The concept of "consultative selling" revolutionized the world of selling back in the 1980s, and held the stage for almost three decades.

Once upon a time, salespeople were encouraged to be product experts, capable of answering any detailed question about their wares and cheerfully demonstrating the long list of advantages of their offering over the competition's.

"Consultative selling" turned this idea on its head: Instead of memorized presentations and choreographed demonstrations, a salesperson should enter the sales meeting as a consultant — asking questions and letting the customer guide the conversation. By asking questions and probing for customer issues, a salesperson could demonstrate attentiveness, service orientation and a tailor-fitted solution to a customer's needs.

Time For A Change?
These are great qualities — and they've served professional salespeople well for the better part of 30 years. But they are no longer enough. The world has changed and buyers now respond to a very different type of salesperson: the Expert.

Buyers have become more demanding in the buying process. Many have less experience in their own position. Recent studies indicate that what they want is a salesperson who knows enough about the prospect's business to be of value. They want a salesperson who can teach them something, interpret the tea leaves of their own market and guide them.

Which kind of salesperson are you? Here are a few important differences to understand.

1. Experts Tell; Consultants Ask
An expert enters a conversation with a prospect knowledgeable about the buyer's industry, marketplace and competitive position. The expert should be able to speak to what the top business pressures are of the buyer based upon that background with specificity. The old approach of asking, "What's your pain?" or "What are the big issues you are facing right now?" has been replaced with "Organizations in your industry with whom we work are facing these top three business pressures ..."

2. Experts Lead; Consultants Follow
An expert can take a prospect through a process of assessment compared against best practices in the market, to let the prospect know where the prospect stands. Instead of saying, "Where do you want to be?" the expert can ask. "Here is where you are in comparison to others and here is where they are going."

3. Experts Teach; Consultants Learn
An expert shows up in the sales call with insights that are valuable to the buyer regardless of purchase outcome. This gives the buyer additional motivation to take the meeting, because of the promise of stand-alone value.

4. Experts Are Full; Consultants Are Empty
There was a time that showing up with an empty pad of paper to take notes, "learn about you and your business," and ask lots of questions was a sign of respect and openness. Now it looks like a lack of preparation. Buyers expect you to come with answers as well as questions. More than that, they want you to establish value and credentials by leading with the answers.

One Caveat
I have cast this comparison in stark tones to demonstrate the differences — but of course I recognize, as you probably do, that the consultative approach is still an important part of the sales process. It's just no longer enough on its own.

Through questioning, openness and discussion, we can get the important details necessary to craft a solution. If all you bring is knowledge, with little inquiry, you risk being seen as a blowhard — not a trusted advisor.

Let's leave this article with the idea that the world has changed — and that what buyers need now are experts who bring a consultative touch.

As a national insurer of nonprofits we are often asked what do their directors and officers need to know about their fiduciary responsibilities and can they insure for their errors or omissions. Just do an Internet search on "fiduciary duties of nonprofit directors and officers" and be treated to 150,000 articles describing the responsibilities, but only a few that drill down very deeply on the insurance issues.

You'll frequently see references to the duties of care, loyalty and obedience, how the "business judgment" rule can work both for and against directors and officers, and how indemnification is achieved. So once you're up to speed on all that, let's look at how the insurance mechanism fits in.

What It Is, What It Isn't
Fiduciary liability insurance (FLI) is not fidelity bonding that would respond to claims of embezzlement or other criminal activity. For that you need a fidelity bond or employee and volunteer dishonesty coverage.

FLI can cover ERISA liabilities, although ERISA coverage is more commonly found in the bond market.

For the most part, FLI protects the organization, its directors, officers, and employees. It is common in the nonprofit sector for coverage to extend to volunteers and in some cases even to interns and students-in-training. The coverage will attach if a claim is made that the organization or an insured person breached its duty as a fiduciary. Some carriers use the Side A (insured person), Side B (each claim) approach, while others combine all insureds into one form.

There are also a variety of exclusions related to claims by one insured against another. For example, some forms exclude claims brought by or on behalf of the "Organization" (usually a defined term). Others exclude claims by or on behalf of an individual "insured person" (also defined).

In underwriting fiduciary liability coverage in the nonprofit sector, carriers require certain controls be in place including, but not limited to:

• Articles of Incorporation filed with the respective state
• Bylaws have been accepted by the Board of Directors
• Board meetings are held at regular intervals and minutes are on file
• 501(c)(3) status has been granted by the IRS
• State tax exemption status has been granted
• Filing has been completed, where required, with the Registry of Charitable Trusts or similar state entity
• Payroll and other taxes are timely paid
• Workers' compensation is in place for employees
• Reports to regulatory and funding agencies are submitted timely
• Regular review of financial and business dealings to protect the organization's tax exempt status
• Full disclosure of any self-dealing transactions
• Annual review and approval of budget
• Review periodic financial reports at least quarterly
• Annual review of executive compensation
• Ensure that appropriate internal controls are in place

Some of the more common exclusions include:

• Breach of contract (typically found in CGL forms or endorsements)
• Fines, penalties and sanctions
• Punitive damages (unless insurable in the respective jurisdiction)
• Personal profit or advantage
• Fraud or dishonesty
• Costs of complying with equitable relief, including but not limited to, injunctions, restraining orders or restitution

It is this last exclusion that can be the most troublesome. While fiduciary claims are rare in the nonprofit sector (see below), the most common involve audits or investigations by grantors and funding agencies that conclude funds were improperly used or distributed. If the claim is for restitution, the agency will need to manage that with its own funds.

