Even though it's obvious that early intervention drives better outcomes, few systems are in place to guarantee early intervention into problematic workers’ compensation claims. One widely acclaimed effort to identify troublesome claims early is predictive modeling, which conducts elaborate analysis of data using advanced mathematical methods. But finding those claims remains a guessing game. Not every future problematic claim will be tagged, because many do not meet the modeling criteria. Predictive modeling can be helpful but is imperfect and costly. A more practical methodology for identifying costly claims is to monitor the data on a concurrent basis to uncover dicey conditions in them. Rather than predicting which claims will be risky, the conditions that portend risk and cost in claims are isolated and then identified as they occur. Technology is used to find the claims that bear those conditions whenever they occur throughout the course of the claim. All claims are monitored, so none are missed. No guesswork is involved. The data monitoring approach is powerful, but, as with predictive modeling, only when the next step is taken. Organizations that undertake a process for identifying risky claims early stand to lose the entire benefit unless they also structure procedures for intervention. The appropriate persons must be notified about problematic claims immediately, and those persons must carry out the recommended procedures.

A bitcoin (lowercase b), as a currency, has several flaws that will continue to limit its ability to replace money, as we know it. There are millions of words published on the subject, so I’ll leave it to the reader to assess arguments on both sides. However, Bitcoin (upper case B) as a protocol for the transfer of value is an extremely important innovation that the insurance industry would be wise not to ignore. This article looks at the issue from the point of view where the insurance industry meets the engineering profession; this combination could be where some of the most important and valuable new opportunities arise. The Block Chain Protocol (BCP) The Block Chain Protocol is a brilliant innovation that cannot be un-invented – it is here to stay, and it will appear in many forms long after it sheds its association with so-called crypto-currencies. Bitcoin was designed to solve an age-old problem: the possibility of spending multiple times a promissory note such as currency. In the case of virtual currency, the problem is especially acute because a currency created on a computer can be easily copied by a computer. The BCP can be compared to a train leaving the station. When the train arrives, the door opens and everyone piles in. After a predetermined amount of time, the doors close. While the doors are closed – and only while the doors are closed – the people write contracts for each other to agree upon. When the doors open, everyone piles out, but the contracts stay. Soon after, the doors close forever. After the doors close, absolutely no changes can be made, ever. Any changes must be renegotiated as part of a new “block” in a continuing “chain” of transactions. This prevents someone from printing “money”, i.e., issuing the same contract to many recipients. Today, this function is performed by a legal system, brokers and intermediaries such as banks and credit agencies – it is easy to see how these institutions would be concerned that an upstart technology that is fully decentralized with no CEO or corporate structure could literally exterminate their brokerage fees. (While I used a mechanical analogy of door and trains, the BCP operates using time stamps and cryptography to manage identities, ownership, vetting, etc.) The big deal with bitcoin as a currency is that the value of a contract can be cast in time. The “crypto-currency” simply represents that value outside of the block for that exchange inside of the block. Many people, including the media, get hung up on the idea of currency because that is something that obviously concerns everyone in the age of impending financial doom. However, one must not be fooled by hype nor remain complacent and hope the bitcoin issue it will go away. The BPC is here to stay, and there are thousands of them in existence, not just bitcoin. Yes, this means threats to the status quo, but there are also great opportunities for those who learn how to use smart contracts to transmit value without institutional friction. The part that the insurance industry should be concerned with is the ability to transmit contracts. When contracts are executed on a block chain and locked cryptographically, these are called “smart contracts.” The seminal work on smart contracts was written by Nick Szabo and introduced in this 1997 primer: The Idea of Smart Contracts. The remainder of this article will focus on one very important type of smart contract: the adjudicated smart contract partnering the insurance industry and the engineering profession. The Oracle Adjudicated contracts are contracts involving three parties: the insurer, the insured and the adjudicator. The insurance adjuster should immediately come to mind, but the work of the adjudicator is much more flexible. In an insurance claim, there is often a forensic investigation involved. In many cases, the investigation may reveal failures of design, quality, defects and workmanship and moral hazard. When a payout is warranted, claim money is drawn for reconstruction and remediation per a contract. The insurance industry depends on actuarial statistics and forensics to manage these risks. What if forensics could be performed and actuarial data compiled before the failure occurs? Adjudication can be integrated directly into the performance contracts as the project is designed and built. Licensed professional engineers can “flip the switch” that releases funding or seal coverage for specific perils as they oversee the design/build contracts during design, construction and service life of a property. This would allow insurance companies the ability to price risk and adjust exposure pools with extreme accuracy. Assurance by Design In other words, it is possible to develop Block Chain Smart Contracts. My firm is doing this for the engineering, construction and property management industries. The concept is to codify current standard contract templates, such as AIA contracts, into a series of smart contracts on a cryptographic block chain. Contractual events will correspond to payment milestones underwritten by bank and insurance institutions. As each milestone is reached, the professional engineer will verify the proof of work and flip the switch that released the contract to the next insurable component. The Insurance Industry Is Threatened Today, many insurance companies are not too concerned with construction risk as long as it is priced correctly. What the insurance industry may not realize is that if too many good properties are subsidizing too many bad properties, private parties with good properties will use these adjudicated contracts to self-insure. For example, if a 250-unit, high-rise condo spends $4 million on a new potable water system and the insurance premiums are not discounted accordingly, the condo could now easily form its own risk-sharing pool with communities known to have new water systems. With Block Chain Protocol technology and readily available data, almost anyone can now form an insurance pool. The challenge then for the insurance industry is to use new technologies to build more and better insurance products using the legacy tools that they are built on and rapidly adopting new technological solutions that are now available to them. The Block Chain Protocol may be one of the most important innovations of the digital age. Pretty much anyone with the job title of “broker” should be seriously concerned. History provides countless examples of companies and industries that failed to adapt to new changes. For this reason, insurance should take the Block Chain Protocol very seriously. The technology is simple by design and only requires some creative adjustment and strategic partnerships to assimilate into the business plan. Nobody will do it for us. We need to do it ourselves.

