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Inoculating Your Wellness Program Against the EEOC

The sky just fell on Honeywell, even though its program complies with the ACA. Don't be next.

Two months ago, a posting appeared in this column titled: Are Obamacare Wellness Programs Soon to be Outlawed? Truthfully, that headline was picked for its sky-is-falling value, treating one EEOC lawsuit against one wacky wellness program as a risk for wellness programs everywhere. As luck would have it, the sky just fell yesterday -- right on the head of Honeywell -- and the EEOC is indicating more lawsuits are to come. The scary part: Unlike the wacky wellness program described in the column two months ago, Honeywell was in compliance with the Affordable Care Act. Compliance with the ACA doesn’t seem to get you a free pass on the EEOC’s own “business necessity” requirement. Essentially, the Honeywell lawsuit means no company doing invasive biometric screenings and mandating doctor visits or measuring health outcomes is immune to prosecution, even if it is in compliance with ACA. The even scarier part: The EEOC is correct that, as this column has noted for almost two years now, wellness programs mandating overscreening and annual checkups have no business necessity. In fact, these “employer playing doctor” programs can harm employees, because:
  • A workplace screen can find heart attacks… but at the cost of a million dollars apiece, when emotionally draining false positives and potentially hazardous overtreatment are taken into account;
  • The Journal of the American Medical Association recommends against mandatory checkups;
  • An embargoed, peer-reviewed article that will be published soon in a major journal concludes that the costs and unintended health hazards of weight control programs generally overwhelm the benefits.
Companies could still claim business necessity if, indeed, these programs save money despite the harm to employees. (OSHA might raise issues, but those are hypothetical whereas EEOC is an elephant in the room.) And a few of you might ask: “Didn’t Seth Serxner of Optum and Ron Goetzel of Truven just write a journal article and show a webinar saying: ‘The overwhelming majority of published studies show positive results’?” Unfortunately, those “positive results” -- as is well-known to the presenters, who, after all, have access to the Internet -- fail any sniff test. These two true believers continue to cite Professor Katherine Baicker even though she has stepped back three times from her old (2009) conclusion that wellness provided a significant return on investment (ROI), including a “no comment” to ITL’s own Paul Carroll. More recently, she has, with great justification, blamed overzealous readers for selectively interpreting her findings. Goetzel also continues to cite the state of Nebraska, which his committee gave an award to as a “best practice” despite the revelations that the state’s vendor lied about saving the lives of cancer victims and that the vendor also paid off his award committee with a sponsorship. Likewise, Goetzel's misinterpretation of a RAND study has drawn a rebuke from the author of the study, in a coming letter to the editor. [Editor's Note: ITL emailed a link to this article to the press offices at both Truven and Optum on Oct. 30 offering them a chance to respond to the author's allegations. Both were told that they could either comment at length in this article or could write separate articles that would lay out their position and that ITL would publish. Neither company has yet responded.] Clearly, the EEOC is on to something about a lack of business necessity, when even the alleged best-and-brightest wellness defenders are forced to rely on misstatements and half-truths. Not to mention selective omissions -- the presentation’s extensive section on “critics” had no mention of me, despite a recent cover story citing me as the field’s leading critic, because both these two presenters know my math is irrefutable. These industry defenders also have spotty memories, as when they claim that it is valid to compare the performance of active, willing participants against a control group of unmotivated non-participants and dropouts -- forgetting that they gave out a Koop Award to one of their sponsors who showed exactly the reverse. Inoculating Your Programs A problem with the EEOC does not have to happen to you or your clients (if you are a broker). Taking three steps -- the first of which is free and the second of which costs only in the four figures -- essentially guarantees that you will not end up on the hot seat with Honeywell. First, sign and adhere to the Workplace Wellness Code of Conduct.  This will allow you and any clients to focus your own efforts on avoiding employee harm and creating a framework for business necessity. This document is provided gratis for ITL readers, from the author. Second, employers who sign this and get at least one vendor/carrier to sign and implement its counterpart, the Workplace Wellness Vendor Code of Conduct, can have their own outcomes validated by the GE-Intel Validation Institute (itself the subject of a forthcoming ITL posting), to create an audit trail that, in fact, outcomes are being measured. Third, I personally -- along with colleagues -- will do an in-depth  walkthrough to see if, indeed, your wellness program complies with U.S. Preventive Services Task Force guidelines. If not, we will provide a list of next steps to get into compliance. The inoculation? A six-figure guarantee that you (or your client, if you're a broker) will not be the subject of a successful EEOC lawsuit. Besides providing some protection on its own, this level of financial commitment may create a self-fulfilling prophecy. Your actions will be a pretty convincing piece of evidence that business necessity and employee health are the goals, as measured by an objective and qualified third party. Yes, I know it’s not always about me; you can protect yourself in other ways. My ex was quite clear on the subject of whether it's always about me. However, in this case, my ex would seem to be wrong. It appears that every screening vendor, every alleged wellness expert and most of those in large benefits consulting firms have done just the opposite of what I'm suggesting: They have proposed massive wellness programs with hefty financial incentives or penalties that get companies into fine messes like Honeywell’s. But, in case I'm wrong, I welcome names, websites and contact information of other consultants taking the same approach that I am. Please note them in the comments boxes below.  All will be published.

Spending on Agents Beats Spending on Ads

Despite claims in a recent study, winning takes more than discount prices and a cute mascot. Winning requires agents.

A recent research report published by Cliff Gallant and Matthew Rohrmann of Nomura Equity Research concludes that spending on advertising beats spending on insurance agents. Once again, Wall Street gets it wrong. 

Their logic is flawed. The authors choose to focus only on advertising spending in 2013 and limit their analysis to the top-10 auto insurers. They then compare the advertising spending to premium growth that year. Because GEICO spent the most on advertising and had the largest premium growth, the authors conclude that advertising beats spending on agents. 

But one year of advertising spending does not account for GEICO's 2013 premium growth. The company has spent decades building its brand awareness. Since the mid-1990s, GEICO has spent billions of dollars to become top of mind as the company to consider if you want to purchase cheap auto insurance (a.k.a., "1-800-cheap insurance"). If GEICO stopped advertising, its growth would stop because it has almost no other way to reach the consumer ("almost" because even the king of direct-response insurance has 150 insurance-agent locations.) 

Instead, other important factors account for GEICO's performance in 2013: namely, its strategy to grow premium even if unprofitably. GEICO can afford to grow unprofitably because its owner, Berkshire Hathaway, is more interested in generating funds to invest than in consistent profits. In 2011, for example, GEICO saw its profits plunge 48% while its advertising costs increased 9.4%. 

A better way to evaluate whether to advertise or invest in agents is to look at the costs of acquiring and retaining customers. While GEICO scores high in initial consideration, it lands in the middle of the pack when it comes to the actual insurance purchase, according to the McKinsey 2012 Auto Insurance Customer Insights Report. 

It costs GEICO relatively little to get a consumer to make an inquiry, but a lot more to have someone buy a policy. And agent-oriented insurers score much higher in retention than GEICO and other direct-to-consumer auto insurance companies do, according to the McKinsey report. 

The high retention numbers for agent-based insurance companies demonstrate that companies that underinvest in their agents do so at their peril. Local agents build long-term relationships with consumers. Advertising doesn’t. 

With the advent of the Digital Age, companies can generate bigger returns on their investment in agents. This goes against conventional wisdom. However, cloud computing, digital marketing, and social media let agents compete against the industry's "brand behemoths" in their local community. 

Forward-thinking insurance companies are designing programs for their agents to leverage these new capabilities. These companies are finding they get a much bigger return on investment than with traditional advertising spending. Consumers want choice today, and they expect to do business with companies that can provide a multi-channel experience. 

