts and how to classify workers for each of these rules. Most of these rules start with a “common law” definition of employee then apply rules to add or ignore various workers. Because most federal health plan rules also take into account ”commonly controlled” and “affiliated” businesses’ employees, businesses also may need to know their information. For instance, when a business along with all commonly controlled or affiliated employers employs a combined workforce of 50 or more “full-time” and “full-time equivalent employees” but does not offer “affordable,” “minimum essential coverage” to every full-time employee and his dependents under a legally compliant health plan, the business generally should expect to pay a shared responsibility payment for each month that any “full-time” employee receives a tax subsidy or credit for enrolling in one of ACA’s healthcare exchanges. If the business intends to continue to offer health coverage, it similarly will need to accurately understand which workers count as its employees for purposes of determining who gets coverage and the consequences to the business for those workers that qualify as full-time, common law employees not offered coverage. In either case, ACA uses the common law employee test as the basis for classification, and the already significant legal and financial consequences for misclassifying workers will rise considerably when ACA gets fully implemented. Consider relief in the full context As part of a broad effort, the IRS is offering certain qualifying businesses an opportunity to resolve payroll liabilities arising from past worker misclassifications. The VCS Program settlement opportunity emerged in 2011.Touted by the IRS as providing “greater certainty for employers, workers and the government,” the VCS Program offers eligible businesses the option to pay just more than 1% of the wages paid to the reclassified workers for the past year. The businesses also must meet other criteria. The IRS promises not to conduct a payroll tax audit or assess interest or penalties against the business for unpaid payroll taxes for the previously misclassified workers. Participation was low, partly because not all businesses with misclassified workers qualified to use the program. The original criteria to enter the VCS Program required that a business: Be treating the workers as nonemployees; Consistently have treated the workers as nonemployees; Have filed all required Forms 1099 for amounts paid to the workers; Not currently be under IRS audit; Not be under audit by the Department of Labor or a state agency on the classification of these workers or contesting the classification of the workers in court; and Agree to extend the statute of limitations on their payroll tax liabilities from three to six years. After only about 1,000 employers used the VCS Program, the IRS modified it so that employers under IRS audit, other than an employment tax audit, now qualify. The IRS also eliminated the requirement that employers agree to extend their statute of limitations on payroll tax liability. Many employers may still view use of the VCS Program as too risky because of uncertainties about the proper classification of certain workers in light of the highly specific nature of the determination. Employers may also have concerns about the effect that use of the VCS Program might have on non-tax misclassification exposures for workers who would be reclassified under the VCS Program. Complications One of the biggest challenges to getting businesses to change their worker classifications is getting the businesses to accept the notion that long-standing worker classification practices in fact might not be defensible. Although existing precedent and regulatory guidance makes clear that certain long-standing worker classification practices of many businesses would not hold up, business leaders understandably often discount the risk because these classifications historically have faced little or no challenge. Even when business leaders recognize that changing enforcement patterns merit reconsideration, they may be reluctant to reclassify the workers. The common law employment test often relies on a subjective, highly fact-specific analysis of the circumstances of the worker. The business, rather than the IRS or other agency, generally bears the burden of proving the correctness of its classification of a worker. So, a business must ensure that its decisions can withstand scrutiny under all applicable tests and must retain evidence. Businesses also should exercise special care to avoid relying on overly optimistic assessments of the facts and circumstances. When the factual evidence creates significant questions, an employing business generally should consider reclassifying or restructuring the position. Often, it also may be desirable to incorporate certain contractual, compensation and other safeguards into the worker relationship, both to support the nonemployee characterization and to minimize future challenges and exposures. Importance of attorney-client privilege for risk management Because of the broad exposures arising from misclassification, business leaders generally should work to ensure that their risk analysis and decision-making discussion is positioned for protection under attorney-client privilege and attorney work product privilege. The interwoven nature of the tax and non-tax risks merits particular awareness by business leaders of the need to use care in deciding the outside advisers that will help in the evaluation of the risks and structuring of solutions. While appropriately structured involvement by accountants and other non-legal consultants can be a valuable tool, the blended nature of the misclassification exposures means that the evidentiary privileges that accountants often assert to help shield their tax-related discussions from discovery are likely to provide inadequate protection. For this reason, business leaders are urged to require that any audits and other activities by these non-legal consultants to evaluate or mitigate exposures be conducted whenever possible within attorney-client privilege. Accordingly, while businesses definitely should use appropriate tax advisers, they will want to first engage counsel and coordinate non-attorney advisers' activities within the protection of attorney-client privilege