Let’s face it, most of us are addicted technology futurists. Who doesn’t enjoy speculating about what technology marvels will be commonplace in the coming decades? Will it be 3D printing? Artificial intelligence? The “singularity”? All are buzzwords of the emerging technology future. But what about leadership? If we don’t get leadership right, all the bright shiny objects in the future will dangle beyond our reach. Will the tenets of great leadership change over time, and, if so, what will leadership look like 20 years from now? Here are six major shifts I believe will mark how the most effective leaders will behave in 20 years: 1. Questions, Not Answers. Today’s leaders are addicted to answers. Corporations reward being right at the expense of just about everything else. We promote those who choose correctly, and those who don’t mysteriously disappear from the org chart. But with technology advances, answers are quickly becoming a commodity. Today you can Google just about anything – just imagine how efficient “search” will be in 20 years. Internal systems will capture corporate learning like never before, allowing you to tap deep into the set of corporate experiences. Of much greater value will be the ability to ask the right questions. In a chaotic situation, winning requires focus, and knowing where to focus will be determined by the questions you are asking. In the future, your effectiveness as a leader will be defined by your ability to ask the right questions. 2. Employee Pull. For nearly 100 years, leadership has been a top-down game. The Industrial Revolution brought about scale, and the only way leaders knew to manage this scale was through hierarchy. It was assumed that individuals could only effectively manage between 8 and 15 people, so as companies added more people they added more layers. But today’s marketplace moves and changes at great speed, and the inherent slowness of larger hierarchy is rapidly being trumped by the need for speedy, market-based decisions. Rather than having the “leaders on high” determining strategy and operational decisions and pushing them down through the organization, tomorrow’s winning organizations will delegate decision making authority to the “edge.” Decisions will not be pushed from the central command – they will be pulled from the edges of the organization, where the employees are closest to customers, and increasingly working directly in partnership with them. The most effective leaders will be those who embrace this extreme empowerment, while still effectively managing quality and risk. 3. Customer Pull. Like employee pull, the entire traditional “push” system of marketing will be turned on its head. Instead of executives in a wood-paneled conference room deciding on products and services to offer and then pushing those offerings out to the market, customers will make more and more of these decisions. Technology will make customization much more prevalent. Our experience when visiting websites will be unique to each of us. 3D printing will allow us to “materialize” what we consume in quantities of one. The Four P’s of marketing – price, product, place, promotion – will be controlled by a fifth and overriding factor – personalization. Leaders in this new marketplace will be those able to set up and manage systems of tools with which customers can interact and create. Great marketers will be replaced by great marketplace managers. 4. Chaos Learning. In global business, the last 20 years have been marked by leaders in pursuit of the elimination of variance. We ask our consultants to simplify the world into a 2×2 matrix, identify “best practices,” write detailed policies and procedures that limit behavior choice and hope that the current version of market reality lasts long enough for these changes to be effective. But stable reality is being replaced by constant change, and at an accelerating pace. Tomorrow’s most effective leaders will embrace this new, chaotic world. Planning will be replaced by intelligent reaction. Leaders will anticipate where the next disruption may come from and prepare for multiple scenarios (windshield, not the bug!). Instead of relying on proven static methods and processes, leaders will focus on building a learning capability, being comfortable with ambiguity, continually working within a changing landscape and anticipating and reacting to it with agility. 5. Focus on Growth. To put it bluntly, efficiency will become ubiquitous. It is going to be a price of entry in nearly every industry. Most activities that are currently labeled “operations” will be shifted to computers and robots (read: unemployment). And we will all have access to the same tools. As a result, the battle for competitive advantage will be fought and won based on growth – rewarding those companies that can consistently invent and commercialize new products and businesses. Leaders who excel will understand and reward the skills and behaviors that create growth and innovation. Examples include “fail fast” experimentation, rapid prototyping and continuous iteration. 6. Purpose. Purpose is important for leaders today. It will become increasingly vital in the future. We are entering a great age of empowerment for both employees and customers. Employees will demand the right to choose who they work for, which tribes they join and which products they associate with. Purpose will be the basis of much of this choice, and the greatest leaders will rally around missions that offer the chance to have dramatic positive impact. So there you have my futurist vision: 20 years from now, great leaders will ask the right questions, let employees pull information and customers pull their desired products and services, organize for chaos, foster the behaviors of growth and guide the entire system toward a positive purpose. I can hardly wait.

