We can know, looking back at last year, how much risk an insurer was exposed to. And we can simply look at the balance sheet to see how much capital they held. So that is the way we have tended to look at solvency. Backwards. Was the insurer solvent at the end of last year? Not really useful information. Unless… Unless you make an assumption about the future. Not an unusual assumption. Just the common assumption that the future will be like the past. That assumption is usually okay. Let’s see. In the past 15 years, it has been correct four or five times. But is that record good enough for solvency work -- a system that might give the right answer a third of the time?! There is a solution. Regulators have led us right up to that solution but haven’t yet dared to say what it is. Perhaps they do not know, or even are not thinking that the backward looking problem has two aspects. We are making two heroic assumptions:

1. We are assuming that the environment will be the same in the near future as it was in the recent past.
2. We are assuming that the company activity will be the same in the near future as it was in the recent past.

The regulatory solution based on these two shaky assumptions is:

1. Stress scenarios
2. A look forward using company plans

Solution 1 can help, but solution 2 can be significantly improved by using the enterprise risk management (ERM) program and risk appetite. You may have noticed that regulators have all said that ERM is very important. And that risk appetite is a very, very important part of ERM. But regulators have never, ever, explained why understanding risk appetite is important. Well, the true answer is that it can be important. It can be the solution to one part of the backward-looking problem. The idea of looking forward with company plans is a step in the right direction.  But only a half step. The full solution is the Full Limits Stress Test. That test looks forward to see how the company will operate based on the risk appetite and limits that management has set. ERM and risk appetite provide a specific vision of how much risk is allowed by management and the board. The plan represents a target, but the risk appetite represents the most risk that the company is willing to take. So the Full Limits Stress Test would involve looking at the company with the assumption that it chooses to take the full amount of risk that the ERM program allows. That can then be combined with the stress scenarios regarding the external environment. Now, the Full Limits Stress Test will only actually use the risk appetite for firms that have a risk appetite and an ERM program that clearly functions to maintain the risk of the firm within the risk appetite. For firms that do not have such a system in place, the Full Limits Stress Test needs to substitute some large amount of growth of risk, because that is what industry experience tells us can happen to a firm that has gone partially or fully out of control with regard to its risk taking. The connection between ERM and solvency becomes very substantial and realistic:

• A firm with a good risk management program and tight limits and overall risk appetite will need the amount of capital that would support the planned functioning of the ERM program. The overall risk appetite will place a limit on the degree to which all individual risk limits can be reached at the same time.
• An otherwise similar firm with a risk management program and loose risk appetite will need to hold more capital.
• A similar firm with individual risk limits but no overall risk appetite will need to hold capital to support activity at the limit for every single risk.
• A firm without a risk management program will need to hold capital to support the risks that history tells us that a firm with uncontrolled growth of risk might take on in a year. A track record of informal control of risk growth cannot be used as a predictor of the range of future performance. (It may be valuable to ask all firms to look at an uncontrolled growth scenario, as well, but firms with a good risk control process will be considered to have prepared for that scenario with their ERM program.)
• A firm without any real discipline of its risk management system will be treated similarly to a firm without an ERM program.

With this Full Limits Stress Test, ERM programs will then be fully and directly connected to solvency in an appropriate manner.  

Most workers don’t aspire to leadership roles. That’s the key finding of a study conducted by CareerBuilder and Harris Poll. Based on the responses of more than 3,500 workers across the U.S., only about one-third (34%) aspire to leadership positions. This is interesting data for organizations and leaders everywhere. First, it might settle the nerves of managers and supervisors because it confirms that not every employee is looking to rise up through the ranks. My research with Beverly Kaye found that one of the key reasons managers don’t engage in career conversations with their employees is fear. Fear that everyone will want a promotion. Fear that they can’t deliver on those expectations. Fear of the disappointment and disengagement that will ensue when these two conditions collide. But the good news is that two out of three employees aren’t coveting the manager’s – or any other leaders’ – job. At the same time, this data is also unsettling because it demonstrates a fundamental challenge with the way organizations are structured. Unfortunately, some of the 66% of employees who are uninterested in leadership positions will pursue them anyway.  That’s because, in too many organizations, "up" is the only way to develop. Those without a genuine appetite to lead will chase down promotions because it’s their only chance to grow. So, what’s an organization to do?  Plenty!

• Distinguish between the 34% and the 66%. Ensuring job satisfaction, engagement and, ultimately, results demands that you understand employees, their motivations and their aspirations.
• Work with those who possess an authentic desire to lead, finding ways to cultivate these skills and talents – even before opportunities for promotion open up. Leadership isn’t reserved for certain levels. It’s a state of mind and a set of skills that can be practiced regardless of role.
• Don’t assume that, just because people don’t aspire to leadership, they’re happy where they are. Many aren’t. Many of your 66% are bored, going through the motions and not contributing to their greatest capacity. Figure out what interests them, where their passions lie and what they would like to accomplish. Then work collaboratively to help facilitate opportunities for development and growth in their current roles.
• Find ways to reward employees for deepening their knowledge and skills… without changing roles. (Let’s be honest, many of the 66% are pursuing leadership because it comes with a pay bump.)
• Consider treating leadership as a discipline rather than a level. What if advancing to leadership was a lateral rather than vertical move? What if it didn’t come with an automatic raise? What if people moved into leadership because they really wanted to do that kind of work?

Information like that generated in the CareerBuilder study can be a powerful tool for organizations to look differently at leadership, who wants it and why. The information also helps organizations produce better results by ensuring that 100% of employees are doing the work they want to do most.