A local agent whom a consumer can visit, call or access via a website provides the experience that today's consumer demands. Insurers that focus on investing in their agent distribution channel will win. 

Pressure on companies to increase their advertising led to the insurance advertising wars of the last decade, and many companies diverted dollars from their agents to pay for increasing their advertising. But that trend appears to be changing as companies realize the power of agent-based distribution in today's auto insurance market. For example, Allstate recently announced a renewed commitment to grow its agency distribution channel after years of neglect. 

A strong agent-based distribution channel creates a long-lasting and compelling strategic advantage. Blindly ramping up the ad budget is a simplistic, ineffective solution. Spending on ads just creates an indistinguishable commodity product where price and a cute mascot are the only differentiators.


Brian Cohen

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Brian Cohen

Brian Cohen is currently an operating partner with Altamont Capital Partners. He was formerly the chief marketing officer of Farmers Insurance Group and the president and CEO of a regional carrier based in Menlo Park, CA.

How to Pick a TPA for Work Comp Claims

Here is a series of questions that get beyond the third-party administrator's fee, which is typically just 8% of total claims costs.

Many self-insured employers choose to outsource their workers’ compensation claims handling to a third-party administrator (TPA) instead of creating their own internal operation. Choosing the right TPA is crucial because TPAs will be coordinating essential functions like managing loss reserves, facilitating claims investigations, issuing claims payments and settlements, coordinating medical management and organizing transitional work. When picking a TPA, it is important for companies to first determine what they are looking for. There are several effective fact-finding questions that can help. Capabilities First and foremost, employers must find a TPA that can meet their company’s individual needs, which can vary by type of business and location. Many states are complicated, so the insured must confirm that the TPA has the appropriate expertise by state. Questions that can help uncover the TPA’s ability to handle the employer’s specific business include:
  • Do you have the appropriate resources to handle all jurisdictions applicable to my company?
  • Can you provide references within my jurisdiction to support your capabilities?
  • Do you have the capabilities to handle my company’s various business operations?
  • Can you handle all of my company’s claims so that I do not need to enlist multiple TPAs?
  • Are you approved by my insurance carriers?
  • Are you following best-practices procedures, and can you provide claims handling results to prove it?
  • What quality assurance processes do you have in place to guarantee consistent results between offices and adjusters?
Claims System A TPA’s system is very important to the entire process. Effective claims management requires a system that is easy to access, with enough information readily available when the employer asks for it. Poor and inaccurate data can cause major headaches if it ends up in the employer’s financial reports. Questions that can help evaluate claims systems include:
  • How can you ensure that your claims system will provide clear, accurate data?
  • Does your claims system meet my company’s financial data reporting requirements?
  • Does your claims system meet my company’s analytic needs for benchmarking, stewardship reports, etc.?
  • What measures do you have in place to help prevent data breach?
Personnel Personnel issues often affect the claims outcomes that an employer receives from its TPA. The employer will want to ensure that it is working with an experienced adjuster who can make informed decisions, as opposed to an adjuster using automated responses based on decision trees. Caseloads at the TPA, employee turnover rate, supervision and other personnel issues can also factor in. Questions that can help identify troublesome factors include:
  • Would my company be issued a dedicated account manager or team?
  • Who would be my key contact and provide information and answer questions?
  • How do your adjusters make decisions on their cases? Are they educated and capable of making flexible decisions based on circumstances, or do you use an automated response process?
During the RFP process, most TPAs will insist that they have the staff to meet the employer’s needs. It is best to ask for validation. Thinking Beyond the Fee Although employers regularly make TPA fees the deciding factor, estimates show that fees only represent 8% of total claim costs. What many fail to realize is that paying higher fees for a TPA whose adjusters have lower caseloads and are more experienced can significantly reduce overall risk costs. Rather than focusing on the 8%, insureds should focus on the remaining 92% -- the other aspects of the claim that come into effect. This includes evaluating if the TPA can ensure:
  • Effective medical management
  • Timely disposition of claim issues
  • Return-to-work or settlement success
  • Transparency of third-party vendor use in the claims process
  • Ability to minimize leakage and avoid excessive expenditures because of mistakes, errors in judgment, ineffective litigation management, penalties and fines
  • Measures in place to prevent fraud
  • Transparency of managed care capabilities, including bill review and preferred provider organization (PPO) and case management
Choosing the right TPA takes time and due diligence, but it is worth the effort to find the best fit for an employer’s industry and jurisdiction and meet risk-management needs. It is important to look beyond fees and consider all variables, including staffing, adjuster education, claims systems, reporting capabilities and the TPA’s ability to apply a teamwork approach to supporting your organization’s claims efforts. Considering that a TPA plays a large role in an employer’s workers’ compensation claims outcomes and costs, finding the right one is one of the most important decisions that an employer can make.

Tim Stanger

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Tim Stanger

Tim Stanger is vice president, claims at Safety National. He currently oversees the large casualty claims unit that encompasses deductible workers’ compensation, auto, general liability and Texas non-subscription claims. In addition, Stanger oversees third-party administrator (TPA) relations and State Children's Health Insurance Program (SCHIP) compliance.

What to Consider When Buying Cyber

The devil is in the details. There are inconsistencies in the coverage provided, and minor variations can have significant impact.

