An open mic session at the California Workers Comp & Risk Conference in Dana Point featured insurance industry leaders identifying emerging market trends that are important to employers in California. Panelists were: moderator Pamela Ferrandino, national practice leader at Willis North America; Bill Rabl, chief operating officer at ACE Risk Management; Robert Darby, president at Berkshire Hathaway Homestate and former chairman of WCIRB; Duane Hercules, president at Safety National; and Michele Tucker, vice president at CorVel. The panelists indicated that their short-term outlook on rates was flat to slightly higher, but not as high as over the last couple of years. For first-dollar accounts (those with no deductible), competition is increasing because there are more carriers entering the California marketplace. For the self-insured and those with large deductibles, the rate tends to matter less than the amount of risk retained by the employer, because the goal of these loss-sensitive programs is for the carrier to only cover unusual claims such as catastrophic injuries. Managing medical costs also continues to be a challenge. Opioids are still driving costs, so there must be an aggressive pharmacy management program in place. The industry is starting to see complications such as organ damage arise from opioid abuse. This could become a cost driver. Almost half the opioids in California are dispensed by physicians, so it may be necessary to address this issue legislatively, as other states have done. Predictive analytics are becoming increasingly important in the workers’ compensation industry. Some third-party administrators (TPA)s and carriers are doing excellent work in using psychosocial questions to identify issues that could complicate claims handling and increase costs. This allows them to intervene and devote additional resources to these claims. Analytics are also useful in the pricing process to assist carriers in identifying accounts that are performing above and below average and trends related to them. Municipalities face significant, long-tail impact from presumption claims (for diseases that have uncertain origins but that may be presumed to have been caused by an occupation). Defending against these claims is extremely difficult, and, once accepted, the claims have a tendency expand. Claims for high blood pressure can eventually morph into claims for advanced heart disease or a heart attack. In many municipalities, a large percentage of police officers and firefighters retire under presumption claims. There are currently bills sitting on the governor’s desk that would expand presumption laws in California, including one bill that would create presumptions for certain healthcare workers in the private sectors. If these bills are signed, they will increase California municipalities’ workers’ compensation costs even more. Finally, panelists were asked what they expect the key issues will be three years from now. Panelists predicted that mobile technology and the ability to communicate with injured workers will advance through apps that help with early intervention. They also expect to see an increased focus on wellness to address co-morbidities. Finally, everyone anticipates that within three years we will be talking about yet another California workers’ compensation reform bill and the continued expansion of presumption laws.

