“We just hired her two months ago. Now she is telling us she is pregnant and will need three months off for the birth and for bonding with the child. Didn’t she have to tell us she was pregnant when we interviewed her? How are we supposed to run a business this way?” 

These sentiments of frustration are fairly common for employers in California, particularly those with fewer employees and less frequent encounters with maternity leaves of absence. Generally, these sentiments do not arise from hostility toward the employee or pregnancies in general, but rather from the difficulties the employer will face with staffing,  and the potential for increased  costs. These are real and legitimate concerns. Nevertheless, employers should consider taking a positive view of maternity leaves.

Taking a positive view begins with accepting that pregnant employees are protected by multiple laws. Disagreement with the laws should be directed toward the legislature, Congress and industry associations that lobby for employers. It should not be directed toward or communicated with employees. They did not create the laws, and raising disagreement or frustrations with them will only create bad evidence in pregnancy discrimination cases. 

Let’s look at some of the most basic rules.

Hiring

An employer cannot refuse to hire a woman because of her pregnancy or a pregnancy-related condition. Nor can an employer refuse to hire because co-workers, clients or customers have a negative view of a pregnant employee.

Pregnancy and Maternity Leave

An employer may not single out pregnancy-related conditions for special procedures to determine an employee's ability to work. Requiring a doctor's certification about the employee’s ability to work or the need for a leave of absence is permissible, but only if the employer requires similar certification for other kinds of medical issues and disabilities.

If an employee is temporarily unable to perform her job because of her pregnancy, the employer must treat her the same as any other temporarily disabled employee. The employee may also have the right to transfer to a different position. Pregnant employees must be permitted to work as long as they are able to perform their jobs.

As a general principle, employers must hold open a job for a pregnancy-related absence the same length of time jobs are held open for employees on sick or disability leave. But, even if the employer gives no time off for other leaves, a pregnant employee must be given as much as four months of leave while disabled by the pregnancy. Employers with 50 or more employees will also have to provide as much as 12 weeks of leave for bonding with the new child.

Health Insurance

Any health insurance provided by an employer must cover expenses for pregnancy-related conditions on the same basis as costs for other medical conditions. Employers must continue to pay for the health insurance during a pregnancy disability leave or mandated bonding leave on the same basis as though the employee were working.

Fringe Benefits

Pregnancy-related benefits cannot be limited to married employees. If an employer provides any benefits to workers on leave, the employer must provide the same benefits for those on leave for pregnancy-related conditions.

No Discrimination or Retaliation

It is unlawful to discriminate or retaliate against an employee for a pregnancy, for a leave of absence taken in relation to the pregnancy or for complaining about the employer’s policies or practices related to pregnancy.

These basic rules only scratch the surface of the details in the multiple and overlapping laws that apply to a pregnancy. Accordingly, it is often wise to get expert assistance when handling an employee pregnancy.  

It is also wise to carefully plan your communications related to the pregnancy. While poorly planned communication can create bad evidence, well-planned communications create positive energy and strengthen employee relations. 

Let’s take the example of an employer who is bothered because a new employee did not disclose that she was pregnant during the interview process. 

Taking a positive view requires the employer to understand that there are many legitimate reasons why an applicant might not tell. Fear of the employer’s reaction, desire to keep work and family matters separate and shame about an unwanted pregnancy are just a few. Wise employers can use this situation as an opportunity to set a positive tone, build openness and strengthen the relationship. It can start with a simple question asked in a friendly, non-threatening tone: “Is there a reason you did not tell us you were pregnant?” 

Where the conversation goes from there will vary. Here are a couple of possibilities:

Example 1: “I was concerned I would not get the job.” 

“That is understandable, but that’s not how we operate. In the future, we want you to feel comfortable that you can have open communications with us on this kind of thing or any matter. That’s the kind of employment relationship we want to have.”

Example 2: “I’m just private about my family things and did not think it was the company’s business.” 

“We understand and respect your desire for privacy. We are not going to try and become involved in your private affairs. On the other hand, your pregnancy is not entirely a private matter.  Because you will be taking time off from work, it has an impact on the company.  Communications and planning are important for the company. We want an employment relationship where you feel comfortable letting us know about family matters that directly affect the company because you know we are going to respect your privacy.”

Taking a positive view of pregnancies and maternity leaves may not be second nature for employers. The approach, however, will reduce the potential for the creation of bad evidence and increase the potential for high-quality employment relationships and the productivity and profit that result from them.

This article originally appeared in the Sacramento Business Journal.

