One of the most active sectors of mergers and acquisitions activity (M&A) today is the insurance claims and technology sector. An unprecedented number of powerful forces are converging to drive M&A activity in the North American Property & Casualty (P&C) insurance claims and technology “ecosystem” to historically high levels, including: • Claims supply chain rationalization and consolidation • Rising adoption and deployment of big data and analytics solutions • Insurance product commoditization and the resulting business transformation • An influx of private equity capital (already raised and seeking to be deployed in the sector) • Expectations of a continuation of a steadily improving economy, with the prospect of lingering low interest rates We expect these forces to amplify and further increase competition among well-capitalized strategic players and private equity participants that seek to create scalable and defensible positions in the industry. The implications for smaller, less-capitalized, regional or technology-challenged competitors are meaningful. Claims Supply Chain Consolidation The area in which we expect the greatest potential for increased activity in the second half of  2014 and in 2015 is within the claims supply chain. The P&C claims ecosystem is composed of thousands of small, local, independent firms, as well as larger regional, national and global vendors and business partners that provide mission-critical products and services to the claims operations of the P&C insurance industry, including; • Insurance technology and IT services, system integrators, core system and claims management software solutions and database and information providers, including communication, repair estimating and body shop management systems • Claims technology vendors (document management, compliance, data quality, payment systems, etc.) • Collision and auto glass repairers • Collision repair parts suppliers • Insurance replacement rental car providers • Third-party administrators and claims business process outsourcing firms • Claim services including independent auto and property adjusters and appraisers and catastrophe services • Insurance defense attorneys • Auto and casualty claims management solution providers • Salvage vehicle auctioneers and towing services • Insurance staffing firms • Insurance claims investigation firms One of the subsectors most affected by these factors is the highly fragmented and inefficient collision repair and parts business. Many of these are local, privately owned shops with limited technology capabilities and management talent. National consolidation, often driven by private equity, can lead to expense rationalization, upgraded information technology systems, improved management, the ability to respond to upstream customer pressure and improved pricing. • In the collision repair consolidator space, the largest participants include Boyd/Gerber Collision and Glass (more than 300 U.S. and Canadian locations, owned by Canadian publicly traded Boyd Group Income Trust); ABRA Auto Body and Glass (234 locations, acquired in August by Hellman & Friedman); Service King (177 locations including the 62-store Sterling Collision Repair Centers acquired from Allstate Insurance, and which recently changed hands from The Carlyle Group to Blackstone Group); and Caliber Collision (168 U.S. locations, recently acquired by OMERS Private Equity from ONCAP, both Canadian private equity funds). • Franchisor repair consolidation is being led by CARSTAR (410 U.S. and Canadian locations, funded by Champlain Capital), Driven Brands/Maaco (500 U.S. and Canadian locations, owned by Harvest Partners) and Fix Auto (345 locations). The companies continue to implement their growth strategy through a combination of franchising and building a banner network. • Since its founding in 1998, LKQ has consolidated the automotive repair alternative parts market in North America and elsewhere to become the largest provider of alternative collision replacement parts and a leading provider of recycled engines and transmission, with annual revenue exceeding $6 billion. In 2014, LKQ acquired Keystone Automotive, a leading distributor of aftermarket parts and equipment. Over the next twelve months, we expect to see further consolidation within the collision repair industry. This could include the combination of two or more of the largest consolidators or the simultaneous aggregation of multiple regional operators, resulting in the industry’s first truly national collision repair network. Additionally, one of the other important trends is the development of an electronic parts procurement and ecommerce solution for the large, and still highly fragmented and inefficient, North American auto repair parts supply chain. Within the next year, we expect that a significant open-market solution will emerge from among the many existing electronic parts procurement providers. Claims Information Provider Expansion and Consolidation North American insurance industry auto and property claims operations, including their auto, collision repair and property partners, primarily utilize the products and services of three claims information providers, each of which have expanded their offerings into automotive claims-related markets: • Private equity-backed CCC Information Services (Leonard Green & Partners plus TPG Capital), a database, software, analytics and solutions provider to the auto insurance claims and collision repair markets, recently acquired Auto Injury Solutions, a provider of auto injury medical review solutions. This follows CCC's earlier acquisition of Injury Sciences, which provides insurance carriers with scientifically based analytic tools to help identify fraudulent and exaggerated injury claims associated with automobile accidents. • The continuing series of U.S. and foreign automotive service industry and data acquisitions by Solera includes the insurance and services division of PPG (including Lynx, GTS & Glaxis), AutoPoint (U.S.) and AutoSoft (Italy) in 2014, HyperQuest (U.S.) in 2013 and Distribution Services Technologies, Services Repair Solutions, Serinfo (Chile), Pusula Otomotiv (Turkey), EziWorks/CarQuote (Australia) and APU Solutions in 2012. Since its initial public offering in 2007 (originally backed by private equity firm GTCR), Solera has completed more than 25 acquisitions globally and grown its annual revenue to more than $1 billion. • Mitchell International, a provider of technology, connectivity and information solutions to the P&C claims and collision repair industries, recently