In a Senate Banking Committee hearing earlier this summer, Sen. Elizabeth Warren (D-MA) and Federal Reserve Chairwoman Janet Yellen played their parts brilliantly. They acted out a time-tried political science convention, that legislators and journalists are judged on results while bureaucrats and professors are judged on rules. At issue is Federal Reserve Board enforcement of its statutory obligations under Section 165 of the Dodd-Frank Act, to see to it that JP Morgan has orderly resolution plans in the event of failure. Broadly stated, that section of the Dodd-Frank Act empowered the Fed to impose "prudential standards" on bank holding companies with assets of at least $50 billion if an institution’s failure could affect “the financial stability of the United States.” The section also required the Fed to report its determinations annually to Congress. The hearing demonstrated the limits of our current system and the need for interactive finance, by which I mean rewarding institutions and individuals with financial or strategic advantage for revealing information that details risk. Interactive finance will provide indispensable liquidity to crucial markets that currently see little trading. More importantly, interactive finance addresses the core challenges of concentrated market power in banking and of sclerotic market administration -- of which Fed efforts to manage orderly resolution of JP Morgan are but a single, frightening circumstance. The issues are crucial not just for our economy as a whole but for insurers, in particular, because they are such large investors in securities offered by major financial institutions. The investments generate a high percentage of the insurance industry’s operating profits but expose it to catastrophic losses. For instance, in mortgage-backed securities, insurers hold more than $900 billion in commercial and multifamily real estate mortgages, according to the Mortgage Bankers Association’s Q4 2013 report. (That’s $343 billion in commercial and multifamily mortgage debt plus $567 billion in commercial mortgage-backed securities, collateralized debt obligations and asset-backed securities.) The Federal Reserve tallies life insurance companies’ holdings of residential mortgage-backed securities (RMBS) at $365 billion as of the end of the first quarter, 2014. In that wonderfully well-acted hearing, Sen. Warren asked Chairwoman Yellen if JPMorgan could sell its assets without disrupting the economy and impelling a taxpayer bailout. Warren also asked: Where are those reports the Fed is to provide annually? Warren was raising a key question: Is the Fed forbearing, being lenient on JPMorgan and other huge financial institutions? Congress enacted Dodd-Frank in July 2010, and this March the Federal Reserve Board published 100 pages of rules and regulations implementing Section 165. That is a gap of 33 months. Congress has yet to see any Federal Reserve reports, but for a wholly lacking 35-page document, Warren asserts. It’s possible that market administration is so complicated that it simply takes inordinately long to articulate and implement regulation and to report outcomes to Congress and the public. But the Warren-Yellen exchange revealed vastly more, specifically what appears to be a Federal Reserve policy to forbear on implementing its statutory obligations under Dodd Frank 165 in connection with JP Morgan and orderly resolution. In the hearing, Sen. Warren expressly asked Chairman Yellen, “Can you honestly say that JPMorgan can be resolved in a rapid and orderly fashion…with no threats to the economy and no need for a taxpayer bailout?” And, “Are you saying the plans [for resolution] are not credible, and you’re asking them to change their plans?” Yellen never really indicated that JPMorgan has any credible plan in place for its orderly resolution or has submitted any since 2012. Instead, she articulated process, iteration and feedback. Dodging Warren’s direct questions, Yellen essentially said that complexity drives inconclusiveness and explains the lack of annual reports to Congress. Yellen used the word, “feedback,” five times in her replies. Both Yellen’s circumlocution on JPMorgan resolution and its outsized concentration are but symptoms of market and market administration sclerosis, which Warren is trying desperately to treat. Absolutely brilliant performances by each woman. No question about it. As a legislator, Warren underscored that she wants results. As a regulator, Yellen adhered to processes and rules and the Federal Reserve Board’s traditional discretion in so weighty and complex a matter. Requests for clarification from the Federal Reserve Board for this article elicited no further information about the important question: Is the Federal Reserve forbearing on implementation of Dodd-Frank 165 bank resolution? End of story? No. Two problems remain. First, what of the JPMorgan resolution elephant in the room? Why couldn’t Yellen assert simply to Sen. Warren that JPMorgan -- with its $2.5 trillion in assets and 3,391 subsidiaries -- has credible plans in place for rapid, orderly resolution without triggering a systemic threat or taxpayer bailout? Could it be “the economy, stupid,” in James Carville’s bald turn of phrase? Monetary policy regulators repeatedly assert they have a very small palette of choices. At a conference of central bankers in Jackson Hole on Aug. 22, Yellen acknowledged that monetary policy makers are grappling with how to determine the best mechanisms to foster growth and to maintain price stability. “While these assessments have always been imprecise and subject to revision, the task has become especially challenging in the aftermath of the Great Recession, which brought nearly unprecedented cyclical dislocations and may have been associated with similarly unprecedented structural changes in the labor market -- changes that have yet to be fully understood,” she said. Eleven days earlier, in a speech to a finance conference in Sweden, Fed Vice Chairman Stanley Fischer cautioned of protracted economic slowdown well over a dozen times as he articulated policy-making constraints. “In the United States, three major aggregate demand headwinds appear to have kept a more vigorous recovery from taking hold: the unusual weakness of the housing sector during the recovery period; the significant drag -- now waning -- from fiscal policy; and the negative impact from the growth slowdown abroad -- particularly in Europe,” he said. In such weak economies, the last thing Yellen or any senior regulator with any sense of self-preservation would do is to acknowledge that JPMorgan cannot credibly assert that it can resolve itself. Milton Friedman and Anna Schwartz’s analysis (1963) that regulators -- and not a spending crisis -- triggered the Great Depression through monetary policy yet resounds in economic thinking. Hence all of Yellen’s process talk, for it would be incautious to respond negatively to Sen. Warren’s unambiguous questions whether JPMorgan can resolve itself without wreckage or bailout. In the pantheon of Federal Reserve Board chairs, if one thinks of Fed Chairman William McChesney Martin (1951-1970) for probity, Arthur Burns (1970-1978) for concision, G. William Miller for brevity (1978-1979), Paul Volcker for decency (1979-1987), Alan Greenspan for obscurity (1987-2006) and Ben Bernanke (2006-2014) for agility, Yellen may be laying claim as the Fed's Rocky Balboa. In winter and early spring, she said weather was the economy's problem. In mid-summer, she gamely parried Warren’s Ted Kennedy, who was insisting government can do better. Second, what of sclerotic market administration? This represents the graver challenge. Warren got no answers or reports. Yellen advertised she cannot or will not enforce Fed rules. All they achieved is good video. Both came up empty. Citizens voted for change six years and again two years ago. Certainly, voluminous regulation -- the rules and regulations on Section 165 fill 100 pages with single-spaced, eight-point type -- is a change in a very narrow sense from Bush-Cheney deregulation, outsourcing and selling of public resources and lands. However, such extensive regulation raises regulatory costs and seems to mainly benefit practitioners of crafting and evading the regulations rather than providing broader economic benefits. Interactive Finance Technology now affords near-real-time or even real-time market administration, providing the kind of protection that the Fed can’t and removing the JPMorgans of the world as existential threats to the economy. Interactive finance animates the next step to create wealth with the data and meta data. There’s everything to gain and nothing to lose. Prudential valuation based on credit ratings has had its run. In terms of evaluating securities, the system is so laden with conflicts of interest between the rating agencies and the offering firms that it is amazing it has persisted after having such catastrophic effects in the 2008 asset crisis. An International Accounting Standards Board/International Finance Reporting Standards draft report is exploring new approaches to risk management generally. And confidence accounting is receiving more traction for its greater transparency and accuracy than traditional, prudential valuation. Its robust explanatory powers support greater prospective certainty and exactness determining value and risk. But the most promising possibility is interactive finance, which administers markets more efficiently than the incumbent regulatory system, so frustrating to Warren and Yellen alike, and more effectively than the compromised prudential valuation system. Let’s begin with a shared orientation that information and data are the crucial wealth generation engines of the 21st century. Large search firms like Google and online retailers like Amazon or news and information content providers like Bloomberg and Thomson Reuters necessarily seek to exploit first-mover advantages and deep domain competencies by controlling as much of the data associated with their online businesses as possible. The new wealth in information is no less hoarded than pre-Internet wealth in fiat currencies, art, precious metals, insurance and real estate. But remember: The markets are liberalized. Better mousetraps beat the world to innovators’ enterprises. Airbnb is using an overlay of information to disintermediate hospitality and accommodations incumbents, and Uber is throwing hackney licensing for a loop. New entrants Datacoup and Meeco are enabling users to sell their data, even challenging the largest Internet firms in the world. And, because of liberalized markets, more and more innovation and individual and institutional wealth creation with data and meta data will take place. Marketcore, a firm I advise, is pioneering interactive finance to generate liquidity by rewarding individuals and institutions for sharing information with financial or strategic advantage for revealing information that details risks. Think of it this way: Interactive finance crowd-sources market participation by rewarding individuals, organizations and institutions seeking loans, lines of credit or mortgages or negotiating contracts with monetary or strategic incentives and rewards. Whether risk takers are a bank, insurance company or counter party, granters define rewards. A reward can constitute a financial advantage -- say, a discount on the next interval of a policy for individuals purchasing retail products. The reward can express a strategic advantage -- say, foreknowledge of risk exposure for institutions dealing in structured risks like residential mortgage-backed securities or bonds, contracts, insurance policies, lines of credit, loans or securities. As crucially, transaction credits empower any and all market participants to act as granters of rewards. Individuals, organizations and institutions grant strategic or monetary incentives to counter parties seeking to acquire risks, too. All this transpires on currently existing broadband, multimedia, mobile and interactive information networks and grids. Interactive finance realizes a neutral risk identification and mitigation system with a system architecture that scans and values risks, even down to individual risk elements and their aggregations. As parties and counter parties crowd markets, each revealing specific risk information in return for equally precise and narrowly tailored rewards and incentives, their trading generates fresh data and meta data on risk tolerances in real time and near real time. This data and meta data can then be deployed to provide real-time confidence scoring of risk in dynamic markets. Every element is dynamic, like so many Internet activities and transactions. Talk about efficiency! Crucially, interactive finance constantly authenticates risks with constantly refreshing feedback loops. Risk determination permits insureds, brokers and carriers to update risks through “a transparency index. . . based. . . on the quality and quantity of the risk data records.” Component analysis of pooled securities facilitates drilling down in structured risk vehicles so risk takers, including insurers and reinsurers, can address complex contracts and special pool arrangements with foreknowledge of risk. Real-time revaluation of contracts clarifies “the risk factors and valuation of [an] instrument” and, in so doing, “increases liquidity and tracks risks’ associated values even as derivative instruments are created.” Through these capabilities, Marketcore technologies connect the specific, individual risk vehicle with macro market data to present the current monetary value of the risk instrument, a transparency index documenting all the risk information about it and information on the comparative financial instruments. Anyone participating receives a complete, comprehensive depiction of certainty, risk, disclosures and value. Think how readily Chairwoman Yellen could respond to Sen. Warren with information replenished constantly and willingly by market participants and verified by constantly updating feedback loops. Think how much Sen. Warren could ask regarding transparency. She’d receive a verifiable response, with great confidence. Interactive finance allows for transparent markets capable of clearing and self-correcting. With interactive finance, legislator and regulator can get results and adhere to rules. Sen. Warren could administer vibrant, efficient, self-stimulating and self-correcting markets powered by information and data-verifying risks and clarifying confidence. Chairwoman Yellen could enforce Fed rules. Both could get well beyond JPMorgan’s compliance issues to apply their appreciable talents administering information economies, the wellsprings of 21st century commerce and economic growth.