Insurers are shooting themselves in the foot – and sparking a race to the bottom when it comes to price. How? By thinking they can earn customer loyalty and sell existing customers new types of insurance by offering discounted bundles of products, such as a package containing home, auto and personal umbrella insurance. Instead, this bundling is encouraging consumers to buy insurance based on price – rather than on what should be the real goal: shielding a home or other valuable asset from loss. The upshot: Consumers are focusing on the minimum amount of insurance they may be required to hold, say, to secure a mortgage or own a car. It’s a situation that ultimately doesn’t benefit the consumer – or the insurer’s bottom line. Insurers can change this so that bundling is a win both for themselves and for their customers. To begin, insurers must help guide consumers to think more about protecting themselves and their assets. Companies could then recalibrate their own business model and focus more on providing advice to customers on what insurance meets their actual needs. Some companies – including Allstate and Progressive – are taking steps in the right direction. But they’re doing so for narrower tactical reasons. Instead, they must act strategically and become genuine partners that provide customers with the coverage they truly need to safeguard their financial security. Such an approach would set these companies apart from rivals – and arrest the downward price spiral that has turned their bundled offerings into a commoditized product. Insurers don’t need to discard the concept of bundling to achieve this. The thinking that goes into unbundling can actually help, because it forces companies to break products down to the granular level. Those pieces can then be reassembled into packages customized to the needs of each customer. Does discounting reflect the true value of product bundling? Currently, insurers offer a bundling discount, also known as a cross-product discount, and position the value to the customer as “saving money.” The approach may look like a no-brainer, thanks to the marked success of the current model of selling two products together as a bundle, with the “discount” as the differentiator. Consider the following: -          Insurers selling two products together have long seen customer retention improve. Customer retention rates are higher among renters who bundle an auto policy: 91% among those who bundle vs. 67% among those who do not, according to J.D. Power. -          The perceived value of a bundle is reflected in the fact that a greater proportion of customers buy multiple products from the same insurer. According to J.D. Power, 77% of customers bundle auto policies with additional policies, and 58% bundle their auto and home insurance policies with their existing insurers. But when we analyze the factors that go into premium calculation, real savings for insurers depend on many factors that vary greatly between insurers, states, individual customers’ own situations, etc.  Those factors can produce inconsistent savings calculations for bundles, varying from 5% to 20%.  Consequently, customers need to shop around thoroughly, comparing prices (both for the individual product and the bundle) and choosing the right combination from the right insurer. The various factors can work together so differently that a customer may sometimes save by buying products from two different insurers – rather than a bundle from one. For insurers, the incremental value in all this translates into higher customer retention. There is no real incremental value realized from the product itself, which is core risk management. How is the industry responding? Insurers have been responding to the emerging need to serve as risk managers for their customers. And they’ve been fine tuning their bundling strategy accordingly. Some insurers, for example, have crafted their bundling strategy to make it easier for customers to manage their risk profile through a single insurer; this also consolidates billing and payment. While this is rudimentary, it still provides an easier way to serve the customer – and to increase loyalty. The following insurers approach bundling by advising customers as well as crafting suitable packages that allow their customers to manage risk: -          Allstate provides an “all-in-one” product through its Encompass unit, which covers homes, cars and home-based business. It’s aimed at wealthier customers. For more mass-market customers, Allstate provides “Bumper to Bumper Basics,” based on states’ minimum requirements for auto insurance. -          GEICO offers an advisory tool allowing customers to build a customized policy based on their individual circumstances. -          Progressive provides a “Name Your Price” feature for its auto coverage, under which the customer states her budget, and Progressive sorts the options based on cost. The plan closest to the customer’s budget is shown first. Progressive states on its website: “Once you fine tune your price, we highlight any areas where you might have too little or too much coverage, so you can get your entire package just right.” The insurer also gives customers the option of bundling both auto and property insurance. -          MetLife Auto & Home’s “GrandProtect” program allows consumers who purchase multiple policies – such as home and auto – to pay one deductible in the event that several of their insured assets are damaged by one event, such as a storm or hurricane. These examples underscore that while insurers are shifting toward an advisory-led coverage bundling within a product, they’re still beginning from a tactical standpoint. This narrower approach remains limited to customizing coverage within a product and tactically bundling other products with it. Though insurers have been slow to adopt product bundling on a more strategic basis – i.e., being an end-to-end risk portfolio manager – they are actively pursuing the goal of leveraging cutting-edge technical capabilities. So, where does the potential value reside? The real value of bundling – for both customers and insurers – lies in the individual insurance products.  Every form of coverage within the bundle covers a specific risk, and so is a “mini product” on its own. However, insurance products have become commoditized as products have become more unified so they can be sold easily to customers over the Internet. There, many customers simply select the desired coverage amount and deductible. “Save Money” and “Discount” marketing diverts customers toward an affordable premium and, often, the wrong coverage – people opt only for those policies mandated by law (like automobile liability insurance) or, in the case of a home mortgage, a lender. The deductibles chosen often are high, which can prove disastrous for a customer if calamity strikes. Insurers can deliver real value for themselves and their customers by:

• Gathering customers’ relevant information
• Assessing their risk
• Building the right coverage mix to mesh with customers’ needs
• Suggesting customized products based on a customer’s risk profile