As we near the gift-giving season, here are some books on risk management you might consider as gifts for yourself, your team or a friend with a passion for risk management. First, here are two from one of the gurus of risk management. Felix Kloman styles himself “a long-time student of the discipline of risk management” despite being a risk management practitioner, author and thought leader for the best part of half a century. If you are interested in the views of this sage and especially the development of risk management over time, you might want to look at these (both are available in paperback and for the Kindle):

• Mumpsimus Revisited: Essays on Risk Management (2005)
• The Fantods of Risk: Essays on Risk Management (2008)

John Fraser has co-written two massive tomes, each a collection of contributions by highly regarded risk management practitioners and academics (including Felix). They are full of useful information with chapters such as "Enterprise Risk Management: An Introduction and Overview"; "ERM and Its Role in Strategic Planning"; and "How to Plan and Run a Risk Management Workshop." The books are:

• Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives (2010)
• Implementing Enterprise Risk Management: Case Studies and Best Practices (2014)

Finally, Paul Sobel has made a contribution that merits consideration, especially by internal auditors. Paul brings an excellent mind to the topic, even though he may not have the many years’ experience that Felix (in particular) and John possess.

• Enterprise Risk Management: Achieving and Sustaining Success (2012)

Have you read any of these books? I would like to know what you think of them. I am also interested in whether there are other books on risk management you would recommend. (Nassim Nicholas Taleb is a controversial author and holds views that I don’t fully endorse, so I am not recommending him here.)

I want to start by saying that I am knowingly writing an article that is going to throw fuel on a fire. Being from New England, this article strikes me as the equivalent of writing an article in the Denver Post that says New England Patriots quarterback Tom Brady is better than Denver Broncos quarterback Peyton Manning. Letters will be written. Darts will be thrown. So, I will make sure I put on my steel vest before I publish. I already started writing on this topic, in a recent article titled, “Apple HealthKit – The Next Step to the End of Employer-Based Health Insurance.” In this article, I will provide a more detailed analysis of why the premise presented in my first article may come true -- that within five to 10 years employers will be out of the health risk business. I will then provide a plan for what I think benefit brokers should do to prepare. Taking action may be the difference between those that survive and thrive in this new health insurance world vs. those that may struggle or even fail. What do I mean when I say employers will be out of the health risk business? To repeat what I said in my last article, “By health risk, I mean the cost of the employee’s health insurance will not be priced by the employer. It won’t be a function of average age of the employee population, claims experience or any of the standard underwriting/pricing rules today.” In fact, health insurance will most likely become an individually purchased product, and the insurers of the future may not be the companies that dominate the market today. As a consultant to benefits brokers, I educate them on technology and advise them on how they can maintain a competitive position. My future depends on brokers' remaining significant, so I am as concerned about their future as any broker would be. If you study the significant market events over the past few years, you get a picture of what the future may be like. While many may think Obamacare is the big market change, I believe that the health insurance market is going to change much more dramatically and that, while the government may be nudging things along, competitive market forces will drive the change. So let’s get to the point. I believe that within five to 10 years health insurance will be delivered primarily through staff model health maintenance organizations (HMOs). These will be Kaiser-like plans where the providers of care will also be the risk takers/insurers. Individuals will pay a fee directly to a healthcare system that will be responsible for the health, wellness and treatment of the person. Employers may still give employees money to pay for some of the cost, but they won’t be in the “risk” business. We are beginning to see this evolution today through the expansion of what people are calling accountable care organizations (ACOs). However, the future will go well beyond the limited risk sharing of today’s ACOs. Four Catalysts to Change If you had been in the health insurance business in the '80s, you would say we tried this before, and it didn’t work. Well, today, things are different. There are four major differences that will be the catalysts for the coming changes: Changes in consumer buying behavior In the '80s, employers often paid for 100% of an employee’s health insurance and a large part of the family's. When cost wasn’t an issue for employees, they looked at access to providers as the No. 1 variable. So, all the HMOs and preferred provider organizations (PPOs) tried to expand their networks to appease more people. Today, cost is the No 1 issue. As a result, we are seeing networks shrinking to save cost. Expansion of government health insurance programs, combined with the reduction in Medicare and Medicaid reimbursements to providers. If I am a healthcare provider and am getting less money to perform services on a growing population, then I need to do things differently. I need to get money from healthy people and from people needing less care. I would also need to keep people healthy or provide care in more cost-effective settings. Advancing mobile technology With advancing technology, it will be easier for providers to have real-time access to a patient’s medical information. Things like weight, blood pressure and blood glucose levels can be measured in the home, sent via Bluetooth to a mobile device, and immediately be available to the primary care physician in the individual’s web-based medical/wellness record. Other health metrics will also soon be possible. Systems can automatically notify the responsible physician of any changes in the metrics that warrant attention. Information will help provide proper treatment in a timely manner. Change in tax laws, allowing personally purchased insurance on a pre-tax basis With Republicans taking over Congress, the idea of making an individually purchased insurance policy tax-deductible is now on the table. While this is not a necessary catalyst for change, it certainly would put the nail in the coffin and get employers out of the health risk business. Not only is there a perfect storm forming for the coming changes, but I believe the majority of the participants in today’s healthcare market will welcome this change. We have all heard the saying that “healthcare should be between the doctor and her patient.” We know the government wants this. I think employers, employees and healthcare providers would want this, too. It is the insurers, and by extension benefits brokers, that may not want this. However, as we all know, there is little sympathy for the insurance companies. Employers would want this because I don’t think employers got into the health insurance business after World War II to be in the position they are in today. While I don’t think they mind giving employees money to pay for health insurance, they don’t want their profit margins affected by the health of their employees. Bad claims experience, and their profits go down. Every year, they agonize over the health insurance renewal, deciding whether to charge their employees more or make changes in plans (delivering bad news, either way) or absorb increases in the business. I don’t think employers want to be in the wellness business, either. They may want to provide wellness programs to make people feel better, be more productive at work or boost morale, but not to control or reduce healthcare costs. Employees want change, too. Do employees want their employers asking for things like health risk assessments? My health should not be my employer's business. To me, there is a slippery slope as it is. I do want my physician to care about my health. I want my doctor to know my weight and blood tests and care whether I got a colonoscopy when I turned 50. I often joke that I get an email from Jiffy Lube saying that my car is due for an oil change, but my doctor never sends me an email to get a check-up, test or whatever is needed to keep my engine running the right way. I believe doctors and other healthcare providers want change, too. They want to practice health care. This would include helping their patients make the right lifestyle decisions and keeping them informed about what is good for them vs. what is not. Providers don’t want the paperwork. They don’t want third-parties telling them what to do, and they are getting tired of reduced reimbursements from the government. The Market Reacting I am not the only one using the term “Kaiser-like.” Emanuel Ezekiel, one of Obama’s healthcare advisers, expects healthcare insurers to be obsolete by 2025. According to Ezekiel, “ACOs and hospital systems will become integrated delivery systems like Kaiser or Group Health of Puget Sound. Then they will cut out the insurance company middle man -- and keep the insurance company profits for themselves.” (Source: New Republic – March 2014) Now, I am not going to just listen to Emanuel as my source. I am listening to the market. Hospital systems have been acquiring physician practices and entering the insurance business across the country. In my own backyard, there was this acquisition highlighted in the Boston Globe. State insurance regulators Friday signed off on Partners HealthCare System Inc.’s acquisition of Neighborhood Health Plan, a transaction that will put the state’s largest hospital and physician organization into the health insurance business for the first time.” (Source: Boston Globe September 2012) In Massachusetts, this is very big news. Partners HealthCare owns some of the leading hospitals in the country, including Mass General and Brigham and Women’s Hospital. Hospital systems getting into the health insurance business is not limited to Massachusetts. In New York, New Jersey, Pennsylvania, Maryland, Michigan and all across the country hospitals are getting into the health insurance business. (See Kaiser Health News.) Concurrently, insurance companies are getting into the healthcare business. According to Hospital and Health Networks Magazine January 2012, the following insurers have made healthcare acquisitions:

• WellPoint bought CareMore.
• Optum bought Orange County's Monarch HealthCare and two smaller independent physician associations (IPAs).
• United Healthcare acquired a multispecialty group in Nevada in 2008.
• Humana purchased Concentra, which provides occupational care and other medical services.

Aetna Making Moves What I have find most interesting is the acquisitions by Aetna and some of the comments by CEO Mark Bertolini. Let’s first look at some of the comments Bertolini has been making over the past few years. “The end is near for profit-driven health insurance companies. The system doesn’t work, it’s broke today. The end of insurance companies, the way we’ve run the business in the past, is here.” “We need to move the system from underwriting risk to managing populations,” he said. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.” In his presentation titled “The Creative Destruction of HealthCare,” he states: “Not too far away from now – in the next six to seven – 75 million Americans will be retail buyers of healthcare. And they’ll come to the marketplace with their own money and either a subsidy from their employer or a subsidy from their government. And it doesn’t much matter – they’ll be spending their money.” Aetna is not just talking. If you look at Aetna’s acquisitions and partnerships over the past few years, you can see that Aetna is preparing for the future that Bertolini describes. The company has spent billions of dollars acquiring technologies that can be critical to the future in managing healthcare and healthcare information, including:

• iTriage – Mobile App for employee to check symptoms – Find doctor – Make appointment
• ActiveHealth – View and update personal health record (PHR) – Personalized alerts and content – Communicate with doctor
• Medicity – Promotes coordination of care – Real-time patient data

(Source: Aetna 2013 Investor Presentation) According to Aetna’s website, Aetna was ranked #52 on InformationWeek's 2013 list of the 500 leading technology innovators, surging ahead of many of the top names associated with technological innovation. Aetna ranked first among health insurers. To move to this new model, healthcare providers will need to add capabilities that insurance companies currently have. For example, hospitals provide care but don’t have the actuarial skills to price their patient population in the event they were to get into the risk business. Many also don’t have the capital to assume risk. Those with enough capital can simply buy an insurance company. Others will have to partner with an insurance company that has the capital and reserves to share risk and provide the needed services. So if I am an insurance company, I can either buy providers to stay viable or provide some products, services or capital that the new healthcare systems will need. Buying hospitals or physician groups across the country can be very expensive. So it may appear that a company like Aetna is setting itself up to be the technology, actuarial, reinsurer and other service provider for these future healthcare systems. I won’t claim to know if Aetna thinks the market will move as far as I am saying, to a Kaiser-like model, but the company certainly is preparing for a different healthcare model. Some may think that this is somewhat what insurance companies are doing today. Here is the critical difference. Today, the risk-sharing arrangements are still in a fee-for-service environment. In the future, a hospital system may be in close to a 100% capitation environment (where the system receives a set amount per period for each person covered by the arrangement). Provider systems that purchase these services or develop a risk-sharing relationship with an insurance company in such an environment can’t have two such relationships. They will need a single risk pool to properly manage the population and risk. There won’t be a Blue Cross version, a United HealthCare version and an Aetna version of a local ACO/staff model system. A good example of healthcare financing is my own healthcare. Since I moved back to Massachusetts 16 years ago, I have had the same primary care physician and used the same hospital facility on a number of occasions. Yet I have had seven different health insurance programs. Assuming an average insurance premium of $10,000 per year for my family, over the 16 past years I have paid $160,000 in premiums. I understand insurance, spreading the risk and all the other insurance arguments about where that money goes, but think of how it could be different if all $160,000 went to the system that was actually providing care to my family and me. What Benefit Brokers Can Do Okay, so the world may change. What would I do if I were a broker today to prepare for this change? First, change does not happen easily and overnight. The whole country of healthcare consumers, distributors and providers will need to adapt. As a benefits broker, your buyer may no longer be the employer but the employee. If this is the case, then some existing services may not be needed.