Several recent articles and publications have highlighted the challenges we continue to face in California workers’ compensation. Following the "state of the state" report in August by the Workers Compensation Insurance Rating Bureau (WCIRB), Mark Walls noted in an article that the challenges in California continue to mount as California now accounts for 25% of U.S. workers’ comp premiums, with some of the highest medical costs in the nation. The recent Oregon report noted that California now has the most expensive comp system in the nation, having risen from the third most expense in 2012 to the #1 spot -- a dubious distinction that should serve as a continued call to action. As Walls so aptly noted, we in California need to move beyond the notion that we are always going to be different. We cannot continue to mark our “progress” against our own past performance, overlooking the sobering comparison to other states. If we do, we’ll see the return of television commercials touting nearby states as welcoming alternatives for employers. With no shortage of reforms over the past 15 years, Mark’s comment about our focus on reducing frictional costs in the system without really addressing medical provider behavior rings true. The recent reform attempted to tackle the frictional costs, particularly the costs of liens and utilization review (UR) disputes. It was assumed that the lien filing fee and statute of limitations on liens would reduce the extraordinary burdens and costs that were expended to both litigate and settle these expensive and often unjustified charges. It was also thought that independent medical reviews (IMRs) would speed the delivery of necessary medical care and would keep UR disputes out of the courts. Although there certainly appear to be fewer liens, the problem has not been solved. In addition to some inevitable liens for disputed medical treatment, we continue to see liens filed after bills are reduced to conform to the approved fee schedule. In a state with a fee schedule, why should an employer be forced to litigate or settle a lien for charges that exceed the fee schedule? We know we can resist the lien, have a bill reviewer testify at a lien trial and have a good chance of prevailing. Unfortunately, though, the cost of winning is very high, including the cost of the hearing and the larger cost of keeping a claim open, delaying a settlement and maintaining a reserve. This is the very real dilemma that often causes payers to settle a lien that is not owed, rather than defending against it. What if the prevailing party was reimbursed for the full cost of a lien hearing? Perhaps that would persuade claimants to carefully evaluate their liens before proceeding, while also forcing the defense to evaluate the validity of the lien before allowing the lien to go to trial. The other significant attempt at reducing the frictional costs was the introduction of independent medical review. What have we seen, as a claims administrator that limits the use of utilization review by empowering examiners to approve significant numbers of diagnostics and treatments? We’ve seen in excess of 97% of the URs submitted to IMR upheld by the IMR process. Yet, for those 97%, our clients have incurred the added expense (IMR is not inexpensive), and the claims process was delayed while the IMR process was completed. Some oversight is definitely healthy and necessary. The challenge is in finding a less costly, less time-consuming method of ensuring that injured workers are treated fairly -- a method that actually changes provider behaviors so that the injured workers who are treated by high-performing providers are not swept up in a system of reviews and re-reviews. Although no solution is likely to satisfy all constituents, there must be something we can do to provide incentives for the right provider behaviors. What about using all the medical bill reviews and other data to analyze provider behavior and “certifying” providers? The consequences could be: 1- A fee schedule “add on” or bonus for the top quartile of providers 2- A six month “bye” from utilization review for the top 50% of providers 3- Some sort of added oversight for providers performing below the 50th percentile This is certainly not as easy as it sounds. Perhaps some representative providers would have some suggestions. Perhaps we should engage them in a discussion. But it doesn’t seem that there can be any harm in considering a “pay for performance” model. The answers may lie in the data, and they may not. The answers may also lie in the programs of one or more of the 49 states that offer less costly workers’ compensation coverage to employers. It certainly behooves us to look everywhere until we find those answers.

