Here are tips on how public companies can better protect themselves against securities claims -- practical steps companies can take to help them avoid suits, mitigate the risk if they are sued and defend themselves more effectively and efficiently. Avoiding suits Companies can avoid many suits with what I’ll call “better-feeling” disclosures. Nearly all public companies devote significant resources to accounting that conforms with GAAP, and non-accounting disclosures that comply with the labyrinth of disclosure rules. Despite tremendous efforts in these areas, events sometimes surprise officers and directors -- and the market -- and make a company’s previous accounting or non-accounting disclosures appear to have been inaccurate. But plaintiffs’ lawyers decide to sue only a subset of such companies -- a smaller percentage than most people would assume. What makes them sue Company A, but not Company B, when both have suffered a stock price drop because of a development that relates to their earlier disclosures?  There are a number of factors, but I believe the driver is whether a company’s disclosures “feel” fair and honest. Without the benefit of discovery, plaintiffs’ lawyers have to draw inferences about whether litigation will reveal fraud or a sufficient degree of recklessness -- or show that the discrepancies between the earlier disclosures and later revelations was due to mistake or an unanticipated development. What can companies do to make their disclosures “feel “more honest? An easy way is to improve the quality of their Safe Harbor warnings. Although the Reform Act’s Safe Harbor was designed to protect companies from lawsuits over forward-looking statements, there are still an awful lot of such actions filed. The best way to avoid them is by crafting risk warnings that are current and candid. A plaintiffs’ lawyer who reads two years’ worth of risk factors can tell whether the risk factors are boilerplate or an honest attempt to describe the company’s risks. The latter deters suits. The former invites them.Another way for companies to improve their disclosures is through more precision and a greater feel of candor in the comments they make during investor conference calls. Companies sweat over every detail in their written disclosures but then send their CEO and CFO out to field questions on the very same subjects and improvise their responses. What executives say, and how they say it, often determines whether plaintiffs’ lawyers sue -- and, if they do, how difficult the case will be to defend. A majority of the most difficult statements to defend in a securities class action are from investor calls, and plaintiffs’ lawyers listen to these calls and form impressions about officers’ fairness and honesty. Companies looking to minimize the risks of litigation should also take steps to prevent their officers and directors from making suspicious-looking stock sales -- for obvious reasons, plaintiffs’ lawyers like to file suits that include stock sales. If a company’s officers and directors don’t have 10b5-1 plans, companies should establish and follow an insider trading policy and, when in doubt, seek guidance from outside counsel on issues such as trading windows and the propriety of individual stock sales, both as to the legal ability to sell, and how the sales will appear to plaintiffs’ lawyers. Even if officers and directors have 10b5-1 plans, companies aren’t immune to scrutiny of their stock sales -- plaintiffs’ lawyers usually aren’t deterred by 10b5-1 plans, contrary to conventional wisdom. So companies should consult with their counsel about establishing and maintaining the plans, to avoid traps for the unwary. Defending suits Whether a securities class action is a difficult experience or a fairly routine corporate legal matter usually turns on the company’s decisions about directors’ and officers’ indemnification and insurance, choice of defense counsel and management of the defense of the litigation. Deciding on the right director and officer protections and defense counsel require an understanding of the seriousness of securities class actions. Although they are a public company’s primary D&O litigation exposure, most companies don’t understand the degree of risk they pose. Some companies seem to take securities class actions too seriously, while others might not take them seriously enough. The right level of concern is almost always in the middle. A securities class action is a significant lawsuit. It alleges large theoretical damages and wrongdoing by senior management and often the board. But the risk presented by a securities action is usually very manageable, if the company hires experienced, non-conflicted and efficient counsel and devotes sufficient time and energy to the litigation. Cases can be settled for a predictable amount, and it is exceedingly rare for directors and officers to write a personal check to defend or settle the case. On the other hand, it can be a costly mistake for a company to take a securities class action too lightly; even meritless cases can go wrong. The right approach involves several practical steps that are within every company’s control. Companies should hire the right D&O insurance broker and treat the broker as a trusted adviser. There is a talented and highly specialized community of D&O insurance brokers. Companies should evaluate which is the right broker for them -- they should conduct an interview process to decide on the right broker and seek guidance from knowledgeable sources, including securities litigation defense counsel. Companies should heavily utilize the broker in deciding on the right structure for their D&O insurance program and in selecting the right insurers. And, because D&O insurance is ultimately about protecting officers and directors, companies should have the broker speak directly to the board about the D&O insurance program. Boards should learn more about their D&O insurers. Boards should know their D&O insurers’ financial strength and other objective characteristics. But boards should also consider speaking with the primary insurer’s underwriting executives from time to time, especially if the relationship with the carrier is, or may be, long-term. The quality of any insurance turns on the insurer’s response to a claim. D&O insurance is a relationship business. Insurers want to cover D&O claims, and it is important to them to have a good reputation for doing so. The more the insurer knows the company, the more comfortable the insurer will be about covering even a difficult claim. And the more a board knows the insurer, the more comfortable the board will be that the insurer will cover even a difficult claim. Boards should oversee the defense-counsel selection process, and make sure the company conducts an interview process and chooses counsel based on value. The most important step for a company to take in defending a securities class action is to conduct an audition process through which the company selects conflict-free defense counsel who can provide a quality defense -- at a cost that leaves the company enough room to defend and resolve the litigation within policy limits. Put differently, the biggest threats to an effective defense of a securities class action are the use of either a conflicted defense counsel, defense counsel who will charge an irrational fee for the litigation or counsel who will cut corners to make the economics appear reasonable. Errors in counsel-selection most often occur when a company fails to conduct an interview process, or fails to consult with its D&O insurers and brokers, who are “repeat players” in D&O litigation and thus have good insights on the best counsel for a particular case. Although the Reform Act’s 90-day lead plaintiff selection process gives companies plenty of time to evaluate, interview, and select the right defense counsel for the case, many companies quickly hire their corporate counsel’s litigation colleagues, without consulting with brokers and insurers or interviewing other firms. The right counsel may end up being the company’s normal corporate firm, but a quick hiring decision rarely makes sense under a cost-benefit analysis. The cost of hiring the wrong firm can substantial -- the harm includes millions of dollars of unnecessary fees; hundreds of hours of wasted time by the board, officers and employees; an outcome that is unnecessarily uncertain; and an unnecessarily high settlement -- and there’s very little or no upside to the company. On the other hand, it costs very little to interview several firms for an hour or two each, and the benefit can be substantial – free and specialized strategic advice by several of the handful of lawyers who defend securities litigation full time, and potentially substantial price and other concessions from the firm that is ultimately chosen.  The auditioning lawyers can also provide guidance to the company on whether its corporate counsel faces conflicts and, if so, the potential harm to the company and the officers and directors from hiring corporate counsel anyway.

