Innovation ecosystem. Open innovation. The combination of these two empowers the sharing of knowledge, information and ideas that are accelerating innovation today, helping to reimagine industries and companies. Why is an ecosystem so powerful and so critical? Because of day-to-day operational demands, insurers often don't put the influencers of change for insurance into context. An ecosystem can enable the generation and integration of new thinking. An ecosystem -- particularly one with outside resources -- can provide a much-needed, outside-in perspective that helps to break down legacy assumptions. In today’s hyper-connected world, companies are moving from managing value chains to managing ecosystems. Henry Chesbrough, author and academic, originated the term “open innovation” as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Chesbrough notes that open innovation “is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, could innovate effectively on its own.” No single person or entity possesses all the knowledge, insights, ideas or creativity. This is why crowdsourcing, a means of open innovation, is crucial for all companies to embrace. From the dawn of the industrial age, and into the information age, companies seeking market-leader status through technology innovation developed internal, large and impressive R&D departments. Iconic examples include Bell Labs, Xerox, IBM, HP, Ford, BMW, BP, AT&T and GM. The advent of the Internet and other technologies enabled collaboration with people and resources around the world, dramatically changing how companies did R&D. By embracing open innovation and ecosystems, leading technology and start-up companies formed co-creation environments that embraced technology. Examples of these include Linux, Google, Apple and Cisco. Today, companies across all spectrums, even those with historically iconic R&D departments, see the power of open innovation and ecosystems and are embracing the concepts, including Ford, Heineken, Procter & Gamble, BMW, Dell and Starbucks. And there are start-ups that are using crowdsourcing to crowd-fund investment resources to bring innovative products to market. The powerful combination of these two concepts -- innovation ecosystem and open innovation -- can be formidable for companies seeking market leadership. And it creates a chain reaction of innovation and success. Consider Linux and Apple. The Linux operating system was created in 1991 by Linus Torvalds for his new PC. He posted it online to a group of developers for feedback. The rest is history. Today, Linux is managed by a community. Thousands of programmers around the world who use Linux are sending their suggested improvements to the maintainers, and new companies have emerged that benefit from Linux. Likewise, Apple’s development of the iPod, iPhone and iPad has changed industries and created companies, changing market dynamics. Now, through open innovation and collaboration, whole communities of developers are creating apps that engage customers and change their experience daily. Even some companies that are not considered predominantly high-tech, like Procter & Gamble, Starbucks, BMW, Heineken and Ford, have embraced ecosystems to fuel innovation and keep them relevant in a fast-changing marketplace. Procter & Gamble’s Connect+Develop open innovation, with an ecosystem of more than two million relationships, is a powerful force of collaboration, innovation and change. P&G’s launch time for new products has been halved, and the innovation rate has increased by 75%. Imagine the potential for insurance! The potential of an environment of open innovation with access to a robust ecosystem is transformative. There is a “safe sandbox” innovation environment where you can discuss, debate and incubate ideas that then mature uniquely inside your organization. This type of co-creation allows companies to expand their business ideas and use of technology quickly and cost-effectively. While keeping competitive information confidential, companies can discuss ideas, challenges and opportunities to leverage the expertise and collaboration of the community. In essence, the community becomes an extension of your company’s innovation, strategy and R&D efforts that can inspire and activate change within your organization. Even more exciting is the possibility of open innovation leveraging a broad ecosystem of inside- and outside-the-insurance-industry participants, letting us as an industry define our own future, rather than letting it be defined for us. For those insurers that are wary of this level of open innovation and collaboration, just look at the market leaders in other industries. These companies embraced open innovation and built ecosystems of inside and outside relationships -- with customers, suppliers, partners, industry leaders, academia, technologists and others -- to help them transform and gain or retain market leadership. At the recent MIT CIO symposium on innovation and the digital revolution, panel discussions of leaders across different industries emphasized:

• The ubiquitous connectivity of people via the Internet and emerging technologies such as social media, the Internet of Things, crowdsourcing, mobile and cloud are disrupting traditional business assumptions from how to engage customers, to the products and services offered and ultimately to revenue models.
• There is a foundational change taking place in the way all businesses are approaching value creation.
• Operational excellence is table stakes. The barrier to entry for all industries has either already fallen or is falling now.
• Modern technology and digitalization must change how companies see themselves -- no longer as value chains, but rather as enterprise ecosystems that must be connected.
• The collective intelligence of ecosystems promotes an entrepreneurial spirit, provides a greater understanding of new technologies and stimulates creativity and life-long learning that together are key characteristics for future success.
• The price of solving problems is innovation.

Insurance industry disruption has begun and will tear down the business assumptions and paradigms of the last 20 to 30 years, or more. Don’t protect and cling to those assumptions. Reenvision and reinvent the business. Most importantly, embrace open innovation and an ecosystem of outside-in thinking and collective intelligence to inspire and accelerate your transformation. Be a disruptor and an innovator. From the dawn of the industrial age, and into the information age, companies seeking market-leader status through technology innovation developed internal, large and impressive R&D departments. Iconic examples include Bell Labs, Xerox, IBM, HP, Ford, BMW, BP, AT&T and GM. The advent of the Internet and other technologies enabled collaboration with people and resources around the world, dramatically changing how companies did R&D. By embracing open innovation and ecosystems, leading technology and start-up companies formed co-creation environments that embraced technology. Examples of these include Linux, Google, Apple and Cisco. Today, companies across all spectrums, even those with historically iconic R&D departments, see the power of open innovation and ecosystems and are embracing the concepts, including Ford, Heineken, Procter & Gamble, BMW, Dell and Starbucks. And there are start-ups that are using crowdsourcing to crowd-fund investment resources to bring innovative products to market. The powerful combination of these two concepts -- innovation ecosystem and open innovation -- can be formidable for companies seeking market leadership. And it creates a chain reaction of innovation and success. Consider Linux and Apple. The Linux operating system was created in 1991 by Linus Torvalds for his new PC. He posted it online to a group of developers for feedback. The rest is history. Today, Linux is managed by a community. Thousands of programmers around the world who use Linux are sending their suggested improvements to the maintainers, and new companies have emerged that benefit from Linux. Likewise, Apple’s development of the iPod, iPhone and iPad has changed industries and created companies, changing market dynamics. Now, through open innovation and collaboration, whole communities of developers are creating apps that engage customers and change their experience daily. Even some companies that are not considered predominantly high-tech, like Procter & Gamble, Starbucks, BMW, Heineken and Ford, have embraced ecosystems to fuel innovation and keep them relevant in a fast-changing marketplace. Procter & Gamble’s Connect+Develop open innovation, with an ecosystem of more than two million relationships, is a powerful force of collaboration, innovation and change. P&G’s launch time for new products has been halved, and the innovation rate has increased by 75%. Imagine the potential for insurance! The potential of an environment of open innovation with access to a robust ecosystem is transformative. There is a “safe sandbox” innovation environment where you can discuss, debate and incubate ideas that then mature uniquely inside your organization. This type of co-creation allows companies to expand their business ideas and use of technology quickly and cost-effectively. While keeping competitive information confidential, companies can discuss ideas, challenges and opportunities to leverage the expertise and collaboration of the community. In essence, the community becomes an extension of your company’s innovation, strategy and R&D efforts that can inspire and activate change within your organization. Even more exciting is the possibility of open innovation leveraging a broad ecosystem of inside- and outside-the-insurance-industry participants, letting us as an industry define our own future, rather than letting it be defined for us. For those insurers that are wary of this level of open innovation and collaboration, just look at the market leaders in other industries. These companies embraced open innovation and built ecosystems of inside and outside relationships -- with customers, suppliers, partners, industry leaders, academia, technologists and others -- to help them transform and gain or retain market leadership. At the recent MIT CIO symposium on innovation and the digital revolution, panel discussions of leaders across different industries emphasized:

• The ubiquitous connectivity of people via the Internet and emerging technologies such as social media, the Internet of Things, crowdsourcing, mobile and cloud are disrupting traditional business assumptions from how to engage customers, to the products and services offered and ultimately to revenue models.
• There is a foundational change taking place in the way all businesses are approaching value creation.
• Operational excellence is table stakes. The barrier to entry for all industries has either already fallen or is falling now.
• Modern technology and digitalization must change how companies see themselves -- no longer as value chains, but rather as enterprise ecosystems that must be connected.
• The collective intelligence of ecosystems promotes an entrepreneurial spirit, provides a greater understanding of new technologies and stimulates creativity and life-long learning that together are key characteristics for future success.
• The price of solving problems is innovation.

Insurance industry disruption has begun and will tear down the business assumptions and paradigms of the last 20 to 30 years, or more. Don’t protect and cling to those assumptions. Reenvision and reinvent the business. Most importantly, embrace open innovation and an ecosystem of outside-in thinking and collective intelligence to inspire and accelerate your transformation. Be a disruptor and an innovator.

The buzz is that Wal-Mart is now selling car insurance (even thought it is actually acting as an agency for other insurance companies.) This made we wonder if Wal-Mart will ever sell workers' compensation insurance. What businesses would Wal-Mart target? It already has a large database of companies -- think Sam's Club. Sam's Club has more than 47 million members and is the U.S.'s eighth largest retailer. Those numbers do not even count the Wal-Mart shoppers. The 47 million are not all business members, but the number of businesses shopping at Sam's must be staggering. So, the market for cheap workers' comp insurance could be big for Wal-Mart. The buying power of the agency Wal-Mart runs would be enormous. The agency that Wal-Mart will use for car insurance has a track record of providing goods and services to Wal-Mart, so it has made it over the first critical hurdle of establishing a vendor relationship with Wal-Mart. That is not an easy task. Agents and brokers should keep their eye on Wal-Mart, as it may soon provide very stiff competition in the world of business insurance -- business liability and owners polices could be another ripe area for Wal-Mart to exploit. Where there is profit, Wal-Mart tends to go.

A weak economic recovery and regulatory issues are providing significant challenges to traditional business models in property and casualty insurance, especially in commercial lines. Carriers can no longer rely on investment income, and market-share consolidation should be a growing concern. History tells us that the winners will be companies that are more progressive in their use of new operating models and tools, including advanced data and analytics. Nigel Morris, managing director of QED investors and co-founder of Capital One, said: “In the late ‘80s and early ‘90s, Capital One was at the vanguard of a revolution deploying data-driven strategies in the credit card industry. . . . I believe that insurance carriers increasingly have the same opportunity to grow the size and profitability of their businesses by more specifically meeting their customer’s needs.” The credit-card industry shows what might happen in P&C. During that time in the late 1980s and 1990s, new marketing and risk-assessment strategies fundamentally changed the credit-card industry. Technology and information-based companies like Capital One flourished and garnered significant market share while those that clung to traditional methods floundered. The agent of change? Analytics. In 1988, Capital One (originally Signet Bank) was founded because it saw an untapped opportunity to leverage credit-score and consumer-spending patterns to find the best risks within the subprime market and revolutionize the credit-card industry. Similarly, Progressive Insurance pioneered the use of analytics, also leveraging credit scores, to insure nonstandard risks at profitable rates and shake up the auto-insurance market. The adoption of sophisticated technologies essentially creates a perfect storm. Those who use the best analytics gain profitable market share. Those who don’t use analytics suffer from adverse selection, ending up with poorer-performing risks because they are working with outdated pricing and risk-assessment strategies. As Matthew Josefowicz, managing director of Novarica, wrote, “The massive proliferation of easily accessible data combined with the increased power of modern analytical tools has the potential to transform the insurance industry dramatically over the next decade. The strategy and operations of insurers in the near future could be nearly unrecognizable to current market leaders.” Data and analytics will only continue to evolve and change the way business is done, whether it’s in insurance, banking, healthcare, shopping or another industry; the accessibility to personal information is truly transforming the world we live in and how we do business.  In the insurance world, companies like Valen Analytics are creating solutions and providing insights to help drive overall success, for instance by helping carriers manage and segment their portfolios to drive underwriting profitability. For the full report on which this article is based, click here.

When we polled approximately 300 insurance executives about the biggest risks facing their companies, a third answered: “competition from companies that will significantly lower their operating costs by modernizing finance, risk and operations.” Based on our experience, we agree: The most direct way for insurers to gain a competitive strategic advantage by increasing efficiencies and reducing costs is to modernize in an integrated manner their finance, operations, actuarial and risk functions. Drivers of change There are several drivers of change that make modernization an imperative. Internally, CEOs are challenging finance, accounting, actuarial and risk functions to be more relevant to the business, as well as better communicate the value of the business to stakeholders. Externally, there are several major, related drivers of change: The cumulative implications of these changes will be deep and permanent and affect business strategy, investor education, underlying processes, systems, internal controls, valuation models and other fundamental aspects of the insurance business. While there is widespread acknowledgement that modernization is necessary, many companies are having difficulty determining just where to begin and how far modernization might go. Each driver will cause considerable change; collectively, they could be overwhelming. As a result, most companies are taking a wait-and-see approach before they fully commit resources, and the functions that are trying to be more aggressive are struggling to secure funding -- often because difficulties in defining their vision make it hard to demonstrate just what implementation could entail. Common change themes and operational synergies Whether they have started to modernize or not, perceptive insurers recognize that the drivers of change have common themes and will require them to:

• Revisit their strategies and lines of business;
• Redevelop and reprice products in light of different profitability and capital levels;
• Develop, understand, report and disclose new and more complex performance measures;
• Produce different and more complex financial and risk reports, with sufficient analysis explaining results both internally and externally; and
• Manage a business where performance measures are likely to be very different and more volatile than today’s.