And From The Claims Files
Data from over 23 years of directors and officers claims files at the Nonprofits Insurance Alliance Group indicates the very low frequency of fiduciary liability claims.

Of the 1,633 claims reported during that time, 85% involved employment liability claims, including ADA discrimination. That's a whole other article.

Another 7% were breach of contract claims, for which we provide defense costs only coverage.

Wage and hour claims totaled 5%, for which we also provide defense costs only coverage.

A mere 3% (52 claims over 23 years) were for fiduciary liability. Interestingly, many of those involved investigations by state attorneys general. None of those involved any loss payments and only one involved defense costs over $5,000. Only one claim required a loss payment to a client who had improperly been denied services.

So In Conclusion
In order to attract responsible board members, nonprofit agencies need to have directors and officers liability coverage in place that includes fiduciary liability. We recommend that such coverage also include:

• Defense costs payable as they are incurred (rather than through a reimbursement mechanism)
• Defense costs in addition to the liability limits
• Broad definition of who is an insured
• Broad employment practices liability coverage
• No deductible (other than for large nonprofits)
• Broad definition of what constitutes a "claim"
• Event trigger or occurrence basis rather than claims made

With that said and in place, the good news based on our data is that fiduciary liability claims are very infrequent in the nonprofit sector and generally cost little to defend.

Are We In A Hard Market?
According to MarketScout, the average property/casualty rate increased by 5% from 2011 to 2012, with this same upward trend continuing into 2013. And yet, just last week the Council of Insurance Agents & Brokers (CIAB) reported that rate increases in the second quarter did not keep pace with the previous two quarters. CIAB believes the hardening market is moderating. Fitch Ratings also weighed in, noting that the increased premiums in Q1 and Q2 are helping, but they "believe this trend is likely to diminish as strong capital levels and ample underwriting capacity promote market competition." However, it's unlikely that short-term price increases will be enough to make up for several years of pricing inadequacy. The reality is that, while carriers are seeing much lower returns on investment income, there is an increase in total surplus dollars relative to total premium. This dynamic makes sustaining a hard market difficult and therefore pricing competition for the best risks continues to be fierce.

From an underwriting perspective, there's some good news to report as well as mixed results when you look more closely at specific lines of business. Overall, the Property & Casualty market saw improvement in underwriting performance with combined ratios falling to 103.2 in 2012, down from 108 in 2011. Within specific lines of business, workers' compensation also improved to a combined ratio of 109 in 2012 compared to 115 in 2011. The homeowners market, a historically volatile line with wide performance swings year-to-year, has an average combined ratio of 113 from 2008 to 2011. Bottom line, there's still more work ahead to make underwriting profitable.

The gains in underwriting performance may signal an intentional focus from carriers to counter the significant losses in investment income. But, making up for these losses is a long-term proposition that cannot be remedied quickly. Recently, the CEO of a global insurer compared declining investment returns to one of the biggest catastrophic weather events. "The lack of investment income continues to be an issue that the industry hasn't fully addressed," the CEO said. "We call it 'the hidden catastrophe,' equivalent to more than a Katrina-sized hit to profitability every year relative to the long-term baseline."

Tackling Economic Stagnancy
A sluggish economic recovery affects insurance premiums. For commercial lines carriers, the slow growth in payroll means that overall exposure is not increasing at the same rate as medical inflation. Various estimates put medical inflation in the 4% range for 2012 and payroll growth under 2%. This puts pressure on both claims and underwriting. Underwriting must be more stringent and selective to avoid unnecessary loss on the front end while mitigation strategies need to improve in claims. These new challenges require advanced tools and methodologies that provide real-time information and relevant data in order to reduce the insurer's risk, and simultaneously generate more profit per policy.

Regulation Woes
According to the 2013 KPMG survey, 60% of executives stated that regulatory and legislative pressures served as the most significant inhibitor of growth in the coming year, a 13% increase from the 2012 survey, and 19% from 2011's. Contrarily, 59% of executives noted cost as being their primary growth concern in 2011. Healthcare and tax reform are two of the most significant regulatory pressures weighing down on insurers, with over half of those surveyed naming the Affordable Care Act as the most significant individual measure.

The non-renewal of the Terrorism Risk Insurance Act (TRIA) poses a similar challenge, as the probable addition of a terrorism premium to policies will put added pressure on discretionary pricing, especially for the better risks.

"Insurers have experienced a significant shift in the marketplace; in just two years, industry executives have abruptly diverted their attention from pricing concerns to regulatory matters," said Laura Hay, national leader of KPMG LLP's insurance practice, as reported in the 2013 KPMG survey. "This turnabout is even more significant when you consider that economic conditions have only slightly improved during this time period, so the combination of these two factors creates an exceptionally challenging market."

Further to this point, the head of KPMG's U.S. insurance regulatory group, David Sherwood, added to the survey news saying, "Regulators continue to ask tough questions and regulatory intrusion is set to increase in the coming years. More than ever, regulations and agendas established internationally, in Washington, as well as in local jurisdictions, have as much influence on the industry as market conditions and consumer confidence."

Data Access & Literacy
Plain and simple: big data helps carriers leverage empirical evidence in their decision-making. Combining data with analytics allows underwriters to take a holistic approach to their craft, which exponentially increases the efficacy of the process.

According to the same KPMG study, only 55% of execs claimed that their company demonstrated advanced data and analytics literacy. That means that just under half of U.S. insurance companies are still not using big data to its full potential, crippling their ability to improve underwriting performance. If the other 45% wants to stay competitive, they need to make analytics a top priority moving forward.