acquired Fairpay Solutions. Fairpay’s service offering includes workers’ compensation, liability and auto cost containment and payment integrity services, which will expand Mitchell’s solution suite of bill review and out-of-network negotiation services and complements its acquisition of National Health Quest in 2012. Mitchell was acquired in 2013 by KKR. Over the next twelve months, we expect these information providers to expand in several directions through internal product development supplemented by strategic acquisitions. This expansion will likely include: (i) deeper integration with claims management core systems, (ii) introduction of new tools and services utilizing advanced analytics-for-use cases across the entire auto and property claims process, (iii) deeper and wider integration with third-party companies in the auto and property claims supply chain, specifically including collision repair parts procurement, (iv) further development of auto casualty and workers’ compensation medical management networks and services and cost-containment solutions. For smaller providers in the claims supply chain, now may be the time to consider combining with a larger, better-capitalized player, especially given the trend toward vendor management by insurance companies. A “going it alone” strategy will be increasingly risky as larger, national players will garner more market share by offering better pricing, superior technology solutions and greater geographic coverage than “mom and pop” operations. If you are interested in discussing your strategic alternatives, please feel free to contact StoneRidge Advisors. Our transaction experience and in-depth knowledge of the claims sector make us the ideal financial advisor for the owners / entrepreneurs operating in this sector. This article was previously published by StoneRidge Advisors, which holds the copyright.

In 2008, many homeowners were stunned by the sharp drop in housing prices. Built-up home equity vanished. In a rising housing market, protecting against a loss in home equity seemed unnecessary. And while homeowners can’t turn back the hands of time, they could mount a defense against a drop in home equity with insurance that makes it possible for individuals and families to more comfortably take on the risk of buying or owning a home. Home ownership has largely defined the American Dream. For more and more individuals and families, the purchase of a home was becoming a reality during the early part of the past decade. By 2004, when home ownership peaked, slightly more than 69% of families had homes. And as home ownership rose, so did the wealth of families. The dream began to dim, however, in the middle of the decade when home prices slipped. The hint of trouble materialized in 2007 when the median price fell more than 8%, according to the S&P/Case-Shiller U.S. National Home Price Index (HPI). The following year, median prices tumbled more than 18%, a rate that accelerated during the first few months of 2009 before easing. Over the past few years, home prices have started to rebound. But if a family bought a home in the summer of 2006 and sold it at the end of 2011, it would have been deeply out-of-the-money if its price followed the median price of a home, which sank in value by more than 34% (or $83,600) over that time. Unlike the supply-and-demand principle that governs buying behavior of many other assets, falling home prices tend to scare off home buyers, which in turn sets off a downward spiral of events. The initial drop in prices shocks the market, and risk-averse home buyers shy away because of the volatility. This leads to even deeper declines in prices, which only exacerbates buyers’ hesitations to purchase a home. Falling home values are also significant because most families rely on a mortgage to purchase their homes. Typically accounting for approximately 75% of the family’s total debt, a mortgage makes the purchase of a home a highly leveraged proposition that is extremely sensitive to changes in the value of the housing market. A small drop in home prices can translate into a large loss in the family’s net worth years after the purchase. This is precisely what has happened to many families. From 2007 through 2010, median family net worth plunged nearly 39%. While declines in financial or business assets contributed to the drop, the collapse of home prices had a far more devastating impact on family net worth. This situation was especially true for families living in the West, whose median net worth took a nosedive of more than 55%, largely because of the crash in home prices. Also hard-hit were families whose homes accounted for a greater share of their assets. For example, the median net worth for a family headed by an individual between the ages of 35 and 44 fell more than 54% from 2007 through 2010, according to the Federal Reserve. If the recent drop in home prices had been an anomaly, the risk in home equity could perhaps be managed as other rare misfortunes are. Families could pick up the pieces and move on. But volatility in home prices seems to be part and parcel of home ownership. During the mid-1980s, the oil-patch crisis in Texas drove down home prices. Decreases in defense spending in the late 1980s and early 1990s led to a downturn in the economy of Southern California, which eventually rippled into the housing market. The early and mid-1990s also saw drops in home prices in New England. Across the U.S., more than 50% of home buyers in the early 1990s found themselves in markets that experienced a decline in home prices over the five years following purchase, according to Ian Ayres, Townsend professor at Yale Law School, and Barry Nalebuff, Steinbach professor at Yale School of Management. Deteriorating housing prices can transform what seems like a rosy picture of financial health into a torn remnant of security, as unrealized wealth a family thinks it possesses vanishes into thin air. Retirement, a child’s education or other long-planned activities may need to be postponed, because there is often little or no time to readjust savings and spending to compensate for the loss in wealth. But what if a homeowner could be protected from a drop in a home’s equity? Families insure their homes against fire, their cars against collision, their personal property against theft. In a day and age when forecasting home prices has become as fickle as predicting the weather, home equity insurance would be a way to reduce some of the risk in a loss of value for a family’s largest investment. A home equity insurance