• No more risk analysis/actuary and underwriting
• No more claims analysis tools
• No more wellness programs to reduce healthcare costs
• No more disease management programs
• No more company medical renewals

Before someone points out the obvious to me, I will say that I do know that most groups with fewer than 100 employees are community-rated and those with more than 100 employees are experience-rated. Small employers are still faced with balancing budgets based on their healthcare renewal. This anxiety will go away. Most of these types of services are a core competency of many of the national benefits firms and the larger independent brokerage organizations. These services are viewed as key differentiators. For these firms, change may be even more dramatic because providing these types of analytical skills is part of their culture. So let’s talk about the things brokers can do. I am going to break this down to a list of tasks. 1.       Understand what the players in your market are doing – Brokers should start analyzing their local medical market and see what the providers are doing in this area. Have they made acquisitions? Have they created new partnerships? What is their leadership saying publicly? Whatever they say or do, believe them. 2.       Add an employee call center – Employers will welcome the support in helping employees move to a new environment. Provider systems will welcome and pay for the support in helping those same employees navigate the market. 3.       Add personal financial consulting – It is estimated that close to 40% of employees lose some productivity at work because of financial stress. The healthcare insurance purchase is going to be a major decision for an employee, and it should be made in the context of an employee’s entire financial position. 4.       Understand the new technologies – How many of you who have read this up to this point understand what Aetna’s technologies for the consumer are? Do you know how to "Bluetooth" your weight from a scale to a smartphone? The place of employment can also be a great place to help employees with technology to track health information. Could an employer have a scale at work that is Bluetooth-enabled to send a person’s weight to their smartphone? Could the employer have a blood pressure machine at work? How about setting up a private room with teleconferencing capabilities so an employee can consult a doctor face-to-face via the web without leaving the place of employment? Could a broker make himself available to consult employees one-on-one as to how this whole system will work? 5.       Develop technology engagement and education strategy – After you learn what you need to know about the new technologies, are you ready to deliver? I believe the provider systems (the new Kaisers) will welcome the opportunity to educate the population through the employer. At the employer level, you can reach a large amount of people fairly easily. And the employers will care that their employees understand this new healthcare delivery system. Employers don’t want stressed employees, because stressed employees are not as productive. I believe employers and these new provider systems will pay to help these individual consumers. 6.       Invest in new internal technology and processes – If your entire infrastructure is geared around engaging the employer, then things will need to change. Can you record a phone call? Can you engage in online chat with an employee? Are you prepared to sell individual insurance? To sell a high volume of individual policies and service employees, you will need extremely efficient internal operations. 7.       Start thinking about helping employers exit the risk business - Rather than advise employers how to control costs and mitigate risk, should you start advising them on how to get out of the risk business? I guess private exchanges and defined contribution plans are the start. However, if the healthcare market changes, the pace will accelerate because there will be more options for the employer to get out. 8.       Engage new providers – Carrier reps are always calling on brokers, but these new organizations may not call on brokers in the same way. You may need to reach out to them. If you have something of value for the new provider system, you will need to engage the carriers. To move to this new model, it will require that brokers invest in technology and people. To attract the provider systems benefits, firms will need to have the services, size and scale to deliver. Most independent benefits firms either don’t have the capacity or capital to move to this model. They will either have to sell to a larger firm or join forces with peers who share the same vision and are willing to collectively invest in preparing for the future. The national firms and larger independent firms with the capital and resources will need to have the will to change. In today’s environment, many brokers may not feel the need to make these changes. Other firms have already started preparing for a much different future. For example, several national firms have opened call centers for employees. Whether that is for a future market I have described, or simply to service employees today, I don’t know, but the centers are a sign that the benefits game is changing. I may not end up being right with my market predictions, but my advice is to pay close attention. There is change going on out there, and I think a picture of the future is being drawn that looks much different from the healthcare market today.