The California Workers’ Compensation & Risk Conference in Dana Point opened with a session featuring employers and stakeholders in the industry weighing in on the current state of California workers’ compensation and the outlook for 2015. Panelists were: moderator Mark Walls, vice president of communications and strategic analysis at Safety National; William Zachry, vice president of risk management at Safeway; Tim East, director of risk management at Walt Disney; Bill Mudge, president and CEO at WCIRB California; Kurt Leisure, vice president of risk services/asset protection at Cheesecake Factory; Seeta Ambati , a defense attorney who is a partner at Laughlin, Falbo, Levy & Moresi; and James Butler, a plaintiff attorney with Butler Viadro. The panel began with a look at where California workers’ compensation is today: • California holds a quarter of the nation’s workers’ compensation business. • To date, 80 new carriers have entered the California market since 2004. • California is among the top three states in terms of average medical costs per claim. • California has experienced double-digit increases in premiums over the last two years. Cost drivers to the California workers’ compensation system include: • A high frequency of claims handling in the state relative to payroll, with Los Angeles County having the most claims in the region. • A multitude of expensive permanent disability claims that include attorney involvement. • Opioid prescriptions, which have doubled in frequency. SB 863 is California’s answer to addressing these costs, but it is too early to provide tangible data on whether the reform has been successful. Some early data shows that costs related to liens are down, but costs related to independent medical reviews (IMR) are significantly higher than expected. Panelists were split. Some say that, although it is too soon to judge, they are seeing the following indications that SB 863 is working: • Generally, rate increases have been cut in half because costs are showing a downward trend. • The highest costs are coming from old medical claims rather than recent claims. • Because this is the first time that California has experienced cost decline in quite some time, panelists thought that the cost cuts may make the state appear more employer-friendly, which will encourage companies to return. Panelists said there are still some kinks to work out in the reform. One stated that the IMR process, which has been designed to take non-medical professionals out of the medical decision-making process, is working well. On the other hand, the opioid decision-making process in place is not currently solving the costly opioid problem. Overall, people are still learning the new process, but panelists said they think that outcomes will be positive over time. They think that the measures are in place to help get the injured worker healthy and back to work. Most on the panel felt that peer-to-peer review is the right approach and that the system is better than it was. The California Applicants Attorney Association (CAAA) strongly disagrees, however, and views the reform as a failure that is harming citizens. A representative said that the CAAA saw more employees returning to work before the reform and that the system is averaging 4.3 medical denials per patient. The CAAA cites the cost of administering workers’ comp as one of the largest costs that a business can endure. In addition, the CAAA believes that peer-to-peer review is not working efficiently. CAAA thinks that legislative efforts to reform workers’ compensation are aiming at the worst-case scenarios, rather than the majority and, therefore, have not provided the best solutions for most companies. Panelists were asked what changes they would make to the California workers’ compensation system if they were governor for the day. Ideas included: • Take a fresh look at the 101-year old system, which is overloaded with rules, legislation, audits and controls. It is time to simplify a system that has layers of new rules on top of old rules and, as a result, enormous costs related to it all. • Do away with cumulative trauma, which is a major cost driver that creates complexity. Some states have already done this. • Make use of alternative dispute resolution. California has gone from incentives and positive reinforcement for providing prompt payments and benefits to a system focused on penalties. It needs a system that rewards promptness and minimizes disability. • Address the opioid abuse and CURE system to make every effort to avoid addiction. • Look at the system through the eyes of the injured worker and simplify accordingly. Employees can’t understand the current complex system, which is why they seek legal representation. The session served as a great kickoff for the conference, providing both an overview of the current workers’ compensation cost drivers and offering suggestions for improving the system.