product could pay a homeowner if a drop in the housing market were to occur when a house is sold. The payout might be based on a housing price index that is tied to local home pricing trends. For example, an individual who buys a home for $250,000 and decides to sell it five years later when market prices have declined 4% would receive $10,000 based on the change in the index at the time of sale. For a nominal monthly premium, homeowners could insure against a possible decline in home equity for years after purchasing a house. While an index-based approach does not track the changes in the price of an individual home, it is granular enough to compensate homeowners for price changes within a reasonable local area. Index-based payments also would discourage homeowners from slacking off on the maintenance of their properties because payment of a claim would be limited to the decline in the housing index for the areas of their residence. If a home is allowed to deteriorate and then sold in a rising market or even a mild slump, the homeowner would probably receive little or no compensation. Nor could they simply take a low-ball offer just to move the sale, then try to collect the difference from the insurer. But for homeowners who look at the purchase of a home as a path to economic security, home equity insurance provides a means to that end. Homeowners can’t reverse the losses they sustained in the housing market during the crisis, but with home equity insurance they would have a viable way of protecting themselves against a future decline in the values on what is likely their largest investment: their homes. Behind the scenes of home equity insurance In purchasing the coverage, a consumer would be, in fact, buying a put on home prices. In this sense, home equity products would straddle the lines between insurance and security markets, but the techniques used to manage home equity risk are effectively the same as for many other insurance products. Making home equity insurance affordable for consumers involves understanding the real estate cycle, which is characterized by prolonged periods of stable or rising prices that are often followed by severe downturns, when home equity claims would spike. The challenge for insurers is to funnel the experience of this wide spectrum of events into a premium that consumers will find reasonable—a process that is somewhat similar to rate-making for other lines. But there are some important differences. Because of the line’s volatility, insurers would need to consider the full range of losses over the product’s entire cycle rather than a typical year’s losses in developing a rate. This is because a normal loss year does not fully reflect the risk inherent in a deep downturn in the real estate market or, for that matter, the potentially high profitability during a booming market. For this reason, as with similarly volatile catastrophic coverage, losses need to be more carefully incorporated in rate-making for home equity insurance than they are for other lines with more stable risk profiles. Balancing the extremes to arrive at a reasonable rate can be a tricky process without a considerable amount of experience in estimating volatility. Because of the small sample size of historical losses in home equity, as well as the immense uncertainty underlying house prices (which would be the primary driver of claims frequency for this coverage), pricing this type of coverage would need to rely on predictive forecasts of future home prices, rather than allowing past experience alone to dictate prices. This is true with most catastrophic coverage, of which home equity insurance would be no exception. This potentially introduces even more uncertainty, in the form of model risk, which would need to be managed and incorporated into the price. And like other insurance coverages, product features can be designed to control for moral hazard. An index-based approach that uses trends in metropolitan statistical areas (MSAs) to determine claims payments can control for the variability of individual home prices that might occur because of poor maintenance or speculation. Aside from specific product features, home equity insurance could subject insurers to steep losses during a severe downturn in the housing market. But insurers are no strangers to the possibility of catastrophic loss. In home equity insurance, as with most other insurance lines, diversification is key. Despite reports of unprecedented price drops in certain markets, even the recent downturn in housing was muted in some areas of the country. While housing markets in California, Florida, Nevada, New York and the District of Columbia, among other locations, tumbled from the end of 2006 through the beginning of 2008, nearly two dozen other markets continued to see a rise in housing prices, according to Eli Beracha, assistant professor of finance, East Carolina University, and Mark Hirschey, Anderson W. Chandler professor of business at the University of Kansas. In nearly a dozen other states, the decline was modest or negligible. And, as with other lines of business, insurers can reinsure a portion of their risk. Contracts, however, will have to demonstrate that the risk assumed by the reinsurer is commensurate with the premium ceded by the insurer. With the launch of housing futures and options trading by the Chicago Mercantile Exchange (CME) in May 2006, the use of options and futures has also become a more feasible technique for managing home equity risk. Using standardized contracts, insurers can hedge their home equity risks by selling housing futures or buying puts on housing future contracts. Trading gains can be used to offset claims payments. The CME housing futures contracts are based on tradable S&P/Case-Shiller HPIs that are updated monthly rather than quarterly, as are the Case-Shiller standard indexes. Futures and options are offered for Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, Washington, D.C., and a 10-city composite. Because options aren’t sold for every MSA, an insurer would need to model its investments based on its mix of business throughout the country to achieve a good match between its risk and its hedging strategy. But it would be possible to reasonably hedge an insurer’s risk, while providing a product that offers homeowners a new way to protect their investments. Public awareness of the risk of home ownership has rarely been greater than it is now, and all the pieces are in place to design and offer a product to meet consumers’ needs. Insurers only need to take the next step.