The Affordable Care Act, or the ACA, (aka Obamacare) is a catalyst for accelerating change brought about by the crushing cost of healthcare.  We have reached the tipping point where all the players in a $3 trillion industry are desperate to find new footing, while their usual way of doing business is crumbling underneath them. Don’t get caught up in the rhetoric of politics. Obamacare is just a symptom of the problem; it’s not the cause! Everything in healthcare is undergoing change. Companies must also change -- they must change the strategy, tactics and people involved in their decision-making process. The C-suite understands this better than anyone. They know that in today’s economy taking measured risk is essential for profitable growth. Yet many of them have assigned the responsibility of healthcare business strategy to managers who keep their feet on the brakes, repeating why change is risky every year. That’s why today, in a post-Affordable Care Act world, the strongest C-suites are advocating change for better healthcare strategies, not just safe ones. Taking Your Foot Off the Brake One way to do this is to get the C-suite more involved in setting the business strategy direction for corporate healthcare. They need to evaluate the risks associated with the many healthcare opportunities they are facing. One of the first steps in doing so is distinguishing between healthcare risks that can be managed and risks that should be avoided. Avoiding unnecessary costs – like healthcare claims – is where value is created. Here’s why: The new law under the ACA started as a 2,800-page question mark and now exceeds 28,000 pages. The administration is literally creating and adapting the law as it goes forward. The revisions and updates have been numerous, and they will continue. That’s because the medical treatment industrial complex, also known as the healthcare industry, is one of the largest components in our economy -- with a system built on illness and sickness as the revenue model. But we know beyond a shadow of a doubt that our sickness care model is totally unsustainable. Yet shifting hospitals and physicians practices away from a fee-for-service model, where they receive payments based on the volume of care delivered, will take years to become the norm. The incentives in our current system are so perverse that hospitals and physicians receive even greater compensation when preventable infections and injuries are allowed to take place. Lest you think this is a harsh criticism, these facts are validated by government studies that indicate medical errors rank as one of the top five leading causes of death in America. Yet we rarely hear anything about these facts. Healthcare exists on a continuum. On one end, we have buyers who want health insurance only so that a third party will pay their claims when they want or need treatment -- like a buffet. On the other end, are people who are looking for an emergency backstop in the event of an unforeseen illness or accident. It should be obvious; there is no one-size-fits-all solution! Businesses need to take steps to reduce, control and eliminate claims from their healthcare budgets. It all starts with corporate culture and the realization that employers must change the parent-child healthcare dynamic. The parent-child relationship exists where businesses still decide on what benefits, designs and choices there will be for the next 12 months and then tell all employees that this is what the company has selected for them. It’s time to consider a benefits partnership where the company facilitates the framework for the offering, but the employees choose what fits best for them. The communication resembles something more like "we are partners in healthcare, and each of us will be rewarded for the good health of our team members." Contrast that against the usual legacy approach where employees are told "here is the new insurance coverage, go and consume because a third party pays the bill and good luck if you get sick -- hope you catch it early!’ Three Ways for Organizations to Use the Affordable Care Act 1.  Challenge the status quo legacy thinking of your benefit managers. The easiest way is to put a question mark at the end of their statements. Ask them to explain the what, why and how of the latest rate increase. Be honest, benefits is not their only job responsibility, and you can’t afford the learning curve after Obamacare. Top line revenue challenges, increasing operational expenses, shrinking margins and profits are the norm today. Reacting every 12 months to the supply chain’s rate increase is not how to manage healthcare after the ACA. Pop quiz: Do you think the benefits manager hires a broker/consultant that challenges her fear of change, or supports the status quo? Ask managers to explain why you have prepaid premiums versus a pay-as-you-go strategy. Ask them to explain the  carrier’s rationale for another rate increase. Ask them how the broker/consultant proposed to reduce claims by 20% to 40% in the renewal meeting. 2. How are you identifying, measuring and managing the modifiable risk factors in your employee population You can’t manage what you can’t measure. The ACA allows employers to create plan differentials where employees can qualify for different levels of benefits based on the outcomes of their biometric screen. For example, smokers who have high glucose, HBP and high cholesterol may pay higher out-of-pocket costs compared with the employee whose measurements qualify for a higher level of benefits. Think of it as finally being able to receive better health insurance because you receive the equivalent of a “good driver discount.” Additionally, health promotion and preventive care is emphasized under Obamacare, whereby employees can become eligible for incentives based on their participation, activities or outcomes in specified programs. The ACA provides incentives for promoting health -- and not insurance! 3. Define for yourself why you invest in health insurance. Are you only concerned with managing a budget and trying to keep a lid on costs? Is health insurance just a financing cost so employees can access care and a third party will pay most of the bills for them? Or, do you invest in health insurance so employees will have quality healthcare at a fair price where they can become good healthcare consumers armed with cost and quality resources. Employees can accumulate their own prefunded healthcare accounts through HSAs instead of paying health dividends to insurance companies. For too many employers, insurance companies profit off the  good health of the employees and then charge the company another rate increase every year. The business of healthcare will never be the same after Obamacare. There is no way to avoid change; you’re either moving forward or going backward. Companies must look for new directions with new eyes and a new map because the old map was so 28,000 pages ago. The new law provides many tools for controlling healthcare costs by promoting prevention, transferring risk where appropriate and avoiding risk entirely by eliminating adverse selection. Focus the conversation on how to reduce the demand for healthcare claims because that represents 85%-90% of the money invested in healthcare.