As carriers increase their "data literacy", they will become more concerned about issues like selection bias. When carriers are limited to a selective or small data sample, it is impossible to draw accurate conclusions. As an example, if a carrier does a great job selecting the best roofing companies to insure and they model future policy performance using only their own data, the analysis will conclude that all roofing companies are good risks. Intuitively we all know that's not true — it's a simple example to illustrate the importance of a diverse and large data set when making important business decisions.

Big data is now a board level conversation, and carriers are being asked: "What is your big data strategy?" When that question arises in your meeting, will you have a good answer?

Talent Crisis
Not only do you need advanced data and analytics to meet the financial challenges of the current insurance climate — you need these more sophisticated tools to keep your company competitive in the employment race. In addition to the increases in risk-pricing competition, the competition for the top mindshare of the best agents is increasing substantially. The industry is estimated to have 400,000 positions to fill by 2020, and 20 percent of underwriters will retire in the next few years. This up-and-coming generation of workers expects to be equipped with sophisticated tools and advanced technologies in the workplace. Young people have been raised in a technologically driven world and are inherently tech savvy; the industry must match their technological expectations if we hope to recruit the next generations' best and brightest. The more technology savvy carriers will be able to use this as a recruiting tool.

Of course, implementing data and analytics across your organization is not something that can be done overnight. Do not be afraid to start small. Whether your company already has some form of predictive analytics in place, or you're just at the conceptual stage, you can build on early wins to develop measurable results in securing organizational buy-in. Good advice is to start small and build from there — don't cross your fingers, go all-in and hope for the best. The best advice is to begin now, this is no time to sit back and wait, letting the fast-paced changes in the industry pass you by.

The cost of providing workers' compensation insurance is one of the top issues for companies of all sizes and across industries. Because it is regulated at the state level, companies need to stay abreast of issues in any state in which they do business. To date in 2013, nine states have seen significant workers' compensation reform bills signed into law. Highlights from the legislation in each of the nine states follows.

Oklahoma
Oklahoma's workers' compensation reform laws have received the most attention lately because of the inclusion of an opt-out provision, known as the Oklahoma Option. This legislation takes effect on February 14, 2014, and applies only to injuries occurring on or after January 01, 2014.

The ability to opt out has been a significant component of the Texas workers' compensation system for a number of years. Wyoming also has a limited opt-out provision. Approximately one-third of employers in Texas participate in the opt-out, including many large national retailers. The significant cost savings employers saw in Texas was one of the driving forces behind the Oklahoma Option.

The Oklahoma Option's application form is significantly different from that in Texas. Employers that opt out in Texas cannot simply endorse their excess liability policy to cover Oklahoma. Rather, employers in Oklahoma that choose the option are required to provide a written benefit plan that serves as a replacement for the workers' compensation coverage. This benefit plan must provide for full replacement of all indemnity benefits offered in the workers' compensation system. The plan can be self-insured, or coverage can be purchased from a licensed carrier. At this time, carriers are developing policies to provide both first-dollar and excess self-insurance coverage for the benefit plans under the Oklahoma Option.

The key component of the Oklahoma Option for employers is that it gives them full control of the medical treatment through their benefits plan. More than 60% of workers' compensation costs are medical treatment. With full medical control, employers will be able to ensure that injured workers receive the appropriate medical care from medical providers who follow widely accepted occupational medicine treatment protocols. This will eliminate doctor shopping, which is a significant cost driver in many states. The hope is that full employer medical control will eliminate unnecessary treatment, produce shorter periods of disability, and ultimately improve medical outcomes for the injured workers.

Unlike the Texas opt-out, the Oklahoma Option does not permit employees to pursue a negligence action through the civil courts. Workers' compensation is usually the exclusive remedy for an injured worker for any work-related injuries. In other words, the employee cannot usually pursue a separate tort action in civil court. In Texas, injured workers for employers who opted-out are free to pursue remedy in the civil courts. With the Oklahoma Option, any litigation must proceed through the normal workers' compensation administrative processes. This exclusive remedy has a narrow exception for injuries that were intentionally caused by the employer. Attorneys will have to overcome this very high burden of proof in order to pursue a civil complaint for a work injury.

Another difference between the Oklahoma and Texas opt-out scenarios is that the Oklahoma system is backed by a guarantee fund, which provides benefit payments in the event that a carrier or self-insured employer becomes insolvent and is unable to continue paying claims. The Oklahoma Option coverage offers guarantee funds for both self-insured employers and carriers. These are separate from the workers' compensation guarantee funds.

The Oklahoma reforms also include the switch from a court-based system to an administrative system. Oklahoma was one of the few remaining states where all workers' compensation disputes were adjudicated in the civil courts. Civil litigation is both very expensive and time-consuming. This change to an administrative system should reduce employer costs associated with litigation and produce more timely decisions, which are key elements of controlling claims costs.

Overall, the changes made in Oklahoma are positively viewed by employers and should improve Oklahoma's ranking as a top ten state for loss costs.

Delaware
The recently passed reform bill in Delaware was designed to control medical costs and encourage return-to-work efforts.

Medical cost savings will be achieved by:

• Suspending for two-years the annual inflation increase on medical fees.
• Lowering the inflation index on hospital fees.
• Creating new cost-control provisions on pharmaceuticals.
• Establishing a statute of limitations for appealing utilization review decisions.
• Expanding the fee schedule to capture items that were previously exempted.

Other changes included more emphasis on return-to-work efforts, which will be considered in calculating the workplace credit safety program.

These changes are expected to lower employer workers' compensation costs in Delaware.