For property and casualty insurance carriers, growth is hard-fought in an environment of compressed margins, regulatory scrutiny, increased competition and customer expectations for anywhere/anytime service. Add unsteady economic conditions, low interest rates that decrease investment income and catastrophic losses from significant events such as Hurricane Sandy into the mix, and insurers are finding that their tried-and-true business methodologies that worked well pre-2008 are in desperate need of a facelift. Growth is especially challenging for insurance carriers with inflexible legacy technology systems, as well as small and mid-size carriers that lack the resources to make the product and operational changes they need to remain relevant and profitable. Insurance carriers must navigate an environment that rewards nimbleness and flexibility, but to do so requires that insurers modernize their current systems and processes. Consider the example of bringing a new product to market. At most insurers, the process may take six months or more, with a price tag reaching seven figures. By the time the product is ready to launch, the dynamics in the market have shifted, or perhaps a new regulation has been legislated. The insurer has two equally unappealing choices: Launch the product as is and never realize a return on investment, or delay launch and retool the product, increasing the R&D price tag and losing potential revenue and market share. There is a better way: Updating legacy systems with flexible and scalable Software as a Service (SaaS) computing capabilities allows P&C insurers to rapidly capitalize on opportunities and support growth. This article presents seven imperatives for the P&C insurance industry based on industry research and analysis, and outlines how a SaaS implementation can address each imperative. IMPERATIVE 1: INCREASE SPEED-TO-MARKET  In an Accenture survey of insurance industry professionals, more than seven of 10 (72%) respondents indicated that it takes their organization six months or more to launch a major product. In today’s constantly changing environment, six months is a long time indeed, and it’s likely that the market looks different than when product development began. However, insurers that are able to rapidly offer innovative products and services through multiple channels can take advantage of shifts in the market and exploit the slowness of competitors. Today, “slow and steady” doesn't win the race. Compared with legacy system-based product development, which requires coding, scripting and testing, a SaaS infrastructure by design incorporates more nimble and configurable software, significantly reducing development time and eliminating the cost of hiring a vendor or consultant to make coding changes. In addition, SaaS provides rapid provisioning of live and test environments to further increase speed-to-market. Lastly, SaaS requires minimal investment in hardware, software and personnel. Insurers can use a pre-configured infrastructure to reduce development costs by more than 80% over comparable legacy systems, according to Donald Harrell, senior vice president of marine, exploration and production for Liberty International Underwriters. This, in turn, reduces the risk for product launches. IMPERATIVE 2: QUICKLY RESPOND TO MARKET AND COMPETITIVE CHANGES Those insurers not able to turn on a dime may be in trouble because so many of their competitors are preparing to invest in technologies and processes that will help them design, underwrite and distribute products and services more quickly. More than 80% of insurance CEOs are planning to increase investment in technology, and more than 60% plan to develop their capacity for innovation. Innovation must continue after product launch, and SaaS allows insurers to retool products as market drivers dictate. The ability to revamp an existing product is particularly attractive to small or mid-size insurers launching products to a relatively small target market. With SaaS, insurers are able to bring niche products to market that would otherwise not deliver enough ROI to justify the investment. Likewise, if a product is not profitable, an insurer can make changes and quickly reconfigure the product rather than being forced to offer an unprofitable or marginally profitable product because it’s too costly to make changes. Insurers can also more effectively price products. SaaS is charged on a subscription or consumption basis, so costs are more closely aligned with the revenue being generated by the new product. IMPERATIVE 3: REDUCE COSTS TO MAINTAIN PROFITABILITY As the U.S. economy slowly improves, P&C profitability is starting to improve as well. However, there is little cause for celebration. Fitch Ratings warns insurers that the current pricing cycle may be running out of steam, forcing insurers to cut expense levels to maintain profitability. Now is the time for insurers to put in place cost-saving strategies. With a SaaS infrastructure, insurers can innovate and offer new products and services without incurring capital expenses. Rather than implement an expensive technology infrastructure, SaaS allows insurers to leverage preconfigured infrastructure and reduce IT resource requirements, staffing and professional services fees. In fact, SaaS up-front costs are typically less than 20% of the development costs of legacy systems. SaaS pricing models have also matured, giving insurers access to a variety of bundled and unbundled pricing options. IMPERATIVE 4: AUTOMATE AND STREAMLINE UNDERWRITING A survey of insurance professionals by FirstBest Systems found that 82% of respondents believe that their insurer’s underwriters spend less than half of their time actually underwriting, with the majority of underwriter time spent on data collection and administrative tasks. Insurers understand that giving underwriters the automation tools they need to do their jobs effectively is key to improved underwriting, but many believe that the technology is problematic, with 81% citing lack of data integration as limiting underwriting productivity. In contrast to legacy underwriting systems, SaaS allows insurers to easily incorporate rules to automate the underwriting process and increase underwriting ratios and revenues. SaaS also allows for streamlined data integration as opposed to off-the-shelf packages that often need extensive modification, thus eliminating a major stumbling block to optimal productivity for underwriters. IMPERATIVE 5: SUPPORT NEW DELIVERY CHANNELS Mobile technology continues to be top-of-mind for many carriers, with more than 60% planning to add new mobile capabilities for policyholders and agents. Notes Novarica partner Matthew Josefowicz, “As the use of smartphones and especially tablets displaces the use of desktops and laptops in more areas of personal and professional life, support for these platforms is becoming critical to insurers’ abilities to communicate electronically across the value chain.” The problem for carriers is that legacy systems were not designed to run on mobile devices. However, SaaS, with its more modern coding, is able to provide both a better user interface and operational efficiency for smartphones and tablets. SaaS allows insurers to distribute products through a variety of new channels (e.g., banks, car dealerships) that would not be possible with legacy systems. Creating and recreating websites and portals quickly and inexpensively means that insurers can more readily compete with “disrupters” that use a direct-to-consumer model. Insurers can design multiple portals for different geographies, languages and associations in near-real time. Deloitte reiterates the importance of mobile and other delivery channels for insurers: “No one can afford to take their distribution systems for granted. More insurers are likely to grow bolder in exploring alternative channels to capture greater market share, catering to the needs and preferences of different segments while cutting frictional costs.” IMPERATIVE 6: COLLABORATE WITH THIRD PARTIES Insurers are increasingly relying on third parties for a variety of integration services, including regulatory compliance, sophisticated data analysis, geo-location capabilities for risk assessments and risk ratings for more accurate underwriting and risk pricing. Integration between carrier legacy systems and third-party providers is typically problematic because of proprietary file formats and other issues that make it difficult to share data. In contrast, SaaS provides links to existing interfaces for access to third-party databases. Integration reduces costly, error-prone and time-consuming manual intervention. IMPERATIVE 7: IMPROVE THE CUSTOMER EXPERIENCE The majority of insurers (91%) believe that future growth depends on providing a special customer experience, according to Accenture’s survey. However, getting the relevant and up-to-date data they need to give customers a personalized experience is a critical challenge for 95% of respondents. In the same survey, only 50% of insurers say that their carrier leverages data about customer lifestyles to determine the products and services most likely to meet customer expectations; 70% rate themselves as “average” or “weak” in their ability to tailor products and services to customers’ needs. A similar number (64%) give themselves low ratings for their ability to provide innovative products and services. Poor service -- or even average service -- is no longer acceptable. Consumers are accustomed to personalized experiences such as shopping on Amazon or booking airline tickets on a travel site, and expect a similar type of experience from their insurer. Thomas Meyer, managing director of Accenture’s insurance practice, says, “To pursue profitable growth, insurers need to achieve the kind of differentiation that allows organizations like Apple to charge a premium while building customer loyalty. As Apple has shown, the answer is consumer-driven innovation that creates an exceptional user experience.” SasS enables insurers to access the data points they require to differentiate their products throughout the customer experience. In a market commoditized by regulations and related factors, insurers that can leverage SaaS to deliver a straightforward, simple process to customers will give themselves a competitive advantage.  CONCLUSION In an accelerated market where change is the new constant, P&C insurance carriers cannot afford to continue to do business as usual. Imperatives such as speed-to market, responsiveness to customer demands, new delivery channels, cost reduction and improved underwriting make it necessary for insurers to explore new methods of providing products and services to customers. SaaS, with its flexibility, scalability and low cost, is a technology imperative if carriers hope to grow and remain competitive. For the full white paper Oceanwide, click here.