The likely effects on people, process and technology significantly overlap and will drive the finance, operations, actuarial and risk (FOAR) functions to:

• Revisit and realign governance, roles and responsibilities to meet new requirements and functional responsibilities;
• Revamp key performance indicators and information to provide management meaningful understanding of what drives performance;
• Retrain stakeholders (board, shareholders, analysts, etc.) on revised reporting metrics and help them understand the link to performance;
• Develop a “single source of the truth” to allow comprehensive experience and performance analysis, and avoid reconciliation errors across the various metrics;
• Set consistent assumptions anchored in a common view of “best estimates” across generally accepted accounting principles (GAAP), price-to-book-value ratio (PBR), risk and capital metrics;
• Enhance enterprise architecture around data, systems and tools to improve governance and controls, reduce run-time and facilitate more complex calculations and results analysis;
• Shelve legacy actuarial systems and implement modern cashflow projection calculation engines that consistently produce required metrics, are well-controlled and flexible enough to meet emerging requirements; and
• Reassess organizational design, competencies and talent.

This will require multiple disciplines to work closely together that probably have not done so in the past. As a result, there will be cultural/behavioral and operational challenges to address. Accordingly, to obtain the greatest benefits, any plan and implementation should consider likely changes to people, processes and technology in the aggregate, not just individually. Conclusion: The benefits of a pragmatic approach Given common change themes and complex implementation implications, prescient insurers are not waiting for final dates and requirements but are developing pragmatic implementation plans that:

• Are forward-looking and consider relevant drivers of change;
• Evaluate people, process and technology changes and determine how long it will take to implement them;
• Consider which current projects need reevaluation and bring them in line with the broader change agenda; and
• Stage the implementation changes over several years. This will allow functional areas and management to embed new processes and familiarize themselves with managing the business under new metrics and reporting requirements.

And, while modernizing technology and processes is a significant expense, the benefits usually justify the costs:

• Insurers have been wanting to make many of the anticipated changes to FOAR functions for years.
• Improvements cost less than adding staff and using existing infrastructure.
• Streamlined process and more modern technology result in greater speed and efficiency and reduce operational risk and costs.
• A comprehensive, well-thought-out, pragmatic and staged plan to modernize FOAR functions and prepare for new requirements can lead to a competitive advantage through revamped products, reduced expenses and increased efficiencies.

In the coming months, we will address how modernization affects insurers’ various operational functions.

On Feb. 21 a New York trial court judge let Sony’s insurers, Zurich American Insurance and Mitsui Sumitomo Insurance, off the hook for Sony’s massive 2011 PlayStation data breach. That breach, in which hackers stole the personally identifiable information (PII) of PlayStation users, is one of the largest data breaches to date. The litigation turns on whether Sony is covered for the data breach under Coverage B of its commercial general liability (CGL) insurance policies. Under the standard industry form, which is materially the same as Sony’s policies, Zurich committed to “pay those sums that [Sony] becomes legally obligated to pay as damages because of ‘personal and advertising injury,’” which is defined to include “injury … arising out of … [o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” While insurers frequently attempt to avoid coverage for privacy-related claims by arguing that the requirements of a “publication” or “right of privacy” are not satisfied, this would have been a weak argument for Zurich. Instead, Zurich filed a declaratory judgment action against Sony, and Sony’s other insurers, seeking to avoid or minimize its coverage obligations on the basis that Sony itself did not invade any privacy rights. In its cross motion for summary judgment, Zurich asserted that its policy “coverage is limited to protect against the purposeful and intentional acts committed by the insured or its agents, not by non-insureds or third-parties." Putting aside the fact that it’s somewhat astonishing for an insurer to take the position that “purposeful and intentional acts committed by the insured” are covered (usually insurers assert that knowing or intentional acts are excluded), the New York trial court agreed. It ruled from the bench that Sony’s liability policies are triggered only by actions by Sony, and not by the actions of the third parties who hacked into the network and stole the PII. With all respect to the New York trial court, this one should have been a clear Sony victory. Here are five top reasons why: #1. The plain policy language does not require Sony to “do” anything. Nowhere in the coverage agreement or the key definition do Sony’s policies require any action by Sony. In fact, it is clear that the policies are not triggered by Sony’s actions, as argued by Zurich, but rather by Sony’s liability, i.e., sums that Sony “becomes legally obligated to pay” that “arise out of” the publication of PII. The extremely broad language, moreover, extends to Sony’s liability for injury for publication “in any manner,” such as a hacker attack into Sony’s network. There is absolutely nothing in the broad Coverage B language to limit coverage to the actions of Sony. This is straightforward: Sony has liability for the breach; therefore, Coverage B coverage is triggered. #2. Sony is entitled to the benefit of any and all reasonable doubt. To the extent there was any ambiguity at all (I think there is not), Sony is entitled to every reasonable doubt in its favor under well-established rules of insurance contract construction. New York’s highest court has made this abundantly clear: “Ambiguities in an insurance policy are to be construed against the insurer." In addition, given the standard policy “knowing violation of rights” exclusion applicable to Coverage B (which bars coverage for injury “caused by or at the direction of the insured”), to the extent a “purposeful and intentional” act was required to trigger coverage, as argued by Zurich, then the conduct required to trigger the coverage would also, presumably, in Zurich’s view, trigger the exclusion, thereby rendering the coverage illusory. This result is barred by New York public policy. #3. The insurance industry has acknowledged that CGL policies provide data breach coverage. The insurance industry clearly understands that there is data breach coverage under Coverage B, as evidenced by the fact that the industry recently filed a series of data breach exclusions, which were to become effective this May. ISO has issued new data breach exclusions and classified them as resulting in reduction of coverage for data breach (meaning there is coverage at present):

To the extent that any access or disclosure of confidential or personal information results in an oral or written publication that violates a person’s right of privacy, this revision may be considered a reduction in personal and advertising injury coverage.