Sometimes, it’s good to be a plaintiff’s attorney. Why? Fee shifting. You don’t need a big win in lawsuits where stat­utes allow the court to make the defendant pay the plaintiff’s legal fees. Even if the plaintiff only obtains a small award (as little as a dollar), a “win” entitles plaintiff’s counsel to submit fees to the defendant for reimbursement. It seems almost too good to be true! But that is what the law allows in most employment-related cases.

You might ask: What stops plaintiff’s counsel from submitting made-up or inflated fees for reimbursement? Nothing!

The plaintiff’s counsel submits the fee petition to the court, and the court is the only gatekeeper that decides the appropriateness of the request. In a perfect world, a court would review the fee petition carefully, scrutinizing counsel’s listed activities to make sure that those services were actually rendered and that the time billed to those activities was reasonable. But in the real world, courts usually only make reductions for entries or ac­tivities that are clearly duplicative, exorbitant or outrageous.

Based on these fee-shifting provisions, it is important to caution your clients that any employment claim, no matter how seemingly minor, can turn into a case that exhausts their insurance policy limits. For example, in a recent case in San Francisco (Kim Muniz v. United Parcel Service, Inc.), plaintiff Muniz had demanded $700,000 to settle her case. No settlement was reached, and the case went to trial. At trial, Muniz was only awarded $27,000. However, that award was soon followed by a $2 million fee petition by plaintiff’s counsel. The court reviewed the petition and reduced the fees submitted to approximately $700,000. Although the reduction was substantial, what was a minor victory for the plaintiff still resulted in a major victory for plaintiff’s attorneys.

When you add it all up, the bottom-line expenses for the employer in the Muniz matter would include the following: 1) plaintiff’s award of $27,000, 2) plaintiff’s counsel fee award of $700,000, and 3) estimated defense expenses at least equal to the plaintiff’s $700,000 fee and likely much more.

If your client had a $1 million employment practices liability policy, the policy would almost have been exhausted just by the client’s own defense expenses, leaving little to fund an award or the award of plaintiff’s attorney fees. Unless your client had other applicable insur­ance coverage, the client would have to dig into its own pocket.

What does this mean for your clients? It means that when clients seek insurance protection for employment-related lawsuits they should consider not only the potential award but also the possible fees for plaintiff’s attorneys if even $1 is awarded to the plaintiff. Even the smallest of victories for plaintiffs can still leave the employer holding the bag.

Buyers beware! Carefully consider your client’s EPLI coverage and ask yourself: Are their limits adequate? 

Here's a proposal for the plot of a new comic book.

Perry White summons Clark Kent and Lois Lane into his office one day in Metropolis.

"I have bad news," White barks. "Health costs at the Daily Planet are through the roof. And it's all your fault. You're unhealthy!"

White tells Clark and Lois to fill out a questionnaire, which he assures them will be kept "private." Once they complete it, they will receive free advice on running their personal lives better. "And we're docking your pay $1,200 if you don't fill it out and see a doctor," White warns.

The questionnaire asks about smoking, exercise, weight, feelings of depression, financial problems, marital problems and stress. Clark's questionnaire asks whether he examines his testicles regularly. Lois must answer whether she plans to get pregnant. And they get lots of valuable guidance on their misguided lifestyles. Eat your vegetables. Cheer up. Calm down. Don't smoke. Pay your bills on time.

Though he can leap tall buildings in a single bound, Clark, according to the questionnaire, needs a number of tests and screenings to rule out serious health problems.

I probably couldn't sell this comic book proposal because the scenario sounds too preposterous, even for a guy with X-ray vision who flies. Surely, in real life it would be illegal or at least politically incorrect for your boss to demand to know your most private information, obtained under the threat of a pay cut.

Sorry to say, this plot isn't entirely fictional for thousands (if not millions) of Americans. Not only is it actually legal for your employer to require you to answer intrusive personal questions, it's encouraged by a little-known provision in Obamacare, which is embraced by a surprising mix of people and interests on both sides of the aisle. That provision allows employers to promote "worksite wellness" programs and require their employees to pay up if they don't participate.

A multibillion-dollar industry has grown up overnight, selling wellness programs to well-meaning employers. More than 90% of all large employers report offering one for employees. Some of these programs are excellent and welcomed by employees. It's nice for an employer to support exercising and quitting smoking.

But badly designed programs are not so nice, as Matthew Woessner learned. He received an email from his employer on July 17, 2013, instructing him to take the online questionnaire called a "Health Risk Assessment," reporting on his personal life and habits akin to Perry White's grilling of Clark and Lois. Like the Daily Planet employees, if Woessner refused, he would lose $1,200.