Many have struggled to find and articulate a risk appetite. It is actually not too hard to find, if you know where to look. It is right there – on the border. Risk appetite is the border between the board and management. Once management has proposed a risk appetite and the board has approved it, then management is empowered to take risks. As long as the risks are within the risk appetite, then management does not need to inform the board until after taking those risks. If management plans to take risks that are outside of the risk appetite, then executives must go to the board in advance for permission. That, of course, is just the bare minimum communication with the board about risk. There are five topics that make up a good level of board communications: 1. Risk appetite and plan 2. Risk position and profile 3. Top=risk mitigation and capabilities 4. Emerging risks 5. Major changes to risk environment and risk plan The first and last items are the subject here. The other topics will be covered in later posts. Notice that the first item on the list above is appetite AND Plan. Before discussing risk appetite, both management and the board need to be very familiar with the company’s historic levels of risk and the intentions for risk level. If there is no history of risk planning, it is totally premature to even discuss risk appetite. It is doubtless true in all cases that management has vast experience with risk taking, as well as experience with risk taking that ended up creating losses or other undesirable adverse consequences. But unless there has been experience of planned and monitored risk taking, there is a natural propensity to start with the presumption that, in the past, the highest-risk activities are those that ended in losses and that activities that did not end up with losses were lower-risk. While losses are a good indication of one sort of risk, they are not the only way to assess risk. Imagine the risk of an earthquake in a specific area. There have been no earthquake losses there in living memory. But that doesn’t mean that there is no risk. There was a devastating earthquake there just 150 years ago, thus there is certainly some potential for future events. Risk is not loss, and loss is not risk. Risk is the potential for loss. It only exists in advance of an event. Loss is the negative outcome of an event. Risk appetite sits on another border. That is the border between regular and extraordinary – mitigation, that is. For each of the major risks of a firm, we have a regular process for control, mitigation and treatment of risk that we have and and that we acquire. We also should have some idea of what we might do if the level of risk gets out of hand. For example, a life insurer writing variable annuities might have a hedging program that is used to mitigate unwanted equity market risk. A P&C insurer might have a reinsurance program to lay off excess aggregations of property risk. A bank might have a securitization program to mitigate the portion of mortgage risk that it does not want to keep. In all three cases, an unexpected jump in closing rate or a new very successful distributor might suddenly cause the level of residual risk after normal mitigation to become excessive. Usually, this is evidenced by a weakening solvency margin. The company must go into extraordinary mitigation mode. That means that for the risk that has become excessive, or for another risk if they have a nimble risk steering function, there will need to be some major change in operations to bring the level of risk back into line. The choices for these extraordinary mitigations may be simple adjustments to the normal mitigation processes, a shift in hedging targets, a drop in the reinsurance retention or an increased emphasis on securitizing all tranches. But most often these extraordinary mitigations involve real changes to plans, such as a change in pricing structure, risk acceptance procedures, a change in product or distribution strategy to discourage the least profitable or highest risk sales or a change in a share buy-back plan. In the most extreme cases, there might be a need to temporarily shut down the source of the excessive risk. Unexpected losses might also cause a sudden shift downward in risk capacity and therefore in risk appetite. In such cases, extraordinary mitigations will favor options that might speed the rebuilding of capital. In the most extreme cases, the final stage mitigation would be to sell an entire operation along with the embedded risk exposures. Almost all of those extraordinary mitigation choices are not decisions that management prefers for businesses. But good managers have some advance idea of the priority order in which they might apply those tactics as well as the triggers for such actions. Those triggers are the boundary for risk taking. They are reflective of the risk appetite. So if you recognize that risk appetite is this boundary condition, you realize that the talk you hear in some places of “allocating risk appetite” is not the approach that you want to take. What you really need is a risk target that is allocated. The risk target is your plan. It is not totally “efficient,” but there should be a buffer between the risk target and the risk appetite. That buffer allows for the fact that we do not control and may not even immediately notice all of the things that might cause our risk level to fluctuate, but we need a risk target because risk appetite is really the border that we hope not to cross.