No industry or organization, wherever situated and whatever the size, is immune to the threat of cyberattack, and the impact can be catastrophic, both financially and in terms of reputation. For example, eBay recently announced a massive cyberattack that may have exposed the personal data of 128 million customers globally. The management of cyberrisk clearly needs to be high on the boardroom agenda. Network security alone cannot fully address the issue: Experience has shown that even top-notch, state-of-the-art cybersecurity is vulnerable. Boards need to ensure that they identify key risks and prioritize the protection of critical information. Internal policies and procedures should be put in place to ensure that staff are aware of risky behaviors, such as disclosing passwords and opening suspicious documents in unsolicited emails. Companies need to see that network security systems and controls are regularly tested and monitored, and that response procedures are in place in case of a cyberattack or data breach. Insurance can also play a vital role in managing cyberrisks. As part of the board’s risk assessment, it needs to understand the types of cyberrisk, and the potential losses and liabilities that follow. This is the first step in understanding the organization’s insurance requirements and the extent of coverage required for cyberrisks. Consider the Company’s Risk Profile An initial assessment of the company’s risk profile and areas particularly vulnerable to cyberattack is crucial.  External advice may be needed. The risk assessment should extend across the organization. The assessment needs to consider the amount and type of personally identifiable information, customer data and confidential corporate data the organization maintains and how such data is used, transmitted and stored. The company’s technology infrastructure should be evaluated, as well as potential threats to network security and the likely consequences of significant interruptions to online working or customer transactions. Also consider the risk of third-party claims arising from the company’s media content and the services provided to support e-commerce. The company needs a complete understanding of any potential impact of a cyberattack or data breach, including the wider impact on business strategy. Performing a thorough risk assessment not only helps the organization identify and address risks and potential gaps in security but can facilitate underwriting of cyberrisks and may even result in premium reductions. Once the organization has a grasp of its risk profile and potential exposures, it can consider its insurance needs. Examine Existing Insurance Policies Some coverage for these potential losses and liabilities may be available under existing insurance policies already held by the business. These include general liability, directors and officers liability, professional indemnity, crime and property and business interruption policies. Careful assessment of the coverage provided by these policies is essential, however, as there are likely gaps in coverage because such policies have not historically been designed to cover non-tangible assets and network-related risks. The company will need to consider whether to fill those gaps with enhancements to existing policies or through new cyberrisk products now being offered by insurers. Consider the Need for Cyberinsurance There are now a number of cyberinsurance products available, and the scope of coverage varies from insurer to insurer. These policies typically cover losses and liabilities such as:
  • Data liability. This covers damages and defense costs resulting from any claim against the insured from a data breach that compromises personal information. It should also cover claims alleging that information has been lost or compromised as a result of unauthorized access to, or use of, the insured’s computer systems. It is important that the policy covers not only an individual’s personal information but also employee data and confidential corporate information. Many organizations possess third-party trade secrets, customer lists, marketing plans and other information that could be beneficial to competitors and may result in liability if compromised.
  • Media liability. This insures damages and defense costs resulting from any claim against the insured for infringement of copyright and other intellectual property rights, as well as misappropriation or theft of ideas or media content. While coverage may not extend to content published in a personal capacity, this should ideally be included, as organizations may face significant liabilities as a result of employees using Twitter, Facebook and other social media.
  • Regulatory coverage. This covers the costs of response to any administrative, government or regulatory investigation following a data breach or cyberattack, as well as any fines or penalties imposed.  However, this coverage is typically limited to civil fines and penalties, as criminal fines and penalties are not insurable in many jurisdictions. Some regulators, including the Financial Conduct Authority (FCA) and the Securities Exchange Commission (SEC), prohibit regulated firms from recovering from insurers any fines or penalties the regulators impose.
  • Remediation coverage. Most policies provide coverage for additional costs associated with a data breach, including the costs incurred to notify those affected and relevant authorities, provide credit monitoring for those affected and set up call centers to field inquiries from concerned clients. Coverage may also extend to the costs of forensic services to determine the cause and scope of a breach, as well as public relations expenses and other crisis management costs.
  • Information assets coverage. The policy may include coverage for costs of recreating, restoring or repairing the company’s own data and computer systems. This may also extend to third-party data that has not been captured by back-up systems or that has been corrupted or lost because of negligence or technical failure.
  • Network interruption coverage. The policy may cover lost revenue from network interruptions or disruptions because of a denial of service attack, malicious code or other security threats.
  • Extortion coverage. Many policies insure the costs of responding to ransom or extortion demands to prevent a threatened cyberattack.
Cyberinsurance policies vary significantly, so the specific policy terms and conditions should be analyzed carefully to ensure that the coverage meets the company’s likely loss scenarios and potential exposures. It is particularly important to consider whether the coverage extends to information in the hands of third parties where data handling, processing and storage has been outsourced to third parties, including cloud service providers. If the organization has outsourced data handling, then it should secure coverage for any loss or business interruption arising from data that is managed by third-party service providers. Consider the “retroactive date,” as policies often limit coverage to cyberattacks or data breaches occurring after a specified date, such as policy inception. It is important to request retroactive coverage for network security breaches that may have occurred before the inception date, as it is not uncommon for cyberattacks to remain undetected for a considerable period. Review Defense and Settlement Provisions Cyberinsurance policies include defense provisions that typically limit coverage for defense costs to those that are reasonable and incurred with the insurer’s prior written consent. While many insurers include these types of provisions to insist on the appointment of their own choice of defense counsel, selection of defense lawyers is an important issue. Some companies prefer to appoint lawyers whom they know well and who are familiar with their business. Moreover, certain claims arising from the use of technology, such as claims for breach of confidence, breach of copyright and defamation, require specialist counsel with particular experience. The company should therefore consider requesting a specific provision reserving the right to choose its defense lawyer, although the decision will usually be subject to the insurer’s prior approval. Check the Fine Print The “devil is in the details,” especially with cyberinsurance. While the market has developed rapidly in recent years, there are inconsistencies in the cover provided, and minor variations can have significant impact on the availability of coverage. There will likely be efforts by the insurer to exclude risks that should be covered under other types of policy, and this is not unreasonable. It is important, however, to avoid broadly worded exclusions that could extend beyond that concern, or attempt to undermine the initial purpose of the insurance. For example, insurers might seek to impose exclusions based on possible shortcomings in the company’s network security. These types of exclusions should be resisted. Insurance can play a vital role as part of an overall strategy to mitigate cyberrisk, but it is necessary to look beyond the policy limits to ensure that the coverage provided -- whether under traditional policy forms or specific cyberinsurance policies -- is as broad as possible. Ms. Gates wrote this article with Sarah Turpin, a partner in the dispute resolution and insurance coverage groups in K&L Gates' London office.

Roberta Anderson

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Roberta Anderson

Roberta Anderson is a director at Cohen & Grigsby. She was previously a partner in the Pittsburgh office of K&L Gates. She concentrates her practice in the areas of insurance coverage litigation and counseling and emerging cybersecurity and data privacy-related issues.

Modernization: Actuaries Must, Too

Traditionally, actuaries have provided a retrospective look at performance; they must now provide forward-looking insights.