The American Association of Suicidology said it best when it created this logo for the association: “Suicide prevention is everyone’s business.” By everyone, the association includes employers and work organizations. Considering that the workplace is where the majority of working-age adults spend a significant portion of their day, and sometimes night, it only makes sense that employers and coworkers join the national fight against suicide. Over the past 10 years, work organizations have begun to realize that they can help identify and treat working adults suffering from depression -- a leading risk factor for suicide and also the leading cause of lost work productivity. Despite the knowledge that depression is highly correlated with suicide risk, workplaces have been slow to embrace their potentially critical role in preventing suicide through workplace-based programs. Many of the programs already being offered by employers address depression and can be easily and often freely expanded to also include elements of suicide prevention. The connection between depression and suicide is clear, and employers, large and small, have an important role to take in addressing the public health problem of suicide in our country. Detecting and treating depression among employees is one way employers can play a significant role. In fact, many employers are already making inroads in minimizing the negative effects of depression and related mental health issues through employer-sponsored benefits such as employee assistance programs (EAPs), workplace wellness programs and occupational health services. Some of the more commonly offered employer-sponsored interventions at the workplace to identify and respond to depression include workplace-based public awareness campaigns that involve posting suicide warning signs, referral resources and general anti-stigma messages, workplace-based depression screening, such as the program offered through Screening for Mental Health and other early interventions that can be cost-effectively offered through EAP counseling, wellness programs and related occupational health programs. Improving the detection and treatment of depression and therefore preventing suicide will have a positive impact on the employee and, in the process, the business success of the company. By expanding existing workplace-based wellness programs that often focus heavily on identification and treatment of depression among employees, employers are able to increase the number of employees seeking and obtaining treatment -- depression often has low rates of treatment because it is not accurately identified. In fact, prior research shows that, at any given time, depression affects between one-tenth and one-fifth of U.S. employees (Kessler et al., 2008). For employers, this means that for every 100 employees, depression costs employers about $62,000 annually. The majority of this cost does not come from treatment (treatment only accounts for about $9,000), but, rather, costs related to lost work time resulting from sick day absence, work disability (short term and long term disability days) and "presenteeism" (underperformance at the workplace because of illness). In addition, depression and suicide contribute to hidden costs to employers such as lowered morale, increased stress and lower employee engagement and loyalty. The effect of a suicide on coworkers can also be devastating. In addition to treatment of depression, employers who work with their EAPs and other wellness programs to identify and respond to depression will improve other chronic health conditions. This is because employees who suffer from depression also suffer from an average of 5.1 other chronic health conditions that can complicate treatment and increase costs to the workplace. For example, some of the most serious comorbid conditions in terms of lost productivity with depression include anxiety (48% of employees with depression also have anxiety); chronic fatigue (46%), obesity (29%), chronic sleeping problems (26%) and chronic back and neck pain (32%). (The statistics are from data collected by Integrated Benefits Institute, a leading research organization in health and productivity. See www.ibiweb.org for more information.) Research suggests that medication and psychotherapy are effective in 70% to 80% of depression cases (RAND, 2008). Employers can require their EAPs and other workplace wellness programs to screen all employees for depression using free and simple validated tools such as the 9-item Patient Health Questionnaire (PHQ-9), where the ninth question asks specifically about suicide risk. Employers can also provide comprehensive depression care management programs for employees screened or otherwise identified to have serious depressive symptoms or for those at increased risk, such as employees who recently went out of the workplace on short-term disability (Desiron, de Rijk, Van Hoof, & Donceel, 2011; Lerner, Rodday, Cohen, & Rogers, 2013; Lo Sasso, Rost, & Beck, 2006). EAPs are one way through which workplaces have historically and effectively provided help to employees with depression and other mental health and personal problems. EAPs have been shown to be effective in reducing depressive symptoms among employees, including thoughts about suicide (University of Michigan Depression Center). EAPs can provide identification and screening services, such as on-site employee depression screening; however, EAP services go well beyond simple screening and identification. Depending on the services purchased by the employer, EAPs can provide comprehensive assessment, short-term counseling and referral and case management services for longer-term help in the community. Additionally, well-positioned EAPs, those with more on-site access and easy access to consultation with workplace managers and leaders, help to ensure that EAPs are even more effective at recognizing and responding quickly to employee problems such as suicide risk. Additionally, strategically positioned programs can offer responses that are integrated and in line with the culture of the broader work organization to better serve employees while also supporting workplace productivity. Highly visible and management-supported EAPs can help to reduce stigma toward mental health problems, which in turn will encourage employees to seek help at an earlier stage of their problems and be more responsive to early intervention. It is important that all employees in the workplace take suicide risk seriously. They should be trained to identify depression and suicide risk among coworkers, not be afraid to ask questions about the well-being of coworkers and refer them to EAPs or other resources when needed. Some examples of companies working to train employees (a designated employee, group of employees or all employees) and raise awareness of suicide and mental health in general are: Chesapeake Energy, DuPont and Johnson & Johnson (see Partnership for Workplace Mental Health for these and other examples). EAPs can work with employers to develop appropriate training material to help reduce the stigma of mental health problems, not limited to just depression and suicide, so that everyone is able to play a role in contributing to the well-being of the workplace. Just as employees understand and can identify physical safety risks such as falling hazards and safe lifting practices, employees should also understand what to look for when employees may be at risk for a mental health problem. Even employers who are not able to provide comprehensive services such as EAPs and workplace wellness programs can take small steps that can have a huge impact on saving lives. One simple first step employers can take to increase awareness of depression and suicide at the workplace is to promote the phone number for the National Suicide Prevention Lifeline (1-800-273-8255) at different locations throughout the workplace where employees will readily see signs, posters and online messages. The Lifeline is a free hotline that can be utilized by anyone who might want to talk with a professional about mental health issues and well-being. Promoting the Lifeline is free to the employer and can be a good way to demonstrate the employer’s interest in the mental wellness of employees. Utilizing free hotline services such as Lifeline is especially important for employees who don’t have access to EAP or other workplace wellness programs. Overall, we know that workplaces that offer more control to their employees with regard to working conditions that can lower workplace stress, do better with regard to workplace productivity and depression. Therefore, it is critical that employers step up the plate and review and revise workplace policies and programs that are designed to support employees who may be suffering from depression and therefore have increased risk for suicide. By expanding existing programs to include assessment and treatment for depression, employers are working to improve productivity while also preventing suicide at the same time. It is a win-win for employers, employees and society as a whole. This article was written by Dr. Jacobson Frey; Kimberly Jinnett, PhD; and Jungyai Ko, MSSA.

The Santa Cruz Board Walk includes an old-fashioned rollercoaster ride named the Big Dipper. Establishing appropriate insurance requirements for transportation network companies (TNCs) such as Uber, Lyft, SideCar and Ride Share has been like a ride on the Big Dipper.

The California Public Utilities Commission (CPUC) has jurisdiction over TNCs as “charter party carriers” -- carriers for hire that, unlike taxis, must prearrange their rides. The Big Dipper ride began when the Consumer Protection and Safety Division of the CPUC sent cease-and-desist letters to some TNCs in 2010 and again in 2012. After studying insurance issues related to TNCs, in September 2013 the CPUC required TNCs to carry insurance providing as much as $1 million of coverage per incident while “providing TNC services.” This phrase proved to be troublesome.

There are three “periods” for TNC driving. Period One is when the driver turns on the TNC app (“log-on”) but does not yet have a match with a passenger. Period Two is when there is a match. Period Three is when a passenger is in the car. Although there is evidence in the record that the CPUC intended “providing TNC services” to cover all three periods, including Period One, it was not clearly stated in the rule. In addition, TNCs were uncomfortable extending $1 million in coverage to drivers merely because they were driving around while logged on.

Then came New Year’s Eve, 2013. An Uber driver killed a small child and injured the child’s mother and brother while driving during Period One. Because there was neither a passenger nor a match with a fare, it was possible that the driver was not “providing TNC services” and, therefore, was not covered by Uber’s insurance policy. It was likewise possible that the driver’s personal insurance would not apply.

Because the driver was logged on, the accident fell within the policy’s exclusion for commercial or livery use (although in this case the personal auto insurer provided coverage up to the policy’s limits). If neither Uber’s policy nor the personal policy covered the accident, the driver would have been uninsured -- an unacceptable outcome for the driver, the injured parties and public safety.

At least one TNC carried a “contingent” policy of $50,000 for an individual injury during Period One. The policy was triggered, however, only if the driver’s personal carrier declined coverage. This could lead to some odd results. If the driver had only $15,000 in coverage, and the driver’s carrier accepted responsibility, the injured pedestrian could look only to $15,000 in coverage. If the driver’s insurer declined to cover the accident, the pedestrian could look to the $50,000 coverage of the TNC policy.

In any event, there was no legal requirement that the TNC have coverage for Period One, and either $15,000 or $50,000 did not approach the $1 million the CPUC thought it had required. Following the New Year’s Eve accident, both the CPUC and the California legislature rushed to fill this possible “gap.”

The president of the CPUC proposed requiring a minimum of coverage of $100,000 for one injured person, $300,000 for more than one person and $50,000 for property damage (a 100/300/50 policy) of “excess” insurance for Period One, but the legislature arrived first. Although several bills were introduced, AB 2293 (Bonilla) is the only bill that made it to the finish line.