The biennial study on workers’ compensation premium rates issued by the Oregon Department of Consumer and Business Services (DCBS) was released last week, and, as always, is worthy of a review by those of us entrenched within the industry. The study ranks all 50 states and Washington, D.C., based on rates that were in effect Jan. 1, 2014. This year’s results show that major reforms don’t always gain the results that were intended or marketed to the industry; and while the results may not accurately reflect legislative intentions of the past, the report may be a better predictor of major reforms to come. The study shows that, despite extensive reforms designed to lower costs, California now has the most expensive rates in the nation, followed by Connecticut. North Dakota had the least expensive rates. In the Northwest, Idaho’s rates were the 14th most expensive, followed by Washington. Oregon researchers also compared each state’s rates to the national median (midpoint) rate of $1.85 per $100 of payroll -- California, for instance, was almost twice the median According to Mike Manley, one of the co-authors of the survey, “We continue to see a trend in the distribution of state index rates in our study clustering in the middle of the distribution. A record 21 states are within plus or minus 10% of the 2014 study median. This makes the rank values more volatile from one study to the next. I would recommend that states look also to their ‘Percent of study median’ figure for comparisons over time.” Because states have various mixes of industries, the study calculates rates for each state using a standard mix of the 50 industries with the highest workers’ compensation claims costs in Oregon. Details about how the study was conducted can be found here. A summary of the study was posted Wednesday, Oct. 8; the full report will be published later this year. The summary report, available here, provides the complete ranking of the states premium rates. I have taken that data and added a comparative column that shows at a glance how far up or down the scale a state has moved since the last report in 2012. The table presents an interesting view, particularly juxtaposed with the knowledge of what states have undergone significant reforms in the past few years. We can see that there were major drops in premium rank for both Kentucky and Wisconsin. Kentucky moved from 22nd-highest in the nation to 40th, improving by 18 positions. Wisconsin moved down 11 spots, from 12th-highest to 23rd. While Wisconsin did enact some changes in 2012, neither state is considered to have been a major reform state over the last few years. For a couple of those states undergoing dramatic reforms, Oklahoma and Tennessee, it is too early to tell the effect, as they are just implementing changes this year. Others, however, including California and Kansas, saw premium costs as a comparative rise despite reforms intended to do otherwise. Illinois, another reform state, did see some positive movement, but it is probably not statistically significant given the weight of the costs and issues in that state. I would postulate based on this report that people in New Mexico, Hawaii, Missouri and Delaware may be thinking of what changes should be in order, because they had dramatic negative movement on the scale this year. Even if past reforms overall are not creating significant improvement in these numbers, I am pretty sure they will be a better predictor of what states may be facing reform in the future. Oregon has conducted these studies in even-numbered years since 1986, when Oregon’s rates were among the highest in the nation. The department reports the results to the Oregon legislature as a performance measure. Oregon’s relatively low rate today reflects the state’s workers’ compensation system reforms and its improvements in workplace safety and health. Here are some key links for the study/workers’ compensation costs: • To read a summary of the study, go here. • Prior years’ summaries and full reports with details of study methods can be found here. • Information on workers’ compensation costs in Oregon, including a map with these state rate rankings, is here.

The California Workers’ Compensation Institute (CWCI) has added its voice to the growing national consensus that greater controls are needed over the use of Schedule II medications in workers’ compensation medical treatment and disability management. But the CWCI research must be analyzed in a broader context. First, we continue to view the abuse of these medications in a “going forward” context – we focus on, how can we stop over-prescribing these medications on claims from the effective date of such reforms? Second, we inevitably take these recommendations out of the context of the state being analyzed -- can we say that the Texas closed formulary will work in any state whose system otherwise doesn’t bear any resemblance to the Texas system? One body of work and thought proclaims the overuse of Schedule II medications to treat industrial injuries is “bad medicine” and should be stopped as soon as possible. Guidelines from Ohio, Texas and Washington, however, recognize the need for prescriptions to relieve acute and chronic pain and provide detailed guidance on moving from acute to chronic pain management. Encompassed within that guidance is recognizing when weaning from these medications, or other early interventions, is appropriate and how to taper dosages to maximize clinical effectiveness and minimize adverse consequences to injured workers. Many of these concepts are embodied in proposed guidelines from the California Division of Workers’ Compensation (DWC) and the Medical Board of California (MBC). It is encouraging that on Sept. 29 of this year the DWC presented its work to the MBC’s Prescription Task Force at a public hearing and that both agencies are moving forward with compatible guidelines. As seen in other states, notably Washington, inter-agency cooperation is critical so as not to create conflicts between the regulatory agencies that oversee benefit delivery systems and licensing agencies that oversee providers. To take advantage of the potential cost savings in California’s complex workers’ compensation system identified by CWCI and the Workers Compensation Research Institute (WCRI), however, more needs to be done than adopting a closed formulary. That aspect of the Texas system requires prior authorization before prescribing an “N” drug, which includes Schedule II pain medications. After all, the California system already has: (1) claims administrators’ authority to direct medical care though the medical provider networks (MPNs); (2) the ability to adopt formularies through the MPN; (3) utilization review; (4) a medical treatment utilization schedule (MTUS) that sets forth presumptively correct guidelines for treatment, and; (5) post-Senate Bill 863 (DeLeón), independent medical review (IMR) for resolution of treatment disputes. We are continuing to have the discussion  regarding Schedule II medications because over the past decade the controls that have been put in place to manage the care and cost of medical treatment more efficaciously and efficiently have not produced the desired results. Some of this can be attributed to the pre-SB 