How might this work? Say a customer’s car is more than two years old. The insurer could recommend the customer get an extended warranty as well as a roadside assistance plan. The insurer, in short, could deliver real value by acting as the customer’s risk manager. This approach also would help the insurer to select the right customers for the right risk portfolio – and to weigh the moral hazards when a customer opts for a different package or coverage combination. Once the individual insurance products are de-commoditized and customized to fit the customer’s risk profile, this advice-based approach can be extended to multi-line product bundling. Customers will move from a mindset of, “I’m required to have homeowners insurance to get a mortgage,” to a mindset more in line with, “I need to cover my risks and ensure a financially secure future.” Customer retention and satisfaction will go up – along with the insurer’s revenue. How to unlock the true potential of product bundling? The goal of achieving strategic bundling hinges on insurers’ building their advisory capabilities and customizing coverage and products based on a customer’s risk portfolio. The core building blocks of coverage and pricing will not change – but the superstructure could be anything from a chapel to a cathedral, based on a customer’s risk profile. Cutting-edge technical capabilities such as mobile communications, sophisticated analytical tools and so-called “big data” are among the options insurers can tap to build their customization and advisory capabilities. Extensive use of external data (e.g., credit scores and medical data) as well as internal data (e.g., loan delinquency rates) along with analytics will help insurers predict a customer’s risk portfolio with fair accuracy.  Social media platforms such as Facebook and Twitter are other evolving (though not always reliable) generators of external data that insurers can use to gather customer profile, risk and behavior data. Strategic bundling from a risk portfolio management perspective also requires customers to share personal information outright. Customers, especially millennials, seem willing to their share personal information in return for personal advice. This offers the potential for insurers to accelerate strategic product bundling. Insurers can thus capitalize on customers’ need for advice-based risk portfolio management leveraging leading-edge technology to deliver what customers want. Insurers that show agility and speed in building these capabilities can succeed in achieving strategic bundling – and attain the coveted status of a preferred risk portfolio manager.