#4. Zurich itself has acknowledged that its policies provide data breach coverage. Zurich, Sony’s insurer, itself has expressly recognized that the language of its policies may provide coverage in the event of a data security breach via hacking, i.e., third-party actions, because hacking can lead to legal exposure to the insured (i.e., liability, which is the genuine coverage trigger, and not Sony’s action or inaction as now asserted by Zurich):

Security breaches via hacking, phishing, pharming, unauthorized internal access and the inadvertent disclosure of non-public personal information are all circumstances that can lead to legal exposure. Potential causes of action resulting from data security breaches may include increased risk of identity theft, actual or attempted identity theft, violation of consumer protection statutes, negligence, breach of contract, breach of fiduciary duty and even fraud.

A company’s standard property and casualty insurance policies may provide some coverage in the event of a data security breach, but specialized cyberliability coverages may be worth exploring and evaluating.

#5. The cases Zurich cited do not support deviation from the clear policy language. Notably, the few cases cited by Zurich in the Sony litigation are factually inapposite and interpret entirely different policy language. For starters, nearly all involve circumstances in which an insured attempted to avoid the application of the pollution exclusion applicable to Coverage A of the standard industry CGL policy by seeking coverage under Coverage B, which includes coverage for injury arising out of “wrongful entry or eviction or other invasion of the right of private occupancy” (or similar wording). Here, Sony is not trying to avoid application of an allegedly intended exclusion; it is simply trying to secure the privacy coverage that it purchased. Moreover, although the “wrongful entry” wording may have been interpreted narrowly by some courts in the context of pollution-related cases, the “right of privacy” wording at issue in the Sony coverage litigation has been given a broad interpretation. Courts generally have construed the language favorably to insureds and have found coverage for a wide variety of claims alleging breach of privacy laws and regulations. For all of these reasons, Sony would appear to have excellent grounds for appeal. While insurers frequently attempt to avoid coverage for privacy-related claims by arguing that the requirements of a “publication” or “right of privacy” are not satisfied, this would have been a weak argument for Zurich. Instead, Zurich filed a declaratory judgment action against Sony, and Sony’s other insurers, seeking to avoid or minimize its coverage obligations on the basis that Sony itself did not invade any privacy rights. In its cross motion for summary judgment, Zurich asserted that its policy “coverage is limited to protect against the purposeful and intentional acts committed by the insured or its agents, not by non-insureds or third-parties." Putting aside the fact that it’s somewhat astonishing for an insurer to take the position that “purposeful and intentional acts committed by the insured” are covered (usually insurers assert that knowing or intentional acts are excluded), the New York trial court agreed. It ruled from the bench that Sony’s liability policies are triggered only by actions by Sony, and not by the actions of the third parties who hacked into the network and stole the PII. With all respect to the New York trial court, this one should have been a clear Sony victory. Here are five top reasons why: #1. The plain policy language does not require Sony to “do” anything. Nowhere in the coverage agreement or the key definition do Sony’s policies require any action by Sony. In fact, it is clear that the policies are not triggered by Sony’s actions, as argued by Zurich, but rather by Sony’s liability, i.e., sums that Sony “becomes legally obligated to pay” that “arise out of” the publication of PII. The extremely broad language, moreover, extends to Sony’s liability for injury for publication “in any manner,” such as a hacker attack into Sony’s network. There is absolutely nothing in the broad Coverage B language to limit coverage to the actions of Sony. This is straightforward: Sony has liability for the breach; therefore, Coverage B coverage is triggered. #2. Sony is entitled to the benefit of any and all reasonable doubt. To the extent there was any ambiguity at all (I think there is not), Sony is entitled to every reasonable doubt in its favor under well-established rules of insurance contract construction. New York’s highest court has made this abundantly clear: “Ambiguities in an insurance policy are to be construed against the insurer." In addition, given the standard policy “knowing violation of rights” exclusion applicable to Coverage B (which bars coverage for injury “caused by or at the direction of the insured”), to the extent a “purposeful and intentional” act was required to trigger coverage, as argued by Zurich, then the conduct required to trigger the coverage would also, presumably, in Zurich’s view, trigger the exclusion, thereby rendering the coverage illusory. This result is barred by New York public policy. #3. The insurance industry has acknowledged that CGL policies provide data breach coverage. The insurance industry clearly understands that there is data breach coverage under Coverage B, as evidenced by the fact that the industry recently filed a series of data breach exclusions, which were to become effective this May. ISO has issued new data breach exclusions and classified them as resulting in reduction of coverage for data breach (meaning there is coverage at present):

To the extent that any access or disclosure of confidential or personal information results in an oral or written publication that violates a person’s right of privacy, this revision may be considered a reduction in personal and advertising injury coverage.

#4. Zurich itself has acknowledged that its policies provide data breach coverage. Zurich, Sony’s insurer, itself has expressly recognized that the language of its policies may provide coverage in the event of a data security breach via hacking, i.e., third-party actions, because hacking can lead to legal exposure to the insured (i.e., liability, which is the genuine coverage trigger, and not Sony’s action or inaction as now asserted by Zurich):

Security breaches via hacking, phishing, pharming, unauthorized internal access and the inadvertent disclosure of non-public personal information are all circumstances that can lead to legal exposure. Potential causes of action resulting from data security breaches may include increased risk of identity theft, actual or attempted identity theft, violation of consumer protection statutes, negligence, breach of contract, breach of fiduciary duty and even fraud.

A company’s standard property and casualty insurance policies may provide some coverage in the event of a data security breach, but specialized cyberliability coverages may be worth exploring and evaluating.