863 environment where the MTUS was regularly subverted through the med-legal process. Claims where high level of opioids and other medications were approved for continuing treatment are still in the system and are now subject to IMR. While the adoption of IMR may be viewed as beneficial from a payment standpoint, it is not automatically beneficial in terms of patient care. As the actions of other states have shown, for those who have become addicted or incapacitated because of their overuse of these medications – at the direction of their treating physician – necessary care means more than saying you shouldn’t have had these, or as much of these, so we’re cutting you off. Also, more needs to be understood about the universe of claims that will be most immediately affected by a closed formulary – long-term, open claims and claims where compensability has been denied, whether completely or whether there is a dispute over a consequence of an accepted claim. As the DWC moves forward with its new Guideline for the Use of Opioids to Treat Work-Related Injuries, there needs to be more specific treatment of legacy claims or any claim where the liability of the employer is in dispute. The MBC’s Pain Management Guidelines, currently under revision, are applicable to all practitioners regardless of the nature of the injury or illness or the mechanism by which a provider is compensated. The DWC would do well to incorporate that work product into the MTUS as a reminder to all providers that, even if the claim is not accepted, it is not “off the grid,” and the MBC requirements still apply. Finally, the claims administration community needs to take a long hard look at how we review these cases. There is a universe of claims where Schedule II medications are being approved that would not seem to be supported by best medical evidence. Payers are an integral part of the close monitoring of claims where pain management is indicated and determining when it is appropriate to start tapering use of opioids with a goal of returning the injured worker to employment. As noted by the MBC in its draft revised Pain Management Guidelines, when referring to workers’ compensation: “The use of opioids in this population can be problematic. Some evidence suggests that early treatment with opioids may actually delay recovery and a return to work. Conflicts of motivation may also exist in patients on workers’ compensation, such as when a person may not want to return to an unsatisfying, difficult or hazardous job. Clinicians are advised to apply the same careful methods of assessment, creation of treatment plans and monitoring used for other pain patients but with added consideration of the psycho-social dynamics inherent in the workers’ compensation system. Injured workers should be afforded the full range of treatment options that are appropriate for the given condition causing the disability and impairment.” As payers, we have the ultimate leverage to make certain treatment of injured workers meets this standard. But if we simply want to find a quicker, better way to say “no” when a request for authorization is faxed in, then a closed formulary will only be yet another attempt at lowering medical treatment costs that failed to meet expectations.

The “consumer-ization” of healthcare and threats to the long-established business model of the life insurance industry are just two examples of how traditional players are facing intensifying pressure to be more purposeful about their digital strategies. No doubt about it, digital investments will continue to grow. To turn these investments into marketplace advantages, insurance brands can  embrace what has worked in other sectors. As one of my favorite CEOs used to say, “steal shamelessly.” I am constantly struck by how well the tried and true techniques of seemingly old-fashioned direct marketing can be applied to uncover how to make digital investments work harder. The discipline of direct marketing is all about having a continuous learning process that allows you to identify the leverage points for any brand engaging with its constituents. This applies to both B2B and B2C relationships. Such continuous learning leads to better focus on putting resources where the business payoff can be achieved. It also creates a fact basis for important, often high-stakes decisions. These same processes can be applied with strong impact to digital investments, including mobile and social. The processes are relevant across sectors. Skilled direct marketers have been adapting a proven toolset for digital decisions for at least the past decade, so there are well-validated ways to do this with discipline and control. Of course, digital experience is like direct marketing on steroids – there is lots more data and lots more complexity, and, of course, everything happens a lot faster. By integrating on to your team capabilities in (1) how to develop hypotheses, (2) how to set up effective test-and-control experiments, (3) how to conduct those experiments and (4) how to integrate learning for continuous improvement, you will be amazed at the progress that can be made, even over a few quarters, to understand where your digital leverage really lies. To make the point, I’d like to share a story of how a major credit card company, over the course of just a couple of years, set up a structured process to do exactly what I am advocating. As a result, the company enabled the complete transformation of its sales and service model from being almost entirely mail- and phone-based, to having a true omni-channel model with robust digital capabilities. In the course of doing this, the company effectively maintained its relevance as customers embraced developing digital channels. It also recalculated the economics of the business for all of the key consumer behavior drivers of financial performance. Here’s the story: Most executives in this business knew that digital was going to bring changes to the customer relationship but also questioned whether there would be positive financial impact. Was this just a financial sinkhole? Would it be justified as a growth story, or was it just about playing defense? How would existing distribution channels for sales, servicing and relationship management be affected? The digital team was full of believers. They saw digital as a big opportunity to improve all aspects of the customer experience. They saw opportunity to differentiate through the customer experience, to improve business economics and to redefine how new accounts were attracted and booked. But they lacked the evidence to justify scaling digital programs or to accelerate the pace of change. The team decided to borrow from their accumulated expertise as direct marketers. Leverage the past, but not be bound by it. Present familiar approaches to colleagues in the organization, as a means of building internal engagement and buy in. Here are the key steps the team took to get moving:

1. The head of digital created a senior role leading “profit enhancement” within the team. This signaled to the organization that, indeed, a connection existed between digital and financial performance. There was focus and accountability to enhance profits with digital technology, and to measure what was happening.