In the world of usage-based insurance (UBI), Progressive is an exception: Its massive amount of driving data – 110 terabytes covering some two million vehicles, 1.5 billion separate trips and more than 10 billion miles driven – allows it to quickly test new rating factors and to do so with a great degree of accuracy. "We continue to test new ideas all the time,” says David Pratt, Progressive's general manager of usage-based insurance. “Our research team will come up with a theory for what would predict safe driving. With our big data set, we can test those quickly." Few other UBI providers are as fortunate. Octo Telematics, which launched its first UBI product in 2002, also has tons of data: 194 billion kilometers of driving performance from two million drivers globally. But most other companies are making educated guesses based on more limited data combined with more traditional ratings factors. As Nino Tarantino, CEO of Octo Telematics North America, says, "Today, there is no data standard and no clear understanding of which data and how much is required." For example, Octo works with seven insurers in the U.S. and Canada, and each one asks for a different data set to be collected – everything from hard braking and acceleration to how many trips a driver takes and how long the trips are, as well as when and where they occur. Actuarial guidelines often cite 100,000 earned car years as the threshold for credibility for a model, says Dwight Hakim, vice president of telematics, Verisk Insurance Solutions, a provider of underwriting data and tools for UBI. An earned car year is equivalent to one car insured for one year. In traditional motor vehicle insurance, the number of earned car years is used to show state regulators that an insurer’s pricing decision is based on plenty of evidence. This helps reassure regulators, and helps agents selling the insurance. "Credibility is particularly important when insurers are constructing a rate plan that might increase premiums," Hakim says. "Regulators need to see a model with high credibility if that model might result in rate increases. Assuming the insurer has a good financial position overall, modest rate decreases are easier to justify." While using earned car years – or the equivalent in telematics driving data – may be critical when an insurer asks regulators to approve a price increase, it may not be strictly necessary to see how different UBI rating characteristics perform, Hakim says. Trial first, price later That is what many insurers in need of beginning to test or launch UBI programs are betting on, to avoid the need for a large data set. For starters, insurers can assume that good drivers self-select for UBI programs. "Chances are [that] the people who try it are more likely to be safe drivers,” says Thomas Hallauer, research and marketing director for telematics consultancy Ptolemus Consulting Group. “So you know you can offer some kind of discount anyway. You also know they will probably stick longer to your contract." Another strategy, Hallauer says, is for UBI insurers to collect an initial data set through trials, and to then revise their ratings as more data comes in. Coming up on one full year of offering UBI in the U.S., American Family Insurance used just this approach. "We feel like we got enough to launch, but as we see the data we know we need to refine it," says Pete Frey, personal lines UBI program and product manager, American Family Insurance. Combining telematics data with traditional rating factors, such as age and location of residence, is yet another strategy. The Hartford is one of many U.S. insurance companies to do just that, saying it makes for finer segmentation for its consumers. "Almost all programs in the U.S. augment telematics data with other carrier-specific rating factors,” Hakim says. “Assessing the degree of overlap among rating factors to avoid double-counting takes a significant amount of work, but carriers are implementing telematics because they know doing so will help them stay competitive and win market share." But the benefit of adding more data must equal the cost, Progressive’s Pratt warns. While he agrees that UBI rating will continue to evolve and become more sophisticated, "if it costs a lot to get the information, it's maybe not worth it," he says. Consumer acceptance is another sticking point. "Everything we use has to be something the customer thinks is fine," Pratt says. "We have to be able to explain to people why it makes sense, why it's actually fair that we do it that way." Pooled data Finally, insurers can get larger data sets from third-party telematics data providers, such as Verisk Insurance Solutions, Towers Watson and Octo Telematics. Verisk offers what it calls “Driving Behavior Database for Modelers,” which makes available to statistical modeling applications: data from telematics devices; exposure, premium and loss information on insured drivers; and third-party data, including weather conditions, road type and traffic flow. Towers Watson has a pooled data offering that collects telematics data and claims, policy, vehicle and driver information. And it uses this pooled data to score drivers and to provide those scores to insurers. Also available from Towers Watson are models that take into consideration third-party information like maps and weather, road type, population density, weather and angle of the sun. Octo’s Insight Centre collects global, real-time data from its installed base of Clearbox telematics devices, which customers can then interrogate to inform their UBI offerings. However, there are caveats when it comes to using pooled data. Hakim, for example, warns that while amassing large quantities of data is critical, not all data is equally valuable. Its utility depends on its accuracy and completeness; how frequently it's sampled; and the source – whether OBD2 outputs, GPS or accelerometers in cell phones. "Knowing how each device works and the manner in which the different technologies interact is key,” he says. “The complexities of reading the car’s diagnostic information, appending accelerometer data and then transmitting [it] wirelessly require a deep bench of experience.” American Family Insurance’s Frey makes a similar point. The availability of aggregated, third-party data is not the issue, he says. While there are plenty of companies offering data to insurers, "carriers are just trying to figure out how to use it,” he says. “The data is almost overwhelming." The profit question One of the big, unanswered questions about usage-based insurance is whether insurance carriers will ultimately be more profitable than – or even as profitable as – providers of traditional motor vehicle insurance. "It's an accepted thing that putting in a UBI program for starters is a cost,” according to Frey, of American Family Insurance. “It is about a longer-term strategy. Ideally, companies hope to achieve more growth." Among those costs that must be taken into account are the cost of telematics hardware – if an insurer is going the route of using its own devices – and the cost of the back-end infrastructure. Adding UBI on top of an already-existing infrastructure, as major insurers must do, is extremely costly, according to Hallauer, at Ptolemus. In this respect, UBI upstarts that rely on scalable cloud solutions have an advantage, Hallauer adds. Still, the hope is UBI will ultimately pay off. Enabling more sophisticated pricing is one benefit. "You want to make sure you have the right rates for the right drivers,” Frey says. “One of the biggest goals is trying to create fair rates eventually." And insurance discounts are only part of the equation, Hallauer adds. “The pricing decision is not a discount decision; it's how do you change the offering to make it enticing?" he says. According to Hallauer, discount-based UBI incentives will eventually evolve into a more service-oriented approach that may range from life-saving services, such as calling an ambulance after a crash, to more prosaic ones, such as allowing drivers to get a driving score. Ultimately, he says, UBI can make the customer feel comfortable in having a stronger link with the insurer. Value beyond discounts Frey says American Family Insurance is looking in this direction. While it hasn't pinpointed what services it might offer, it's considering safety services, making drivers aware of their driving habits and stolen vehicle recovery. Octo’s Nino Tarantino notes that the value-added services approach is more common in Europe, where some insurance companies offer personal safety and security services, instead of discounts. The environment is different in North America, he says, because of Progressive. The early mover's decision to base its UBI offering on a good-driver discount established the tone for consumer expectations and shaped the market. According to Pratt, at Progressive, the company tries to set its prices so the profit margin is the same for people who sign up for Snapshot, its UBI product, as it is for people who opt for traditional insurance. Progressive's theory is that UBI customers will stay with the company longer – and so far that's been the case. Therefore, the lifetime revenue per customer should be higher, even though the margin is the same as for traditional insurance customers. Progressive may also save some money through helping people drive better. The company noticed that the driving of UBI customers improved when, a couple of years ago, it added the option of turning on audio feedback in the device so that, for example, it beeps when someone brakes hard. "We see this training effect within the first few weeks people have the device plugged in,” Pratt says. “They learn to avoid hard braking, and we have evidence it helps people avoid accidents. That could be a big change in the industry, trying to actually reduce your risk." But the big win is likely in the life of the customer relationship. Pratt adds. “We are not trying to make ourselves more profitable with this. We are trying to attract and keep good customers for a long time." In fact, Tarantino thinks that most usage-based insurance programs cannot succeed if they're based only on discounts because of all the additional costs associated with them. He says Octo's experience with 2.4 million insured drivers in Europe shows that "when the benefits of pricing and determining risk are combined with the benefits of the understanding the moment of loss for the insurance company – when there is a crash, that is – it will be successful." There is never enough data So is there any such thing as enough data? Pratt doesn't think so. Progressive’s Snapshot considers mileage, time of day and hard braking. The company recently began a pilot using GPS-enabled devices to examine whether highway versus city street driving can contribute to predicting future losses. Progressive has found that the measurement of how someone drives is indeed a better predictor of risk than driving record, age, gender or any of the traditional rating factors. Still, "the models can still get a lot better," Pratt says. Say Progressive wants to find out if people who are low-mileage drivers are safer drivers. The company can segment out those drivers from its customer base and see which ultimately did have accidents and which didn't. It could go further and segment the low-mileage drivers by age to determine whether low mileage is a good predictor for all age groups. Even with 10 billion miles driven, there may not always be enough drivers in the database to provide a meaningful segment to test a theory, Pratt says.   This article has been produced in the lead-up to the Insurance Telematics USA conference and exhibition, which will take place in Chicago on Sept. 3-4. This conference will tackle the steps needed to take UBI programs to the mass market. Find out more here.