The Oklahoma Option, which went into effect early in 2014, is ramping up. More employers and insurers are electing to participate. And more workers’ compensation professionals around the country want to understand the “opt-out” concept. They are thinking about their assets in Texas or Oklahoma or about the feasibility of introducing opt-out into other states. Much of the discussion about opt-out is accurate but not complete. It is easy to absorb a part of the story. Consider the following five common ways in which it’s very easy to be half-right. One:  For employers, opt-out is basically about saving money. Conversations with corporate risk managers have shown me that saving on claims costs is usually not the only, nor even the leading, reason why employers choose to opt out. Employers appear to have two complementary goals with opt-out. One is to reduce claims costs, with a target in the range of 30% to 50%.  The other is to simplify management headaches over a benefit program perceived to be excessively complicated and rife with risk of misbehavior. Corporate risk managers, while not questioning the need for a separate work injury benefit system, are quick to say that injured employees can easily slack off in recovering from injury. They say doctors may not be motivated to get their patients back to work. Permanent partial disability benefits, in particular, are often cited as subject to gaming. In sum, risk managers see a lot of moral hazard that opt-out appears to them to severely curtail. Brokers and risk advisers, on the other hand, appear to be more comfortable talking about reducing the cost of risk. It’s interesting to listen and respond to both messages. Two: Employees of the opting-out employer benefit from better medical care. Advocates of opt-out often make this claim. (There are NO pro-labor advocates of opt-out, at least yet.) The claim might be justified, were employers to measure quality of medical care and show, perhaps, that care under opt-out adheres more closely to evidence-based care guidelines. The quality-of-care argument stems from opt-out employers negotiating service terms with well-regarded medical providers and avoiding providers and types of care they consider questionable. The employer might decide to ban chiropractic care, for instance, and use teaching hospital-based surgeons who otherwise may not treat injured workers. Medical care quality can be in the eye of the beholder. especially along the dimension of doctor skills in listening to and communicating with her patients. What is not measured so judgmentally is the package of disability benefits accorded to opt-out employees. Inspection of the typical package in Texas ERISA plans suggests that the common opt-out benefit is superior to the workers’ compensation system when one compares after-tax income of a cohort of opt-out cases with the same cohort in the conventional system if (a big if) the injuries are well-managed for timely return to work. Opt-out benefit packages in Texas ERISA plans typically pay indemnity benefits from the first day of disability. They do not impose caps on weekly benefits. The large majority of workers who use at least one day of disability return to work within a brief period. For them, these benefit features amount to real money. This assumes that the median duration of injury for all with at least one shift of lost time is about two weeks, and the median duration for all with disabilities lasting at least a week is about five weeks. Compensation for injuries with long durations appear to be much less favorable to opt-out workers, if you assume that duration of disability will be the same in each system. However, one does not have to assume that durations will be the same. Three: Opt-out claims management is a variant of workers’ comp adjusting. A striking aspect of opt-out claims management is that some leading opt-out claims managers do not hire former workers’ compensation adjusters. Opt-out managers may even decide to not hire people with any claims experience, in any line of insurance. It’s useful to consider whether out-out claims management is more similar to absence or even productivity management than to workers’ compensation. The opt-out claims adjuster has to have the skills and confidence to use a lot more discretion than that to which workers’ compensation adjusters are acculturated. She needs to understand the employer’s benefit plan, not workers’ compensation. She needs to act quickly and with initiative. Over time, opt-out claims management may, at least for the larger employer, merge with absence benefit and ADA accommodation management, further removing it from affinity with workers’ compensation in the conventional sense. Four: Negligence liability is a major stumbling block. Opt-out employers in Texas are subject to negligence liability. An injured worker can seek economic and non-economic damages from her employer if the employer is found in any way negligent for the injury. As a defense attorney in Dallas told me, one will likely find in every severe injury some degree, however slight, of employer action or non-action that arrives in the courtroom dressed by the plaintiff attorney in negligence clothes. Large Texas employers usually insure for this exposure and require their employees to sign mandatory arbitration agreements to cover negligence complaints. Some don’t; for instance, Ben E. Keith, a prominent member of the opt-out community incurred in 2012 an $8 million jury award over a severely scarifying injury a worker suffered on one of his first days with the company. The company had not adopted mandatory arbitration. The Oklahoma Option extends the exclusive remedy protections of the workers’ compensation system. What will happen if the Oklahoma Supreme Court nullifies that protection? The answer