This could happen to you, according to Al Lewis and Vik Khanna in a disturbing new book, "Surviving Workplace Wellness…with Your Dignity, Finances, and (Major) Organs Intact." The book is so laugh-out-loud funny you may wonder if it's really serious, but actually it's a sobering exposé of hazards in the worksite wellness trend in American business. Think of the book as Dave Barry meets Rachel Carson.

The authors agree that the worksite wellness movement is not only a privacy hazard, but a health hazard and business hazard to boot. While some of us might be willing to tolerate a certain amount of privacy loss if we thought it would improve our health and save some money, Lewis and Khanna make a compelling case that poorly designed wellness programs don't help at all. In fact, these programs in the wellness business: 1) dismay and alienate employees, 2) fail to reduce health costs and 3) harm employee health.

How is this possible? Let's look at each in turn.

1. Dismaying and Alienating Employees

Bad wellness programs send the message that your boss thinks you're an idiot. This typically isn't a good strategy for improving morale, though it does improve motivation to update your resume.

Woessner's employer is a good example. That employer tells employees who smoke that tobacco use is not healthy. This implies that employee smokers are not educated enough to recall the Surgeon General's warnings or the mountains of studies over the past 50 years. Woessner's employer also believes that a good number of workers are too simple-minded to understand they should eat their vegetables and get some exercise.

What kind of company employs such a dim workforce? In Woessner's case, it is Penn State, which employs some of the world's leading researchers in science, technology, social sciences, humanities and health care. Despite their apparent stunning lack of knowledge about the most fundamental aspects of their health, a disproportionate number of them managed to earn PhDs.

Of course, the reality is that public health is a complex enterprise for which it is very easy to condescend and coerce when you mean to encourage. Bad wellness programs focus on the former.

2. Bad Programs Don't Save Money

Lewis and Khanna show examples of wellness vendors inventing savings numbers to sell their services to your employer. (I dare anyone to get through this section of the book without laughing.) Wellness marketers make claims that literally don't add up, such as proclaiming savings exceeding 100% (mathematically impossible) or, similarly, suggesting an employer saved more money than he spent in the first place.

Fundamentally, Lewis and Khanna make a compelling case that bad wellness programs don't save money because the programs themselves cost money, and the added cost of screenings and education and other services aren't free, either.

3. Potential Harm to Employee Health

Even if wellness programs may cost a bit more money in the short run, surely they improve health in the long run…right? Unfortunately, that's not evident either, the book argues.

Lewis and Khanna give us a case study of the state of Nebraska, which touts the success of an employee wellness program that won the national C. Everett Koop Award. The book shows convincingly that, not only are the proclaimed savings numbers impossible, but Nebraska's employees may have been exposed to hundreds of unnecessary and invasive tests. Many resulted in false positives that demanded even more invasive tests and treatments, which can scare patients for no reason and even lead to additional risk and harm.

I recommend this book because your employers – and the vendors and consultants that sell to them – aren't going to change without your input. Employees and business leaders need to do what the Penn State staff did and push back on poorly designed programs. In the process, they will be supporting, not undermining, the economic wellbeing of their employer.

Many of us may be reluctant to question the design of our company's wellness program because it sounds like we are challenging Mom and apple pie. How can you oppose something as pure-sounding as employee wellness? But what this book warns is that poorly designed wellness programs can violate the very essence of good management practice: namely, that management should focus on employee performance, not employees' personal lives. The latter can do much more harm than good.

A well-designed wellness program does not threaten to dock Superman's pay if he doesn't get a cholesterol test. A good one might instead add a salad bar to the Daily Planet cafeteria. The latter doesn't sound like something Perry White would do, but after all the Chief has never been the model of a good boss.

I don't come to this conclusion about the problems with wellness programs lightly. I worked in public health and dedicated much of my career to promoting prevention. My belief in the importance and the difficulty of prevention is precisely why I believe we must call out poorly designed programs that prey on well-meaning employers and other purchasers. Those programs apply equal measures of coercion and disparagement toward the people they are supposed to help. That discredits employer benefits programs and undermines employee loyalty and trust. Employers deserve better for the investment they make in the wellbeing of their employees.

This article first appeared on Forbes.com.

The Gatesway Foundation, a nonprofit organization in Tulsa, OK, had seen an increase in its work-related musculoskeletal (MSD) cases, which the U.S. Department of Labor and Occupational Safety and Health Administration (OSHA) define as injuries of the muscles, nerves, tendons, ligaments, joints, cartilage and spinal discs. These types of disorders, commonly referred to as soft tissue injuries as well as sprains and strains, most often present as injury or pain of the back, neck, shoulder or knee and are a major source of disability. According to the 2010 report by the Bureau of Labor Statistics, the disorders account for 29% of total cases.