#5. The cases Zurich cited do not support deviation from the clear policy language. Notably, the few cases cited by Zurich in the Sony litigation are factually inapposite and interpret entirely different policy language. For starters, nearly all involve circumstances in which an insured attempted to avoid the application of the pollution exclusion applicable to Coverage A of the standard industry CGL policy by seeking coverage under Coverage B, which includes coverage for injury arising out of “wrongful entry or eviction or other invasion of the right of private occupancy” (or similar wording). Here, Sony is not trying to avoid application of an allegedly intended exclusion; it is simply trying to secure the privacy coverage that it purchased. Moreover, although the “wrongful entry” wording may have been interpreted narrowly by some courts in the context of pollution-related cases, the “right of privacy” wording at issue in the Sony coverage litigation has been given a broad interpretation. Courts generally have construed the language favorably to insureds and have found coverage for a wide variety of claims alleging breach of privacy laws and regulations. For all of these reasons, Sony would appear to have excellent grounds for appeal. While insurers frequently attempt to avoid coverage for privacy-related claims by arguing that the requirements of a “publication” or “right of privacy” are not satisfied, this would have been a weak argument for Zurich. Instead, Zurich filed a declaratory judgment action against Sony, and Sony’s other insurers, seeking to avoid or minimize its coverage obligations on the basis that Sony itself did not invade any privacy rights. In its cross motion for summary judgment, Zurich asserted that its policy “coverage is limited to protect against the purposeful and intentional acts committed by the insured or its agents, not by non-insureds or third-parties." Putting aside the fact that it’s somewhat astonishing for an insurer to take the position that “purposeful and intentional acts committed by the insured” are covered (usually insurers assert that knowing or intentional acts are excluded), the New York trial court agreed. It ruled from the bench that Sony’s liability policies are triggered only by actions by Sony, and not by the actions of the third parties who hacked into the network and stole the PII. With all respect to the New York trial court, this one should have been a clear Sony victory. Here are five top reasons why: #1. The plain policy language does not require Sony to “do” anything. Nowhere in the coverage agreement or the key definition do Sony’s policies require any action by Sony. In fact, it is clear that the policies are not triggered by Sony’s actions, as argued by Zurich, but rather by Sony’s liability, i.e., sums that Sony “becomes legally obligated to pay” that “arise out of” the publication of PII. The extremely broad language, moreover, extends to Sony’s liability for injury for publication “in any manner,” such as a hacker attack into Sony’s network. There is absolutely nothing in the broad Coverage B language to limit coverage to the actions of Sony. This is straightforward: Sony has liability for the breach; therefore, Coverage B coverage is triggered. #2. Sony is entitled to the benefit of any and all reasonable doubt. To the extent there was any ambiguity at all (I think there is not), Sony is entitled to every reasonable doubt in its favor under well-established rules of insurance contract construction. New York’s highest court has made this abundantly clear: “Ambiguities in an insurance policy are to be construed against the insurer." In addition, given the standard policy “knowing violation of rights” exclusion applicable to Coverage B (which bars coverage for injury “caused by or at the direction of the insured”), to the extent a “purposeful and intentional” act was required to trigger coverage, as argued by Zurich, then the conduct required to trigger the coverage would also, presumably, in Zurich’s view, trigger the exclusion, thereby rendering the coverage illusory. This result is barred by New York public policy. #3. The insurance industry has acknowledged that CGL policies provide data breach coverage. The insurance industry clearly understands that there is data breach coverage under Coverage B, as evidenced by the fact that the industry recently filed a series of data breach exclusions, which were to become effective this May. ISO has issued new data breach exclusions and classified them as resulting in reduction of coverage for data breach (meaning there is coverage at present):

To the extent that any access or disclosure of confidential or personal information results in an oral or written publication that violates a person’s right of privacy, this revision may be considered a reduction in personal and advertising injury coverage.

#4. Zurich itself has acknowledged that its policies provide data breach coverage. Zurich, Sony’s insurer, itself has expressly recognized that the language of its policies may provide coverage in the event of a data security breach via hacking, i.e., third-party actions, because hacking can lead to legal exposure to the insured (i.e., liability, which is the genuine coverage trigger, and not Sony’s action or inaction as now asserted by Zurich):

Security breaches via hacking, phishing, pharming, unauthorized internal access and the inadvertent disclosure of non-public personal information are all circumstances that can lead to legal exposure. Potential causes of action resulting from data security breaches may include increased risk of identity theft, actual or attempted identity theft, violation of consumer protection statutes, negligence, breach of contract, breach of fiduciary duty and even fraud.

A company’s standard property and casualty insurance policies may provide some coverage in the event of a data security breach, but specialized cyberliability coverages may be worth exploring and evaluating.

#5. The cases Zurich cited do not support deviation from the clear policy language. Notably, the few cases cited by Zurich in the Sony litigation are factually inapposite and interpret entirely different policy language. For starters, nearly all involve circumstances in which an insured attempted to avoid the application of the pollution exclusion applicable to Coverage A of the standard industry CGL policy by seeking coverage under Coverage B, which includes coverage for injury arising out of “wrongful entry or eviction or other invasion of the right of private occupancy” (or similar wording). Here, Sony is not trying to avoid application of an allegedly intended exclusion; it is simply trying to secure the privacy coverage that it purchased. Moreover, although the “wrongful entry” wording may have been interpreted narrowly by some courts in the context of pollution-related cases, the “right of privacy” wording at issue in the Sony coverage litigation has been given a broad interpretation. Courts generally have construed the language favorably to insureds and have found coverage for a wide variety of claims alleging breach of privacy laws and regulations. For all of these reasons, Sony would appear to have excellent grounds for appeal.

In this video, Tom Searcy — an expert in large-account sales and the founder of Big Hunt Sales — shares with agents and brokers three keys to maximizing their influence when first meeting with potential clients. Recent research has revealed these three baseline concepts:

1. Information = confidence. At your first meeting, your level of confidence will rise with the amount of information you have about the people with whom you are meeting. Do your research before the meeting (through LinkedIn, Google, their website, etc.). Knowing background information on your potential client's representatives will give you something to talk or ask about.
2. Body language. Eye contact, smiling and the handshake are common elements of the first meeting. But do you know which of the three should last the longest?
3. Say something specific. Use your research to introduce a question or comment that will help you frame future conversations.

According to the National Institute on Mental Health, more than one in four Americans ages 18 and older suffer from a diagnosable mental disorder in a given year -- and less than one-third of them receive mental health services. For employers, low treatment rates translate into higher costs and lower productivity. Employees with mental health problems have overall health care costs that are more than twice as high per year as individuals without these disorders. More days of missed work and work impairment are caused by mental illness than by other chronic health conditions like diabetes and arthritis, according to the American Medical Association. It is estimated that untreated mental illness contributes to $50 billion a year in lost productivity and an average of 321 million lost work days. Although more difficult to measure, the loss in productivity because of presenteeism -- attending work while sick -- is almost 7.5 times greater than that lost to absenteeism. Furthermore, more than 90% of those who die by suicide have been diagnosed with a mental illness. In the past decade, suicide rates among middle-aged Americans have increased sharply. According to the Centers for Disease Control and Prevention (CDC), from 1999 to 2010, the suicide rate among Americans ages 35 to 64 rose nearly 30%. Among men in their 50s, rates jumped nearly 50%. Something needs to be done. But what? The good news for employers and employees is that mental illness is treatable. In fact, 60% to 80% of people with mental health problems will improve with proper diagnosis, treatment and follow-up. Early intervention is key, so employers can help employees receive the assistance they may need. Worksite wellness initiatives can take on many different forms and can vary in depth. Anonymous online screenings are an effective way to reach employees who underestimate the effects of their own condition and are unaware of helpful resources. Quality programs can raise employees' awareness and help organizations effectively and compassionately address mental health in the workplace. One group that is actively working to make a difference in how mental health is viewed on the job is the Workplace Task Force. A component of the National Action Alliance for Suicide Prevention, the Workplace Task Force is composed of thought leaders striving to deliver a compelling business case that offers solutions, provides support for employers and motivates them to implement a comprehensive, public health approach. For instance, the task force developed the Comprehensive Blueprint for Suicide Prevention in the Workplace. This blueprint offers employers a guideline to best practices in addressing mental health and wellness. Brief mental health screenings are just one piece of the puzzle when building out your plan. Workplace mental health programs can prevent progress toward a full-blown disease, controlling symptoms and improving treatment. Investing in employee mental health now means savings later for both a company and potentially an individual’s life.