depends in part on how one views the Texas experience with negligence liability. Many opt-out employers in Texas who know several jurisdictional systems appear to feel comfortable managing this exposure. Five:  States can mandate minimum benefits for opt-out, as Oklahoma has. The Oklahoma Option requires the employer to offer same or greater benefits than the workers’ compensation system. A lot of details need to be worked out, but there will remain a fundamental problem with the Oklahoma Option minimum benefit requirement. At first blush, it conflicts with a substantial body of court decisions that have confirmed the exemption of ERISA plans from state interference. At the very heart of ERISA plans is their immunity from state legislatures, regulatory agencies and courts. Oklahoma law offers a means to opt-out without setting up an ERISA plan, but, given the success of ERISA plans in Texas, it is likely that employers, at least the large ones, will elect to go the ERISA route in Oklahoma. Not being literate in legal discourse, I am the last person to suggest how this apparent conflict will be resolved, but resolved it must be and in federal court. And I expect to see some interesting arguments in favor of retaining Oklahoma’s requirement in its original or a revised form. A California case, Golden Gate Restaurant Association v. City and County of San Francisco, offers a clue. As one commentator noted, in San Francisco, a city ordinance requires employers to make certain expenditures toward employee healthcare. Employers have a number of options for compliance, including paying a specified amount to a public insurance program that their uninsured employees can access at discounted premium rates or setting up an ERISA-governed health insurance plan of their own. At the last iteration of litigation, the local government prevailed. The Oklahoma Option’s chances to withstand a court challenge over its benefit requirements may well depend on how the benefits are construed (this is not clear to me) and the manner in which Oklahoma employers are free to elect opt-out over the conventional system. Getting the story right The workers’ compensation community needs to prompt a full, transparent discussion of opt-out to get to a complete story, for which chapters are being written every day.

In the real world, it would be considered reasonable and appropriate to require an independent audit of digital assets to be insured. In cyberspace, this is more challenging. Insurers have to rely on the insured to tell the truth about what assets have been affected by a breach. Integrity standards for data enable insurance companies to conduct an independent audit of what digital assets exist (e.g., client data, intellectual property) prior to a breach, thus preventing fraudulent claims. One aspect of a data integrity standard is keyless signature infrastructure, known as KSI. KSI is a disruptive new technology standard that can effectively address some of the issues insurers face in the rapidly emerging cyber liability domain. It can enable mutual auditability of information systems to allow stakeholders to know the cause of a breach, mitigate the risk of breach escalation in real time and provide indemnification against subrogation and other legal claims. The concept of a digital signature for electronic data is very straightforward: a cryptographic algorithm is run on the data, generating a "fingerprint of the data"; a tag or keyless signature for the data that can then be used at a later date to make certain assertions, such as signing time, signing entity (identity) and data integrity. KSI offers the first Internet-scale digital signature system for electronic data using only hash-function-based cryptography. The main innovations are:

1. Adding the distributed delivery infrastructure designed for scale
2. No longer requiring cryptographic keys for signature verification
3. Being able to independently verify the properties of any data signed by the technology without trusting the service provider or enterprise that implements the technology

Other features include:

• Unlike digital certificates, keyless signatures never expire; the historical provenance of the signed data is preserved for the lifetime of the data, and people are not required in the signing process.
• Use of keyless signatures strengthens legal non-repudiation for data at rest.
• There are no keys to be compromised or to revoke. This fundamentally changes the security paradigm. It is important to understand that if data integrity relies on secrets like keys or trusted personnel, when these trust anchors are exploited there becomes an unlimited liability for the data protected by those trust anchors. This occurs because there is no way to determine what has happened to the data signed by those private keys or maintained by those trusted personnel. Evidence can be eliminated; data changes can occur without oversight; and log/event files can be altered. The exploiters can provide the picture they want you to see. Keyless signatures remedy this problem.
•  During a breach, active integrity can be provided with cyber alarms and correlated to other network events by auditors, network operations center and security operations center(s). Active Integrity means real-time, continuous monitoring and verification of data signed with keyless signatures. With active integrity, real-time understanding is achieved as to the coherence and reliability of technical security controls and whether the digital asset has integrity.
• Underwriting cyber policies becomes much simpler and more efficient because there is transparent evidence certifying the integrity of the data, the technical security controls protecting the information and rules governing the transmission, modification, or state of the insured asset(s).