The Gatesway Foundation was experiencing both an increased frequency of claims and a rise in the cost of treatments, so, in 2012, the foundation began employing the EFA’s soft-tissue management program to compare pre- and post-loss data to accurately distinguish if there is acute pathology after a work-related injury. The program determines if pathology arises out of the course and scope of employment. A baseline test is conducted at the time of hire and compared with post-incident tests. State workers’ compensation laws may have many differences but have one thing in common: The employer is only responsible for returning the individual to pre-injury status. 

In the past, determination of pre-injury status, especially for soft tissue injuries, was often guess work.  Having objective findings can prevent costly misdiagnosis, unnecessary or inappropriate surgery, prolonged treatment periods and fraudulent claims. Employees also receive better treatment for compensable conditions.

The Gatesway Foundation began its program in April 2013 and had no MSD claims or OSHA recordables until Sept. 17, when a 52-year-old health care provider reported that a patient had fallen on her.  Initially, her complaints included her arm and shoulder. By the time she saw a doctor, her pain included her back.  The physician ordered a post-loss test for comparison with the baseline test.  The comparison showed a minimal increase in lumbar muscle spasms that decreased with stretching.  Two sessions of physical therapy were prescribed, and the employee has returned to work.

In the adjuster’s words, “This could have involved a great deal more expense and possible lost time without this information” from the baseline test. The program enabled the physician to have objective information and allowed the injured worker to receive appropriate care.

The program has drastically reduced the Gatesway Foundation’s soft-tissue-related workers' compensation claims.  The year prior to initiating the program, the foundation’s developed losses were $1 million. In the first six months of the policy year, before starting the program, the developed losses were $500,000. With the implementation of the program, the developed losses in the last six months of the policy year were $30,000.

A detailed analysis of the data revealed a dramatic decrease in the cost per claim when a baseline test was conducted.

This resulted in a dramatic return on investment (ROI)

The utilization of this book-end strategy allows for unprecedented access to information and allows for better treatment.

Without a doubt, 2014 will be a pivotal year for the insurance industry – a new future is dawning, reshaped more quickly than expected by powerful influences such as customer expectations, forces from outside the industry, and technology. We will see the acceleration of these influences. 

This pace of technology change, challenging decades of business traditions and assumptions, is unprecedented in the history of the insurance industry. The industry’s biggest technology disruptions and changes usually came along every decade or two, from the introduction of mainframe computers in the 1950s and ‘60s, to the personal computer in the ‘80s, to the Internet and e-business in the late ‘90s and early 2000s, and the first iPhone/smartphone in 2007. 

Now, changes are coming every month, with new technologies, the mash-up of technologies and new uses for these technologies. There are next-gen technologies such as mobile, cloud, data and analytics, telematics and collaboration tools. There are emerging technologies such as 3D printing, the Internet of Things (billions of devices that talk to each other without human intervention), drones, driverless cars, and wearable devices. The speed of experimentation, innovation and adoption will intensify. Insurance will begin to be redefined and reshaped, from the inside as well as from outside the industry.

As other industries have experienced, from retail to books, music and movies, the insurance industry is finding the very foundations of the business being challenged, requiring new thinking, experimentation, innovation and adoption of the new technologies. To respond to this continual disruption, insurance leaders will create a culture and model around continuing collaboration and ideation that extends outside their organizations. Legacy business assumptions, operations, systems and culture will begin to fall away. 

Increasingly, insurers will recognize that tracking and assessing the potential and use of next-gen and emerging technologies (both within and outside the industry) will be paramount to their competitive advantage and long-term survival. But insurers often lack the time, expertise and resources to track details of technology trends, follow outside industry perspectives, find and access research and case studies and stay current on trends outside the U.S. market. Insurers will increasingly look at creating and participating in an ecosystem of outside experts and resources to capture the potential, inspire their leadership and enable their journey of change, transformation and innovation. 

The journey toward reinventing insurance has started, whether you are on the road or not. No business, regardless of its size, can go it alone and expect to completely take hold of all the possibilities. It will be interesting to see the innovation ecosystems that emerge to help fully capture the potential, change legacy cultures and enable the ideas and technologies to be put into operation uniquely within each insurance organization.

In today’s dog-eat-dog business environment, it is essential that you develop a strategy to stand out in a crowded marketplace… to separate yourself from your competition.  Simply put, to be different! 