Initially, the bill sought only to build a “firewall” between personal insurance and TNC driving. The bill exempted personal auto insurance from covering driving while a TNC driver was logged on. Personal auto insurers argued that this driving is often more dangerous than ordinary personal driving, so, if personal auto insurers were responsible for the risk during Period One, the additional costs would be passed on to other auto owners. This might raise rates and would be a subsidy to commercial TNC enterprises.

The TNCs asked that their insurance limit during Period One be limited to 50/100/30, perhaps concerned that the CPUC wanted to require more coverage (recall that the CPUC was initially of the opinion that its $1 million requirement extended to Period One), To bolster their argument, the TNCs pointed to the limits adopted in a similar Colorado statute.

The bill in California was amended to include the 50/100/30 limit for Period One. Stakeholders pointed out that these limits were woefully inadequate to cover the injuries from the New Year’s Eve accident. The limits would also be inadequate to cover many other accidents.

The Bill was amended. Now, coverage for Period One would be $750,000 per incident (a 750/750/750 policy). This is the minimum coverage the CPUC has applied to limousines for 20 years or more. In addition, for losses exceeding $750,000 the TNC was to “assume all liability of the participating driver.” Liability, in effect, was limitless.

Now we are at the top of the ride. Hang on.

The TNCs were very unhappy with this turn of events. There was also concern whether such policies were available and, if so, affordable. TNCs are very popular with consumers, and few people wanted to appear to stifle this area of transportation innovation (with the exception, of course, of taxi drivers). The bill was amended again.

Period One coverage would now be 100/300/50, with $1 million of excess coverage. In addition, the drafters deleted the requirement that the TNC assume all of the driver’s liability. More lobbying, more horse trading and more diplomacy resulted in yet another amendment. The new limits were lowered to 50/100/30 (remember the limits in the Colorado law?), but with an excess policy of $500,000. It was unclear, however, whether the excess policy covered the driver or only the TNC.

With these lower limits, drivers might have found that their personal auto insurance would not cover them, yet their TNC coverage would be inadequate. This would put their personal assets at risk.

It occurred to the drafters that there was little point in adopting a bill unless the governor, who had not yet taken a position, would sign it. After consultation with the governor’s office, the bill was amended for the final time.

Period One maintained the minimum TNC coverage of 50/100/30, but the additional, excess policy was lowered from $500,000 to $200,000. The amendment also provided that the $200,000 excess policy must specifically cover the driver in addition to the TNC. The bill carried forward earlier requirements for Periods Two and Three. The bill requires $1 million in liability coverage for Periods Two and Three and requires $1 million in uninsured/underinsured motorist coverage for Period Three.

The bill directs the Department of Insurance to collaborate on a data-based study and report back to the legislature. To allow insurers time to create policies or endorsements to cover all of these requirements, the new limits are to take effect on July 1, 2015. If one is to be injured by a TNC driver during Period One, it may be best to consider postponing the injury until then.

The final bill also did something else. During final amendments, two words were added -- “at least.” Period One coverage, including the $200,000 excess coverage, must be “at least” those limits set out above. Because AB 2293 specifically permits the CPUC to continue exercising its rulemaking authority “in a manner consistent with” AB 2293, if the CPUC were to adopt higher limits (for instance, the $750,000 limit it applies to limousines), these limits would be “consistent” with limits “at least” those outlined above.

So we complete our first Big Dipper ride where we began -- with the CPUC. Two words -- “at least” -- are the CPUC’s ticket to reboard the Big Dipper. When the time is right, perhaps there will be yet another dizzying ride.

Please lower the bar snugly across your lap and keep your hands and feet inside.

Over the past several years, the epidemic of prescription drug abuse under the guise of “pain management” has generated headlines all across the country. The improper use of Schedule II medications in the workers’ compensation system is a part of this public health crisis. Publications by the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute (CWCI) and the National Council on Compensation Insurance (NCCI) have underscored not only the costs of such abuse but the tragic consequences to those who, through no fault of their own, have been consigned to a life of addiction and disability. Those tragedies are unnecessary and avoidable. When it comes to workers’ compensation, the payer community has been at war with the provider community for generations. In some respects, the debate can be reduced to a clash of two business models  -- the claims payer wants to reduce workers’ compensation costs while providing mandated medical care, while the care provider must build a business model around a dazzling array of payment (and paperwork) systems to maintain profitability. It is, in part, the economics of healthcare that so confounds payers and so stymies providers who are honest and ethical but who nevertheless still have to keep their offices open and a roof over their heads. But consigning the issue of opioid abuse to this paradigm is too easy an exercise. Equally significant, regrettably, are the problems associated with the insular world of workers’ compensation and how regulatory decisions are made within this highly regulated, if not suffocating, environment. Some states get the process right. Oregon and Washington have transparent and inclusive processes to engage claims payers, worker representatives, providers and regulators on important issues of occupational medicine. The Oregon Medical Advisory Committee has as its charge: “…to advise the director, with a diversity of perspectives, on matters relating to the provision of medical care to injured workers. The ‘director’ is the director of the Department of Consumer and Business Services or the administrator of the Workers’ Compensation Division (WCD).” That’s a lot larger charge than adopting treatment guidelines in a rule-making process. In Ohio, Gov. Kasich’s Opiate Action Team developed prescribing guidelines in a process that involved all key public and private stakeholders: “The clinical guidelines are intended to supplement -- not replace -- the prescriber's clinical judgment. They have been endorsed by numerous organizations, including: Ohio State Medical Association, Ohio Osteopathic Association, Ohio Academy of Family Physicians, Ohio Chapter of the American College of Emergency Physicians, Ohio Pharmacists Association, State Medical Board of Ohio, Ohio Board of Nursing, Ohio State Dental Board, Ohio State Board of Pharmacy, Ohio Hospital Association, Ohio Association of Health Plans and the Ohio Bureau of Workers' Compensation.” Like Washington, Ohio maintains a monopolistic state fund to provide workers’ compensation benefits. Ohio’s Bureau of Workers’ Compensation uses the same guidelines as every other provider of medical services. And, of course, there is the large body of work being done by the Agency Medical Directors Group in Washington. That entity coordinates medical treatment among all state agencies providing medical care, including their state-run workers’ compensation program at the Department of Labor and Industries. Professional licensing boards and medical associations are also an integral part of that process. Why aren’t these collaborative initiatives the template for further prescription drug reforms in states like Arizona or California? The much-lauded Texas closed formulary wasn’t created in a vacuum, and policymakers in that state recognized that open (“legacy”) claims required special treatment. As reported in TexasMedicine, the publication of the Texas Medical Association, “The regulations require physicians and carriers to formally discuss the pharmacological management of these patients. Ideally, the two parties would agree before Sept. 1 (2013) on how to proceed. That agreement could include a weaning schedule, a plan to continue the patient on the N drug or other alternatives.” California didn’t do that when making the transition from a judicial medical dispute resolution process to independent medical review, and Arizona has on the table a review/dispute process that will be equally jarring for open claims It would be remarkably naïve to suggest that a more transparent approach to the development and application of treatment guidelines and having processes in place that encourage a peer-to-peer dialogue between requesting and reviewing physicians would result in an immediate drop in prescription drug abuse. But it would also be remarkably cynical to proclaim that the approach won’t have an effect. The current workers’ compensation monologues over Schedule II drugs needs to be replaced with a dialogue that has as its goal not only the delivery of appropriate care to those who will be injured at work in the future but that also addresses the sad legacy of the abuses of past decades and offers help to those who so desperately need it now.