A “managed security service” resulting from the implementation of KSI marks a new era for insurers. As they seek organizational intelligence of digital assets to make real-time policy adjustments, they are also making concrete conclusions about the insured asset risks, threat, exposure and cyber landscapes affecting clients. Claims processing and disputes become simpler as the technology preserves the forensic traceability and historical provenance of the digital asset, enabling rapid determination of when and how a breach or manipulation occurred and who or what was involved. Hackers and malicious insiders cannot cover their tracks. Moreover, proving negligence is now possible. Negligent acts may be quickly detected and proven in the event the service provider does not comply with the contracts maintained in force with the enterprise.   Most breaches today go unnoticed until long after they occur and the damage has been done. Active integrity involves continuous verification of the integrity of data in storage using keyless signatures. It is equivalent to having an alarm on your physical property and a motion detector on every asset that cannot be disabled by insiders. Because of the volatile nature of electronic data, any hacker knows how to delete or manipulate logs to cover his tracks and attribute his activity to an innocent party, which is why attribution of crimes on the internet is so difficult. Integrity is the gaping security hole. A loss of integrity is what leads to data breaches, introduced by malware, viruses or malicious insiders. Public key infrastructure (PKI) will never be the solution to integrity or usable for large-scale authentication of data at rest. The forensic evidence of keyless signatures makes legal indemnification issues easy to resolve, highlighting who, what, where and when a digital asset was touched, modified, created or transmitted. This places the onus on the “use” of data and not collection, providing auditability across service providers and the internet. Privacy is maintained, but there is also transparency and accountability for how data is used. Every action can be traced back to the original source that is legally responsible. This simplifies service-level agreements, pinpoints liability in the event of accidental or malicious compromise, and indemnifies independent data providers from legal claims. This article is an excerpt from an EY report titled "Cyber Insurance, Security and Data Integrity; Part 1: Insights into cyber security and risk -- 2014." For the full report, click here. 

Beware of “Free Wi-Fi” or “Totally Free Internet,” as this offer probably is too good to be true. These offers are likely set up by thieves to trick you into getting on a malicious website. AT&T and Xfinity have provided many hotspots for travelers to get free Wi-Fi all over the country. Sounds great, right? However, these services make it a piece of cake for thieves to gain access to your online activities and snatch private information. AT&T sets mobile devices to automatically connect to “attwifi” hotspots. The iPhone can switch this feature off. However, some Androids lack this option. Cyber thugs can set up fake hotspots called “evil twins,” which they can call “attwifi,” that your smartphone may automatically connect to. For Xfinity’s wireless hotspot, you log into a web page and input your account ID and password. Once you’ve connected to a particular hotspot, it will remember you if you want to connect again later in that day, at any “xfinitywifi” hotspot and automatically get you back on. If someone creates a phony Wi-Fi hotspot and calls it “xfinitywifi,” smartphones that have previously connected to the real Xfinity network could connect automatically to the phony hotspot—without the user's knowing, without requiring a password. None of this means that security is absent or weak with AT&T’s and Xfinity’s networks. There’s no intrinsic flaw. It’s just that they’re so common that they’ve become vehicles for crooks. Smartphones and Wi-Fi generate probe requests. When you turn on the device’s Wi-Fi adapter, it will search for any network that you’ve ever been connected to—as long as you never “told” your device to disregard it. The hacker can set the attack access point to respond to every probe request. Your device will then try to connect to every single Wi-Fi network it was ever connected to, at least for that year. This raises privacy concerns because the SSIDs that are tied with these probe requests can be used to track the user’s movements. An assault can occur at any public Wi-Fi network. These attacks can force users to lose their connections from their existing Wi-Fi and then get connected to the attacker’s network. Two ways to protect yourself: #1 Turn off “Automatically connect to WiFi” in your mobile device, if you have that option. #2 Use Hotspot Shields software to encrypt all your data on your laptop, tablet or mobile device.