We may look back to this time as a period when one out of every 10 injured workers faced the risk of criminal prosecution and deportation for the act of submitting a legitimate workers compensation claim. Michael Whiteley of WorkCompCentral reports that law enforcement agencies in at least two states recently adopted strategies to arrest undocumented workers on the grounds that using an invalid Social Security number in their claims submission defrauded the insurer. First report of injury forms include a field for a Social Security number. The number links the claimant to personnel and payroll data on the employers books. Normal payroll deductions are taken for the number to hold for future Social Security and Medicare benefits, to which the claimant may never be able to enjoy. By definition, the Social Security number on an undocumented workers claims record is invalid. The eight million undocumented workers comprise about 6% of the total civilian workforce. By studying estimates of undocumented worker penetration by occupations ranked by injury risk, one can reasonably project that undocumented workers sustain one out of every 10 work injuries. This high volume is invisible to almost everyone except for adjusters, case managers, lawyers and others who work directly with injured workers and have learned their work and life patterns. The rate varies greatly, from maybe 2% in West Virginia, a low foreign-born population state, to over half within the fruit- and vegetable-producing counties of southern California. At my request, the Workers Injury Law Advocacy Group asked if its members were aware of intimidation, claim denials or arrests that arose from the use of other persons Social Security numbers. Within a few hours my email inbox lit up like a Christmas tree. A Florida attorney with whom I had spoken earlier sent adjuster notes obtained through discovery for a June 2012 injury at a dairy. The adjuster wrote on June 27, 2012, "claimant, three children, obtained SSN from his brother when his brother returned to Mexico. Married, 9th grade educ in Mexico." In March 2013, the adjuster wrote: "SIU check found that SSN was issued in Puerto Rico sometime between 1936 and 1950." In March 2013, the adjuster wrote that the case had been referred to a West Palm Beach, Florida, investigator. On April 4 the notes state that the claimant was arrested for using a false number to gain employment and false filing of a workers compensation claim. The legal basis for the arrest was not given but was most likely insurance fraud statute, 440.105 (4)(b), currently being challenged in superior courts (Florida v Brock). This workers guileless comments about the passed down number shows how accustomed undocumented workers, their employers and workers compensation claims payers are to tacitly accommodating illegal work status while processing workers compensation benefits. In all but a few jurisdictions, undocumented workers can legally obtain benefits, a right assured by state law and state superior courts. Whats changed, it appears, is the climate. Perhaps tacitly going along is viewed by some as a form of amnesty. Maybe workers compensation fraud teams are hungrier for results and see identity theft as easier to document than traditional fraud such as faking disability. Step back to consider the implications on the industrys commitment, as phrased by the National Council on Compensation Insurance, to "help foster a healthy workers compensation system." Some applicant attorneys allege that defense lawyers sometimes ensnare their undocumented clients by teasing out during depositions information they then package over to law enforcement. Sometimes, they tell me, there is a threat. "Retaliation and threats of retaliation have created a culture of fear," The National Employment Law Project asserts, citing its recent survey that illegal immigrant workers are hesitant to file workers compensation claims or assert other rights out of fear of retaliation. Workers compensation benefits and work safety join in a circular flow of cause and correction. Len Welch, Chief of Workplace Safety for Californias largest workers compensation insurer, the State Compensation Insurance Fund, says that immigration reform could be the most important work safety advance in the next five to 10 years. "When you have undocumented workers, the odds of accidents go way up. Its the tip of the iceberg of the massive underground economy in the state," he said. James Baldwin, debating William Buckley at Cambridge University in 1965, described the legacy of slavery as the tragedy "when one has absolute power over another person." To the undocumented worker, her or his employer holds nearly absolute power over safety. A work injury could result in jail time and deportation. Neither the workers compensation system or worksite safety are healthy when one tenth of injured workers are in a constant state of vulnerability.