As I read the considerable amount of press Uber is attracting, the level of negativity from the insurance industry is striking. Uber is free-loading. Uber is undermining consumer protections. Uber encourages drivers to engage in what amounts to insurance fraud. And on and on. Reality is, Uber, Lyft and the many other start-up companies of their ilk are meeting a new set of needs reflected by the burgeoning sharing economy -- needs that traditional businesses with traditional business models and traditional approaches to connecting with customers are not satisfying. Functionally, these new entrants supply high-quality goods -- whether it’s an immediately available taxi ride in midtown Manhattan or a cozy apartment via Airbnb in Milan. Emotionally, they deliver good value for the money, competent service and a pleasant experience. These offerings also meet higher-order emotional needs that people have, e.g., for control, security, freedom, even independence. This ability to connect not only functionally but also emotionally suggests that the sharing economy sector is here to stay. These companies are firing on all of the cylinders that make for enduring offerings. That said, the entrepreneurs behind these offerings are riding on the back of the long-established risk-management practices -- policies, pricing, product -- of the insurance industry while avoiding the burden of full, dedicated insurance coverage. The reaction of the insurance industry has been to cry foul, call out the regulators and point to the consumer protections provided by traditional insurance. Is this reaction ultimately productive? Technology is pulling the rug out from under business models that looked quite durable even a decade ago. Customer habits and desires for discovering, investigating, shopping for, purchasing and servicing insurance bear less and less resemblance to those upon which the industry relied for the first two centuries of its existence. As an alternative, I propose the insurance industry look at Uber, Lyft and their peers as a force for positive change and as inspiration to evolve the insurance sector toward continuing strength and relevance in the new economy. This approach can be a path to growth, profits and stability. One way to achieve this vision is for leaders in the industry to foster cocreation platforms. Cocreation, simply put, is bringing together constituents from inside and outside your company to innovate and problem-solve around big opportunities and issues. Cocreation is a way to engage the instigators of the sharing economy in helping the industry figure out how to transform its risk-management practices to work in new sectors of the economy. What does cocreation look like? Imagine diverting the industry’s focus from what’s wrong with sharing economy companies, to seeing their emergence as the opportunity to create forms of insurance supporting new business models. Next, imagine identifying all the constituents who might contribute creatively and with impact to figuring out how to realize the opportunity in a way that is sustainable. These might include experts on current insurance practices, but importantly would include heavy representation of “outsiders”; i.e., people who work for sharing-economy companies, users of their services, regulators, distributors and big data, digital, brand and customer experience experts.  Constituents would include people with no connection to the insurance industry who bring totally different perspectives that can be applied to insurance -- for example, airlines (shared transportation), retail (mass market franchises and distribution), “experience” companies (innovators that elevate an offering beyond product features and price). What’s important is to include people for whom there is something to be gained by participating. Now imagine giving these constituents a private forum -- possibly a 24 x 7 Facebook-type site -- where they can engage in dialog on topics relevant to the challenge, or on opportunities to come together for a facilitated meeting in a physical space where they might prototype solutions to the challenge. Finally, imagine that you as the insurance carrier can listen effectively and glean insights about possible new offerings and use these findings to define alternative approaches that can be validated through an iterative process of test and learn. Cocreation is another way to think about solving the “problem” of the Ubers of the world, harnessing the immense creativity that spawned the sharing economy to be a force for enabling new sources of value from which we can all benefit.

With the traction that InsuranceThoughtLeadership.com (ITL) is now seeing in the marketplace, a consensus developed among the principals that it was time for the addition of a new channel of expertise to further flesh out the rapidly evolving practice of risk management and help influence its course and impact on the success of organizations. This description of risk management’s potential is resonating more and more with both practitioners and senior leaders, including board members. Yet risk management is morphing under several different rubrics, including enterprise risk management (ERM), strategic risk management (SRM), governance, risk and compliance (GRC) and older terms like holistic or integrated risk management that do not seem to have gained much traction. Confusion is increasing among practitioners and leaders as the semantics shift. For various reasons, some good and some not so good, the emphasis on risk management is shifting, as well. One could easily argue that names and acronyms shouldn’t matter, but they do, if only to gain recognition and acceptance for the discipline among a remaining, and not insignificant, group of observers. There are meaningful differences between ERM, SRM and GRC that relate to the focal point of each practice. In addition, there are practitioners who use these terms/acronyms in different ways. I might, as I often do, like to say that it’s all just “risk management” or at least should have been had we not pursued these tangential efforts that have not served a portion of the user community well. You might note the irony in this statement because my reputed expertise is in ERM, for which I have had direct connections as a practitioner and consultant, as an author and as simply an advocate for a more robust approach to managing risk for over 13 years. Nevertheless, for the more astute, these nuances in risk management have often been beneficial. They have allowed advanced practitioners to evolve their profession further by narrowing their focus to the more material and significant aspects of the discipline, as they relate to their specific environment, culture and situation. Confused yet? Well, don’t be. But realize that a key pillar of great risk management is doing it in a way that is most germane to your organization and its needs and priorities. Customization is the order of the day for managing risk well. That means that, while some organizations may want to deploy a comprehensive approach, others will want to pick and choose those components that are meaningful and will have the most impact. Customization also means that certain risk stakeholders will have greater stakes in the outcomes than others. Each organization’s risk stakeholder group will be unique in its make-up, and this drives other aspects of customization that enable alignment among all players. But the key question now for this launch of a new topic channel for ITL is how it fits into the ITL “conversation” strategy, which is focused on driving change in the broader insurance industry space. We have decided to take the “risk management” channel that has existed since the beginning and rename it as ERM. Risk management, since the inception of its use as a term of art, has overwhelmingly meant the management of hazardous or insurable risks; strictly construed -- a subset of operational risk. Traditional risk management is no doubt an important discipline in its own right, but companies need to broaden their thinking and include risks that are not insurable (e.g. financial and strategic). I love to say, “Enterprise risk management is what risk management should have always been.” So while we will always need what I consider “traditional” risk management to address insurable risks, an enterprise-wide approach to managing risks must ultimately be employed, regardless of the label or name given to the activity. This will improve the chances of survival in an increasingly challenging world and ultimately success – even if it comes at the expense of those who ignore this truth. Regardless of the choices people make, what really matters is managing risk with excellence and ensuring that, no matter who is involved, all significant risks are addressed. Why? Because effective risk management is directly tied to organizational success. I like to say, “A risk is not a risk unless it either threatens or facilitates an objective.” If this foundational principle is true (and why would I lie?), then the effective management of all significant risks must become a mandate for leadership and a top priority for the board. We can say this has always been a truism for organizations, but evidence suggests otherwise. The landscape is littered with extinct companies that failed in this regard. And while it is true that effective risk management is simply a part of good management, so are many other components that fail regularly. So the question then becomes, how will businesses achieve this fundamental (though lofty for some) goal to increase the chances of both short- and long-term success? Answering that question is what this ITL channel will make its mission. We will do so by providing you content from some of the best ERM thought leaders and successful practitioners who have achieved or are well on their way to achieving this goal. To that end, I am happy to introduce today, the first group of contributors who will work with me to bring you the best new ideas in ERM, including tools, advice for avoiding pitfalls, techniques, strategies, tactics and success stories. This group will include:

• Russell McGuire, director of ERM/GRC practice, Riskonnect (U.S.)
• Grace Crickett, senior vice president and chief risk officer, AAA of Northern California, Nevada and Utah (U.S.)
• Marc Dominus, ERM practice leader, Crowe Horwath (U.S.)
• Dave Ingram, executive vice president, Willis Re (formerly S&P’s ERM leader) (U.S.)
• Donna Galer,  chief administrative officer, Zurich (retired) (U.S.)
• Rick Machold, chief audit executive, Total Systems Services (U.S.)
• Mark Stephens, managing director, Milliman Risk Advisory Services  (U.S.)
• Peador Duffy, chairman, Risk Management International (UK)
• Horst Simon, director, risk management, Horwath MAK, (Dubai)
• Gary Bierc, CEO and founder of rPM3 Solutions (U.S.)
• Norman Marks, vice president and chief audit executive, SAP,(retired) (U.S.)

While you may not know all of these names, I assure you they are big thinkers, have accomplished much and will stimulate new thinking for this discipline and help you, our readers, reach new heights of ERM success. So, stay tuned and come back frequently. What you’ll see here will always be fresh and insightful.  

Contributor Biographies

Marc Dominus Marc is the enterprise risk management (ERM) solution leader for Crowe. His responsibilities include coordinating the design and delivery of Crowe's ERM services and directing innovation initiatives in this area. His experience includes more than 20 years of providing risk management consulting services. Marc's areas of expertise include ERM framework specification and  implementation, enterprise risk assessment (ERA), professional training, executive strategic workshop facilitation, risk culture enablement and change management. He has performed consulting engagements and delivered training programs for significant and complex private and government organizations for major corporate and public entities across the world. He frequently writes, presents and delivers professional training on topics related to ERM. Donna Galer Donna is a consultant, author and lecturer. Her top-selling book, Enterprise Risk Management – Straight to the Point, with co-author Al Decker, was published in 2013. She served as the chairwoman of the Spencer Educational Foundation from 2006-2010, following retirement from Zurich Insurance. This foundation awards scholarships to students studying risk management and insurance. She held a number of positions in her 17 years at Zurich from 1989 to 2006. Her last position at the company was chief administrative officer for Zurich’s world-wide general insurance business ($36 billion gross written premium, or GWP), with responsibility for strategic planning among other areas. She began her insurance career at Crum & Forster Insurance after a brief time at JPMorgan Chase (Chase Manhattan). She has served on numerous industry and academic boards, published many articles on ERM and strategy and was named among the Top 100 Insurance Women by Business Insurance in 2000. Horst Simon Horst is the director of risk management at Horwath MAK (a member firm of Crowe Horwath International) in the Dubai International Financial Centre. He has held positions with Mashreq Bank, Emirates NBD, Barclays Bank and Standard Bank Group of South-Africa. He has lived in four countries and worked in more than 20. He worked as an associate with a number of renowned global firms in banking, professional services, training and business process outsourcing and has been in the banking and consulting industries for more than 34 years.  Supported by the UK-based consultancy Genius Methods, he developed and launched the risk culture maturity monitor, an online tool that accurately measures the level of maturity of an organization’s risk culture. His special interest is in the field of people risk, and he is a regular speaker at international conferences, a trainer in operational risk and enterprise risk culture in the Middle East, Asia and Africa and a blogger on www.Zawya.com. He supported the capacity building program of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI); he is the co-regional director of the Global Association of Risk Professionals (GARP), Dubai, UAE chapter, and a member of the Professional Risk Managers‘ International Association (PRMIA). Grace Crickett Grace’s career has been diverse, involving a variety of industries, ranging from equipment rental to healthcare and from not-for-profit to a Fortune 500, covering the U.S., Canada, Mexico and Singapore. The scope of her work has included self-administration of claims, safety and loss prevention, internal audit, benefits administration, continuity planning, emergency management, captive management and IT and physical security. As senior vice president of risk services and chief risk and compliance officer with AAA NCNU, she is charged with implementing ERM with her compliance, risk management and internal audit team. Grace was chosen in 2011 as one of Business Insurance's Women to Watch. Grace was also selected by Business Insurance magazine for its 2011 Risk Management Honor Roll. Also in 2011, Treasury and Risk magazine named Grace as one of the “100 Most Influential People in Finance.” She received the Information Security Executive (ISE) of the Decade Award in 2012 and West and North America Awards in 2011.  She is actively engaged with various professional organizations, including RIMS, as a member of the ERM committee and president of the Golden Gate Chapter. Peador Duffy As founder and chairman of Risk Management International (RMI), a successful and growing risk management practice for the past 20 years, Peador has been at the leading edge of risk professionalism and assisting companies to manage strategic risks to their business model. A former officer with the Irish Defence Forces, he has taken first-hand military experience to the boardroom in helping businesses develop superior risk analysis and in conducting crisis scenarios with senior management teams in major corporations and businesses of critical national interest. He provides thought leadership and a pragmatic approach as a strategic overlay to risk traditionalists and has seen risk management grow from board room buy-in, as a compliance imperative, to board room traction as a competitive countermeasure after the global financial crisis. Dave Ingram Dave is a member of Willis Re’s analytics team based in New York, offering insurers a practical way to use ERM to identify specific actions and strategies that will enhance the risk-adjusted value of the firm. He assists clients with developing their first ORSA, presenting their ERM programs to rating agencies, developing and enhancing ERM programs and developing and using economic capital models. In 2012, Dave was named one of the 100 most influential people in finance by Treasury and Risk Magazine. With more than 30 years of actuarial and general management experience in the insurance industry, Dave has served as corporate actuary, business unit head and planning officer for a major U.S. insurance company. He was previously the senior director, ERM, in the insurance ratings group of Standard & Poor's (S&P). In that position, he spearheaded the initiative to incorporate ERM as one of the primary insurance ratings criteria and the development of the framework for reviewing economic capital models. He also was a consulting actuary providing advice on risk management and risk analysis to banks, investors and insurers with Milliman. In addition to writing some 100 published articles relating to ERM, Dave has spoken on ERM at more than 100 events in North America, Asia, Europe, Middle East, Africa, Australia and South America. He was the first chair of the 2,500-member Joint SOA/CAS/CIA Risk Management Section. Dave is now the chair of the International Actuarial Association’s enterprise and financial risks committee and chair of the Actuarial Standards Board ERM committee. Dave is a graduate of Lehigh University and has an enterprise risk analyst charter from the SOA, financial risk manager certification from GARP and professional risk manager certification from the PRMIA. Rick Machold Rick has more than 28 years experience across multiple industries and disciplines, including business risk management, process design and improvement, change facilitation, forensic accounting and strategic planning. He was most recently head of enterprise risk at Invesco and had global responsibility for the company’s enterprise risk management efforts. As administrative coordinator and member of Invesco’s corporate risk management committee, he oversaw the continuing development of the company’s ERM framework, tools and practices. His background is primarily in management consulting and public accounting, having served as a partner in PricewaterhouseCoopers global risk management solutions practice in both St. Louis and Atlanta. His clients have included the Centers for Disease Control and Prevention (CDC), the New York Yankees Partnership, Wyeth-Ayerst, Ryder System,  Dell and many others. For several years before joining Invesco in January 2007, Rick was an independent consultant in enterprise risk management to First Data, based in Denver. He subsequently served as senior vice president and chief risk officer for Certegy, a transaction processing provider based in Atlanta. Rick serves on the board of City of Refuge in downtown Atlanta and is an active member of the Institute of Internal Auditors and the Risk Management Research Council. He is a frequent speaker on enterprise risk management and has written several articles on enterprise risk management and internal control. Rick is a regular guest lecturer on ERM for the University of Georgia’s EMBA program and most recently for Kennesaw State University. Mark Stephens Mark manages the Milliman Risk Advisory Services practice group. The practice delivers a portfolio of risk consulting services, such as enterprise risk design, test and build projects, operational risk assessments, ERM education and training and ERM technology evaluation. The ERM practice uses diagnostic consulting strategies to understand an organization’s enterprise risk goals and challenges and then customizes solutions to deliver required business results. In addition, Mark is the executive director of the Milliman Risk Institute, which supports enterprise risk management research and development. The Milliman Risk Institute advisory board meets on a semi-annual basis and conducts corporate surveys and publishes the results along with expert commentary. Mark began his career as a risk management consultant for Federated Mutual and later became managing director for Aon Risk Services. While at Aon, Mark designed and managed Aon Value Exchange, which provided pricing and margin guidance for broker products and services. In addition, Mark managed the Aon Global eSolutions Group, which developed risk analytics software for multinational clients to assist with enterprise risk, claims management, exposure management and policy management. Mark served on the management teams for Aon’s enterprise risk practice council, the financial institutions practice group and the ARS-US national service board. Mark also led national and international change-management teams for risk software integration and for margin improvement. Finally, Mark was CEO of Aon RiskLabs and led the M&A team for Aon’s acquisition of Risk Laboratories and Valley Oak Systems. In 2007, Mark founded Strategic Risk Partners, where he designed industry-leading best practices for enterprise risk management and operational risk management. In addition, he developed unique online software platforms for collaboration around governance, risk and compliance, ERM and operational risk Russell McGuire At Riskonnect, Russell is director of ERM Services and in charge of development and implementation of solutions for ERM, including design of GRC software. He consults with clients on the establishment of an effective, sustainable ERM framework supported by the necessary technology to ensure success. Gary Bierc Gary founded and is CEO of rPM3 Solutions, a software and services firm specializing in the practical application of "cost of risk" in an ERM context. rPM3's ARQ Technology software creates powerful outputs and analysis around the cost of risk, which exposes important links between risk and performance. This unique software delivers a patented method to make the process of identification and quantification easy and repeatable for any business or enterprise. Norman Marks Norman has spent more than a decade as a chief audit executive for major companies, with as much as $28 billion in revenue. He has implemented isk management, ethics programs and disclosure processes at multiple organizations and is a recognized thought leader in the professions of internal auditing and risk management. A frequent speaker and writer on governance, risk and controls, he is the author of the popular book from the Institute of Internal Auditors' on Sarbanes-Oxley Section 404 and of the IIA's GAIT family of guidance products. Norman has built or repaired internal audit functions to standards that are recognized as world class by management, audit committee members, service providers, CPA firms, peer CAEs and other internal audit leaders.