Florida
The use of physician-dispensed medication has been a significant issue in Florida workers' compensation. Physicians were charging several times what the same medication would cost from a retail pharmacy, and the costs were not regulated by a fee schedule. SB 662, which was recently signed into law, creates a maximum reimbursement rate for physician-dispensed medication of 112.5% of the average wholesale price, plus an $8 dispensing fee. Although the bill is expected to produce cost savings for employers in Florida, the fee schedule amount for physician-dispensed medications is still significantly higher than that for the same medications at retail pharmacies. There are savings; however, this will continue to be a cost driver in the state.

Another issue impacting workers' compensation costs in Florida is that the First District Court of Appeals, in two separate rulings, has found sections of the workers' compensation statutes unconstitutional. Under the Westphal decision (Bradley Westphal v. City of St. Petersburg, No. 1D12-3563, February 2013), the court decided that the 104-week cap on temporary total disability (TTD) benefits was "unfair" and violated the state's constitutional right to access the court and "receive justice without denial or delay." Injured workers are currently limited to 260 weeks of TTD benefits, which was the cap under the prior law. There is concern that the arguments used in Westphal could also be used to invalidate the 260-week limit. The Court has agreed to review this decision en banc, so the ruling is not final.

In the Jacobson case (Jacobson v. Southeast Personnel Leasing, Case 1D12-1103, June 5, 2013), the court found unconstitutional a section of the Act that prevented injured workers from hiring an attorney for motions for costs on disputed claims, as this violated their right to due process.

The Jacobson case is very narrow in scope and has limited impact, but the Westphal decision has potential to significantly increase employer costs. With these cases, there is growing concern in Florida that attacks on the constitutionality of the workers' compensation statutes will continue, further eroding prior reforms that produced significant employer savings.

Despite savings produced via the fee schedule for physician-dispensed medications, if the court upholds the decision in Westphal, the associated costs will outweigh any savings from the recent legislation.

Georgia
Legislation passed in Georgia should have a positive impact on workers' compensation costs for employers. Effective July 1, 2013, medical benefits for non-catastrophic cases are capped at 400 weeks from the date of accident, whereas previously, injured workers were entitled to lifetime medical benefits for all claims. This change significantly shortens the claims tail for non-catastrophic cases. By eliminating exposure for lifetime medical coverage on all claims, it also reduces the potential exposure on any Medicare Set-Aside, as Medicare's rights on a workers' compensation claims are confined to the parameters of the state law.

In order to receive this concession from labor on the medical costs, employers agreed to increase the indemnity rates for temporary partial disability (TPD) and TTD. The indemnity rate increases are as follows:

• TPD: $334 to $350 for a period not exceeding 350 weeks from the date of injury.
TTD: $500 to $525 per week for a period not exceeding 400 weeks from the date of accident.

Indemnity rates in Georgia had not increased since 2007.

Another change involves a requirement that an injured worker make a legitimate effort to return to work when a modified-duty position is offered. The employee must complete a full work shift or eight hours, whichever is longer. If the injured worker feels that he or she is unable to work beyond that, benefits must be reinstated and the burden is on the employer to show the work offered was suitable. If the employee does not complete that full shift, then the burden of proof does not shift back to the employer and the employer can suspend benefits.

The cost savings from capping the medical benefits is expected to slightly outweigh the cost increases associated with the indemnity maximum rate increase. Thus, the net impact to employers should be a slight reduction in workers' compensation costs.

Indiana
Research indicates that workers' compensation medical fee schedules lower medical costs. In Indiana, legislation was passed that establishes a hospital fee schedule at 200% of Medicare rates. This is consistent with other states that base their fee schedules on Medicare rates. The bill also capped the price for repackaged drugs and surgical implants. Since repackaged drugs and surgical implants were previously outside the fee schedule, these caps will help to reduce employer costs. The fee schedule takes effect on July 1, 2014.

The legislation also included changes to indemnity benefits:

• Gradual average weekly wage (AWW) increase of 20% over three years, beginning with a 6% increase on July 1, 2014, and up to 20% over current AWW by July 1, 2016.
• An increase of 25% in permanent partial impairment or disability (PPI or PPD), from $1,400 per degree from 1 to 10 degrees to $1,750, gradually over three years. Higher PPI ratings, above 10 degrees, increased from 16% to 22% incrementally over the same period.

Indiana had not increased its maximum indemnity benefit for many years, so the general consensus is that the increase was overdue.

Given that medical costs typically account for 60% of the total workers' compensation expenditure, the decrease in medical costs from these reforms should offset the increase in indemnity benefits. The expectation is that this legislation will produce a small degree of savings for employers.

Minnesota
Minnesota joined most other states in amending its statutes to allow for mental-mental injuries (a psychiatric disorder without a physical injury). The law provides that the employee must be diagnosed with post-traumatic stress disorder (PTSD) by a licensed psychiatrist or psychologist in order to qualify for benefits. However, PTSD is not recognized as a work injury if it results from good faith disciplinary action, layoff, promotion/demotion, transfer, termination, or retirement.

Other changes include a cap on job development benefits and a restructuring of how attorney fees are paid. There is also an increased cost-of-living adjustment (COLA) for permanently disabled workers and an increase on the maximum indemnity rate. Lastly, rulemaking authority is now in place to include narcotic contracts as a factor in determining if long-term opioid or other scheduled medication use is compensated.

The job development benefits and narcotic use in Minnesota are significant cost drivers, so these are positive limitations for employers. However, the increase in indemnity rates, COLA, and coverage of mental-mental claims all add to employer costs. Thus, a slight overall increase in claim costs is expected as the result of the legislation passed in 2013.