The chief innovation officer of a Fortune 1000 company relocated to a Silicon Valley outpost far from her New York corporate headquarters. She now spends most of her time holding court with venture capitalists and entrepreneurs about stakes in hot start-ups. It is never clear who is courting whom in those meetings, though the general attitude in the Valley is that there is more dumb money than good start-ups. Her goal is not to maximize financial returns on her investments—even a 200% return would not be material to her corporation’s financials. Instead, she is essentially outsourcing her company’s innovation strategy to start-ups. Do these stories sound familiar? Like too many of their peers, these smart and savvy veterans were stymied in their efforts to get their companies to innovate. They resigned themselves to a conventional wisdom that has taken root in recent decades: that start-ups are destined to out-innovate big, established businesses. Consider, such pessimists contend, that 227 of the companies on the Fortune 500 list just 10 years ago are no longer on the list. Based on personal experience with hundreds of large company innovation successes and failures, and research into thousands more, however, I have found that this conventional wisdom just isn’t true. Or, at least, it need not be. Yes, small and agile beats big and slow, but big and agile beats anyone—and that combination is more possible than ever. There are three reasons why innovators at large companies should be optimistic about their ability to beat start-ups. 1. Start-ups aren’t all they’re cracked up to be. Yes, Silicon Valley has the cachet, but Harvard Business School research shows that the failure rate for start-ups runs as high as 95%. Start-ups, as a group, succeed largely because there are so many of them, not because of any special insight. What’s more, the National Bureau of Economic Research (NBER) found that entrepreneurs are saddled with most of the risk while financiers capture most of the rewards. Entrepreneurs invest their time, reputations and accumulated expertise for modest salaries and long hours in the hope of gaining huge rewards at “exit,” when the start-up goes public or is acquired. NBER researchers found, however, that start-ups rarely pay off for the entrepreneurs who slave away at them. Of companies that reached an exit (after a median time of 49 months from first venture funding), 68% resulted in no meaningful wealth going into the pockets of the entrepreneurs. These numbers add up to pretty long odds for corporate innovators looking to find greener pastures as an entrepreneur. The story is not much better for strategic investors chasing start-ups through venture capitalists. Numerous studies, including a 2012 study by the Ewing Marion Kauffman Foundation and a more recent one by Cambridge Associates, show that venture capital has delivered poor returns for more than a decade. VC returns haven’t significantly outperformed the public market since the late 1990s, and, since 1997, less cash has been returned to investors than has been invested in venture capital. Risk and reward have not correlated. Vinod Khosla, a billionaire venture capitalist and cofounder of Sun Microsystems, tweeted a revealing line from an executive at one of his companies in 2012: “Entrepreneurs really are lousy at predicting the future… VCs are just as bad.” 2. Scale is more valuable than ever. In the context of today’s immense technology-enabled opportunities, large companies have growth platforms that would take start-ups years to build. Incumbents have products with which to leverage new capabilities such as mobile devices, pervasive networks, the cloud, cameras and sensors. Social media can amplify brand power and customer relationships. Large companies also sit on mountains of market and customer data and are therefore in the best position to extract knowledge from big data. The possibilities are startling. And tapping into them isn’t optional. A perfect storm of six technological innovations—combining mobile devices, social media, cameras, sensors, the cloud and what we call emergent knowledge—means that more than $36 trillion of stock-market value is up for what some venture capitalists are calling “reimagination” in the near future. That $36 trillion is the total market valuation of public companies in the 10 industries that will be most vulnerable to change over the next few years: financials (including insurance), consumer staples, information technology, energy, consumer goods, health care, industrials, materials, telecom and utilities. Incumbent companies will either do the reimagining and lay claim to the markets of the future or they’ll be reimagined out of existence. 3. The roadmap for leveraging scale while avoiding innovation landmines is clearer than ever. Since the start of the Internet boom some two decades ago, so many companies have looked to information technology to innovate that there’s now a track record showing what works and what doesn’t. The problems that have stifled innovation in large companies are now known and can be avoided. These problems are not inherent to bigness. 273 companies that were on the Fortune 500 list 10 years ago are still thriving and remain on the list. Compare that 55% success rate against the 90%-plus failure rate of start-ups. Large companies can out-innovate both existing and start-up competitors by undertaking a systematic innovation process of thinking big, starting small and learning fast. I outlined this roadmap for how to—and how not to—innovate in a recent LinkedIn post. It is also thoroughly annotated in my books Billion Dollar Lessons: What You Can Learn From The Most Inexcusable Business Failures of the Last 25 Years and The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups (both written with Paul Carroll). * * * I am not arguing that there is no place for entrepreneurship or start-ups. Start-ups as a group will continue to be an economic engine driving innovation, jobs and wealth. But any individual start-up, or even a small portfolio of start-ups, is far from a better bet for corporate veterans seeking better jobs or more successful innovation. Rather than jumping from the frying pan into the fire, corporate innovators should consider staying put and focus on tearing down the barriers stifling their company’s innovation efforts. Yes, small and agile start-ups look very attractive when viewed from the confines of a big and slow bureaucracy. Big and agile is an even more attractive position. Do you agree? I'd love to get your thoughts!

Movies offer a window to another lifetime, another life; sometimes to follow a dream, other times to freeze from horror. Regardless of which emotion you are after, a movie allows you to escape your own world for an hour or two and be part of someone else’s. The following list of movies will make you want to call your insurance agent and make sure you have the proper coverage.