Theodore Levitt, the renowned economist, professor at Harvard Business School and editor of The Harvard Business Review, had the following to say in his 1991 book, Thinking About Management:

“Differentiation is one of the most important strategic and tactical activities in which individuals and companies must constantly engage.  It is not discretionary.  And, everything can be differentiated, even so-called commodities such as cement, copper, wheat, money, air cargo and insurance.” 

Price is the enemy of differentiation.  By definition, being different is worth something.  Consumers are willing to pay a premium, redefine the buyer/seller relationship, erect barriers to the seller’s competitors and establish the seller as a trusted adviser when a differentiated platform offers perceived value in the marketplace.

Research on Brand Differentiation

Even with all of the attention paid to branding these days, more and more companies are being commoditized.  In other words, fewer and fewer are able to differentiate themselves through the eyes of the customer.  Commoditization occurs when the focus of the consumer’s decision is on the offering rather than the quantifiable difference that you bring to the business.  You cannot see commoditization.  However, it can be felt with a negative impact on your confidence, reputation, time, money and relationships.  Brand Keys, a loyalty and engagement research consultancy, analyzed 1,847 products and services in 75 categories via its Customer Loyalty Engagement Index.  It found that only 21% of all the products and services examined had any points of differentiation that were meaningful to consumers.    

So what is missing?  A differentiated value proposition supported by a unique consumer experience.

Differentiated Value Proposition

Value proposition is the reason for your professional existence.  It describes how you create value for others.  It makes you stand out in a crowded marketplace.  Without a compelling value proposition, you are ordinary and disposable – a commodity.  With a distinguished value proposition, you are unique and indispensable. 

Your unique value proposition must summarize the reason why a potential customer should buy your particular product or service, how it exceeds that of your competition and why it is worthy of the price they must pay.  The ideal value proposition is concise and appeals to the customer’s strongest decision-making drivers.  It is an irresistible offer, an invitation that is so compelling and attractive that the customer would be out of his or her mind to refuse your offer. 

Customer Experience Journey

What is the Customer Experience Journey?  It is the sum of all experiences that the customer has with you and your organization … the actions and results that make the customer feel important, understood, heard and respected.  Each and every customer interaction molds and shapes the journey.  While you may take great pride in the “features and benefits” of your offerings, it is important that you assess the degree to which you are stimulating the emotions of those whom you serve.  To accomplish this, you must deeply engage your customer’s emotions in addition to, and even above, their intellect.  You will hit roadblocks unless you are able to form an emotional connection that transcends price and product. 

Emotional connections are essential components of the journey.  Research indicates that more than 50% of the customer experience is subconscious, or how a customer feels.  The self-conscious brain is a fertile garden in which to sow positive seeds.  The mind is highly selective, processing millions of pieces of information each second.  Whether you realize it or not, you are touching the subconscious in each step of the Customer Experience Journey. 

In designing and delivering a Customer Experience Journey, it is important that you have a plan to engage the consumer.  Emotional engagement is the foundation of the customer experience.  People rationalize personal decisions first but make decisions based on feelings.  A great experience transcends the rational attributes of a product or service (i.e., price). 

Cecil Beaton, the English Academy Award-winning costume designer, said: "Be daring, be different, be impractical, be anything that will assert integrity of purpose, emotion and imaginative vision against play-it-safers, the creatures of the commonplace, the slaves of ordinary."

Dare to be different?  You bet! 

Google has really ratcheted up its innovation momentum over the past two to three years by broadening its digital, mobile, and data presence and, in doing so, has raised the potential impact on the insurance industry.

Google continues to push forward, moving well beyond its platform for searches, marketing, and advertising and embedding its technology into the lives of every person, gathering new data to use in innovative ways.

In early 2011, Google acquired BeatThatQuote.com, a U.K. aggregator for auto insurance and, a year and half later, followed with the launch of a new auto insurance comparison site, Google Advisor. Then there are the developments coming out of Google[x] Labs, the R&D and innovation lab for groundbreaking projects.

The first of many head-turners affecting the insurance industry was Google Cars, the pioneer driverless car. The validity and momentum of driverless cars was underscored by three announcements at the recent North American International Auto Show. The first was the rapid development and introduction of driverless prototypes by traditional car manufacturers. The second was the state of California announcing the start of testing driverless cars on the roadways in 2014. The third was the creation by Google of the Open Automotive Alliance (OAA) to promote the use of “open standards of innovation,” urging standardization on the Android operating system in automotive technology and enabling automakers to use a “platform-centric” approach to help drive innovation, make cars safer and intuitive and create a great, reliable customer experience.