Have you ever been in a meeting where everyone else rallies around a position that you were sure was wrong? You wonder whether you should make waves by being the only one to disagree. Maybe everyone else knows something you don’t? Chances are good that you kept quiet, especially if the boss was among the supporters. Extensive research shows that you would not be alone in doing so—and that organizations would be better off if they could keep dissenters like you from buckling under group pressure. In 1955, Soloman Asch conducted a series of landmark experiments that demonstrated the tendency to acquiesce. Asch put a subject into a small group of people he hadn’t met. The group was taken through a series of visual tests where the answers were obvious but, after a while, all the participants other than the subject would give unanimous, incorrect answers. Unknown to the subject, the others were all cooperating with the experimenters. As Asch put it, subjects were being tested to see what mattered more to them, their eyes or their peers. The eyes had it, but not by much. Asch reported that, in 128 runnings of the experiment, subjects gave the wrong answer 37% of the time. Many subjects looked befuddled. Some expressed their feelings that the rest of the group was wrong. But they went along. Interestingly, Asch found that all it took was one voice of dissent, and the subject gave the correct answer far more frequently. If just one other person in the room, gave the correct answer, the subject went along with the majority just 5% of the time. In organizational settings, the tendency to conform is heightened because the subject is complicated, the answers unclear. There are social and economic bonds that tie a group together, and there is a very human tendency to yield to authority. Following in Asch's footsteps, a series of experiments conducted by Stanley Milgram in the 1960s demonstrated obedience to authority to startling proportions. Executives too often squash dissent because they feel that it will keep them from moving quickly. Some argue that allowing disagreement can halt action entirely. Tom Kelly, the renowned innovation expert at design firm IDEO, wrote in The Ten Faces of Innovation:

"Every day, thousands of great ideas, concepts and plans are nipped in the bud by devil’s advocates."

John Kotter, professor emeritus at Harvard Business School and a highly regarded expert on leadership and change management, captured the frustration of many executives when he said:

"Every visionary knows the frustration of pitching a great idea, only to see it killed by naysayers."

But how do leaders know whether a contrary view is standing in the way of their bold, visionary stroke or a disastrous folly? They don’t. Rather than reinforce conformity and squash dissent, leaders (at every level) should, instead, heed the advice of Peter Drucker, who wrote in The Effective Executive,

"Decisions of the kind the executive has to make are not made well by acclamation. They are made well only if based on conflicting views, the dialogue between different points of view, the choice between different judgments."

More important, Drucker observed, only disagreement can provoke imagination and alternatives:

"A decision without an alternative is a desperate gambler’s throw, no matter how carefully thought out it might be."

In The Essence of Strategic Decisions, Charles Schwenk reports that numerous field and laboratory studies found that decision-making was much improved if someone on the team is brave enough to dissent. In particular, dissenters are most useful when organizations tackle complex, ill-structured problems—such as critical business strategy questions. Constructive questioning and debate increase the quality of assumptions, increase the number of alternatives considered and improve decision makers’ use of ambiguous information to make predictions. But as leaders try to encourage constructive questioning and debate, they must remember that there’s a catch for dissenters. As one executive warned me,

"Devil’s advocates, if occasionally right, will get hunted down and killed by the antibodies in a company. Remember, they just won an argument. That means that someone else lost."

(I think he meant “hunted down and killed” figuratively, which isn’t as dramatic as when Saddam Hussein personally shot a senior minister in his government when that minister suggested, quite mildly, that Iraq might want to consider looking for a peaceful settlement of its 1980s war with Iran.) Indeed, just relaying bad news can be hazardous to your career. A study cited by James Surowiecki in The Wisdom of the Crowds found that those who delivered bad news in corporations were tainted, even if they had nothing to do with causing the problem and even if their bosses said they knew the messenger wasn’t at fault. The current emphasis on teamwork can create problems, too. In good conditions, strong teams can function with impressive efficiency. But the bonds of teamwork can make it hard to deliver tough news. Teams tend to be formed of people who resemble each other in many ways, and they become friends. You don’t want to tell your friend that he’s messed up. So, somehow, a balance must be struck. Constructive debate needs to be encouraged without injecting paralysis into the organization. Always remember, however, that the natural tendency is toward conformity, not debate. And, without debate, the consequences can be disastrous for both the organization and its leaders. Take Bill Smithburg, who led Quaker Oats’ $1.7 billion purchase of Snapple in 1994. Although analysts warned at the time that the price could be as much as $1 billion too high, Smithburg saw synergies. Those synergies never materialized. Quaker sold Snapple for $300 million just three years after buying it, and Smithburg was out as chief executive. Reflecting on the failed acquisition several years later, Smithburg said,

"There was so much excitement about bringing in a new brand, a brand with legs. We should have had a couple of people arguing the ‘no’ side of the equation."

Quaker Oats was eaten up by Pepsico a few years later. Sometimes the "no side of the equation" is the one that pushes for change. In this case, be careful not to follow the example of Ed Schwinn, when he was CEO of the business that bore his family name. When a Schwinn team looked at the possibilities of mountain bikes in the 1980s, Ed Schwinn felt that they were a passing fad and argued against major investment in them. Schwinn was the dominant maker of bikes, and he didn’t see any reason that would change. A senior executive felt otherwise and argued his position vociferously. Ed Schwinn adjourned the meeting and said the group would reconvene on the issue in two weeks. They did—after Schwinn fired the contrarian. That decision turned out to be a catastrophic misjudgment. Schwinn (the company) followed Ed Schwinn's intuition and never caught up. The company went into bankruptcy in 1992. Better to follow the example of Alfred Sloan, the legendary builder of General Motors. Sloan once said to a meeting of one of his top committees, "Gentlemen, I take it we are all in complete agreement on the decision here?" Everyone around the table nodded.

"Then," Sloan continued, "I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

Next time you're about to embark on a major initiative, or decide against one, make sure you have a couple of people arguing the "no" side.