To effectively produce a variety of new financial reporting, reserving and risk metrics, actuarial departments will need to modernize with new tools, hardware, processes and skills. This will be a significant undertaking, especially considering how most organizations and regulatory environments are constantly changing. Re-engineering projects will require careful planning and will affect people, processes and technology. Developing a modernization strategy that provides a path to real change includes visualizing a compelling future state, articulating and communicating expectations, defining a roadmap with achievable goals and avoiding overreach during the implementation. Case for change The insurance market has changed significantly in recent years, which has had a particularly pronounced effect on how companies operate, meet internal and external demands, report externally and comply with regulations. However, many insurers have not modernized their actuarial functions to keep pace with these changes and are struggling to effectively meet not just existing demands but also impending ones. Specifically, drivers of actuarial modernization include:
  • Internal drivers – The audit committee seeks assurance that reserves and risk-based capital are sufficient and being determined in a well-controlled environment. Senior management wants actuarial departments that work toward the same strategic goals as the rest of the company. Business units are looking for trusted actuarial advisers who can collaborate effectively with them, as well as develop practical solutions to complex problems to help them meet their business objectives. Lastly, the finance department needs timely insight into how the reserve movements affect earnings and equity.
  • External drivers – The need to issue financial reports under multiple accounting bases necessitates the adoption of new processes as well as the collection of additional data. Similarly, regulatory requirements have mandated additional analyses, various views of the book of business and a push toward more forward-looking information. Other external parties, including investors and rating agencies, demand more information with a greater degree of transparency than ever before.
The modernized actuarial function In a modernized company, the actuarial, finance, risk and IT functions have clearly defined, collective expectations and utilize common, efficient processes. More specifically, the following characterizes a modernized actuarial function:
  • Data – The organization, with significant actuarial input, clearly defines its data strategy via integrated information from commonly recognized sources. The goal of this strategy is information that users can extract and manipulate with minimal manual intervention at a sufficient level of detail to allow for on-demand analysis.
  • Tools and technology – Tools and technology enhance the effectiveness of the actuarial department by delivering information faster, more accurately and more transparently vs. the traditional, ad hoc computing done by end users. Specifically, tools that use data visualization can more effectively convey trends and results to management. Algorithms can be programmed to automate first-cut reserving and other actuarial analyses each reporting period based on rules that can help point staff to business segments that may require deeper analysis in the quarter.
  • Methods and analysis – Modernized actuarial organizations enhance traditional actuarial methodologies with additional cutting-edge methods that yield superior insights (e.g., predictive analytics, which have transformed personal lines pricing and are being adopted in the commercial arena). Another example is stochastic analysis, which enhances deterministic approaches with statistical rigor, helps actuaries prepare transparent reserve range indications and enables management to better understand uncertainties.
  • Processes – Operations are reviewed from the top down and well-defined in terms of controls, responsibilities, timing,and outputs, particularly in the quarter-close procedures for reserves. Automation of key processes is a primary organizational objective. Modernized actuarial organizations have streamlined processes that eliminate unnecessary or excessive evaluation.
  • Organizational structure – The ability to deliver superior business intelligence to management often depends on how an organization uses its actuarial resources. Many companies are debating the merits of centralized, decentralized or hybrid organizational structures. While each structure has its own set of advantages and disadvantages, organizational structure is not the most vital factor in a function’s success. Rather, it is much more important that actuaries serve as trusted advisers to company stakeholders while fostering a culture of innovative thinking that identifies new information and opportunities to test, learn and scale.
  • Reporting and governance – Strong governance, particularly around data, analysis review, challenge, issue escalation and resolution and reporting are cornerstones of a modernized actuarial function. Actuarial functions solicit stakeholder input on information demands and provides consistent, quarterly reporting packs that satisfy these stakeholders’ reporting demands. Additionally, modernized actuarial functions have formal policies and procedures that clarify the roles and responsibilities of management, reserve committees and the audit committee.
  • Business intelligence – Modernized actuarial functions focus on providing operational metrics that meet individual stakeholder needs and objectively relate business performance. For example, senior managers often desire corporate dashboards that provide them access to real-time information on business performance to help them make strategic decisions.
Benefits of insurance modernization A modernized actuarial function produces insightful, strategic information and allows the actuarial function to deliver the value management desires while meeting external stakeholders’ regulations and demands. Modernized actuarial functions have robust feedback loops within pricing, reserving and capital management.  Additionally, the modernized actuarial function understands the business’ fundamental performance and takes an active role in helping management define the company’s future direction. Modernization represents a fundamental shift in the actuarial function priorities. Traditionally, the actuarial function has provided a retrospective look at business performance despite various data, technology, process and personnel limitations. However, modernization seeks to address these limitations and allow the actuarial function the freedom to innovate, dig deeper into the business, provide forward-looking insights and have a strategic partnership with management. At modernized insurers, tailored reports direct actuaries’ attention to portfolios with unusual characteristics. Automated programs quickly populate various templates for additional ad hoc analyses and drill-down investigation. Data visualization tools provide management comfort with findings and remediation recommendations. Cross- functional reporting and implementation teams fluidly improve on-the-ground results. Research features exploratory environments (“sandboxes”) and widespread data access that helps innovators discover emerging trends early, leading to potential differentiators. As an added benefit, actuarially modernized functions operate at a much higher level of efficiency, with greatly reduced levels of time needed for manual processing and data manipulation. Factors for successful modernization/ key considerations The thought of overhauling entire systems, processes and functional areas may feel overwhelming for company executives. This is understandable, as comprehensive modernization is a long journey that likely will have a significant price tag. As a result, many companies address modernization in steps. Although, in an ideal world with limitless resources, modernization could occur in a “big bang,” there is significant value in first addressing the areas in most need of modernization (while maintaining an overarching focus on holistic modernization). As one area becomes more streamlined and efficient, other areas will start to reap the benefits. Regardless of the breadth of modernization initiatives, modernization strategies will require a holistic consideration of data, methods and analyses, tools and technology, actuarial processes and human capital requirements.  These strategies will also need to address the business and operational changes necessary to deliver new business intelligence metrics. Any weak links between these closely connected components will limit the realization of actuarial modernization. Although a modernization strategy should be holistic to avoid “digging up the road multiple times,” it is possible to tackle modernization issues in logical, progressive ways. Achieving the vision The first step is a comprehensive assessment of current processes and identifying the areas in greatest need of modernization. If we consider each modernization dimension (e.g., data, processes, technology, etc.) as a gear in motion, the first step to modernization  involves identifying which gear in the function does not work in concert with the others. Stakeholders should collaborate on creating a comprehensive plan of action with an objective view of the dimensions that require immediate attention, while keeping in mind how each gear affects the organization as a whole.

Steve Knobloch

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Steve Knobloch

Steve Knobloch is a director in PwC's P&C actuarial and insurance management solutions practice and is based in New York City. He joined PwC in 2005 and has nine years of experience in the P&C insurance industry. Knobloch has spent six months abroad through a secondment to PwC UK, where he worked for a London market client.

Risk and Strategy: How to Find the Links

First of five articles on how to define your risk appetite -- and ensure it fits your strategy and operational capabilities.

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This is the first paper of a series of five on the topic of risk appetite. Understanding of risk appetite is very much a work in progress in many organizations. The author believes that enterprise risk management (ERM) will remain locked in organizational silos until boards are mobilized and comprehend the links between risk and strategy. This is achieved either through painful and expensive crises, or through the less expensive development of a risk appetite framework (RAF). Paper 1 makes a number of general observations based on experience in working with a wide variety of companies. Paper 2 describes the risk landscape, measurable and unmeasurable uncertainties and the evolution of risk management. Paper 3 answers questions relating to the need for risk appetite frameworks and describes in some detail the relationship between them and strategy. Paper 4 answers further questions on risk appetite and goes into some detail on the questions of risk culture and maturity. Paper 5 describes the characteristics of a risk appetite statement and provides a detailed summary of how to operationalize the links between risk and strategy. Paper 1: Introduction Since the global financial crisis (GFC), regulators, investors and boards have become determined to avoid a repetition of such a cataclysmic event and have increased demand for more effective risk management. As financial risk reporting failed to predict the GFC, there is growing recognition of the need to build organizational resilience through effective mapping of risks and to demonstrate the capability to manage low-probability, high-impact events. Concern is also growing over the increase in cybercrime and over digital risk. Some observations: 1. Directors and senior managers need a globally accepted guide on the attributes of an effective risk appetite framework. 2. Emphasis is shifting globally from risk management to building resilience. Risk optimization is achieved when risk and strategy are aligned with corporate objectives. Achieving this requires that both the board and executives master strategic, emerging and external/global risks through robust (risk) horizon scanning, proofing and testing. 3. “Strategic risks” are those that are most consequential to the organization’s ability to execute its strategies and achieve its business objectives. These are the risk exposures that can ultimately affect shareholder value or the viability of the organization. “Strategic risk management” is “the process of identifying, assessing and managing the risk in the organization’s business strategy—including taking swift action [when problems arise]. Strategic risk management is focused on those most consequential and significant risks to shareholder value, an area that requires  the time and attention of executive management and the board of directors’’1 RMI thus defines board risk assurance as assurance that strategy, objectives and execution are aligned. 4. That alignment is achieved through operationalizing the links between risk and strategy. This involves:
  • Strengthening the strategic planning process through organizational integration of the risk and strategy functions/processes, with authority derived directly from the board and CEO’s office,
  • Establishing an effective risk appetite framework,
  • Understanding, and improving, the organizational level of risk maturity,
  • Building organizational resilience,
  • Proofing and testing management’s ability to offer credible solutions when both exploiting and defending operations, the business model and reputation.
5. The risk appetite framework (RAF)2 is to the board what risk management3 is to the rest of the organization. As such, there is a direct correlation between the efficacy of the RAF and the efficacy of the risk management framework4. The audit committee of the board and the risk subcommittee must have charters that provide a risk governance framework that mandates:
  • Direct CEO oversight of an integrated risk and strategy capability,
  • Board risk subcommittee oversight of:
    • The risk appetite framework,
    • Advancing and maintaining risk maturity, which can deliver value through:
      • Access to capital at lower cost than that achieved by less mature competitors,
      • More favorable credit ratings than those achieved by less mature competitors,
      • Optimization of risk transfer through both traditional and modern self-insurance methods.
  • Risk data governance maintained to standards of rigor and consistency like those that apply for accounting data,
  • Perpetual proofing and testing of management’s readiness to offer credible solutions when both opportunity strikes and abnormal and adverse events occur.
We agree with Peter Bernstein, author of Against the Gods: The Remarkable Story of Risk, when he says, “In the absence of certainty. . . [we must] focus on excellent execution and demonstrable resilience at the same time whilst taking as much acceptable risk as is reasonably possible.” We likewise agree with Robert S. Kaplan, author of Risk Management and the Strategy Execution System, who says: “Risk management. . . is about identifying, avoiding and overcoming the hurdles that the strategy may encounter along the way. Avoiding risk does not advance the strategy; but risk management can reduce obstacles and barriers that would otherwise prevent the organization from progressing to its strategic destination.” References 1Source: Harvard Law School Forum on Corporate Governance and Financial Regulation: Strategic Risk Management: A Primer for Directors Aug 2012 2The RAF is the ‘’overall approach including the policies, controls and systems, through which risk appetite is established, communicated and monitored.’’ 3Risk management: coordinated activities to direct and control an organization with regard to risk Source: ISO Guide 73 Risk Management – Vocabulary 4Risk management framework: set of components that provide the foundations and organizational arrangements for designing, implementing, monitoring, reviewing and continually improving risk management throughout  the organization
    • NOTE 1 The foundations include the policy, objectives, mandate and commitment to manage risk.
    • NOTE 2 The organizational arrangements include plans, relationships, accountabilities, resources, processes and  activities.
    • NOTE 3 The risk management framework is embedded within the organization's overall strategic and operational policies and practices.
(Source: ISO Guide 73 risk management vocabulary)  