Also coming out of the Google[x] Labs last year were Google glasses as a “wearable device.” VSP, the nation’s biggest optical health insurance provider, just announced it would be offering subsidized frames and prescription lenses for Google glasses, making them available to the mass market within a year. Expanding on this concept, Google recently announced the development of “smart” contact lenses that can measure the glucose levels in a diabetic’s tears, making the monitoring of blood sugar levels possible in real time and far less invasive. The prototype contact lenses use tiny wireless chips and glucose sensors built into the lenses that measure blood sugar levels every second.

Finally, there is the announcement that Google is acquiring Nest Labs, a startup technology company that creates and sells “smart” thermostats and smoke alarms with sensors and Wi-Fi connections, helping to manage the heating and cooling of homes, while learning more about the home and users’ behaviors. 

When the capabilities represented by these Google R&D announcements, alliances and acquisitions are combined with Google’s existing capabilities for information search and mapping technologies, a whole new set of opportunities and challenges emerges for insurers.

Google’s innovations are transforming it from its foundation as the premier search engine to achieving its vision of organizing the world’s information and making it universally accessible and useful. What makes this especially interesting is Google’s approach to three things. The first is data and technology. The second is location. The third is people. Put together, Google is organizing data, technology, and location around people, creating a new level of customer empowerment and customer-centricity unparalleled in any industry, let alone insurance. That is powerful! 

This is why the implications for insurance are so great; this is an outside-in, customer-driven approach to innovation that is causing insurers to reimagine and reinvent a technology-enabled future. The new approach will affect all lines of business in insurance from P&C to life and health to every aspect of the enterprise … fundamentally changing the insurance value chain!  

For those insurers operating with the long-standing approach of waiting to roll with the changes by taking a wait-and-see attitude, the pace of technology change puts that approach into serious question and creates risk. Instead of asking, “How can technology help run my business?” insurance leaders should be asking, “How can technology help reshape my business?”

The future is unfolding before our eyes. We must open them wide and embrace a future that reimagines and reinvents the business of insurance. 

A company’s reputation, which is core to its profitability and long-term competitiveness, faces new challenges as information speeds blindly through online media and social networks. Lanny Davis, former assistant to President Clinton on crisis management and principal in Lanny J. Davis & Associates, recently noted that, in the age of the Internet, “you never get a second chance to change a first impression. Once your reputation is smeared and your character unfairly attacked, the eternal misinformation echo chamber of the search engine allows the harm to continue eternally, unless you fight back -- early, with all the facts, often yourself -- until the truth gets in the way of the search engine lies.”

When a corporate reputation is tarnished, a company can lose its trust factor; investor confidence is weakened; and a company’s share price can be reduced.  In extreme cases, a damaged reputation can lead to a company’s downfall. “Hackgate,” “Rupertgate,” or “Murdochgate” -– names given by the press to the News International phone-hacking scandal – led to the demise of News of the World newspaper.

Let’s make a list of some leading triggers to reputation failure: 

• unethical behavior such as Sears’ management team’s unrealistic performance quotas for its car repair business, which led to overbilling and created a scandal in the 1990s.
• financial irregularities, such as those that led to Enron’s bankruptcy.
• executive misconduct, such as the conviction tied to insider trading that led to Martha Stewart’s resignation.
• environmental violations, such as Nike’s exploitation of workers in sweatshops, failure to provide work environments that are safe and contact with cotton factories using slave labor—issues that dogged Nike through the 1990s and beyond.
• safety & health product recalls, such as followed allegations of “unintended acceleration” in Toyota cars.
• security breaches, such as the recent one at Target in which tens of millions of people had credit-card data stolen.

In other words, much as Murphy’s Law says:  “Anything that can go wrong will go wrong.” 

What should a corporation do to protect its reputation? 

• Use your CEO: Fred Smith, FedEx’s legendary founder, is a good example.  A good CEO embodies and reiterates a company’s values, code of ethics and vision.  Your CEO regularly communicates honesty and transparency and is trusted with your corporate reputation. 
• Perform an S.W.O.T. analysis: Identify your company’s strengths, weaknesses, opportunities and threats. 
• Develop a corporate reputation strategy:  Johnson & Johnson is still reaping reputation benefits more than 30 years after its swift and sweeping recall of Tylenol and institution of tamper-proof packaging after some maniac laced some pills with cyanide and put them in bottles on store shelves, killing seven people.
• Monitor your reputation online.  Constantly check social media sites and your own website. No company can afford to be reputation-blind, and no suit of armor is impenetrable.
• Be honest, factual and open with the media. 
• Create a plan to manage an unexpected crisis.  Execution is the cornerstone. Train everyone on identifying the crisis, what to do and who gets contacted.   Preparation is essential to managing potential and actual crises in a timely fashion.  Communication is no longer one-way; it’s now two-way. 
• Evaluate the purchase of corporate reputation insurance. For 20 years, the insurance industry has known that how a company manages a reputation crisis will have a dramatic impact on the cost of civil litigation arising out of that crisis.  For this reason, insurance purchased for the risk of shareholder lawsuits, directors and officers insurance, has from time to time included an option to purchase, or included automatically, “crisis management” insurance. This reimburses the company for the cost of crisis management expert fees up to a set amount, usually $50,000 to $200,000.