Just when you’d think that wellness vendor claims can’t get any wackier, here comes Wellsteps’ ROI Calculator, which claims that companies can reduce healthcare costs to a level below zero (meaning, by the way, that you would have pay commissions to your clients). Even crazier -- if that's possible -- look at the left-hand part of the calculation under “Enter Target Data.” Wellsteps' calculator claims this impossible reduction can be produced by getting all your employees to gain weight and smoke. In all fairness to Wellsteps, when this problem with the calculator was recently highlighted simultaneously both on The Health Care Blog and in the hard copy of Surviving Workplace Wellness, Wellsteps immediately apologized and changed its model to be more realistic. Not! Hello? This is the wellness industry, where neither rules of math nor rules of epidemiology nor rules of ethics apply. So, Wellsteps kept the model the same. The company has known its model is wrong since at least October (that’s when I pointed out the problem to the company -- which, I presume, already knew.) The company has updated the model for other reasons but never bothered to take out the impossible claims. Instead, the company has elected to continue to attempt to mislead your and your colleagues. Shocked yet? As an aside, my college assigned me a freshman roommate from Park Avenue who was like the bad seed in the Richie Rich comics. This guy would have a snifter of cognac before bed. At one point, I accused him of being decadent. “Decadent, Al?” he snapped back. “Let me tell you about decadent. I spent last summer at a summer camp – everyone was there, Caroline Kennedy, everyone – where we played tennis on the Riviera for a month and then went skiing in the Alps.” I had to admit he had a point. “Boy, Lance, you’re right. That really is decadent.” “Al,” he replied, “I haven’t even gotten to the decadent part yet.” Likewise, I haven’t even gotten to the shocking part yet. Wellsteps’ response to being exposed was to double down on dishonesty and to blast out the following email, which several of you forwarded to me (thank you): **** From: Dr. Steven Aldana [mailto:steve@wellsteps.com] Sent: Thursday, May 1, 2014 10:34 AM To: Frank Subject: 11,000 Producers Can’t Be Wrong Frank, So far this year 11,000 brokers and consultants have used the FREE worksite wellness ROI calculator to show clients the financial impact wellness can have on health care costs, presenteeism and absenteeism. This calculator is based on every wellness ROI study ever published. The output gives brokers client-specific reports on the financial impact of wellness. We built the WellSteps ROI calculator and provide it free to help professionals like you make a business case for wellness. We invite you to try the calculator for yourself. See how you can:

· Estimate the impact of wellness on health care costs, absenteeism and presenteeism

· Produce client-specific reports that show wellness impact &

· Help your clients implement effective wellness programs

With WellSteps and our free worksite wellness tools, you’ll gain client loyalty and new business. Try the calculator. Sincerely, Steven Aldana, Ph.D. CEO WellSteps (801) 864-7625 email:steve@wellsteps.com **** Wellsteps astounding conclusion is that “11,000 producers can’t be wrong,” meaning popularity matters more than possibility. And how do they even know how many of the 11,000 hits to their site were from “producers”? You can use the calculator anonymously. Besides, how could not one of the 11,000 producers who looked at this model have noticed that the results are blatantly impossible? Just linking to this model doesn’t mean you agree with it. I’ve already used “shocking” and “astounding,” so I am running out of adjectives here, leaving only one left to do justice to the claim in this email that the Wellsteps calculator is “based on every wellness ROI study ever published.” That adjectives is: "sociopathic." But wait -- there’s more… First, while I couldn’t fit the claim into the screenshot, the website says “Wellsteps’ ROI is guaranteed.” Because a mathematically impossible result can’t be achieved let alone guaranteed, I would urge people to contact Wellsteps to take the company up on this offer. It will end up owing your clients lots of money. Second, Mr. Aldana, together with a colleague, Ron Goetzel of Truven Health Analytics, presented a webinar where they accused me of lying “like a tobacco industry executive before Congress.” Well, it’s doubtful that even tobacco industry executives would agree with Wellsteps’ rosy assessment that smoking will reduce healthcare spending. Finally, there is something in this model that we heartily concur with. Review the last sentence in the upper right corner of the screenshot. It says: “You can email a colleague about this tool.” We concur: Email everyone you know and tell them what a tool this is. The cavalry is coming soon: After years of exposing the shock-and-awe of wellness vendor math and outcomes, this column will be announcing a new, foolproof way to distinguish the legitimate vendors from the, uh, tools…completely free. The annoucement will be June 26, but anyone who would like an advance peek can write to me and sign a non-disclosure agreement, and I’ll spill the beans.