In an episode of the hit television show "The Big Bang Theory," leading character Dr. Sheldon Cooper, in admonishing his friends over his correct assumptions as to when they should depart for a movie and thus avoid a long line, decided not to say "I told you so." Instead, he opted for the much more refined, "I warned you thusly." I plan to emulate Dr. Cooper and make liberal use of that phrase today. While pundits and legal experts have been carefully watching major RICO cases and other test cases around the country that threaten the sanctity of "exclusive remedy" within workers' compensation, out of the legal swamps of Florida an unexpected ruling from a previously undiscussed case has surged forth to consume the topic in its entirety. A Miami judge on Wednesday declared Florida workers' compensation, as an exclusive remedy, unconstitutional based on the continued erosion of benefits from when the system was established. While the final act on this play has yet to take the stage, it is a potential wake up call for the industry. After all, most of us didn't see this coming. Most of us, that is. I, however, warned you thusly. More than two years ago I wrote about a case in Tennessee that denied an electrical lineman workers' comp benefits because he had "willfully" defied established safety rules and was severely shocked as a result. He had removed protective safety gloves to attach a small nut that was very difficult to handle when the gloves were in use. The court essentially assigned blame to him in the case and found he was not entitled to benefits for his injuries, because he had violated established safety protocols that otherwise would have prevented the accident. While insurance professionals and employers around the country were taking a victory lap over this decision, I assumed a position that put me at direct odds with many. I warned that the continued erosion of the no-fault doctrine of comp was a two-edged sword and that eventually employers would get cut by the same instrument they were championing at the time. Specifically, I wrote: "While this decision might be a short-term victory for employers and perhaps a strong reinforcement of safety protocol, I am concerned that it fundamentally undermines the notion of workers' comp at its core, and ultimately threatens the benefits offered those same employers; namely the concept of exclusive remedy. Employers cannot have their cake and eat it, too. The employee made a mistake. That is quite often how these accidents happen. While there are exceptions for horseplay, drug use and extreme negligence in some jurisdictions, largely comp pays these claims because, quite frankly, that was the deal. This company has other avenues with which to deal with this if it so chooses. It can document, demote, even terminate the employee for failing to follow required procedures. But by refusing to pay his claim, and successfully getting the courts to agree, the door is open for any accident, any "willful" mistake to be used in the denial of all claims. That might be logical on the surface, but it is entirely contradictory to the no-fault precept that workers' comp is based on. It threatens the future of comp as it was envisioned and followed. Once the "blame game" begins, employers may not have to wait long to find that it is a two-edged sword." I warned you thusly. I so warned you thusly. While the case in Florida is not related to our Tennessee lineman, the corrosive principles that led to the decision share a lineage; a line that leads to reduced benefits and coverage in exchange for cost reductions. They are both cases dealing with erosion of the "Great Compromise" that created workers' comp to begin with. The case in Florida hinges largely on 2003 reforms that eliminated benefits for permanent partial disability. The court found that eliminating those benefits violated injured workers' rights and determined that workers are therefore free to pursue tort claims for work-related injuries. Two other challenges to the Florida comp statutes and 2003 reforms are already scheduled for review by the Florida Supreme Court, so the entire cost-reducing effort is currently at peril. Employers that celebrated the specific reduction in benefits and cost are now likely panicked at the prospect of a new and looming liability. You cannot say I did not warn you thusly. At a bloggers panel at the National Workers' Compensation Conference in Las Vegas last year, we touched on this topic and were discussing cases that threatened exclusive remedy. One employer in the audience stated out loud, in response to the concept of denying benefits based on culpability, "but it is their fault." I responded by reminding them of the "no-fault" concept of workers' comp and the Great Compromise that brought it about in the first place. I then asked the audience which of them would like to be held personally liable, evenly criminally liable, when their company is found "at fault" for a worker's injuries. Would employers willingly accept tort claims when it is shown they were negligent or at fault for an accident? Not a single person in the crowd of 300 responded in the affirmative. Boy, were you warned thusly. We are rapidly approaching a point where societal changes and entitlement expectations will require major overhauls in the thought processes within our industry. We need an attitude shift within workers' comp. We can no longer manage claim cost and severity rating by legislative fiat. We, both the industry and the employers it serves, need to embrace a new philosophy for dealing with these challenging issues. A return to more personal claims management within a system geared for workers' recovery is the only path that will accommodate the needs of all parties, while preserving the intent and scope of the original Great Compromise. In the interim, we will continue to struggle with balance and reforms. I do not necessarily agree with the Florida court decision, but I understand what led us to this point. The legislature, depending on appeal activity, will no doubt address the issue if needed and restore certain benefits to preserve the exclusive remedy portion of its law, but I fear this will leave a lesson not yet learned. We must understand our history, or we will be bound to repeat it at some point in the not-too-distant future. You cannot say you were not warned thusly.