However, since 2010, there has been an outbreak of “new and improved” reputation insurance policies from name-brand insurance carriers like Zurich (Brand Assurance), AIG (ReputationGuard), Munich Re (Reputation Insurance) and a number of Lloyds syndicates, including a standalone reputation policy produced by Steel City Re.

Some carriers emphasize reimbursement of crisis-management expenses while others are more geared toward reimbursing a company for a loss. Finding the right one, or right combination, can be challenging, but they are worth a look.

Be sure to check out Thought Leader Ty Sagalow's recent appearance on New York News!

New York News

There appears to be violent agreement that 2014 is the year of advanced technology, data and analytics in insurance. Of course, these kinds of prognostications don’t sneak up on anyone. A convergence of growing organizational eagerness and sophisticated tools is allowing momentum to build for the next generation of underwriting to emerge.

Market dynamics are always an important factor in what ultimately makes the cut from strategic planning to implementation. The investment environment, increasing regulatory pressure and rising costs are influencing a more analytical approach to underwriting to increase profitability. With its historically volatile performance, homeowners insurance will be a particular focus in personal lines this year, as carriers adopt new approaches to drive profitability through underwriting.

2014 will provide a focus on shoring up the foundation needed to enable insurers of all shapes and sizes to become more analytically driven. And while carriers make progress, securing the necessary talent needed to succeed is a growing and industry-wide concern.

HOMEOWNERS IN THE SPOTLIGHT

Shifting Focus Toward Homeowners, Following Trends in Auto Market

Analysis of the auto insurance market proliferated at the end of 2013, with some declaring pure direct writer Geico the inevitable winner in the “battle of the titans” against Progressive and other major players because Geico is unencumbered by an agency force. Time will tell if that’s the case, but one thing is clear: Scaling profitable market share in auto can only be done by technology focused and analytically driven carriers, with substantial marketing resources.

The trends in the auto market foreshadow what other lines of property and casualty insurance will face in 2014 and beyond, most urgently in homeowners. Consumer demand for online shopping increases pricing competition and customer-acquisition costs and at the same time lowers retention rates – the combination of which can squeeze margin for carriers that do not have advanced pricing tools. This dynamic forces insurers to sharpen their pencils and produce strategies to differentiate their brands and gain a competitive advantage. For carriers not as advanced as the larger auto carriers, the dynamic can represent fundamental shifts in their business and operating models.

Partially because of continuing market share consolidation and pricing stagnation in auto, there is increasing focus on homeowners insurance. A recent report by Aon Benfield shows 15% growth in direct written premium for homeowners between 2009 and 2012, compared with just 6.5% for direct personal auto premium. With the historical volatility and poor performance of the homeowners line of business, a number of new underwriting approaches are entering the market. At the same time, the industry is adapting to a changing consumer and regulatory landscape.

Consumer Demographics Changing the Game

“Show me the money (i.e., discounts), give me all the info I need wherever I am and in real time, and make sure your customer service is stellar or I’ll write up what a horrible experience I just had in 140 characters and share it instantly with all my friends.”

Exhausted yet?

The Millennial generation, at 77 million strong, demonstrates very different buying behaviors and demographic patterns than previous generations. These young consumers are having a notable impact on personal lines insurers. They primarily choose urban living, with very little difference between those who are parents vs. non-parents, according to a study from the American Public Transportation Association. They are less likely to drive cars and prefer multiple modes of transportation. In fact, a study from USA Today shows that Millennials are less concerned about owning either a home or a car.

This budget-conscious generation is reacting to the dismal economy and job market they encountered upon entering the workforce, as well as the significant levels of student loan debt many of them carry. They are much more sensitive to taking on long-term debt and minimizing monthly expenses. Because they have a job-scarcity mentality, Millennials value being unburdened in case they need to relocate for their career.

These trends also affect home building. While the news about housing starts is promising (up 22.7% in November 2013), real estate developers are responding to the Millennial generation’s desire for high-density urban living and hesitancy to commit to a mortgage – at least for now. While no one can predict how the home-ownership trend will play out for the long term, the insurance industry needs a product mix and customer-service approach that meets the needs of this demographic population.