Missouri
Missouri's reforms were focused on addressing the insolvent second injury fund and returning occupational disease claims to the workers' compensation system.

The Missouri Second Injury Fund has been plagued by problems for several years. It was heavily utilized by injured workers to supplement permanent partial disability awards. The fund became insolvent when prior reforms capped assessments that were supporting it while not reducing the claims that were covered by it. Under these new reforms, which are effective January 01, 2014, PPD claims are excluded from the second injury fund. Access to the fund will be limited to permanent total disability (PTD) claims where the total disability was caused by a combination of a work injury and a pre-existing disability. In addition, employer assessments to cover the funds' liabilities are increased by no more than 3% of net premiums. These increased assessments expire December 2021.

The new law also indicates that occupational diseases are exclusively covered under the workers' compensation statutes with some exceptions, which are noted below. The Act also establishes psychological stress of police officers as an occupational disease under workers' compensation.

Bringing occupational disease claims back under workers' compensation came at a cost. Trial lawyers in Missouri had significant influence in crafting this legislation. The act defines "occupational diseases due to toxic exposure" and creates an expanded benefit for occupational diseases due to toxic exposure other than mesothelioma — equal to 200% of the state's average weekly wage for 100 weeks to be paid by the employer. For mesothelioma cases, an additional 300% of the state's average weekly wage for 212 weeks shall be paid by employers and employer pools that insure mesothelioma liability. These expanded benefits are in addition to any other traditional workers' compensation benefits that are paid. Also, these enhanced benefits are a guaranteed payout to the injured worker or his or her estate. It is very unusual to see guaranteed payout of benefits in workers' compensation, so there is potential that this will lead to an increase in toxic exposure claims being filed under workers' compensation.

In addition, employers will no longer have subrogation rights on toxic exposure cases. This is a potentially significant issue. Often, attorneys do not bother filing for workers' compensation on such cases, as their focus is on larger awards available on the tort side. Attorneys know any workers' compensation benefits have to be repaid under subrogation. There is concern from some employers and defense attorneys that eliminating subrogation rights will actually encourage filing more toxic exposure claims under workers' compensation.

The establishment of a "Meso Fund" is also creating confusion. Employers must opt into this fund, and it is supported by additional assessments against the employers in an amount needed to cover the liabilities. If an employer does not opt into the Meso Fund, their liability for a mesothelioma claim is not subject to the workers' compensation exclusive remedy and action may be pursued in the civil courts. Most employers do not have exposure to mesothelioma claims, so it is expected that the only employers who will join the Meso Fund are those who frequently see such claims and are looking to spread their risk to others.

Between the increased assessments, expanded benefits for toxic exposure, and the loss of subrogation on toxic exposure cases, it is expected that this legislation will increase costs for employers in Missouri.

New York
Governor Cuomo has indicated that the workers' compensation reform legislation he recently signed into law will reduce employer costs by about $800 million annually. These savings are derived primarily by streamlining the assessment collection process and eliminating the 25-a fund and its associated assessments. New York's workers' compensation assessments are the highest in the nation, so employers welcome any relief in this area.

Many employers are questioning whether this legislation provides any real savings. Because the streamlining process is not known, whether or not assessments will be significantly lowered is still unclear.

The 25-a fund covered claims that were reopened for future medical treatment. Eliminating this fund does not save employers money. As occurred when the 15-8 fund (second injury fund) was eliminated under the last reforms, the claims previously paid by these funds will now be paid by employers directly, so there is no net savings realized. In addition, running off the 15-8 and 25-a funds will take several years, so the assessments — in particular those for the 15-8 — will continue. Because of the continued assessments, shutting down these funds will actually increase employer costs in the short-term. The long- term impact should be cost neutral, with the employers paying the claim costs directly, instead of through assessments.

Finally, the minimum weekly indemnity benefit was increased from $100 to $150. This will have a negative impact on employers who hire part-time workers earning near the minimum wage.

Until the impact of the streamlined assessments is known, it is impossible to quantify the overall impact this bill will have on employers. However, after the legislation passed, the New York Insurance Rating Board recommended a double-digit rate increase for the second consecutive year, indicating that they are skeptical the law will produce significant savings.

Tennessee
Tennessee also moved its workers' compensation dispute resolution process from a court-based system to an administrative system, leaving Alabama as the only state that still uses the trial courts for all such litigation. As mentioned in regard to Oklahoma, this should reduce employer costs associated with litigation and provide more timely resolution of disputes.

Tennessee also amended its law to provide for strict statutory construction of the Workers' Compensation Act. The law previously required that close disputes be adjudicated in favor of the injured worker. The switch means that the administrative courts no longer can favor either party and must strictly follow the statutes. In theory, this should lead to a much narrower interpretation of the statutes and reduce the courts' expansion of what is covered under workers' compensation. However, strict construction can work against the employer if the language in the statutes is vague. For example, several years ago Missouri switched to strict construction, which resulted in some unintended consequences. The courts in Missouri issued many decisions that were unfavorable to employers because the statutes in Missouri did not strictly indicate that occupational disease was subject to the exclusive remedy of workers' compensation or that permanent total disability benefits stopped at the death of the injured workers.

Calculation of permanent partial disability (PPD) has also been changed in the new Tennessee law. The multipliers for not returning an injured worker to employment have been eliminated in favor of a system based primarily on the impairment rating. Overall, PPD is expected to decrease under the new system. Until cases are adjudicated under the new system, however, this remains to be seen.