Peadar Duffy

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Peadar Duffy

Peadar Duffy is founder and chairman of Risk Management International (RMI) a firm that has been advising clients in relation to risk in Ireland and internationally for more than 20 years. He is a member of the International Organisation for Standardization (ISO) TC 262 Working Group 2, which is currently undertaking a review of the global standard for risk management (ISO 31000).

Grave Threat to the Electric Grid and the Internet

Severe solar storms known as a Carrington Event would cause trillions of dollars of damage -- and the next event is overdue.
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On July 23, 2012, a plasma cloud of gigantic proportions raced toward Earth at nearly 2,000 miles per second, about four times the normal speed for a solar eruption. Had the gigantic cloud hit the Earth – as a similar eruption did in the mid-1800s – it would have devastated much of the world’s power grids and many satellites, taking down much of our telecommunications systems and GPS. The damage would have run into the trillions of dollars and would have taken months or even years to reverse. 

The good news: While the cloud passed through the Earth’s orbital path and hit Goddard’s Stereo A satellite, the cloud missed us. 

The bad news: Not by much. If the storm had happened just nine days earlier, the Earth would have been directly in its path. 

The worse news: We are overdue for a direct hit. Such huge storms are expected to hit the Earth every 150 years, and the last one struck 155 years ago. 

“Had [the 2012 magnetic storm] hit Earth, it probably would have been like the big one in 1859, but the effect today, with our modern technologies, would have been tremendous,” UC Berkeley research physicist Janet G. Luhmann said in March, when researchers from UC Berkeley and China reported their analysis. 

Daniel Baker, of the Laboratory for Atmospheric and Space Physics at the University of Colorado, said that, if the storm had hit, “we would still be picking up the pieces." 

A severe space weather event that causes major disruption to the U.S. electricity network and to communications would have obvious implications for the insurance industry. If businesses, public services and households are without power and, thus, many forms of communication, for a sustained period, insurers may be exposed to unprecedented claims for business interruption and many other issues. 

So, every insurer, broker and business that relies on the power and telecommunications grids – in other words, almost everybody these days – should consider space weather scenarios and start planning for them. 

We have some historical record of the devastation that would occur because, for five days beginning on Aug. 28, 1859, astronomers Richard Carrington and Richard Hodgson witnessed sunspots on the sun’s surface. The solar flare caused two major coronal mass ejections, or CMEs, which typically unleash energies equal to that of about a billion hydrogen bombs, according to scientists. One of these CMEs was so much more powerful than the norm that it traveled to Earth in 17.6 hours, while such journeys usually take three to four days. 

The huge storm – now known as a Carrington Event – caused major disruptions to the nascent telegraph system, and the effects continued into September. The New York Times reported on Sept. 5 that a telegraph operator by the name of Frederick Royce said, “My forehead grazed a ground-wire which runs down the wall near the sounder. Immediately, I received a very severe electric shock, which stunned me for an instant. An old man who was sitting facing me, and but a few feet distant, said that he saw a spark of fire jump from my forehead to the sounder.” 

As late as Sept. 19, the Gettysburg Compiler reported that a telegraph operator “chanced to touch the wire and was thrown in violence of a shock he received across the room.” Telegraph lines melted or suffered spotty service. “The French telegraph communications at Paris were greatly affected, and on interrupting the circuit of the conducting wire strong sparks were observed. The same thing occurred at the same time at all the telegraphic stations in France,” the Illustrated London News reported. The Philadelphia North American & United States Gazette noted: “The telegraph operators throughout the East report a very brilliant display of auroral light, which though very fine to look at, has as usual greatly hindered the transmission of messages over the wires.” 

If such a storm were to happen today, a study by the National Academy of Sciences calculates, the total economic impact could top $2 trillion. That would be 20 times the costs of a Hurricane Katrina. Huge power transformers, fried by a Carrington Event, would take years to repair. Lloyd's of London put the figure at as much as $2.6 trillion in a 2013 document called “Solar Storm Risk to the North American Electric Grid.” 

The effect of a Carrington Event would be so much greater today than it was in 1859 because we are so much more connected, supported by the electrical grid and satellites. The schematic of the U.S., below, highlights how New England, the Middle Atlantic, the Upper Midwest and the Northwest would feel significant fallout from a direct solar blast. The outlined sections indicate areas of probable power system collapses. Those areas are home to more than 130 million people. graph3

Our various infrastructures – i.e., electric power, transportation, water and banking – are intimately connected. That means that a serious impact on our power grid would unleash a domino effect on the remaining systems. This, in turn, would have a large effect on each one of our daily activities. 

The Lloyd's of London study in 2013 concluded that: "A Carrington-level geomagnetic storm is practically inevitable. While the odds of an extreme storm are relatively low at any one time, it’s virtually inevitable one will occur eventually. Historical auroral records suggest a return period of 50 years for severe storms and 150 years for very extreme storms, like the Carrington Event."

The risk of intense geomagnetic storms is greater when we approach the peak of a solar cycle. Solar activity follows an 11-year cycle. For the current cycle, the geomagnetic storm risk is projected to peak in early 2015. 

As the North American power infrastructure ages, the risk of a catastrophic outage grows with each solar cycle peak. The potential exists for long-term, widespread power outages.

 Weighted by population, the highest risk of storm-induced power outages in the U.S. is along the Atlantic corridor between Washington and New York City. This takes into account risk factors such as magnetic latitude, distance to the coast, ground conductivity and transmission grid properties. Other high-risk regions are the Midwest states, such as Michigan and Wisconsin, and regions along the Gulf Coast. 

The total U.S. population at risk of extended power outage from a Carrington-level storm ranges from 20 million to 40 million. The outages could last from 16 days to as long as two years. The duration of outages will depend mainly on the availability of replacement transformers. If new transformers must be ordered, the lead time is likely to be at least five months. 

Storms weaker than Carrington-level could produce a small number of damaged transformers – from 10 to 20 – but the potential damage to densely populated regions along the Atlantic Coast is still significant. The total number of damaged transformers is less relevant for prolonged power outages – their concentration is what matters. The failure of a small number of transformers serving a highly populated area could trigger a prolonged outage. 