2. The team created a process that engaged cross-functional teams of thought leaders in brainstorming sessions to formulate hypotheses of how digital technology, tools and experiences might affect customer behaviors that were P&L drivers.
3. Hypotheses were prioritized and tested in-market, or through off-line simulations, depending upon the complexity of the tech support required for live testing. Regulatory considerations also affected the live testing priorities.
4. Results were continuously monitored, communicated throughout the organization and used to refine and advance further tests and decisions.
5. Focus was placed on two specific areas of inquiry: first, identifying the unit profit model behind a particular hypothesis and, second, finding the path to scaling positive results.

Over the course of the next three years, but beginning with results generated within the first several months of establishing the profit enhancement team and process, the team was able to discover, test and validate the impact of digital applications on all of the core customer behaviors that drove the income statement and balance sheet of this significant business, including attracting and booking new accounts, statement delivery, self-service, payments, relationship management and even collections of past due balances. What drove the success of this approach:

1. A high level of rigor. The process borrowed from direct marketing practices, but always with an overlay of openness and flexibility to allow for the unexpected, unanticipated, surprising results that can easily be missed when an experienced team gets too caught up in past success. I call this “rigor, but not rigor mortis.”
2. A collaborative and transparent mindset. This attitude fostered support and reduced resistance. By including people from all over the organization, particularly in the brainstorming and hypothesis-vetting stages, the digital team got new recruits to the “army of the willing.” The team started to make believers out of fence-sitters, and to reduce the impact of nay-sayers. Of huge importance was a tight collaboration built between the digital team and thought leaders in both risk management and decision management. These two teams were the analytic talent who drove modeling, pricing and product structures.
3. Tapping into the culture of test-and-learn. By following frameworks familiar to a traditional direct marketing organization, people had an easier time relating to the digital efforts. This further contributed to winning people over to the cause.
4. CEO sponsorship: necessary but insufficient. Winning the popular vote was a matter of the points I’ve made above regarding ways to get people on board. It was about everyday process, relationships, communications … and, ultimately, showing results.
5. Acknowledging and assembling the right mix of skills. Essential skills, activated with the right leadership wiring, enabled the everyday process to be effective. A team of digital natives with limited business knowledge would have been alienating (and unhappy) in this very traditional business that was proud of its legacy. A team of traditionalists might have found it really difficult to separate from the status quo. Building a team with real diversity of thought, background, approach – with a common denominator of a belief in collaboration – enabled progress and ultimately tremendous success.

On Sept. 17, California Gov. Jerry Brown signed into law AB 2293 (Bonilla) regulating insurance coverage for  transportation network companies (“TNCs,” such as Uber, Lyft and Sidecar). Two purposes of the bill were: (1) to fill a possible gap in coverage caused by an exclusion in personal automobile policies and (2) to allocate responsibility between TNCs and personal automobile insurers for insurance coverage issues. The statute attempts to achieve its purposes by creating a “firewall.” When a driver is logged on to the TNC network, the insuring responsibility is on the TNC policy.  When a driver is logged off, responsibility is on the personal automobile insurer. Think of “Log On” and “Log Off” as bookends. One might expect this statute to become a model for other states struggling with similar issues. Unfortunately, some infelicitous language in the statute may undermine the desired clarity. The mischievous phrase is “in connection with.” Once a driver logs on, but before being matched with a fare (referred to as Period One), the statute requires a TNC policy of 50/100/30 (in other words, $50,000 of coverage for bodily injury per person, $100,000 for bodily injury per accident and $30,000 for property damage). The statute also requires an additional policy of $200,000 to cover any liability arising from a participating driver “using a vehicle in connection with a transportation network company’s online-enabled application or platform within the time periods specified in this subdivision . . . .”  [Emphasis added in all cases]. Assume a driver, while logged on, decides to drive over the river and through the woods to his grandmother’s house. A TNC could legitimately argue that this driving is no longer “in connection with a transportation network company’s online-enabled application or platform.” By taking a detour, the driver has abandoned the TNC work. If so, does the personal automobile insurance cover an injury caused on the way to grandma’s? Apparently not. Section 5434(b) of the new statute says the TNC policy covers the period from Log On until Log Off, or until the passenger exits the vehicle, whichever is later. For ease, think of this as the bookends again. Subdivision (b)(1) then provides that the personal auto policy “shall not provide any coverage” unless the policy expressly provides for that coverage “during the period of time to which this subdivision is applicable.” So, personal auto cannot provide “any coverage” within the bookends. These provisions may have created a gap within the bookends large enough to drive an SUV through. What about driving outside the bookends? Is that clearly covered only by the driver’s personal auto