Tennessee also now requires a higher burden of proof on causation. Employees must prove that the workplace is the primary cause of any injury, meaning that the employment contributed more than 50% percent in causing the injury. This is expected to significantly reduce claims where an employee's pre-existing conditions are the main cause of the work injury.

Finally, a medical advisory committee was created to develop treatment guidelines for common workers' compensation injuries. In other states, these treatment guidelines have helped to lower medical costs. Until these guidelines are actually in place, the exact impact is unknown.

The workers' compensation legislation in Tennessee was designed to make the state more attractive for businesses. Employers should see lower costs as the result of the reforms.

Pending Legislation
At the time of this article, some state legislatures were still in session with pending workers' compensation bills. It is important for companies to stay informed on state-level changes to workers' compensation laws as they can have significant impact on costs and approaches to managing this key risk area.

Author's Note: I would like to thank members of the National Workers' Compensation Defense Network (NWCDN) for their assistance with this article. They are a tremendous resource in my efforts to monitor workers' compensation developments nationwide.

• How many prospects in your pipeline have been there longer than 15 months without an order? Fifteen months may be the wrong window, but there is a period after which the prospect is just an expense, not a real opportunity.
• How many of your clients violate "The No Asshole Rule?" Determine how they became customers and then figure out how to avoid those prospects in the future.
• Do you have a threshold for your salespeople as to how many prospects they can have active in their pipeline at any one time? Salespeople can be blocking real activity by "claiming" prospects when they haven't made progress after a defined period. They can't land the opportunity and your company is not landing another client either because your salesperson is tied up in a dead pipeline.

Remember Y2K?
"January 1, 2000, that is the day that was to change all of our lives. That was the day that the computers on which we all depended would fail us. That was the day that all of our luxuries of daily life would crumble, and we would be once again forced to live without electricity, running water, heat. The great Y2K scare is what it was called. The scare was that all of our computer systems around the world would cease to function on December 31, 1999."¹ They did not.

Drawing A Parallel In Workers' Compensation
The hype and fear of Y2K were paralyzing for some and organizations spent large sums of money to reprogram computers in preparation. Indeed, there is far less anxiety about the veracity of medical provider data in Workers' Comp claims and bill review systems. Yet, medical provider records in Workers' Comp are just as lacking as the year date in systems prior to 2000 and the ramifications could actually be consequential.

Opportunity Cost
The Y2K issue prior to the late 1990's was caused by limited disk space that was conserved by using only two digits for the year. The number of bytes that would fit on a screen and in the memory of the machine was limited. On the other hand, the cause of limited medical provider data is simply a matter of traditionally paying the bill efficiently. Only name, address, and Tax ID is needed. However, inadequate and inaccurate medical provider data is opportunity cost for the industry.

New Applications
No longer is the industry interested in using medical provider information for bill payment only. Provider records in systems are key to evaluating provider performance beyond direct fees for service. Medical providers impact return to work, indemnity costs, claim duration, and other factors. The indicators can be found in the data.

Who Knew?
Medical provider records have recently risen to the level of essential information for quality and cost control. In order to evaluate individual medical providers, medical groups, and facilities, the data in provider records must be non-duplicative, accurate, and complete. Yet, most databases contain multiple records for the same, and presumably the same provider. Moreover, the records are incomplete, especially regarding unique identifiers such as state license numbers or NPI (National Provider Identifier) numbers that distinguish individuals.

Duplicate Provider Records
One of the major problems found in most Workers' Comp data is duplicate medical provider records. Duplicates are a problem because the records for an individual are dispersed over multiple records and can only be evaluated separately rather than collectively. The cumulative data for a provider cannot be assessed until duplicate provider records are merged.

Duplicate provider records occur for many reasons. Some organizations simply add a new provider record to their database when a new bill is received, without checking to see if the provider already exists in the data. This is simple to correct administratively, by requiring data entry persons to check the data for the existing provider. A more reliable solution is to create systems with search and select utilities that limit "add" authority. However, duplicate records occur for other reasons as well.

Duplicate medical provider records can also occur when the same provider is added to the database, but the name is spelled differently, a different suffix is used, and when initials or abbreviations are entered differently. Computer systems read these as different and allow adding the new one. Similar address inconsistency has the same result. Using Ste, Ste., and Suite might result in three separate records for the same person or entity. The solution is using basic record search and select from a drop down list. Moreover, correcting the existing data by scrubbing the database is worth the time and cost.

Optimize Medical Provider Records
Tax ID, so important to paying a bill is nearly useless when evaluating medical provider performance because multiple persons often use the same Tax ID. Establishing a critical mass of data associated with one provider is difficult, and duplicate records simply dilute the information further. Certainty about individual identity is critical and the only way to achieve that is with state license numbers.

License Numbers
Unfortunately, NPI numbers, established by the CMS (Centers for Medicare and Medicaid Services) are abused by some. Notorious medical providers apply for and receive multiple NPI numbers. State license numbers are the most reliable and should be added to provider records in databases to differentiate individuals.

Medical Specialty
Including medical specialty in the provider record increases its value exponentially. The most accurate, fair, and illuminating evaluation is comparing peers. Comparing neurosurgeons to dermatologists on some performance indicators makes little sense. Pain specialists, for instance, usually receive complicated cases late in the game and should be compared to other pain specialists, not those who treat acute injuries. Medical specialties are vital to evaluating performance accurately.

What To Do
While it may not be Y2K, the impact of poor data might be greater for Workers' Comp organizations. Systems should contribute to medical cost management intelligence. However, many cannot because of data quality. Scrub and optimize existing data and establish protocols that prevent continuation of status quo. Outsourcing to a third party specialist is easy and the return on investment certain.