Insurers may want to consider scenario planning that looks at two issues, in particular, to be ready for a Carrington Event. First, they may want to examine the operational constraints that could occur – insurers, for instance, might be unable to receive premium payments or issue policies and invoices while addressing policyholder claims. Second, insurers may seek to assess their potential overall exposure to claims for business interruption or other losses that a Carrington Event could cause. 

Developing contingency plans for the possibility that a disaster will zap plants, buildings and equipment may also prove beneficial. This plan could focus on how companies might continue to operate even during a long-term interruption. This could include involving backup generators for critical systems, redundant computer systems and, for companies that are big enough, locations in areas that are less likely to be affected by a major storm and that can be staffed up in an emergency. 

It’s worth remembering that other companies will be scrambling to do the same thing – so options for relocating critical functions may be more limited in densely populated areas. Companies may look to engage their full risk-management expertise, including a discussion about business-interruption insurance. 

Directors and trustees likely need to devote particular focus, because of their positions of responsibility. And, if you’re in management, you may want to ask yourself: “Is our board informed about the risks of potential exposure to a Carrington Event, or something similar?” If not, it may be time to act. 

The materials referenced herein are prepared by the author and as such do not necessarily represent the views or opinions of OneBeacon Professional Insurance. OneBeacon Professional Insurance makes no claims concerning the completeness or accuracy of these materials and takes no responsibility for supplementing, updating or correcting such materials. This document is for general informational purposes only and does not constitute and is not intended to take the place of legal or risk management advice. Parties should contact their own personal counsel for any such advice.


John Chace

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John Chace

John Chace is the chief underwriting officer and management liability officer for OneBeacon Professional Insurance. He also served as vice president and executive product director for professional liability for Allianz /Fireman's Fund; vice president, professional liability, with Munich Re America; and chief underwriting officer for Medical Protective (Berkshire Hathaway).

The Need to Be Open on Mental Illness

Senior executives who suffer from depression -- like the author -- must lead the conversation in the workplace to reduce suicide.