Recent state and federal legal changes and initiatives necessitate only that injuries that arise out of the course and scope of employment (AOECOE) be accepted as compensable. While this sounds good in theory, this concept is often difficult to implement, especially in cases involving musculoskeletal disorders or spinal conditions. These cases are often subjective or rely on imaging studies such as MRI scans. While an MRI scan is beneficial for evaluating structural anatomy, MRI scans are so sensitive that they produce false positives in more than 60% of workers' comp cases. A clinician must evaluate the radiological findings and determine if the injury caused the symptoms. Typically, a game of dueling experts develops. The clinicians must rely on the patient to provide an accurate history and give honest effort for range-of-motion and other testing during the physical examination. To establish causation and the reasonableness and necessity of medical treatment, it is crucial to have a well-constructed independent medical exam (IME) that is combined with an Electrodiagnostic Functional Assessment. The EFA objectively evaluates injuries to muscles including the spine by incorporating electromyography to measure myoelectric signals of muscle groups recorded while simultaneously assessing functional capacity at rest and with range of motion and exertion. The EFA can determine the nature, age, acuity and extent of the injury, the precise location of injury and source of referred pain and the significance of disk pathology. The EFA can allow site-specific treatments to be recommended. The following is a case study where the EFA was instrumental in helping establish causation and an accurate diagnosis and thus help to prevent an unnecessary surgery and long-term compensation: Mr. B is a 50-year-old nightshift supervisor in a steel shop in Tulsa, Okla. He is 5 feet 11 inches tall and weighs 299 pounds. On July 31, 2013, while working, he fell five to six feet from a ladder and landed on his right hip and back. He presented himself to an occupational medicine provider shortly after this injury, and the initial diagnosis made by that physician was right hip contusion and lumbar strain. This diagnosis was made even though, as documented on this doctor's examination, there was no visible contusion of the hip at the time the examination was performed. Mr. B's medical history was extensive and complicated. He had documented chronic back pain since a work-related injury that occurred in 1996 while he was employed by a different company. The injury occurred when he was carrying heavy pipe, slipped on a rock and twisted his back. He was diagnosed by an orthopedic surgeon in Tulsa to have degenerative, herniated disks at L4-5 and L5-S1. This surgeon performed a decompression from L4 to the sacrum and instrumented fusion for these degenerative, herniated disks in 1996. Mr. B underwent a second operation in 1997 for hardware removal and fusion exploration by the same orthopedist. Since that time, up until the present, Mr. B had complained of on and off back pain to several different doctors. In 1999, he was seen by another orthopedist in Tulsa because he was complaining of back and right hip and leg pain. He had an MRI scan done at that time that showed a bulging disk at L3-4 with degenerative changes of his facets at that level. Later in 1999, under the direction of this new orthopedist, he had a myelogram/CT scan that showed a solid fusion from L4 to the sacrum and again showed minor degenerative changes with bulging disks and facet hypertrophy at L3-4. The new doctor did not recommend any surgical intervention; however, Mr. B continued to complain of back and leg pain from July 2004 until June 2012. During that period, he saw a primary care physician and a pain specialist and received numerous different pain medications to help control his back pain; these included MS Contin, Lidoderm patches, Lyrica, Soma and oxycodone. Between April and June of 2013, just before his alleged injury at the steel shop on July 31, Mr. B saw yet another physician who prescribed him Kadian 40 mg twice a day and Lortab 5 mg p.r.n. for breakthrough pain. Again, these medications were prescribed for a primary diagnosis of back pain. Nevertheless, Mr. B's history said his new back pain was a result of a single-event injury that occurred on July 31 as opposed to an exacerbation of a pre-existing condition. He saw yet another orthopedic surgeon. This orthopedist recommended physical therapy and epidural steroid injections. The patient failed to improve, and an MRI scan of the lumbosacral spine was ordered. The scan showed the patient to have a bulging disk at L3-4 and significant hypertrophy of the facets with osteophytes at L3-4. As a result, the orthopedic surgeon diagnosed a degenerative, herniated disk, facet hypertrophy, and instability at L3-4 above the patient's old fusion from L4 to the sacrum. The orthopedist felt that the major cause of this new injury to the patient's back was the fall that occurred on July 31, 2013. As a result, this doctor recommended an L3-4 decompression and instrumented fusion as a medically necessary treatment. Mr. B was then sent to a neurosurgeon for an IME and an EFA on March 12, 2014. Again, at that time, Mr. B complained of bilateral low back pain radiating into the right hip and to the calf. He also complained of pain in his bilateral quadriceps, lateral aspect of his leg with numbness that radiated down the right leg posterolaterally into the back of the foot in a sciatic nerve distribution. The patient filled out a visual analog scale pain diagram and rated his pain at 10/10. stating that he was unable to work and also was unable to do several of the maneuvers during the physical examination performed by the neurosurgeon. On the same day as his IME examination, he had an EFA. The patient stated he was unable to complete the lifting portion of the EFA because of his severe pain. The EFA revealed appropriate rest-sitting readings and minimal positional changes that decreased with movement, indicating that they were not clinically significant and that the patient was exaggerating the pain. The EFA revealed chronic bilateral pathology that was not consistent with the date or mechanism of injury or Mr. B's present subjective complaints. During the functional capacity portion of the EFA, Mr. B refused to lift the bar or do the full range-of-motion testing. He also was noncompliant during the IME physician's physical examination. He displayed several Waddell signs and did not give full effort for different parts of the examination, such as range-of-motion testing of his back. Therefore, both the EFA findings and the IME findings were consistent, demonstrating patient's lack of effort, noncompliance and exaggeration of symptoms and pain. The EFA was able to provide objective evidence that helped to quantify the age of the injury and the patient's compliance. The EFA, along with an MRI scan of the lumbar spine, the IME physician's examination and review of all reports and records on Mr. B allowed the IME physician to conclude that the patient had not suffered any new injury related to the fall that occurred on July 31, 2013. It was the IME physician's opinion that Mr. B had a chronic back problem. In addition, the EFA helped the IME physician to conclude that another surgery on Mr. B involving an L3-4 decompression and fusion was not reasonable, nor was it a medically necessary treatment. The EFA significantly helped the IME physician to establish that the major cause of this patient's symptoms was chronic, not acute, and to make accurate treatment recommendations. Even after the objective IME and EFA evaluations, Mr. B's treating orthopedic surgeon insisted on performing an L3-4 decompression and instrumented fusion. Mr. B's treating orthopedic surgeon felt that he had an L4 radiculopathy caused by the fall on July 31, 2013, even though this patient filled out a visual analog scale pain diagram for the IME neurosurgeon that showed the pain to be near the tailbone and radiating down the leg in an S1 distribution that did not coincide with an L4 radiculopathy. Also, there were no findings on the EFA examination to suggest this patient had an L4 radiculopathy. Because there was a difference of opinion between the treating orthopedic surgeon and the IME neurosurgeon, legal proceedings ensued. The IME/EFA proved substantive evidence in court. The Workers' Compensation Court of Oklahoma found that additional surgery and medical care for Mr. B was denied. His complaints were felt to be because of a longstanding condition and not the result of the single-event injury that occurred on July 31, 2013. This case demonstrates that the EFA is considered a valid test by the workers' compensation court system. This case demonstrates that, in workers' compensation cases where there are conflicting opinions, there is a need for valid, specific and objective medical evidence that can be provided by the EFA so that AOECOE issues can be adequately addressed and resolved. In addition, the EFA can be instrumental to make site-specific diagnoses and treatment recommendations so that inappropriate treatments and unnecessary surgery are avoided. The author invites you to join him at the NexGen Workers' Compensation Summit 2015, to be held Jan. 13 in Carlsbad, CA. The conference, hosted by Emerge Diagnostics, is dedicated to past lessons from, the current status of and the future for workers' compensation. The conference is an opportunity for companies to network and learn, as well as contribute personal experience to the general knowledge base for workers' compensation. Six CEU credits are offered. For more information, click here.