Health/Life Insurance

 1. The Fault in Our Stars

2. Steel Magnolias

3. Erin Brockovich

 

Data Breach

 4. Identity Thief

5. Date Night

6. Catch Me If You Can

   

Crop Insurance

 7. A Walk In The Clouds

 

Scheduled Property

8. The Dark Knight Rises

 

Fine Arts

9. The Thomas Crown Affair

 

Windstorm Coverage

10. Twister

     

WCRI (Workers’ Compensation Research Institute) recently released a report identifying predictors of injured worker outcomes. While the report reflects only a few states, the information can logically be extrapolated to other areas. When seeking answers in medical management, the issues remain fundamentally constant regardless of location because they are medical, not jurisdictional. “Better information about the predictors of poorer worker outcomes may allow payors and doctors to better target health care and return-to-work interventions to those at risk,” stated Dr. Richard Victor, WCRI executive director. Moreover, data systems can search for the predictors in claims so that appropriate attention is focused on them from the beginning, mitigating the damage. Preventive communication Having said that, the first predictor of poor outcomes identified in the WCRI study will not be found in the data. WCRI found that, when injured workers are strongly concerned about being fired after the injury, outcomes will be poor. Managing worker understanding is an employer risk management issue, one that can best be handled with good communication. Contacting injured workers early and continually with reassurances of continued employment will drive best results. Moreover, the approach is easy and costs nothing. Other risks identified in the study require a different approach. Comorbidity risk WCRI research identified three comorbidities of concern: hypertension, heart disease and diabetes. When these comorbidities are combined with a workplace injury, the result is longer durations of disability. Workers with heart disease had disability durations four weeks longer than those without heart disease. Those with hypertension and diabetes exhibited 3% and 4% higher rates of not working three years after their injury. Comorbidity risk is a generally known truth, gained either logically or through experience. I call it corporate wisdom. The study validates the theory. Monitor ICD-9s Search for these and other conditions in claims by monitoring the data continuously. Each condition has a set of ICD-9s (International Classification of Disease) for the disease. ICD-9s appear on medical bills, so a continuous search for them in the bill review or claims systems is reasonable. Moreover, the search can be extended to other comorbidities. Other risky comorbidities Other comorbidities have been identified through industry research as complicating injury recovery and generating poorer outcomes. Search Google to find specific diseases or to find a myriad of studies that bear this out. Such studies are proof of the notion that when certain diseases are coupled with workplace injuries, outcomes are poorer, disability durations are longer and costs are higher. Examples of search requests are, “Opioids in Workers’ Compensation” or “Obesity in Workers’ Compensation.” Use a search engine to find industry studies regarding other comorbidities such as specific mental health conditions like stress or depression. The research provides an argument for actively managing claims where the comorbidities exist. Opportunity gain Industry research is invaluable. Leverage the work of serious researchers rather than engaging in pricy statistical modeling. Statistical modeling uses advanced mathematical methods to identify high risk claims. Still, an affordable alternative method is available. Customize for the organization To learn the comorbidities of most concern to an organization, do a query of the highest-cost claims in the data over the past few years. List the diagnoses in those claims and identify the comorbidities most commonly associated with them. Then look for industry research on those diagnoses to establish rationale for implementing the monitoring and intervention procedures. 'Coattail' to predict If statistical modeling is not within practical reach, "coattailing" on industry research is a viable alternative. Determine the highest-risk comorbidities within the organization, search the research and begin monitoring the data to find claims where they occur. Monitoring the data allows for a proactive approach by tagging claims at risk soon after injury, thereby modulating the damage. Plan of action Establish standard medical management processes for responding when identified comorbidities or other high-risk diagnoses appear in a claim. Identifying claims that portend risk, whether from comorbidities or anything else, is a cost-savings measure only if an action plan is in place for responding to it. Gaining the information is nice, but it must be tied to an intervention plan to make a difference. Because these are medical situations, automatic referral to a medical case manager makes the most sense. An organization should establish protocols and procedures for approved intervention. Appropriate attention focused from the beginning will abate the damage, thereby improving outcomes.

One of the main UK newspapers has just published the best – and worst – UK insurers based on customer surveys. The scoring was based on communication, speed to settle a claim, helpfulness, value for money and overall service. Those at the top of the list will be invariably patting themselves on the back, and those at the bottom of the list will have some soul searching to do -- a bit like the England team that crashed out rather unceremoniously from the World Cup in Brazil and failed to reach the knock-out stages of the soccer championships. Of course, the problem wasn’t the quality of the England team, but rather the quality of the opposition -- and in that spirit, let’s not think about the quality of the insurers in the survey but rather the quality of their policyholders. We used to think of policyholders as all being pretty much the same. One size fits all. But the insurance industry has increasingly realized through customer analytics and micro-segmentation that actually there’s a lot of diversity among their existing and potential customer base. In terms of buying behavior, insurers are starting to use segmentation that is much more familiar to our retail colleagues. At a major multi-industry conference, the head of innovation for a global insurer spent all his time in the retail workstream. "I know what my competitors are up to," he said. "Here is where I will find my advantage." Obviously, we know which are the most costly customers in terms of risk and product. But with all the big data and analytics captured, has any organization identified which are the highest-maintenance customers, the ones who are most problematic to cope with, especially at the point of claim when, if it’s going to go wrong, that’s when it will happen? My own opinion – entirely based on 30 years of experience and without a hint of analytical insight -- is that the most difficult insurance customers are, in no particular order, teachers, policemen and retired insurance professionals. Journalists come in pretty close, as well. With three of the four, it’s probably a question of having an inquiring mind and wanting to understand the basis of every decision. With insurance professionals, I suppose that means you and me. I’ll leave you to figure out why we're so difficult…