The dawn of a new industry and the Next-Gen Insurer is unfolding, influenced by levers of change from within and outside the industry, accelerated by an explosion of data and new technologies and fueled by innovation. Some insurers are embracing innovation to inspire a renaissance of competitiveness and customer value, reinvigorating what made them successful leaders in the first place or making them new market leaders of the future. There is an unparalleled opportunity to ignite a new future that is powered by the human imagination – and that is what China insurers are doing, as indicated in a recent article titled “Chinese Insurance Policies Cover Some Really Bizarre Things,” by Clare Baldwin and Diana Chan in Business Insider. While the insurance policies being created may seem bizarre to some, they epitomize the spirit of product innovation, personalization and customer engagement that are identified as key trends in SMA’s research, The Next-Gen Insurer: Fueled by Innovation. Understanding rapidly changing customer demographics, needs and expectations is critical. The ability to reinvent the way to develop, package and deliver products and services is vital for insurers if they are to be relevant, let alone successful, in today’s new digital world. So why are these innovative policies important for U.S. insurers to understand and consider? First, the inspiration for innovation can come from other markets and geographies. The inspiration may stimulate the imagination, prompting new ideas and uncovering opportunities that can be built upon. In many cases, the thinking in markets, such as China, with less-strict regulations can help identify, incubate and market test new ideas. With more customers researching insurance on the Internet, they will see these innovative products and ask for them … and ask you why you don’t have them, or something similar. Second, taking an innovative approach to meeting smaller, more defined needs provides a great entryway to other insurance products. What a great way to introduce your brand as innovative and personal. In general, with trends like the connected car, driverless car, connected home, connected health, sharing economy and more affecting the future of traditional insurance products such as auto, home and health, to name a few, insurers must be as creative as possible in adapting to the shifting landscape. Interestingly, niche-focused insurance products like those in China have been emerging in other areas in Asia Pacific, with “hole in one” insurance, and in Europe, with “wedding” insurance. Zurich’s wedding insurance, which covers all of Europe and which covers the costs of canceling or postponing a wedding, is an example of such a product and has been a big success in terms of sales, marketing and brand recognition. In the U.S., Warren Buffett’s Berkshire Hathaway insured the $1 billion prize to anyone who accurately picked the winner of every 2014 NCAA tournament game, a competition sponsored by Quicken Loans. And while no one picked the winners in the brackets, Buffett and Berkshire Hathaway got a lot of coverage. Each of these examples engages customers in a fun way while also meeting a specific need. They have an element of “the cool factor” associated with them, something profoundly needed in an industry deemed stodgy. So, while the article about quirky Chinese insurance policies seems to take an “aren’t they cute” approach, the examples are actually highly relevant for the customers they target, not to mention helping to educate a large population about the broader value of insurance. The massive interest in these untapped nooks and crannies exposes the fact that there are ready customers, regardless of geography. The insurance industry has offered personalized, unique products in the past to selected individuals, but not on a mass basis. Remember when Tina Turner’s legs were insured, David Beckham’s legs were insured, Keith Richards' hands or Bruce Springsteen’s voice … all for millions of dollars? The difference here is that these are high-value, highly customized situations that were all one-off products. In today’s digital world, with the customer demanding personalized offerings, mass product personalization will increasingly be a key driver in product innovation, shifting the industry away from the legacy of mass production of personal insurance products. Fueling this change will be customer demographics and preferences. With product personalization, insurers need to develop products or product components that customers can shape to their unique needs – within days or weeks – according to new customer expectations. The mass personalized products will include new services that will strengthen customer loyalty and retention. These trends will help insurers differentiate themselves in the market and open market opportunities that can drive revenue and profitability. So instead of the “naughty child insurance” offered in China, maybe it could be child care insurance that covers the costs of holding the child’s place while the child is out because of significant illness. Instead of buying insurance for smog's ruining your holiday, you could buy insurance against weather such as hurricanes or snowstorms that could cause cancellation or limits to your vacation. And instead of covering pregnancy before the honeymoon, insurance could cover a health issue or death of a key wedding participant that could affect the wedding plans, and insurance could be the thing that could make a painful time a little less painful. Major forces are converging that are fundamentally changing the entire paradigm of insurance, creating the Next-Gen Insurer in the process. Today’s insurers are faced with choices that are more intense, complex and transformational than ever before. An era of new leaders will be determined by their ability to respond to change and become innovators, embracing and capitalizing on each new wave of disruption. Some of the waves with vast possibilities will be product innovation and mass personalization. Insurers in other geographies are catching the wave of customer needs and expectations. Are you prepared to ride the wave of mass personalization? If not, your competitors will!