¹The Y2K Scare

Most of the dust has now settled around the State Exchanges. Last week the New York rates were finalized and with most of the other states, rates came in lower than anticipated. The Department of Health and Human Services (HHS) released an analysis¹ suggesting that rates were 18% lower than anticipated. The national press has been in a frenzy as the public is trying to determine what all of this means. This article will discuss several of the issues and try to put them in perspective.

So What Are The Facts?
Are the rates actually lower? The HHS article demonstrates that yes, rates are coming in lower than previously projected rates even by the Congressional Budget Office (CBO). However, the situation is not quite the same as alluded to. For example, the study compared the "lowest rate" with the projected or forecasted rate. In the recently released rates for the State of New York, rates for the silver plan in New York City ranged from a low of about $350 to a high of nearly $700, a wide range. The HHS article compared the lowest rate in a plan type and compared that to the CBO projection. If the low in New York was $350 and the high $700, one might assume an average rate of $525 (i.e., (350 + 750)/2 = $525). Comparing $350 to the projection gets a different answer than comparing $525 to the projection. For example, if $350 is 18% lower than the projection, $525 is 123% of the projection, a much different story than presented.

Why Do The Rates Vary So Much?
Rates are based upon a large number of specific and sometimes hard to define actuarial assumptions. Some of the health plans used different assumptions than others resulting in different rate levels. Some of the key assumptions are:

• Health care provider discounts and also average cost of those providers in the network
• Care management approach and effectiveness
• Required expense and margin loads
• Assumed health status of population to be covered
• Assumed health care inflation and/or trend assumption
• Specific plan design
• Prior experience with individuals and small groups

There are other assumptions that are included, but the above list describes most of the important ones. If a particular health plan has better than average discounts with providers it is likely that their premium would be lower than a plan with lesser discounts. If the providers included in the network have a lower average cost than a competitor's network, the premium would likely be lower than the competitor. If a health plan had more effective care management practices than their competitor their rates might be lower. The list goes on. In addition to actual measured performance, some of these differences might be based upon perceived value and/or differences.

Although actuarial science is an objective science, different actuaries might have different opinions on the same issue and could apply different judgment when the data is incomplete or questionable. As a result, rate differences might occur as a result of different actuarial opinion.

The nature of a specific health plan can also lead to differences. One example of this is the rate development in one of the states our company was working on. One of the major players in the market attempted to negotiate more favorable contracts with its provider network. The best attempt at negotiating with a highly desirable health system resulted in a contract that paid that provider about 115% of Medicare payment rates, an improvement from their current contract. A competitive health plan in that same marketplace contracting with that same provider was able to negotiate a contract at close to Medicaid rates, considerably less than what the other carrier had achieved. A very surprising result that we had to investigate further to understand.

The first carrier was a major commercial health plan. The second was a health plan that served Medicaid beneficiaries. Their current contract paid close to Medicaid rates, and since the Exchange was going to attract Medicaid-like enrollees they were able to negotiate a rate close to their current rates, but a little higher. The large commercial carrier at the same time was not able to negotiate anywhere near that rate discount but was pleased to be able to get an improvement. This reimbursement difference alone would contribute to at least a 35% - 50% rate differential. Examples such as this have occurred through many of the exchanges and have led to many rate differences.

In addition, some plans have proposed "narrow networks" where providers agreeing to significant discounts and which have demonstrated performance advantage are included in the network. This has resulted in favorable rates in many situations. Some plans have used "broad networks" where almost any provider is included in the network. The exchange has no requirement about breadth of network. Individuals signing up for coverage in the exchange are going to have to carefully assess what providers are included in the networks. The lower premium rates might be the results of narrower networks with limited access.

In summary, the news has been more encouraging than expected, at least by many; however, there are many idiosyncrasies that need to be considered before making a final judgment regarding the Affordable Care Act and the exchanges. Rates will be available October 1, assuming no further delays, and then we will be able to make final assessments.

¹ ASPE Issue Brief: Market Competition Works: Proposed Silver Premiums in the 2014 Individual and Small Group Markets Are Nearly 20% Lower than Expected.

It is time to revisit and re-evaluate the value of this statutory condition (L/C 3208.1), which is rapidly becoming yet another undue burden on both employers as well as the workers' compensation system. Cumulative Trauma claims are currently being used, and in many instances abused, by disgruntled employees who are no longer on the payroll. By filing Post-Termination Cumulative Trauma claims, employees are circumventing the legitimate needs of businesses to make personnel decisions based on the employer's current financial situation and needs.

One need only look at the increase in Cumulative Trauma claims that are being filed after an employee has been laid off. While there has been no specific injury that they can point to, many are now claiming that "work" has worn them out and that they are therefore entitled to even more money than that which was bargained for as a part of their employment agreement.

I would not argue that there are no real and viable events that can lead to a compensable situation. Asbestosis would be the best example of an occupational disease that was unknown to either management or their employees for many years. Litigation over asbestosis has been ongoing since then, and I believe that the compensation awarded to injured workers in such cases is justified.

However, when an employee who is hired to do a job that produces no discernible injuries and who has been laid off for legitimate, non-discriminatory reasons is able to work around the system by claiming a cumulative injury, it is time to reassess the value of that part of the Labor Code. We must decide if both parties to this equation are being properly served. Or, is this an abuse of the system that has been allowed to fester too long?