While Part 1 of this series laid out the significant benefits in safety and savings that could come from a driverless car, there is an old saying: One man’s savings are another man’s lost revenue. At the same time, the driverless car will create enormously lucrative business opportunities to serve new customer needs. I’ll turn first to the revenue that is in peril and then examine the opportunities. (I invite you to offer your own ideas on potential business threats and opportunities. Please share them in the comments section below.) While car sales might initially boom, as the fleet shifted to driverless cars, sales would then fall off a cliff -- and new and used car sales add up to a $600 billion-a-year business in the U.S. Any drop in sales would also affect auto finance companies, which write loans for almost 70% of new car purchases and half of used car purchases. Many parts would disappear from cars: Who needs airbags if you aren’t going to crash, or backup assistance when the car parks itself? The amount of steel used in cars would drop, because cars wouldn’t need to be as massive and sturdy. Body shops would mostly disappear for lack of business. Auto insurers, which collect more than $200 billion in personal auto premiums each year in the U.S, would initially see profits rise as accidents declined and payments to customers dropped. They would, however, eventually see something like 90% of premiums disappear. In fact, the U.S. model of mandatory personal auto insurance might become archaic. Emergency Room by French-Danish artist Thierry Geoffroy (Photo credit: Wikipedia) Emergency rooms would lose millions of patients a year, and hospitals would have hundreds of thousands fewer people who needed to stay overnight. Health insurers would have to give up revenue as car-related injuries plummeted. Personal-injury lawyers would see car-related cases all but disappear. In fact, the trend is already moving in that direction because the spread of cameras and sensors in cars makes it much easier to document who is to blame in an accident and removes the gray areas where lawyers may get involved. If cars are in nearly constant use and can come when called, the need for parking almost vanishes. One MIT study claims that, in some U.S. cities, parking lots cover more than a third of the land area. Other estimates are that there are as many as 2 billion parking spaces in the U.S., about the size of Connecticut and Vermont combined. Much of this valuable real estate could be reclaimed for more beneficial social and economic purposes. At the same time, property values, especially in cities, would decline as additional supply becomes available. Governments would lose fines, because cars would all obey traffic laws. At the same time, though, governments would save by not having to pay police officers to write tickets. They would also save by not having to set up traffic lights or to light streets—the Google car can see in the dark. Governments could spend less on prisons, because there would be no such thing as a drunk driver. Any new roads could be narrower, and thus less expensive, than current roads, because driverless cars don’t need nearly as much spacing between vehicles as those with sometimes careless drivers do. Governments could also cut way back on widening and expanding roads to reduce congestion, because the switch to driverless cars would make such a huge difference. At the moment, a freeway operating at maximum efficiency is about 5% covered with cars, but driverless cars can be packed together in platoons, with just inches between the bumpers -- if the lead car has to slow down, it can simultaneously activate the brakes of all the cars behind it. The federal government spent $6 billion in 2009 on road widening and expansion, and state agencies spend more than $22 billion annually, so the savings on road work would be huge. As government saves, though, utilities will lose as those traffic and street lights go away. Construction companies will lose as roadwork dives. Producers of cement and asphalt will likewise see business plunge. Gasoline sales would tumble not only because of fewer cars but because they would operate more efficiently. Drafting behind another car can save more than 25% in fuel consumption. Add up all the pieces -- $450 billion related to crashes, $600 billion of car sales, $200 billion in auto-insurance premiums, the hundreds of billions of dollars of health insurance that plausibly relate to car accidents and so on -- and you pretty easily get to about $2 trillion in revenue associated with cars each year in the U.S. Just about all of that revenue could be thrown up for grabs -- the result might turn out to be true cost savings or, at the least, a major shuffle among competitors. On the opportunity side, driverless vehicles will allow for the reconceptualization of cars, car-related business models and competitive dynamics. Expect styling to come to the fore, as vehicle design is less influenced by safety considerations like visibility, window placement, strength and stiffness of materials, bumpers, crumple zones, collapsible steering columns, air bags, seat belts and padding. In the short term, driverless cars will look much like today’s cars. Over time, as driverless cars dramatically reduce human error (which is the No. 1 cause of accidents) and more people accept the concept of shared cars, the possible car designs will explode. Without having to worry about distracted driving, electronics companies and app makers could outfit cars with all the distracting entertainment they wished and earn billions off the now-free time in self-driving cars. Lots of opportunities to coordinate use of cars would also appear. Companies could provide services to organize those platoons on highways or to share cars as part of a fleet -- all while charging hefty fees. One study found, for example, that an average two-mile taxi trip in New York City costs $8 to $13, depending on traffic conditions. It estimated that a fleet of 9,000 driverless cars could replace the city’s fleet of Yellow Cabs and operate for an average of 80 cents for a 2-mile trip. A more than 10-fold difference leaves a lot of room for profit! New financing opportunities will arise. For instance, some company might offer a shared car for free in return for a multiyear contract to have that company operate the car -- an analogue to what mobile phone operators do now when they subsidize the purchase of phones. New insurance models would arise, as insurers get smart about how to underwrite and distribute insurance in this new world. Imagine a day when a “driver” taps out his destination using Google Maps, and the system holds a real time auction for that trip. Insurers could, in real time, make their bids based not only on the driver’s risk parameters but also other significant factors including time of day, choice of route, weather conditions and who else is on the road. At some point, the liability model will flip -- with insurance becoming more of a manufacturer responsibility than the car owner’s -- because liability will be more dependent on the driving skills of the car than the owner. In general, cars could be seen as a platform rather than as individual vehicles. Cars make for great antennas, and they have all the battery power they need for communication, so it would be easy to integrate them with each other. Car makers have long complained that they’re left selling the metal, while all the profits have migrated downstream to the people who provide the service, the repairs, the insurance and so on. If the car makers can position themselves as the fleet manager, they could recapture the profits because they would have control over the service, the repairs and everything else. Car makers may also open their cars up in the same way that makers of smartphones have, so that lots of bright people could write apps that would make the use of a car more productive or enjoyable. A friend who works for a major car maker and who has access to its APIs has written an app that texts his wife and lets her know when he’s 10 minutes from home and is considering writing an app that will tell him when his wife’s gas tank is down to one-quarter full, so he can fill it for her. He has also written an app that texts his teenaged daughter and lets her know when she is 10 minutes away from having to leave wherever she is if she is to make it home before her curfew. (He says she appreciates the reminder.) Thinking about cars as a platform raises the prospect that someone could produce a sort of operating system for that platform and capture a huge share of the value, as Apple did with its iPod and iPhone and as Microsoft did with personal computers. It also opens up vast potential for new products and services that ride on top of that operating platform -- an opportunity that is, no doubt, not lost on Google. These thoughts are just the start of the changes that will come with driverless cars. The bottom line: Driverless cars provide an opportunity to either make or lose an awful lot of money. The companies that understand and best prepare for this new world will win over those that don’t.