The first part of this series declared that HR managers now control the basic tenor of how safety management is executed in most organizations. As veteran safety professional Mark Kennedy says, “There is now no difference between safety and human resource management. I consider them one.” As a result, safety has adopted a kinder, gentler disposition as it emphasizes employee relationships and teamwork. A worker’s safety performance is now judged in large part by a new compulsory social norm -- civility. Safety has become a social change movement that should worry insurers. Experts say safety has suffered as a result of its increased focus on relational sensitivity. Workers with naturally grumpier temperaments -- a majority of workers performing safety-sensitive jobs -- feel unfairly targeted for change, or worse. Is this concern justified, or are these workers simply part of a long-time dispositional safety problem that is only now being rectified through HR-led safety departments? Following a dangerous path A look at how this change is being felt by one company’s workers provides insight. For the past three years, one large company has invested heavily in an employee safety awareness campaign designed by an HR consultant. The campaign includes training classes in which employees are equipped with relational skills to improve the company’s safety climate. Topics are standard training fare -- teamwork, leadership, communication, supervising -- aided by insight gained from a behavior assessment tool. Initial results indicated that the company reaped an improvement in both safety attitude and incident rates. Thereafter, rates plateaued. Employees now quietly question the campaign’s viability. Upon review of the campaign by independent sources, it was noted that training instructors were telling participants that they must avoid using what could be perceived as critical or confrontational behavior toward others, even if used to keep them from imminent injury. A typical reaction came from one worker, who looked on incredulously when he was told that he could not raise his voice to stop a coworker from potentially injuring himself. Yelling to prevent injury would be as harmful as allowing the coworker to risk injury. Civility must prevail. In another training class, students expressed shock at the audacity of someone who bluntly told a coworker to “get your hand back inside the elevator door” as it closed. (The coworker was holding the door open for a late-arriving colleague, a violation of safety policy.) Shame, shame, the class repeated in Gomer Pyle-like unison. Shame on the worker for acting rudely. If these instances were isolated cases, there would be no cause for concern. But other companies mirror a similar trend. Reaching beyond good intentions Such a foray into forced sensitivity was never intended. Two decades ago, pressure from safety regulators and large insurance brokers caused many companies to improve the safety-critical "people skills" of their labor force. Of greatest concern were interpersonal communication skills most often cited as being involved in incidents. The consensus among company managers was that specialized employee development personnel with HR-like perspective were needed to better facilitate the training effort. Existing safety instructors wouldn’t do. Some companies turned over the keys entirely to their HR departments. Symbolic of this was a 1994 meeting in the boardroom of a large maritime company whose vessel personnel lacked the necessary interpersonal skills to safely manage crewmen and conduct operations. Determining a path to improvement was the sole item on the agenda. The meeting was held under the watchful eye of the company’s risk management consultant. Present were the company’s executive vice president, its HR manager, a client-representative, a regulatory authority and a training contractor. No company safety representative was invited. The company approved an extensive safety-training program for vessel officers that day. Its focus was simple: Improve communication skills. More than 1,200 of the company’s vessel officers eventually participated. Other companies used the same blueprint to train 2,300 of their officers. Maritime executive Larry Rigdon says that the training contributed significantly to “a positive change in employee attitude toward themselves, the company and the industry.” With the widespread success of training initiatives like this, safety discovered its softer side, and HR was given a change agent that it could use for broader purposes than risk control. Large insurance brokers quickly fell into formation, strongly suggesting -- sometimes demanding -- that their customers recast their safety programs in the civility-first mold. But brokers did not envision the long-term effects of their endorsement. Looking back, the risk manager present at the maritime company’s 1994 meeting (who wishes to be anonymous) states that early training efforts were focused on developing leaders who would “manage the loss-reduction process.” Relational skill-development was undertaken for a specific purpose, so that employees could better convey “where they are going and whether or not they have reached their objectives . . .to reinforce tactics and targets.” The soft side of safety was created to enable workers to achieve concrete objectives, not to teach haters to be likers, or convert negative-mood individuals into positive ones or to intimidate those who do not fit a preferred mold. Correcting course Only insurers have the muscle to reverse the tide of the paralyzing civility movement within safety. Like two decades ago, they must exert influence with customers who need direction. Here are a few things that insurers can do to right the balance of the listing safety ship: -- Sit down with the customer and ask the following three questions: Standard-setting Which department establishes the behavioral standards of how employees should personally relate to each other in fulfillment of the company’s safety mission? Training Which department is responsible for training employees in those standards? Enforcement Which department holds workers accountable, and how? Search for duality or overlap (between HR and HSE) that may be confusing to those responsible with accomplishing the safety mission -- that’s everyone. -- Poll the customer’s safety representatives confidentially. Ask their opinion about the direction of the company’s safety management program. Give credence to the opinions of long-time safety professionals who have witnessed the evolution discussed here. -- Review the vision, mission and goals of the customer’s safety program independently and determine how they are accomplished within the customer’s real work climate. Search for tangible evidence that the core elements of loss prevention are being achieved as a first priority. Insurers should present their findings, along with recommendations, to the customer. The long-standing safety goal of zero incidents turned into zero tolerance years ago. Under HR’s influence upon safety, the policy frighteningly approaches intolerance. Now is the time to reverse the trend. Then again, as a reformed hater, perhaps I am just being too sensitive.