Hoarding. Depression. Two instances of attention deficit disorder. These are personality characteristics of different people whom I have reported to over the years. Executives with titles like CEO, president, director or founder. I’m here to tell you that people in the executive suite, just like the rest of society, live with mental illness. I know this because I’ve worked for them and, more importantly, because I am one of them. I have lived with chronic depression since I was eight years old. I also, by many measures, have had a rewarding and successful career in consulting and financial services. I want to share my thoughts on three vital issues: first, why senior executives should lead more conversations in the workplace about mental illness, including suicidal behaviors and suicide prevention; second, why I think it is important; and third, some ways we might be able to start more meaningful dialogue. In the past, we’ve often treated mental health as a personal issue that individuals must overcome on their own or with a healthcare provider. But addressing mental health conditions such as depression, substance-related disorders, personality disorders and suicidal behaviors is just as important as addressing any other public health issue. Mental health problems are just as critical as childhood obesity, cancer, hypertension, heart disease, stroke or HIV/AIDS. Over the past few decades, medical science has had great success bringing the death rates down in many diseases. There has been no significant reduction in suicide in more than 50 years. Just as we have  handled other public health issues, we must tackle mental health problems like suicide together in an organized fashion as a total community. Suicide and suicidal behaviors (or SSBs) are complex heterogeneous behaviors commonly manifested in the presence of mental illnesses. They are multifactorial and complex because not all SSBs have the same underlying etiologic factors. I want to approach mental health from the perspective of my personal story. It is a story about one strategy I believe we can all support to improve mental health in the workplace by reducing stigma and increasing awareness and support, thereby lowering the number of suicides. While a change of culture has happened with many illnesses that were previously taboo, there is still a silence around mental illness and suicide. This is even more noticeable in the workplace. So, how do we break the silence? I think there are a number of strategies, many of which we see today: public service campaigns, mental health parity in insurance coverage and workplace programs that provide employee assistance, just to name a few. These are all important components to raising awareness, providing support and changing attitudes. However, I think one of the most effective ways to break the silence is for business leaders who have experience with mental illness and suicide – either personally or through someone close to them – to start talking about it. I have worked in places where we talked about religion, politics and even gun control. We talked about our physical health. We talked about our families and what we did over the weekend. We talked about our dreams and aspirations. So why in the world wouldn’t we talk about our mental health in the workplace? We don’t because the stigma is so strong that the topic is buried. Yet when leaders remain silent about mental illness, there is a discernable and substantial cost to the rest of society. Such silence contributes to the misperception that successful people do not get depressed. It keeps people from seeing that treatment allows many individuals to continue in or return to successful professional lives. Silence also contributes to the myth that people who are brilliant or full of life cannot possibly have so much despair as to kill themselves. They do.  Every day. Just look at Robin Williams. Most people I know were shocked at the news of his recent death. Honestly, I was shocked that everyone was so surprised. I didn’t know Robin other than as a fan, but I did know he had a history of depression and substance abuse. As a celebrity, this was both the fodder of tabloids as well as the legitimate press. He was very open about his challenges. And, as someone who has lived with depression all his life, I know that frequently depressed people use humor to hide the pain they feel – to keep people from seeing the dark inside that no one wants to see. Like many of us who live with the condition, I believe Robin Williams wore a brighter self in public to distract from the darkness that settled over him behind closed doors. Most people don't see depression in others, and that's by design. We depressed people simply hide ourselves away when we've dimmed so as not to shade those who live in the sun. So the fact that Robin Williams died by suicide was not surprising to me at all. It certainly is a tragic loss of a great entertainer. But watching the mass reaction highlighted to me how little people know about depression and suicide. I even sensed a restraint at first to report his cause of death as suicide. Then, when it became known he had Parkinson’s, it was almost a sigh of relief, as though that, instead of depression, was the real cause. It almost allowed the suicide to be explained away and silenced. It is this silence that helps perpetuate the stigma of mental illness. The notion is that successful people don’t get depressed and that depressed people are not successful. We know neither of those statements is true. But the stigma perpetuates the myths. These myths pervade all facets of society, and business leaders are the community gatekeepers. It does not matter whether you are speaking about mega-corporations or small business. Leadership is likely to come into contact with those at risk for suicide or mental health problems. However, these business leaders ordinarily are not trained to be influential. From the public health perspective, the reduction of stigmatization of mental illness including suicide must be a first step at prevention efforts on a large scale. There is a difference between those exhibiting a diagnosable mental health issue and those who are able to have access to proper mental health care. This, too, is part of the challenge. Business leaders and those in the public arena have a unique opportunity to lessen this stigma, to mobilize research efforts, to raise money and to educate others who do not have the same financial and educational advantages. Where I work, we do talk about mental health, depression and suicide. We talk about it because I talk about it. People look to me to set the tone of the workplace. More than anyone, I am responsible for establishing what is okay and what is not okay to say and do in the office. Whether I like it or not. Whether I recognize it or not. As the senior person in the office, setting the tone and defining what is acceptable is one of the most important roles I play. There are forward-thinking companies out there providing programs and assistance to employees. Prudential offers an employee assistance program, training for managers to spot distress among employees and health clinics that screen for mood instability and more. Still, the company recommends employees stop short of telling managers about their diagnoses, according to Ken Dolan-Del Vecchio, vice president of health and wellness. The reason he gives is, "We don't want managers to be acting as surrogate counselors." No company would say the same thing about heart disease or cancer. Dupont trains managers to identify signs of distress in workers. However, Paul W. Heck, global manager of employee assistance and WorkLife services, says conversations with a boss about a diagnosis "would never be encouraged." Managers at Dupont who do identify distress are asked to remind employees of the assistance program, which offers free counseling. While these efforts are laudable and provide valuable services to employees, it’s obvious that corporate America still views mental health as something not to be discussed. It is not just a matter of confidentiality concerns for the firm. The message is to keep silent. But there is no way to break the stigma if we keep silent. And the reality is that the fear is unwarranted, and, if discussion starts at the top, it can easily change attitudes and behaviors. There is much that business leaders can do. While leaders are more likely to be committed and indeed supportive if they understand what’s in it for the company, the most effective way to gain leadership support is if they personally relate to it. Senior executives like to have a cause, whether it’s cancer, homelessness, youth or any number of issues; business leaders frequently are champions. They use their position and influence to engage the staff, corporate communications, HR and other resources, including the community, to work together to address social needs. Their ability to effect change is vast and untapped when it comes to mental health and suicide. We just need to get them talking about it. Two years ago, I had wrist problems and had to get physical therapy for several months. In the beginning, I went to a see a therapist twice a week. Everyone knew about my wrist problem. They knew where I went twice a week, and they were sympathetic to what I was experiencing. Today, I no longer need physical therapy, but I do go to a doctor every week. I go to see a different kind of therapist. The kind you talk to and get advice from. In the beginning, I told people I was going to see my psychiatrist. Now, I don’t feel the need to re-enforce the point every time I go to see my therapist, because everyone already knows. Seeing this therapist is just like seeing my physical therapist. I have declared it okay to leave the office to see your doctor, even if that doctor is focused on mental health. I’ve set an example that it’s okay to talk about this at work, and, more importantly that mental health should be treated no differently than any other health concern. This openness definitely has an impact.  A while back, we were in the office on a Monday morning talking about the weekend. One person had been at the family house on the lake with the extended family – grandparents, aunts, uncles. One of his aunts was going through another depressive episode. The employee admitted that in the past when his aunt was depressed he tended to leave her alone and felt she should “just get over it.” But this weekend, he spent time talking to her, listening to her and reassuring her. His exposure to someone living with depression in a different setting allowed him to be more sympathetic and understanding. I’m sure if friends or co-workers exhibited signs of depression, he would be able to be more supportive of them, too. Getting to know a co-worker living with a mental illness changed his attitude. While I would never have chosen to be born with depression, I have learned to appreciate what it has given me. True, it has presented some significant challenges and difficult times. But these challenges have also given me a tremendous amount of strength and resilience. I draw on this both in my personal and my professional life. Having been in financial services for much of my career, I have experienced significant work challenges. I led the effort to keep a major financial service provider funded and operating as it went through a downsizing from more than 14,000 to fewer than 4,000 employees. Back in 2007, during the early stages of the financial crisis, I was at a major financial services company when an industry analyst used the "bankruptcy" word speaking about the company. The press descended in droves, customers were concerned and a year later the company was acquired by another bank. In all these situations and many more, I have been counted on as a leader during substantial adversity. Yet these challenges cannot compare to the difficulties I have faced with depression. It is through the struggles with depression that I learned how to attack really difficult situations and how to get through the tough times at work. Depression has also given me an increased empathy toward others. While I think this manifests itself daily in the way I manage, it certainly helps in those situations when it is most needed. Once, as soon as I had started a new job, an employee whom I had not met did not show up for work for several days. No one knew what happened until we heard through one of his friends that he was in the hospital psychiatric ward after attempting suicide. He had served in Afghanistan and had post-traumatic stress disorder (PTSD). He had just bought a house that he and his fiancée were going to move into. But, before moving in, his fiancée broke up with him. When he got out of the hospital, he contacted another executive he knew. This person knew my background with mental illness and suggested the two of us meet. When we met, it was clear he wasn’t ready to come back to work, so I got him to agree to meet me for coffee twice a week. This was my way of making sure he got out of the house and allowed me to help him with referrals for things like therapists and support groups. I talked with him about being in therapy and how it had helped me. Because the people who hired me knew of my advocacy around mental health, I was brought into the conversation and was able to provide support as this young man started down the road to recovery. I’m happy to say he got the help he needed and now, years later, is thriving. In the alpha-male-dominated, type A, adrenalin-charged executive suites of corporate America, admitting to weakness of any sort is viewed as taboo and a job-killer. The prevailing view is that people at the top get paid a lot of money and should be able to handle whatever their job throws at them. It is incredibly difficult to find examples in the press of senior executives who have taken a leave or resigned for mental health reasons. And we know death by suicide is often attributed to other causes. However, we are seeing mental health in the press more and more. Last year, Barclay’s compliance chief resigned after taking a leave of absence for stress and exhaustion. In 2011, the new Lloyd's chief executive took a leave of absence after eight months on the job for stress-related problems. Last year, the CEO and the CFO of two different companies in Switzerland died by suicide, and their deaths were reported in the press. And I’m sure you are all aware of the recent string of Wall Street suicides. So, while the perception is that people at the top can and should handle anything, the reality is somewhat different. Clearly, there are people at the top who are experiencing mental health problems. People in the highest offices of corporate America do live with mental illness. Personally, I think depression is a much more common affliction with executives, entrepreneurs and leaders than society is willing to admit.  And, just going by the numbers, many, many more have a family member, relative or friend living with a mental illness. There have to be senior executives who have been affected by suicide. It seems to me depression is the family secret we all share. Frequently, a bereavement leads to depression, which, in turn leads to suicide of a family member, which can lead to another period of bereavement, depression and suicide. It can be an evil circle. So how do we create awareness and a sense of urgency around mental health in corporate America? How do we make sure suicide-prevention efforts are supported and sustained? There are many strategies. I’ve already mentioned things like anti-stigma campaigns, health care parity, wellness clinics and employee assistance programs. Together with mass media and extensive research into the causes and treatment of mental illness, we should see a change in corporate cultures. These are critical efforts, and we should continue supporting them. I’d like to propose one more strategy. That is a concerted campaign targeting senior executive leaders to become mental health and suicide prevention advocates. How do we accomplish that? Let’s reach out to senior executives in a number of ways. Above all, we have to make talking about, and then communicating about, mental health concerns acceptable in their rarified sphere of influence. Only then can we create support groups, arm them with thorough training about mental health and suicidal behaviors, create speakers bureaus of senior leaders who are open and sharing and teach them to become knowledgeable advocates. First, let’s provide support for the leaders themselves. Clearly, there are people at the top are who are experiencing mental health problems. Why not create a support network for these individuals? Let’s provide a safe environment for senior executives to talk with their peers about what they are going through – personally and professionally. Philip Burguieres was the youngest CEO of a Fortune 500 company. In 1996, this self-described workaholic had to leave his job because of depression. It was several years before he returned to work. Today, he is a vice chairman of the Houston Texans football team. He is actively sought by CEOs with similar stories. He has been rather public about his very private support of a secret network of CEOs with depression. We could extend Philip’s example to create a safe community for senior executives challenged by mental illness to talk, share, and find support. It could even be positioned as an extension of the increasingly popular executive coach strategy. Let me give you another example. Last year, the UK arm of Deloitte, the international business advisory firm, appointed a British senior partner, John Binns, as its mental health and personal resilience advisor. Deloitte is one of the most forward-thinking companies with respect to human resources of all the places I have worked. After taking a leave for depression, John created a group of nine mental health champions at Deloitte UK, partners in the firm who were trained to discuss and support mental health in the workplace. He provides one-on-one advice for individuals in the firm who want to speak about mental health issues affecting them or their family. He also provides mental health awareness and advisory services to other businesses across the UK. We know that most deaths by suicide are by individuals with a diagnosable mental health issue, but only a minority those individuals receive any mental health service. Confronting mental health in the workplace should be an effective method of reducing deaths by suicide. As the stigma is reduced and more people get the care they need to recover, efforts like zero suicides among people who are receiving care become more significant. Moreover, to the degree benefits like employee assistance programs, wellness programs and general awareness and prevention programs are used in the workplace, advocacy by senior management is the best way to make these efforts a sustainable and core part of the organizational culture. So why do I think this will work? Why should corporate leadership become a major force in mental health efforts including suicide prevention? Why will it make a difference for people with mental illness and suicide attempt survivors to be open in the workplace? For me, the answer is simple. I’ve been through this before. Coming out of the mental illness closet is not the first closet I’ve come out of. Twenty-three years ago, when I was accepted into business school, I made the decision to be open and honest about being gay. It may not have been a revolutionary act at the time, but it was a time when almost everyone in corporate America still was in the closet. I decided that I didn’t want the next generation to experience the same prejudice, ignorance and stigma that I experienced. I told myself that if I were someplace that didn’t want me because I’m gay, I could take my Stanford bachelor and Kellogg MBA degrees and go somewhere else. This spring marked my Kellogg 20th anniversary. I ran into someone I knew quite well during school but had lost touch with over the years. While re-connecting at the reunion, he mentioned that he was against my being open while at business school. But now he sees what’s happening with gay marriage and thinks my being open must have made a difference. I look back at the past 25 years, and I know the important role every out and open gay person has played by simply being honest about who they are. And one important lesson we have learned is that to ask others to accept us means we have to accept ourselves. I think the people living with mental illness and suicide attempt survivors at the corporate level need to come out of the closet. We are the best positioned to shatter the silence. If we can combine this openness with change in the business world driven from the top down, I know we can make a significant impact on the stigma around mental illness and suicide. I talk about mental health in the workplace because it’s the best way I know to break down the stigma. I want to make a difference, and I can afford to take the risk in an effort to effect change. As the senior executive in charge, setting the tone and defining the organization’s core values is one of the most important roles I play. Living with depression has not always been easy. However, in many ways it has made me a better person, a better manager and a better business leader. Living with depression has been challenging, but it has not kept me from succeeding.