We had just finished the national bloggers' panel at the National Workers' Compensation Conference, where one of the things we discussed was how employers can improve outcomes by being more engaged, concerned and communicative with their injured workers, especially early in the claim cycle. I was approached by an attendee who happens to be one of our customers, managing about 150 accounts in our WorkCompResearch Compliance system for his company, a well-known national carrier. He asked a simple, yet critical question. He said, roughly, "All of the people here are big employers, carriers or TPAs. But most of our customers are small employers. How do we reach them with information like this?" Last July, in a similar bloggers panel at an employers association conference, I put that very question to the panel and the audience. It had dawned on me that we were speaking to a very small segment of the overall market, and that most employers simply do not have access to the type of information we were discussing. It is a big concern. According to U.S. Census Bureau data, businesses with fewer than 500 workers accounted for 49% of private sector payrolls in 2011, and those with fewer than 100 workers employed 35%. Businesses with fewer than 20 workers employed 18%. I would suggest that not a single one of the "fewer than 100" employers attends any workers' compensation conference. Ever. And, as difficult as it is to fathom, they probably do not read my blog, either. While I do not have immediate access to supporting statistics, I would lay a week's wages that these employers have a reduced focus on safety, prevention and training, as well as a disproportionate number of workers' compensation claims. And the concept of "return to work" with accommodations is likely nowhere near their radar screens. For small employers, workers' compensation is generally merely a required expense line on their operating statement. They are largely reactive to issues related to the topic. My brother-in-law, a vice president of operations for a small medical equipment start-up in Silicon Valley, called me a couple years back with palpable exasperation in his voice. He asked, "What the hell is an experience mod, and how is it calculated?" I told him that, if he had to ask, it was probably too late, at least for the foreseeable future. Reaching people in small businesses with culture-changing advice and training is difficult, if not impossible. Who in our system could do this? Insurance agents? Doubtful. There is simply not enough incentive currently. I have an agent friend who told me once he won’t even sell comp to any company with fewer than four or five employees because there is little money in it and such companies are a pain to deal with because they mostly have no internal support structures and lean heavily on the agent for HR-style support and information. Brokers? Maybe. These folks deal with the larger side of small and medium-level employers and have a bit more skin in the game. Still, driving useful, method-altering information through that channel will require a paradigm shift. Of course, that is the key. A paradigm shift is needed not just for brokers and agents but for the industry in its entirety.  And, like it or not, the shift probably should start with state regulators, followed closely by carriers. Regulators are the key to driving process and affecting culture, but efforts can start without their immediate intervention. Carriers probably have the best ability to influence small employers across the country. They can do it through dedicated training and education materials, as well as establishing a culture of communication through their supply chains. They can do it by reinforcing positive methods and procedures for safety and, most importantly, can affect the process when a newly injured worker enters the system. I’ve written extensively about what I believe needs to occur within the claims-handling process to improve outcomes for these employers and their injured workers. My ideal culture change involves streamlining processes, empowering claims professionals and improving medical care by rewarding performance -- but mostly relies on vastly improved lines of communications between employers, employees and the professionals who are serving them. Communication that creates a “picture of success” for recovering workers. Much of what I envision cannot occur without regulatory changes, but the idea of a culture of recovery can start with those of us within the industry today. Comprehensive culture change will not be an easy task (if only those small employers read my blog), but it can trickle through the system if the right people and organizations pick up the torch and run with it. Truth be told, via all the blogs and conferences across the country, we are really only reaching a small percentage of large employers, let alone small. Improved process and communication can drive change from the top down and ultimately reach employers, large and small, that unfortunately feed our system all too well. Until employers recognize the critical nature of the topic, they will continue to ignore it. It is up to us to start that change. I’ll be damned. It turns out we are the people we’ve been waiting for after all.

Reports of high-profile data breaches have been hard to miss over the past year. Most recently, it was a breach involving 56 million customers’ personal and credit card information at Home Depot. This is just the latest volley in a wave of sophisticated electronic thefts including Target, Neiman Marcus, Michael’s, P.F. Chang’s and Supervalu. Much like in the other attacks, the suspected culprit in the Home Depot data breach is a type of malware called a RAM scraper that effectively steals card data while it’s briefly unencrypted at the point of sale (POS) to authorize a transaction.  Reports of this type of attack have become increasingly common in the months since the Target breach. Whether the cause is a RAM scraper or an “older” threat like a physical skimmer placed directly on a POS machine used to swipe a credit or debit card, a phishing attack storing customers’ card information insecurely, the result is the same: Credit card data for millions of people winds up in the hands of criminals eager to sell it for profit. How does that process unfold? And how can you – or people you know – get sucked into it? The Basic Process: The journey from initial credit card data theft to fraudulent use of that data to steal goods from other retailers involves multiple layers of transactions. The actual thief taking the card numbers from the victim business’ POS or database doesn’t use it him or herself. First, a hacker – or a team of them – steals the credit card data electronically. Most of these schemes begin in Russia or other parts of Eastern Europe, and much of what you might call the “carding trade” is centered there. Next, brokers (also referred to as “re-sellers”) buy the stolen card numbers and related information in bulk and trade them in online carding forums. A hacker may also sell the card data directly to keep more of the profits, though that’s riskier and more time-consuming than using a broker. These exchanges are found on the dark net (aka the dark web). That’s a part of the Internet you won’t find through Google, where all manner of illegal and unsavory things can take place. Online prices vary depending on:

• The type of card,

• Credit limit (if known),

• How much additional data is available (CVV codes from the backs of cards and associated Zip codes make stolen cards more valuable),

• The card owner’s geographic location (a fake card used in the vicinity of the legitimate card holder is less likely to raise suspicion), and

• How recently the cards began appearing in the carding forums (which relates to the likelihood of card cancellation).