policy? The statute requires the TNC to advise the driver “that the driver’s personal automobile insurance policy will not provide coverage because the driver uses a vehicle in connection with a transportation network company’s online-enabled application or platform.” Thus, the statute permits (and perhaps mandates) personal automobile policies to exclude coverage for driving “in connection with . . . .” When is driving “in connection with?” The “Case of the Yoga and Yoghurt” provides a good analogy. The basic rule is that collisions that occur while “coming and going” to and from work are not the responsibility of one’s employer. Simple commuting is not within the “scope of employment.” When, however, a person uses her automobile for work purposes, the rule completely changes. Judy Bamberger, an employee of an insurance company, used her car during work to visit clients and carry out other work-related chores. On her way home, she decided to stop for yoga and yoghurt. As she made a left turn, she collided with a motorcyclist. Is the employer responsible? “Yes.” In Moradi v. Marsh USA, Inc., 210 Cal. App.4^th 886 (2013), the court of appeal held that her driving fell within the scope of her employment because, since she used her car in her work, going to and from work conferred an “incidental benefit” on the employer. Put another way (although the court did not use these words), it was in connection with her employment. It would seem to follow that if one must use a car in an activity (such as TNC driving), then going to or from that activity is “in connection with” the activity. Because Period One (Log On) is part of a TNC’s “online-enabled application or platform,” driving to a surge zone with the intention of logging onto the app upon arrival is driving “in connection with” driving during Period One. If this analysis is correct, it again undermines the clarity of the App On/App Off bookends. It seems clear what the drafters had in mind, so this ambiguity could be remedied by clearly defining the meaning of “in connection with” – perhaps next legislative session. In the meantime, those considering using California’s law as a model may want to avoid importing this ambiguity.

The 2014 International Association of Industrial Accident Boards and Commissioners (IAIABC) Annual Conference in Austin offered a forum for regulators from around the country to discuss common issues and potential solutions. At this year’s conference, held Sept. 29  to Oct. 2, regulators highlighted a variety of complex issues that they are currently facing. Top issues include: 1. Hospital-Fee Schedules In states that do not have hospital-fee schedules, the standard for payment is usually “reasonable and customary” charges. The question becomes, how do you determine what is reasonable? Healthcare providers push for billed charges to be the standard, but payers feel that this is an unfair standard because the charges are significantly higher than what providers ultimately accept as payment. Payers are pushing for paid charges to be the standard, but providers argue that preferred provider organization (PPO) contracts heavily influence average charges and that those contracts are based on volume. Providers do not believe that those without contracts should get the benefit of that volume discount. 2. Benefits for Illegal Aliens Nearly all states extend benefits in some form to illegal alien workers. In some states, benefits are limited to medical benefits, while other states limit benefits to medical and total disability. In most states, there are no limitations to what benefits these workers can receive. The concern is that some states are awarding these injured workers permanent total disability benefits because their status as illegal aliens means they cannot be put through vocational rehabilitation and returned to work. Attorneys argue that total disability benefits should continue when a light-duty release is obtained because that person cannot legally return to work. States are trying to find a balance that protects the illegal alien workers but doesn't award them additional benefits simply because of their inability to legally work in the U.S. 3. Ride-Sharing Services The explosion of ride-sharing services such as Uber is causing concern with regulators around the nation. The big concern from a workers’ compensation standpoint is whether these drivers should be classified as employees of Uber or whether they are independent contractors. Owners of taxi companies argue that allowing these drivers to be classified as independent contractors creates an unfair competitive advantage. States are challenged with whether they can classify these drivers by statute or whether this should be done by courts interpreting current statutes. 4. Treatment Guidelines Several states, including Washington, Texas and Colorado, have pushed out treatment guidelines for issues such as opioids and lower back injuries. These guidelines have resulted in significantly lower medical costs on claims. The medical community tends to resist implementation of such guidelines as they feel this impedes their ability to render appropriate medical care based on the specifics of the patient. Those that argue for treatment guidelines point to significant research on the effectiveness of certain treatment methods and the dangers associated with opioids above certain dosage levels. 5. Large-Deductible Policies Regulators feel that there is confusion on the differences between large-deductible policies and self-insurance, with many employers assuming that the two are interchangeable. In some states, courts have ruled that employers under a large-deductible policy cannot have influence over the claims-handling process, so they cannot access items like adjuster files. The carrier is ultimately responsible for payment of the claims and compliance with the statutes. If the carrier is unable to collect the deductible from the employer, the regulators do not have jurisdiction over the issue. The deductible agreement is outside the parameters of the insurance policy.