Joel Bosch

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Joel Bosch

Joel Bosch is the chief operating officer of eCD Market, a mid-stage financial technology startup. Before joining eCD, Joel held senior executive positions in the financial services industry at major institutions like Bank of America, Providian Financial and Countrywide Financial.

Insurance Product Development (Excerpt, Part 3)

Every profit center leader should ingrain a culture of creativity into the daily routine.

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CHAPTER 4: Roadmap to Creativity Culture of Creativity Creating a culture of creativity is an essential building block for a successful product development company. To succeed, every profit center leader should ingrain a culture of creativity into every aspect of its daily routine. The start of this creative journey begins with the support, process, rewards and goals. silhouettes-81830_640 Each of these steps is discussed in this chapter. New Product Directors It is advantageous for each profit center or business unit to appoint a new-product director as a resource charged with overseeing product idea generation and development. This can be a full-time or part-time position. Responsibilities could cover a wide range of activities, including:
  • Idea generation – Interact with staff, brokers and clients about product needs.
  • Idea validation – Review ideas with the product innovation council.
  • Project oversight – Assign a product champion to each new idea.
  • Post-launch performance review – Track new product sales.
Having a new-product director who is responsible for this journey -- “the navigator” -- can be extremely helpful to a profit center’s success. Experience has shown that it is most effective if the new-product director is a full-time, dedicated employee who is an experienced executive who can command respect and attention. If the organization has a centralized new-product department, this department partners with each new-product director and assigns a staff member who will provide support and assistance. Product Innovation Council The formation of a product innovation council in each profit center can provide the company and its new-product director with an organized approach to finding and vetting ideas. The new-product director will lead and organize the product innovation council within that division and should consist of managers from each of the profit center’s major product lines. Regional, legal and marketing participation should also be included. The purpose of the product innovation council is to find new products ideas, review ideas submitted and recommend to senior management developed ideas for evaluation. For smaller organizations, a single product innovation council, sometimes called a product innovation steering committee, can be very satisfactory.   New-Product Champion Finally, for each individual new product, the profit center should choose a champion who steers a particular product through development. The new-product champion will be a crucial part of the product development team. Usually, the new-product champion is a manager or underwriter who will have the ultimate responsibility for the product once launched. Product Development Process The key to the success of a creative culture is the establishment of a methodology to develop, design, test, launch and confirm the validity of a new product. New-Product Award Program To maintain momentum on this creative journey, it is important to recognize profit center participants who contribute to the development process. Therefore, it is advantageous to have some standing reward program. A program might look like this:
  • Idea Accepted for Development, $100
  • Launched Product Idea, $500
  • Financially Successful Product, a percent (usually very small) of the first-year revenue, up to a fixed amount, such as $10,000
Non-monetary rewards, however, should not be underestimated. Psychologists tell us that a nice letter of recognition from the CEO or an acknowledgment in the company newsletter can often be more valued by the employee than a $100 gift card. Some companies use sophisticated surveying techniques to find the most optimal combination of rewards, often finding that the monetary rewards do not have the level of impact they were thought to have. The following are a few examples of items that could be offered:
  • A letter of appreciation from the profit center executive
  • Recognition in the profit center newsletter
  • Lunch with the profit center executive
  • A photo with the CEO
  • An additional personal day off
Specific New Product Goals That which is measured is that which is done. It thereby goes without saying that a product in development must have specific, measurable goals before launch. Also, however, the entire organization should have specific, measurable goals for product development. How much are new products contributing to the top line? To the bottom line? What are the other measurements such as speed (“cycle of development”), account retention, cross-selling impact, etc.? Once the firm has its overall goals, these must be incorporated within the budget and goal setting of every profit center so that the goals and strategies of the profit center align with those of the firm as a whole.

Ty Sagalow

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Ty Sagalow

Ty Sagalow is a 30-year senior insurance executive veteran, 25 of which he spent at AIG, where he held various positions. He is currently president of Innovation Insurance Group, a consulting firm to the insurance industry specializing in product development and subject-matter expertise in management and professional liability insurance.

Affordable Care Act Can Help Close Workers' Comp Claims

Just don't call the ACA "Obamacare" with counsel or clients.

The Affordable Care Act can help workers' compensation professionals close claims. Now that injured workers can buy private health insurance regardless of pre-existing conditions, parties can calculate case value according to the cost to fund health insurance premiums. Uncertain about the cost of future premiums? You're an old hand at this -- the cost of future medical care is an issue you’ve always dealt with in settlements. Consider likely future use changes and inflation. Use all the resources you have and negotiate. The big objection to closing out future medical is uncertainty about the future. Expanded Medicaid, available in 27 states and the District of Columbia, provides a safety net. Expanded Medicaid (Medi-Cal in California) does away with resource rules. Individuals aged 19 to 64 who have modified adjusted gross income less than 138% of the federal poverty level can access public health benefits, no matter how much money they just received to settle their claim. Expanded Medi-Cal enrollees cannot be Medicare beneficiaries, pregnant or incarcerated, and they must meet their state’s citizenship requirements. For some types of injuries in California, this may include undocumented workers. Read more. Although the term "Obamacare" is a nickname for the Affordable Care Act, many people think those are two separate things, and politics gets in the way of clear thinking. When discussing settlement with counsel and clients, talk about using "The Affordable Care Act" to avoid the emotions the term "Obamacare" triggers. Make sure you mediate with someone who understands all the options for replacing medical benefits in our new healthcare environment.

Teddy Snyder

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Teddy Snyder

Teddy Snyder mediates workers' compensation cases throughout California through WCMediator.com. An attorney since 1977, she has concentrated on claim settlement for more than 19 years. Her motto is, "Stop fooling around and just settle the case."