Amid promising growth, companies in the insurance industry are being pressured to evolve their business models because of rising consumer expectations, new technologies and a widening skills gap in the workforce. These changes, in turn, threaten current workforce models and require changes in six jobs. There’s economic promise in the insurance industry: A recent survey of property and casualty, life and health insurance companies found that 62% of respondents are planning to add staff in 2014. The U.S. insurance industry projects the addition of 200,000 employees between 2012 and 2022, and in March 2014 its unemployment rate (3.3%)  was half of the national average (6.7%). While the industry growth is a boon, insurers must overcome employment challenges before seeing its benefits. Attracting talented people is a particular stumbling block for insurers: Just 5% of students in the millennial generation are very interested in working in the insurance industry. As the insurance workforce continues to age — more than half of the current insurance workforce is over age 45 — insurance companies will have an ever-widening gap to fill. Moreover, as with many other industries, the insurance industry is plagued by a skills gap that prompts industry representatives to cite difficulty filling open positions with qualified candidates. Graduates and entry-level workers lack the industry experience and knowledge of those who are retiring. Career insurance employees are often missing the technology skills and savvy that are increasingly required to handle new systems being adopted by insurance companies. Incumbents are pressured to evolve or dissolve Ezekiel Emmanuel — one of the architects of the Affordable Care Act — writes in his new book that “because of health care reform, new actors will force insurance companies to evolve or become extinct. The accountable care organizations (ACOs)…and hospital systems will begin competing directly in the [health care] exchanges and for exclusive contracts with employers." The healthcare exchanges are be­coming a game changer for the way consumers purchase their coverage. Now providers will be competing on “the best quality, service and price.” Robert Pearl, M.D. — a contributor to Forbes — contends that these healthcare exchanges “will create more transparency and make the coverage-selection experience resemble purchasing airline tickets on Expedia or Orbitz.” Consumers will be empowered with technology, information and choice in a process that traditionally has been out of their control. This expectation of the “consumerization” of insurance is not limited to healthcare. A 2013 survey of more than 6,000 insurance customers in 11 countries reveals that they desire:

• More personalized services from their providers
• Reduced risk
• Engagement through continuing conversations
• Access to information via online, in-person, mobile and other channels
• Information that is consistent across all of those channels.

Customers will begin to flock to insurance companies that can provide the consumer-centric experience they’ve become accustomed to in other industries and businesses. A recent survey of 2,500 insurance customers by Accenture shows that more than 90% of respondents choose insurers based on:

• Speed at which their problems are resolved
• Availability of products and services that meet their specific needs
• Competitive pricing for products and services
• Transparency of prices and charges
• A high level of information about proposed products and services
• Knowledgeable and responsive phone support.

To attract and retain customers, insurers will need to move toward customer-centric models, which will require adoption of new technologies and employee skills. Evolving business models spur changes in business systems and roles Many larger insurance organizations have been relying on legacy computer systems that were built around regulatory requirements for paper-based documentation. With such regulations now lifted, insurers are free to modernize their systems and implement more automation, self-service features and access to real-time information to meet consumer expectations. They can also build into their insurance business systems new features that improve customer-centricity, such as:

• Robust customer relationship management tools with integrated communications channels — such as email, online chat and click-to-call voice
• Customer segmentation
• Big data and predictive analytics

With these technologies and customer expectations, today’s frontline and operational insurance workers need to be more tech-savvy and have better communication skills and better problem-solving capabilities. There will be significant effects on six key frontline and operational positions, which collectively made up more than 35% of the industry’s workforce in 2012. Table 1: Key frontline and operational positions in the insurance industry Source: Bureau of Labor Statistics Hiring and promoting in the new insurance landscape These six key job roles span much of the career spectrum of the industry. For example, individuals who have not yet earned a post-secondary degree can perform well as customer service representatives and then continue their studies while on the job to advance their careers. Those with associate’s degrees may be able to begin as entry-level sales agents. As workers progress through their careers and gather additional education and experience, the insurance industry offers them myriad growth opportunities in sales, finance, human resources and technology. While these positions differ in required education, responsibilities and technological complexity, they share a number of skills or detailed work activities (DWAs) — an occupational classification system of the Federal Government O*NET system. DWAs describe business work tasks that can be found across mul­tiple occupations and remain constant over time. We’ve been able to identify nine skills or DWAs that largely cut across the positions examined in this report: Table 2: Cross-cutting skills Source: O*NET. For full DWA descriptions, go to onetonline.org. DWAs are logical units of analysis for hiring and promoting employees, as well as curriculum and training program development, because they transcend frequently changing industry staffing patterns and company–specific job descriptions. A closer look at key frontline and operational positions Below is a snapshot — including employee profiles, typical education and career paths, responsibilities and impacts of technology — for customer service representatives. These insights are the result of the research performed by the workforce strategies team at College for America — a nonprofit, accredited college dedicated to providing more accessible, workplace-applicable degree programs to working adults. Its findings reflect labor market data, real-time job listings and feedback from insurers nationwide. Snapshot: Customer service representative Source: Bureau of Labor Statistics Tony had worked throughout high school at a local retail store. After graduation, he wanted to enter a ca­reer path that would offer advancement and tuition reimbursement so he could pursue a college degree. With the people and listening skills he learned from working retail, he was offered a position as a custom­er service representative at a life insurance company. Before working with clients at his new position, Tony participated in the company’s training program to learn about products and services, customer management, departmental responsibilities and where to find information. He also learned telephone techniques to better interact with clients. As a customer service representative, Tony spends his day answering questions, providing information to clients and resolving complaints. He has become adept at dealing with conflict, as his clients often call under stressful circumstances. Tony is currently taking courses at a local college and hopes to make his way into a sales position in his company. Education Customer service representative positions require a minimum of a high school diploma, though often employers are seeking people with an associate’s or bachelor’s degree. Representatives generally receive company-specific training before beginning work. These positions provide an opportunity for individuals to learn the insurance business, and they serve as a stepping stone to other insurance careers. Responsibilities A customer service representative may be expected to:

• Work with policyholders and clients to answer questions, respond to requests for information and handle and resolve complaints
• Play a critical role as the “face” of the insurance agency to clients
• Respond to client needs and provide information about products and services
• Take orders, determine charges and oversee billing and payment
• Ensure client information is complete and accurate
• Keep detailed records of customer interactions
• Notify customers of claim investigation results and planned adjustments
• Refer unresolved grievances to the appropriate department
• Review insurance policies to determine if a loss is covered
• Communicate with clients in-person via telephone, emails, and online chat
• Manage angry or unhappy clients
• Speak with clients who are dealing with stressful situations such as a car accident, illness of a loved one or a natural disaster.

Impact of technology Customer service representatives are now engaging with customers in modalities other than on the phone, such as through email, online chat and social media. Soft skills in writing, communication and active listening are increasingly important as the connectedness of the Internet makes it easy to broadly share representative-to-client communications — whether good or bad. Similarly, customer service representatives are being fed customer data from across the Internet and from within their business systems (known collectively as big data). These representatives must learn how to use the right information to inform interactions with customers and engage them in the selling cycle by providing information about products that would likely be of interest to them. For the full report, including snapshots of the other five, key job types, click here. 

Question: How many pieces are involved in a workers' compensation settlement? Answer: Probably more than you think. The more issues there are in a negotiation, the greater the opportunity for give and take. This adds flexibility for parties to shape a settlement acceptable to all. Trading across issues in negotiation is called "logrolling." Every case has its own unique issues. Here is a partial list, some obvious, some I have seen people miss. Income issues Disability percentage, including whether the disability is caused by an industrial injury Apportionment Applicable date of injury Past payments: When were permanent disability payments supposed to start? Was the right rate used? Were past payments properly characterized as permanent disability (PD), or should they have been temporary disability (TD)? Is there a TD overpayment? If life pension payments will be due, when should they start? Average weekly wage: Have you taken into account overtime and the value of non-cash compensation? Ability to perform future work Return-to-work issues: Will the employer provide modified work? What about training? Check California law about computer purchases. Liens Penalties Medical issues What are the accepted body parts? What expenses are reasonable and necessary? This can include issues about support services. What is the appropriate medical specialty? Is the treatment the applicant wants compensable? Is the applicant's overall medical condition likely to shorten life expectancy?

I was thinking recently about humor in insurance, oddly enough coinciding with the recent final performance by the Monty Python team in London. Insurance was on the Python’s radar, even offered as a safer alternative to being a lumberjack. There was one notable sketch about motor insurance. I must confess I’m almost nervous about reminding everyone of the content, but it went like this: ….Oh! And the next item is a sketch about insurance called 'Insurance Sketch'.... (Cut to Mr Devious's insurance office. Devious and a man are sitting there.) Devious: What do you want? Man : Well I've come about your special fully comprehensive motor insurance policy offer. Devious: What was that? Man: Fully comprehensive motor insurance for one-and-eightpence.  [Author's note: about two dimes in real money] Devious: Oh, oh, yes, yeah, well, unfortunately, guv, that offer's no longer valid. You see, it turned out not to be economically viable, so we now have a totally new offer. Man: What's that? Devious: A nude lady. Man: A nude lady? Devious: Yes. You get a nude lady with a fully comprehensive motor insurance. If you just want third party, she has to keep her bra on, and if it's just theft.... You’ll find the full text of that script here. There was humor in commercials well before geckos. Consider this video of a little dog called Lucky. Another InsuranceThoughtLeadership contributor, Shefi Ben Hutta, this month launched a new site that I unashamedly am willing to promote, called theSkinnie, which merges insurance with entertainment. It’s a smart idea -- the equivalent of reading the cartoons in the newspaper before you get to the real stuff. I must confess that when I first saw this, it felt like going to the dentist -- lots of nerves were touched. But it made me think more about my industry and shook me out of any complacency. So, is there any way that insurance can be funny? It’s an industry that constantly lives with disaster, illness and misfortune. Most of its practitioners inevitably create personal defense mechanisms, often through humor, so as not to take our jobs home with us. But there are lighter moments. Oddly enough, all the contributors to this site, and all its readers, are connected by a golden thread, a thread of responsibility coupled with objectiveness. At the end of the working day, most of us breathe a slight sign of relief that, whatever it was, it happened to someone else and not to us. Or as Monty Python would have said, "Always look on the bright side of life."