What is a quantitative business case for an IT investment? It is a quantifiable measure of benefit, in dollars, that can be realized by making a quantified investment of resources. While resources can be capital, human, intellectual property, etc., in the end it can all be reduced to money. What money is one putting in and what return is one getting out as a result? Making the quantitative case is a long- practiced ritual in many insurance organizations. I may be committing heresy by asserting that the quantitative case is much overrated, doesn’t serve the purpose it was intended for very well and may, in fact, be an exercise in futility. I’m not making a general statement: I’m speaking about various IT modernization or transformation initiatives in the insurance industry, which I work in and serve. I took enough corporate accounting and finance courses to qualify as a finance major and as a result am familiar with the mechanics of discounted cash flow analysis, valuation of initiatives, calculations of NPV, IRR, payback, etc., etc. While the theory of the quantitative approach has always seemed compelling, 20 years of practice has taught me the reality and informed my views very differently. Why, then, is the quantitative case typically so favored? There are two primary reasons. First, quantifying helps with understanding the return on investment for any individual undertaking. Second, and perhaps more important, when many initiatives vie for scarce capital, quantitative cases can allow for comparisons. And in most organizations, one of the most important responsibilities of an executive team is to allocate capital to the most beneficial initiatives. All this sounds quite straightforward. What, then, is the problem with the quantitative case, especially for initiatives that require big capital expenditures? The problem is not with the mechanics of quantifying. Once the investment and income streams over a reasonably desired time horizon are identified, weighted average cost of capital (WACC), discounted cash flow (DCF), net present value (NPV) and internal rate of return (IRR) sorts of metrics are quite mechanical to calculate. The real problem with so-called insurance modernization or transformation initiatives is with establishing the variables of investment stream, income stream and time. There are two ways to try to establish these three variables. First, if one can precisely establish the required investments and expected returns over a period. If I know that I have to travel 300 miles and know that I will drive 75 mph, I can mathematically say that I will complete my travel in four hours. Second, if a vast body of empirical evidence exists, then one can at least probabilistically try to establish the three variables with associated confidence levels. But I would argue that with initiatives in the insurance industry that require large capital-expenditures, neither approach works. With insurance industry initiatives, quantifying income returns, investments and time period with precision is extremely difficult, if not impossible. On the investments front, projecting increase in premiums and profits, cost savings through headcount reductions and other items and cost avoidance are all an exercise in sheer guesswork. Estimating the costs and timelines of large technology projects also remains elusive. No matter how diligently and hard people work to identify these, the estimates end up being wrong--often, not by some tolerable deviation but rather by orders of magnitude in overruns in costs and time. Because the vast body of insurance initiatives suffers the same fate, there isn’t reliable empirical evidence to probabilistically establish income, investments and time period with any degree of confidence. And there are other variables that further undermine the attempts at calculations – differential in resources and execution approaches from one initiative to the other, culture of organizations, market changes, technology changes, and much more. Despite the problems associated with the quantitative business case, most organizations still pursue it. Internal teams work on project portfolios and appropriation of funding exercises. Vendors are always at hand to help the teams develop the business case to sell it to the C-Suite and the board. Within the organization, committees and councils are established to review the “case,” “wisely adjudicate” and pick “winners” and “losers” among candidate initiatives. All these various constituents are well-intentioned and are following the rules of the game. The problem is with the current “rules of the game” and not with those who play. Are there alternative approaches, then, both to decide whether to fund a given initiative and, once funded, to determine how best to use the funding to ensure that an initiative is yielding benefits? In several instances, I have been fortunate to witness bold leaders abandon the traditional method and take a more pragmatic approach. I’ll discuss this in Part II.

Insurance companies have struggled to meet evolving customer needs and expectations. As a result, they are facing serious obstacles to growth. In the P&C sector, gaining market share is a zero sum game, particularly in the saturated auto insurance marketplace. The life insurance market is shrinking as fewer consumers purchase policies. Over the last decade, in particular, insurers have struggled to meet customer expectations for greater price transparency, top-notch customer service, real-time response to service requests 24/7 access and more. Many retailers and companies in other industries have been able to provide customers the experience they want, so why are carriers struggling to do this? There are three primary reasons:

1. Insurers know little about their end customers because they’ve historically viewed intermediaries as their customers.
2. A growing number of customers want a self-service option, but product and process complexity (unfamiliar language and many product options) makes it difficult for insurers to provide one.
3. Insurance carriers’ fragmented operating models lead to inconsistent customer experiences. And the operating models make it difficult for carriers to gain the complete view of customers that’s needed to design tailored solutions.

Rather than making products and agents their business focus, it’s time for insurers to put customers at the center of their business models. Customer-centricity has three dimensions:

1. Customer insights: Carriers should mine the wealth of available data about their customers to gain insights into their needs and behaviors so they can deliver the experiences and products that customers want.
2. Customer experience: All interactions with the customer should be consistent and streamlined, and they should match each customer’s needs and preferences.
3. Customer-centric operating model: The organization’s structures, systems and processes should operate with one goal in mind: delivering quality customer experiences efficiently and at a reasonable cost.

By adopting a customer-centric approach, insurance companies can win new business, increase sales to existing customers and build brand loyalty. Customer centricity also yields other benefits, including increased operational efficiency and reduced costs and more predictable, data-driven business results. For the full paper on which this article is based, click here.