KNOWING WHO AND WHAT YOU INSURE

Advancements in Advanced Data & Analytics

Traditional property inspection methods being used today only deliver an actionable result 25% of the time, which means 75% of inspections are a waste, according to a Claims Journal study. This ineffective use of resources isn’t sufficient to address the profitability issues that have plagued this line of business for years. In fact, since 1990, the homeowners industry has only experienced four years with combined ratios below 100. To combat the high combined ratios, carriers divide losses into two categories – catastrophe and non-catastrophe – and continually perform analyses to determine what characteristics about a home, the insured and the weather have the greatest impact on controlling losses.

Again, the auto insurance industry shines as being out in front of the P/C market with usage-based insurance and data collection on individual behavioral attributes. While it’s still an uphill battle for consumer adoption, the technology momentum is here to stay. Insurers are leveraging new data sources and analytical insights to improve their strategic approach to marketing, underwriting and claims.

For the full white paper by Valen on this topic, see their website.

This post is the first of a four-part series.

Ask any business owner today how the marketplace has treated them the last few years, and you’ll hear a recurring theme: “It’s been hard.” But some have learned how to improve their risk management and shore up several facets of their business where profit leaks can occur. You can explore your own vulnerabilities to claims and correct them by following a system known as “PX4.”

The 4 P’s are:

1. Pre-Hire : What does your hiring process look like?

2. Post-Offer: What should you be doing after you’ve offered someone a job?

3. Pre-Claim: What policies and procedures do you have in place before you have your next loss (whether via workers’ compensation or something else)?

4. Post-Claim: What systems do you have in place to keep yourself and the insurance carriers from losing money because of things you let fall through the cracks?

We’ll cover the first P in this article, then discuss each of the other three in subsequent pieces, as we cover the concept of TCOR (Total Cost of Risk) and lay out tools you can use to streamline and organize various aspects of your business, such as training and claims management. Our goal is for you to take away several insights that could save your company hundreds of thousands of dollars or maybe even millions of dollars in lost profits and revenues.

Pre-Hire

If you’ve had to deal with an employee lawsuit in the past few years, you know they’re frustrating and lead to a major loss of profits. Lawsuits can come from many issues; for this series, we’ll cover lawsuits coming from EEOC issues or workers’ compensation claims.

In the last 10 years, the settlement costs of lawsuits have risen to more than $310,000. If you were sued by one of your employees, and the settlement was a mere $15,000, how much do you think that would cost your company? Would you be surprised to learn a claim like that would cost your company more than $50,000? If your profit margins were 4%, it would take you $1,250,000 in additional sales to make up for that loss.

Reducing your risk is critical to your bottom line. Business risk can take many forms, such as:

1. Financial Risk: Asset price volatility (currency, interest rates, material and labor costs)

2. Operational Risk: Efficiency, productivity, etc.

3. Hazard Risk: Lawsuits, insurance claims (workers’ comp, general liability, fire, etc.)

Of those three areas, companies are surprised to learn that operational risk is the costliest to companies. Although hazard risks are expensive, they can be transferred through the purchase of insurance policies.

To reduce your risk, you must begin with an assessment of your hiring practices. Do you feel like you have a watertight system in place, or have you gotten rusty because you’ve not been doing a lot of hiring in the past several years? Do you feel you’re using good employment applications and asking appropriate questions?

What successful companies realize is that the effectiveness of their hiring can be a great indicator for profitability in the future. Studies have shown that hiring the wrong person can be very costly, and not only from the loss of productivity or from having to find a replacement; bad hires can be fertile ground for workers’ compensation claims.

To avoid bad hires, it is always wise to request a Motor Vehicle Report on potential hires from a vendor who specializes in that service. A couple of good sources are the Insurance Information Exchange (www.iix.com) or LexisNexis Employment Screening (www.screennow.com).

You may also want to consider conducting a personality profile to make sure you don’t hire the proverbial “dog that can point but that can’t hunt”—someone who can tell you exactly what you want to hear but who isn’t a good fit for your company. Predictive Results (www.predictiveresults.com) and Zero Risk HR (www.zeroriskhr.com) are two companies that specialize in personality profiles; they claim a 96% success rate in helping you make sure you’re hiring the best person.

Back ground checks have become a routine part of the pre-hire process these days. You can contact First Advantage (www.FADV.com), Edge Information Management (www.edgeinformation.com) or National Crime Search (www.nationalcrimesearch.com ) for this important process.

Getting the Pre-Hire process right will get you moving in the right direction but is just the start. In our next post, we’ll look at the second part of the “PX4” plan – The Post –Offer process.