Now, your humble blogger knows what beloved subscribers, Twitter followers and random Google search visitors (who keeps Googling, "humble logger"?) are collectively thinking: “I am so desperately craving a blog post on the going and coming rule – that’s my favorite rule of all! Don’t disappoint me, Greg.” In fact, I'll give you two. The First Incident For those not in the know, the going and coming rule basically sets a giant wall between coming to (or from) work and work itself. Like all good rules, this one is riddled with giant exceptions through which elephants can comfortably march in rows of four, but in certain instances the rule kicks in to shield the employer from liability. And, it’s not just workers’ compensation liability; the rule can also shield employers from liability to third parties caused by the negligence of employees. So, I bring to your attention the recently writ-denied case of Aguilar v. BHS Corrugated North America. Therein, a worker gingerly hopped into a car rented by his employer to go off-site for an unpaid half-hour lunch break. A co-worker was at the wheel. As you can imagine, on the way back, the worker sustained an injury and filed a claim for workers’ compensation benefits. The matter proceeded to an AOE/COE trial, and the judge was persuaded by the applicant’s position – that the employer benefited by having the driver/co-worker have a car available for personal and business reasons. Defendant sought reconsideration (as defendants often must). In a split panel, the WCAB granted reconsideration, reasoning that the “lunch rule” would lead to a take-nothing order -- in other words, that even if the applicant won he would not be entitled to damages. Of special interest here is that the WCAB majority rejected the argument that the fact the employer rented the car for the co-worker-driver makes this incident compensable: “[T]he applicant’s personal decision to travel off premises in that rental car as a passenger during an unpaid lunch break did not render service to the employer and, therefore, did not grow out of or was incidental to employment.” Had this been a split decision that favored the applicant, I would, of course, say you should read the dissent. Being a hopelessly biased defense hack, I have no need to say such a thing. I will note that the dissenting opinion pointed out some fairly relevant facts: The lunch was at the insistence of co-workers whom applicant considered his supervisors; the lunch was spent discussing work matters; and the lunch was paid for on a company card. In short, it is a reasonable interpretation that the employer was receiving benefit from the employee’s presence in the car and attendance at the lunch. Now, a panel decision makes for weak authority before a workers' compensation judge, and a split panel makes for even weaker one, but it is interesting to get this peek at the surgical distinction the going and coming rule often calls for, and the continued evolution of this law. The Second This case for you to hold and cherish comes from the Court of Appeal: Lantz v. WCAB/SCIF. Applicant Lantz was a correctional officer who was, tragically, killed after a car crash on the drive home from work. Now, this would not be a blog post if we could simply say “going and coming rule – take nothing!” The facts in this case complicate the matter to the point where the Court of Appeal felt an opinion was warranted. Applicant was not just driving home from work on any day – he was required to work an extra shift after his regular shift. So, while he would normally be commuting home, he was working, and when he would normally be home and not working, he was driving home. The question is whether requiring an employee to work an additional shift at the same location constitutes a “special mission” that defeats the going and coming rule. The Court of Appeal recognized the special mission exception but also noted that the special mission exception requires: (1) extraordinary activity, as opposed to routine duties; (2) AOE/COE; and (3) activity that was undertaken at the express or implied request of the employer and for the employer’s benefit. Using this standard, the COA readily conceded that prongs 2 and 3 were satisfied – working an additional shift is, no doubt, within the course of the duties of the employee, and the activity was required by the employer for its benefit. On the other hand, the first prong is not so easily satisfied. Is working another shift truly extraordinary? The test is whether the location, nature or hours of the work deviates from the norm. In this case, the COA deferred to the WCAB’s determination that the extra supervisory duties did not rise to the level of extraordinary. Of interest here is the ready recognition by the Court of Appeal that it is possible that a sudden change in work hours would be extraordinary duty. The image comes to mind of a deputy suddenly yanked from dispatch to work intake and processing, or a maître d' asked to help unload a truck. One other nugget to consider here: The Court of Appeal addresses the argument oft cited by lien claimants, applicants’ attorneys and crazies roaming the streets of San Francisco: “Liberal Construction!” No, no, dear readers, this isn’t in reference to a bunch of long-haired college hippies building houses out of recycled milk bottles but, instead, a quote from Labor Code section 3202: “This division and Division 5 … shall be liberally construed by the courts with the purpose of extending their benefits for the protections of persons injured in the course of their employment.” Okay, calm down. I know you’re pounding your keyboard and thinking, “Why is Greg wasting my time with this? I’m not running a prison; why is this case relevant?” Well, here it is, the nugget you can take to every case in the workers’ comp system that is set for an AOE/COE trial: “The policy of liberality is predicated upon there being a person who is ‘injured in the course of [his or her] employment’ and therefore, when given its plain meaning, does not aid in deciding the threshold question of whether the employee was injured in the course of his or her employment.” So, the next time there is a question of whether the injury is compensable at an AOE/COE trial, if there is any effort to use the liberal construction language of 3202 to lower the standard of proof the applicant must otherwise meet, Lantz should be at the ready to negate the argument, as a citeable, binding, published decision.