There is a saying:  “In wellness, you don’t have to challenge the data to invalidate it. You simply have to read the data. It will invalidate itself.” Nowhere is this truer than in the University of Pittsburgh Medical Center’s (UPMC) wellness program, results of which were just released in the October issue of the American Journal of Preventive Medicine, a journal that functions largely as the wellness industry’s house organ. All you need to do is read UPMC’s own words to learn that nothing happened in its wellness program. According to the article, over the course of the five-year study: “The proportion of low-risk members increased by 2%.” Two whole percentage points! After penalizing employees thousands of dollars ($2000 in 2011 alone for employees on the family plan) to compel them to submit to blood draws and other screens and answer very personal questions on health risk assessments, 2% was all they had to show for it? I hear a few people saying: “Wait a second, Al, you said nothing happened. They did get a 2% increase in low-risk members. While trivial, that is not literally nothing.” Well, first, it wasn’t really 2%. UPMC has 55,000 employees. But by the time they culled out everyone who didn’t meet the various requirements of participation, they were down to 13,627 people. Hence this entire conclusion was based on roughly 272 people reducing a risk factor. UPMC is the largest private-sector employer in Pennsylvania, a healthcare company that presumably knows a thing or two about health, and a major proponent of wellness programs. Yet all UPMC could manage after five years and millions of dollars was to reduce risk for 272 people.   Some Punchlines This self-admitted trivial risk reduction performance is not even the punchline. Usually there are three punchlines in these situations. The first punchline is usually that even though the results were uninspiring they were also overstated because the perpetrator left out both non-participants and dropouts from the analysis, which of course UPMC did. Because dropouts and non-participants typically have worse risk factor performance than participants (which is often why they drop out or decline to participate), it’s likely that the risk factor deterioration of the 41,000 employees left out could easily have more than offset the aforementioned improvement by the 272 people. The second punchline is that UPMC “matched” participants against a passive reference group of non-participants, a study design sleight-of-hand that is an excellent way of locking in savings. The reason that methodology is loading the dice is that a passive reference group (people who are matched “on paper” because their claims files happened to be available) are never given the chance to decline to participate, or to participate and then drop out. Hence the control group is not comparable. That would seem like common sense, and it is, but no need to rely on common sense. Another wellness vendor, Health Fitness Corporation (HFC), admitted the problem. As you can see on the slide below, HFC’s would-be participants improved vs. the reference group in 2005 by 9%, even though the program didn’t start until 2006. The third punchline is that UPMC didn’t “plausibility-test” its results by seeing if wellness-sensitive medical events – like heart attacks -- declined for the population over the period. Most companies that don’t do this analysis, like Pepsico, say that they didn’t track wellness-sensitive medical events because they didn’t have access to the event rate data. But obviously UPMC had plenty of access to this event information – it is self-insured by a health plan that it itself owns. All three of those mistakes are inexcusable in light of the fact that, by this point, everybody knows that you need to address them all to show valid results. Savings:  Also About Nothing Of course, UPMC also claimed to show substantial savings – who doesn’t? But the savings – according to UPMC's own article – could not have been because of the wellness program. The only three preventive care services that the participants consumed more of than non-participants were checkups, colon cancer screens and breast cancer screens. Checkups have no clinical value,  cost money and on balance may be slightly more likely to do harm than good. The intervals and start points for both colon and breast cancer screens have both been relaxed since this UPMC study was performed (2008 to 2011), because doing fewer was deemed by the U.S. Preventive Services Task Force to be a healthier idea than doing more, because of lack of efficacy and overdiagnosis/overtreatment potential and (in the case of colonoscopies) a risk of complications. In any event, whatever money screens save would be years off, as the idea is to find tumors early and spend the money now rather than later. So, screening people does not generate short-term savings and in fact costs money in the short term. Bottom line: This study did nothing – there is no credible source to attribute savings to, no appreciable risk reduction and lots of liberties taken in study design, and the most important analysis (for plausibility) was conveniently overlooked. Why did UMC even publish this, knowing that it was meaningless? Simple -- UPMC sells this stuff…and it is hoping your western Pennsylvania counterparts will sell it for them, using code language to make sure brokers know that sales come with commissions. Like every other wellness vendor, UPMC is hoping to entice you with those commissions. Like every other vendor, UPMC gives you a talking point, in this case a conclusion helpfully summarized on the first page, that “wellness programs are a useful tool in managing health and costs.” Yes, these programs carry commissions, and, no, they are not subject to the same commission disclosure requirements that you must make when selling health plan services. But if you’ve read this far into this posting it’s because you want to do what’s best for your clients, even if it means forgoing short-term commissions. In the long run, you are doing your clients much more good – and, not coincidentally, increasing your chances of keeping those clients – by selling them only the products that are best for them, a list of products that does not include workplace wellness overscreening programs like this one.