Prices for the individual cards have come down significantly in the past few years because of the sheer amount of records available, though brokers can still do quite well from bulk sales of card data. Despite being on the dark web, many of the brokers conduct themselves like regular online businesses and will provide replacements or the equivalent of store credit if cards purchased from them don’t work. The people who buy the card data from the brokers are called “carders.” Once the carders have the stolen card data, there are at least two distinct variations on the scam: 1) Physical, in-store purchases using fake credit cards. 2) Stolen card numbers used to charge pre-paid credit cards that are, in turn, used to purchase store-specific gift cards (which are less suspicious than general gift cards). Purchases are made online. Variant 1 (“Mystery Shopper”): This variation starts with carders printing up the fake credit cards for use in stores. Once they have the stolen card data, the equipment needed to make the fake cards isn’t that expensive. The carder then usually works with one or more recruiters to find people to use the fake cards (though a carder may do the recruiting himself). The enticement to get people to use the fake cards will generally be in the form of email spam and ads in Craigslist or similar sites offering easy money to be a “mystery shopper” or “secret shopper” as part of a “marketing study” or some other semi-plausible justification. Not surprisingly, the items purchased tend to have high resale value. After the physical purchases are made, the “mystery shopper” can either send items to the recruiter/carder (generally via a secure drop site like a vacant office) or directly to someone who has “purchased” an item via an auction site in response to a posting from the recruiter/carder. If sent straight to the carder, she then auctions the items directly on eBay, Craigslist or an underground forum on the dark web. The people who actually make the purchases with the fake cards may have no clue what they’re involved in (though sometimes they’re active participants in the scheme or simply low-level criminals looking to use the cards for themselves). They are effectively the “drug mules” of the credit card scam, taking the most risk and getting paid the least. You’ve probably seen one step retailers take to try and stop in-person card fraud. On a counterfeit credit card, the numbers on the magnetic strip and the front of the card generally don’t match -- it’s too expensive to create individual fakes. Some retailers have their personnel type in the last four digits on the physical card into the register after the card is swiped. If the numbers don’t match, the card is rejected as a fake. Variant 2 (“Re-shipping”): Rather than making physical cards, in this variation carders use the stolen card data to purchase pre-paid credit cards that are then used to buy store-specific gift cards (Amazon, Best Buy, etc.). As with the “mystery shopper” scheme, recruiters typically use ads and spam emails to entice people, though this time it’s people (especially in the U.S.) seeing “work from home” promises. Sometimes, the recruiters will employ a more personalized approach, even going so far as to start a fake “relationship” with the intended target. Then -- wait, there’s more -- the gift cards are used to purchase items online, and those items are shipped to the people responding to the ads, spam or “relationship” overtures. That’s where the “work from home” angle comes in. The people initially receiving the packages directly from an online retailer are called “re-shippers.” People in the U.S. are used because U.S.-based addresses raise fewer red flags with the retailers. Like the “mystery shoppers,” the re-shippers are the drug mules here (and they are sometimes referred to as  “money mules” or “shipping mules”). And, as with the “mystery shopper” scheme, re-shippers can either send items to the recruiter/carder or directly to someone who has “purchased” the item through an auction site. While this may sound a little convoluted, the shell game-like nature of using one card to buy another and then another makes it more difficult for stores to catch onto this scheme before the purchase has already been made and shipped out.  After that, it’s generally too late.

The 6th US/Canada Forum on Workplace, Mental Health and Productivity, held in Denver, produced a call to action on how employers can make suicide prevention a health and safety priority. Almost 70 CEOs and community influencers participated in the five-hour forum, including senior representatives from RK Mechanical, the U.S. Postal Service, Wells Fargo, Bank of the West, Denver Fire Department and Level (3). Colorado Gov. John Hickenlooper welcomed the guests and applauded their efforts to expand their knowledge and their willingness to take what they learn back to their networks. “Suicide affects three families per day in Colorado, and Colorado is consistently one of the 10 highest states in suicide rates,” the governor said. “The first step in prevention is creating an environment where people can talk about it, including the workplace. Our goal is to build support, and the workplace provides a huge opportunity for prevention efforts.” Larissa Herda, the host and CEO of tw telecom, shared her own experience around family members whose struggles with mental health illnesses have led to suicide. She also echoed the governor’s hope in seeing the workplace as a safe environment for people to feel like they have support and can access help. “Through sharing my own story, I have opened the doors for others in our company to share theirs.” Participants discussed both the human and economic costs of suicide deaths and attempts. International mental health and suicide prevention experts from the U.S., Canada and Australia shared several leadership and programmatic tactics that have helped, such as strategic communication, skill training and mental health resources. “We need to promote the human dignity of people living with mental health conditions. The opposite of isolation is connectedness. The opposite of despair is hope. As leaders and organizations, you can help create these protective factors in the workplace,” said Eduardo Vega, executive director, Mental Health Association of San Francisco. Joel Bosch, chief operating officer of eCD Market, said, "Why do we not talk about mental health in the workplace? Myths and stigma. Business leaders are our community gatekeepers but are often not trained appropriately. There is no way to break stigma through silence. Business leaders are often champions of a cause, and have the ability to create significant change.”

Industry disruptors change the entire industry -- often forever -- and they are coming to workers' comp. Think of Steve Jobs’ invention and Apple’s implementation of the iPod. It turned the music industry on its side. The “smart” iPhone profoundly changed the way we use phones. Land lines have become almost obsolescent and old “Ma Bell” would not recognize the industry. Jobs also disrupted the personal computer industry with the iPad. Sales are down for laptops and portable computers because people rely on the simpler iPad for personal use, for e-reading, for movies and for specific business adaptations. As an example, doctors’ offices now use iPads for data input into EMRs (electronic medical records). iPads and phones even capture credit cards and signatures. A more recent disruptor is Uber. The car-booking company has seriously disrupted the stodgy taxi industry as people find Uber simpler, quicker and more satisfactory. The company doesn't even own cars, yet it was recently valued at $40 billion, in the same ballpark as General Motors, the largest U.S. automaker, whose market capitalization is $53 billion. Disruptors in Workers’ Compensation Everyone agrees workers’ compensation needs updating and improving. Unfortunately, the industry is notoriously resistant to change. What would an industry disruptor create for this industry? Some say the big change needed is to legislate letting the employer opt-out from state regulated systems. Texas and Oklahoma are the change leaders in that effort. A group of employers is working in other states to bring about similar legislation. If well-executed, these efforts could significantly affect the industry. To bring about superior, sustainable change, new applications of technology will be required to monitor consistency, quality and compliance across jurisdictions. The technology is available. Now a unique application is needed, one that everyone loves to use! Loving technology is not a sentiment normally found in workers’ compensation. That is because most still think of technology as tedious data input and mistrust the output. Nevertheless, creative technology could enhance nearly every activity in workers’ compensation. The ultimate goal in any workers’ compensation endeavor is (should be) to optimize the medical care of injured workers at the lowest possible cost. A successful industry disruptor will apply technology in new ways, thereby improving cost and outcome pathways for injured workers and their employers. Any industry disruptor technology will encounter resistance in workers’ compensation. However, everyone can contribute to positive industry disruption by simply being open to change. Creative new use of technology will change the way the workers’ compensation world is managed. Industry disruptors will make sure that happen.