As a starting point for this discussion, when someone is hired for a job whether it is for either brain or brawn, the employer is taking on the whole person as he/she finds them. When the employee arrives at the jobsite, he/she does not simply place their body in the corner to rest while some mysterious spirit does their job. Employers hire the entire package as he/she finds them and is responsible for same. I would then point out that whether or not we like it, all of us are "wearing-out" as the years pass. The question then is, "Why should an employer be responsible for the normal aging process vs. being responsible for a specific injury?" I argue that they should not.

I therefore offer three possible options for consideration. Any or all of these will allow legitimate cumulative injuries to be raised as part of the work bargain while at the same time making employees responsible for their own "wearing out."

• Take "cumulative" claims out of L/C [Section 3208.1(b)] so that it reads: "An injury may be either specific or cumulative occurring as the result of one or a series of incidents or exposure which causes disability or the need for medical treatment" and then remove cumulative trauma from L/C 5412 and place it under 5411.

  This will allow employees to file a cumulative trauma claim just as they would a specific injury. This would also place the burden of proof on the employee to show, just as they must now with a specific injury. In other words, what extraordinary events of employment occurred thereby showing how this cumulative trauma is more than just part of the normal "wearing out/aging" process we all face every day.

• Change the definition of a Cumulative Trauma injury to more closely mirror that of psych/stress claims (L/C 3208.3). In other words, let the employee show how the preponderance of actual work, absent the normal aging process, had caused a "disability" which should be covered.
• Since the employer is hiring the entire package, we should set up a "depletion" allowance funded by the employee. There should be a percentage taken from each dollar earned which is placed in a fund similar to a 401K. It will belong to the employee and will be portable so that it follows him/her throughout their working career. At the time they become eligible for Social Security, they would have access to this additional fund of dollars. This would result in taking the burden of the normal aging process off the backs of employers.

Regardless of which of these or any others the legislature feels would be the best solution to this growing problem, the real point is that this is currently just another further drain on employers and therefore the California economy and needs to be addressed.

Ovum Publishes Report On Creating An Insurance Predictive Analytics Portfolio
If the past four years are a reliable guide, the insurance industry will face complexity and even chaos in the coming months and years. Insurers need to be concerned about a future which could promise "black swan" events (those that are unpredictable, infrequent, and have a severe effect), the quickening pace of customer-driven commerce, the continuing spread of the digital economy, and the annual occurrence of severe weather events historically forecast to happen only once a century.

Insurers already know that the future holds tightening regulation, demanding customers who expect a better-quality experience, aging populations, and economies still weakened by the financial crisis. Ovum's recently published report Creating an Insurance Predictive Analytics Portfolio discusses the importance of insurers using predictive analytics to prepare for future market challenges and opportunities. We also discuss the types of quantitative professionals that insurers need, data sources and data management issues, and the areas in which insurers should apply predictive analytics.

Many Opportunities Exist For Insurers To Improve Their Competitive Position With Predictive Analytics
Where to use predictive analytics is limited only by the creative imagination of the staff responsible for its application. Ovum suggests that insurers consider creating predictive analytics initiatives in the following areas, to achieve the example objective listed. More objectives and units of analysis for each initiative are detailed in the report.

• The insurance company itself as the focus of the initiative: To determine which markets to enter or leave.
• Marketing: To create a portfolio of customized marketing offers.
• Product development: To create the best product for each channel.
• Channel management: To determine which insurance agencies to appoint.
• Customer acquisition/retention: To estimate each customer's lifetime value to shape target market initiatives.
• Customer services: To estimate retirement income for each life insurance customer.
• Litigation management: To estimate litigation costs for each claim as it is reported.
• Claim management: To determine the best way to reduce loss expenses/combined ratio for each line of business and each selling agent or claims adjuster.
• Risk management: To estimate potential losses for the book of business as each new customer is added.
• Cost control: To determine how the cost levers might change for different company governance structures.
• Underwriting management: To estimate how many underwriters of what level of experience by line of business to have on staff.

The Insurance Industry Exists In A World Of Increasingly Rich Data
The insurance industry exists in a world of increasingly rich data. More and more data is available from existing sources (e.g. third-party providers offering information about weather events and forecasts, attributes of geographic locations, and consumer credit behavior), newer sources (e.g. social media), and those that are largely still conceptual (e.g. from machine-to-machine communications, also known as the "Internet of Things" — specifically from vehicle telematics).

In particular, insurers can access (although not necessarily free of charge) a never-ending torrent of (mostly) semi-unstructured and structured data from sources such as:

• insurance business systems
• social media
• embedded sensors (e.g. vehicle telematics)
• insurance company portals
• mobile apps
• location intelligence
• complementary insurance information (e.g. FICO scores, building repair cost, and business formation data).

The Data Scientist Role Is Emerging As Equally Important As The Data Miner Role In The Insurance Industry
The data miner role is no longer the only one to use predictive analytics in the insurance industry; a new role of data scientist is emerging. A growing number of insurance companies are creating new departments of these types of quantitatively skilled professionals.

A data scientist and a data miner could be the same person. But the two roles should have different perspectives regarding the scope of predictive analytics initiatives and the time horizon of predictive analytical models. Moreover, data scientists may need different skills to fulfill their responsibilities. An insurer should expect a data scientist to approach a predictive analytics initiative by first collecting data — although not necessarily all the data required to complete the initiative — and then investigating the data on an iterative basis until a coherent hypothesis emerges.

Furthermore, Ovum believes that data scientists should be responsible for models that support short, medium, and long-term corporate objectives. Data miners, however, should be primarily involved with predictive analytics initiatives that support short and medium-term corporate objectives.