No one really knows the true value of dentistry. The reason is the widely used practice of submitting claims to insurers with fees based on their reimbursement schedules, rather than on normal practice fees. This practice, which is designed to avoid write-offs, artificially lowers the amounts used in the insurer’s analysis and determination when updating the reimbursement fee schedules and makes it virtually impossible to accurately determine the true "value" of dentistry. Many dentists say the reimbursement fee schedules are unreasonably low -- they say they stay with insurers only to retain patients. While a few insurers annually request that their participating dentists file, or register, their current practice fees, very few dentists participate. Given the lack of availability of actual practice fees, insurers either use  information from the claims they've received or purchase information. The companies offering the information typically advertise that it is from claims submitted. Because neither practice fee schedules nor services provided to the uninsured at the full fee rate are submitted to or captured by the companies analyzing fee information, that information is not included in the calculations. Insurers sort charges into percentiles for each, specific CDT code, and dental practices can use the figures to help understand what their cost structure must be to ensure a reasonable profit. But what insurers show as the 70th percentile could very well be the 50th percentile of the actual practice fees for dentists in an area. Will submitting normal practice fees affect reimbursement levels? The result may be an increase in reimbursement levels – or not. The insurer could maintain the same reimbursement fee schedule, even as submitted claims rise, and claim higher cost containment. An insurer uses cost containment reports as a competitive tool to show how it saves money for its clients. Basically, the lower the premium and the higher the cost containment, the more competitive the insurer can be. Still, with the ability to easily post or to utilize auto-posting capabilities in most practice management systems, and with the Jan. 1, 2014, mandate that requires insurers to be able to provide electronic payment files (remittance advice), the practice of submitting fees based on reimbursement schedules to avoid write-offs seems counterintuitive given that the practice could lower future reimbursement schedules.

In Part I, I laid out the shortcomings of using a quantitative business case to decide whether to proceed with big insurance modernization projects. Recently, I’ve been fortunate to partner with several clients who’ve taken a different approach to funding initiatives and measuring value on a continuing basis, and I'll describe those approaches here.  Deciding whether to fund an initiative Example one: One alternative approach when deciding whether to fund an initiative is the “critical thinking” model. Leadership groups may, rather than insist on the quantitative business case, instead request “arguments” and answers to questions. Why? Why not? What are the risks? What is the order of magnitude of investments -- instead of precise estimates? What will happen if the initiative is not undertaken? Is it a "table stakes" initiative that everyone in the industry must undertake, or might there be competitive advantage? Armed with honest answers to these questions and order-of-magnitude estimates, leaders then discuss, debate and engage in critical thinking to reach consensus on whether or not to pursue the initiative. The emphasis is on the discussion rather than a simple processing of contrived numbers. Example two: The “continuous funding based on results” model. I have seen a few clients allocate an initial investment based on a joint case made by business and IT together -- “together” being the operative word. Every 12 months, business and IT together go up to an executive oversight group, show what they have done with the “pot of money” and, based on this, get additional “grants” together. Because business and IT agree, and tangible value is demonstrated, additional funding is granted until business and IT feel that major items are achieved and only diminishing returns are left. It may be argued that, for complex transformations, continuous funding is not possible, especially if commercial software is involved. I am not convinced. First, even with very large enterprise initiatives, I have seen the model work; second, even with commercial software purchases, the costs of such software often is a very small fraction of the overall outlay, perhaps no more than 10% to 20%. Example three: A third model is akin to thinking about your health. If you know that your health is important in the long run, then, rather than try to quantify the benefits of investing in keeping yourself healthy, you might simply set aside a steady stream of “investments” toward the intended objective. This steady stream could be for healthy food, exercise and fresh air, periodic visits to the doctor, etc. Perhaps insurance initiatives, especially those of the “modernization” and “transformation” kind that only yield benefits over a long period, ought to be treated as you might treat your personal health. Without regular investments in health, the organization will get sick. There are variations of those three examples of new models described that include qualitative arguments on the benefits side, with “best effort” cost estimates, fixed funding for a fixed number of years with expectations for periodic “report cards,”  etc.  But none of them are the traditional ROI approach. How do you spend the funding for a given initiative? How is money spent and resulting value measured along the way? All too often, regardless of how funding is appropriated, this pot of money is then handed off. “We’ve given you the money; now get us everything you promised,” is the dynamic that gets set up between those who are responsible for obtaining the money (usually the business) and those who are supposed to deliver a “set of scope” for the money (usually IT). In reality, countless variables and problems arise that can trip initiatives up. In the worst case, you can be a dead duck before you’ve barely started. Besides disappointment and frustration, you sometimes get finger-pointing and colorful name-calling! Here again, a different approach may be needed. Perhaps the pot of money is not handed off. Rather, joint ownership is established. A series of “micro” decisions are jointly made about what to spend the money on. Estimates of effort for smaller-scope items come from the execution side of the team. Those who will benefit from the fulfillment of that scope decide whether it is worth spending the money. I have seen a healthy dynamic ensue from this approach. Sometimes, what was originally deemed beneficial is given up; sometimes, new benefits are identified and added. Often, when the pot of money does run out, I have seen business and IT jointly make the case for additional funding to deliver additional returns. And, more often than not, they do get the additional funding because executives who allocate capital can see the good that came from the original allocation. A few years back, I undertook a “small scope” remodeling project at home. An architect/designer drew up the concepts and plans. A general contractor agreed to execute the plans, having provided some rough estimates. Like insurance transformation initiatives, it was “defined scope” only briefly! As the project unfolded, many changes occurred – some necessary and others as discretionary or choice items. While the architect and general contractor collaborated and provided options, my wife and I (responsible for the pot of money) had to make a series of “micro decisions” about the “return” that we might experience and the costs required. Like most IT projects, the project took longer and cost more than originally envisioned, but we were certainly happy with the results. Reflecting on this experience, I realize that those successful teams that I have described above essentially were taking the same approach. While a home remodeling exercise is rather trivial compared to an insurance modernization or transformation initiative, to me. at least, the underlying principles seem similar.   While the theory of the quantitative business case may be ingrained and appealing, I have seen it offer very little practical value. A (non-quantitative) case can perhaps be made to let go of the theory and embrace more pragmatic approaches to fund, monitor and measure the returns of insurance initiatives.