Workers' compensation is one more area where death and taxes must be considered. DEATH The death of an injured worker who has not previously entered into a Compromise and Release settlement for the indemnity part of the workers' compensation claim stops all benefits. Per California Labor Code 4700, “Neither temporary nor permanent disability payments shall be made for any period of time subsequent to the death of the employee.” Life expectancy is uncertain, so an injured worker who is concerned about his family’s future welfare may want to get the value of those benefits now. The way to do this is by entering a Compromise and Release settlement. An injured worker can create a potential estate for his family by cashing out the value of future indemnity benefits. The question then becomes how to value those benefits. Rather than a dollar-for-dollar payment, it may be appropriate to apply a discount for present value. In other words, a dollar in hand today is worth more than the promise of one to be paid years in the future. The reason is that today’s dollar can grow with proper investment. Parties may differ on the proper discount rate to use. In cases where payments are due for the lifetime of the injured worker, disagreements can arise about the injured worker’s life expectancy. TAXES All payments made pursuant to a workers' compensation claim, both medical and indemnity, are being paid because of a physical injury. Therefore, these payments are excluded from gross income for income tax purposes under Internal Revenue code section 104. Settling the claim for a lump sum does not change the tax-free character of the payment. Beware, however, that, once that money is invested, the income is treated like any other income. The injured worker can choose to invest some of the settlement in a structured settlement that pays return of principal and tax-free investment income according to a schedule the injured worker chooses at time of settlement.

If you are running an insurance claims operation, and your boss or the board brings in outside consulting experts to evaluate it, chances are you have a problem. Not just the problem the consultants are being called in to examine but a pricklier, more personal problem--a perception problem. Someone with some clout in your organization apparently doesn't believe you are capable of doing whatever it is the consultants are going to be doing. That puts you in a tricky situation, one that demands thoughtful action. First off, don't try to convince your boss or the board that you are an expert and that you don't need outside assistance. Don't waste time arguing that your training and years of experience managing claims qualify you for the challenge. Do understand that the decision has already gone the other way, and any attempt you make to reverse it looks like resistance, concealment, perhaps even cluelessness. Think about it. If you argue that there is no problem, or the problem is outside of claims, or that every claims operation has the same problem, you risk being classified as stubborn and averse to change. Don't protest that you have already diagnosed the problem and designed a solution; others don't see things that way. They want another opinion, another perspective. Maybe they don't like your plan, or perhaps it conflicts with some other course of action they want to pursue. It could be they don't quite know what the problem is, but there's something troublesome in the loss numbers, and they want to understand why it is happening and what to do about it. Or, worst case for you, they might just be looking for evidence and justification for overhauling your organization and escorting you out the door. The reason really doesn't matter, but your response does. As activist and author Jerry Rubin once said: "The power to define the situation is the ultimate power." You have the power to assist in framing the inquiry and shaping the outcome by being visible and playing an active, cooperative role with the experts during the engagement. Take advantage of that power. First, welcome the consultants and make arrangements to provide them with whatever help and information they need. Brief them fully on your organization, your strategy and your operating procedures. Impress them with the dashboards and controls you use to manage risks and results. Talk to them about process efficiency, effectiveness and loss-cost management techniques. Show them how you establish and monitor key performance indicators and how you interact and communicate with your stakeholders. Demonstrate how you identify and incorporate best practices in your claims handling processes. If some of the consultants lack industry knowledge and have no background in claims--don't be dismayed. Instead, patiently take the time to make sure they fully grasp how your company functions and how your operation contributes to results. In other words, do whatever you can to provide the experts with plenty of evidence supporting the proposition that when it comes to running an insurance claims operation: 1) you know what to do, 2) you know how to do it and 3) you are doing it, quite well. The consultants' job is to identify performance gaps and root causes and propose actions to close those gaps. Your objective should be to provide them with the information, the insights and the support they need to do that job well. People who hire consultants usually believe the consultants will bring very high levels of knowledge, objectivity, credibility and perceptiveness to the engagement. While that belief might not always be accurate, the reality is that consultants' findings are accepted as authoritative in most cases. That means their recommendations will affect you and your organization, so it makes sense for you to invest your time and effort into framing the inquiry and shaping the outcome. Give it your best shot--you might even learn something in the process. The downside is that in tricky, prickly situations like this there is no guarantee things will turn out well even if you do everything right. Sometimes there are hidden operating agendas, foregone conclusions and predetermined outcomes underlying the consulting engagement, and unless you know about those factors going in, there's not much you can do to manage their impact.

On Monday, Aug. 11, 2014, we lost Robin Williams. He was a brilliant actor and comic…a man most of us grew up with. We knew him as a funny guy, an alien, a genie, a nanny, an inspirational teacher and so much more. We also knew he struggled with depression, addiction and possibly bipolar disorder. Collectively, we grieve for his loss. Williams had an uncanny ability to make us smile. Even when playing more dramatic roles, he brought light, laughter and inspiration to our lives. We grieve, too, for thousands of other people who have died by suicide. Fathers, mothers, sisters, daughters, sons, brothers…suicide isn’t just about the person who dies. Its painful ripples spread far and wide, affecting every one of us. We believe every suicide death is preventable, that not another person should die in desperation and alone. Those with behavioral health challenges like major depressive disorder, bipolar disorder and schizophrenia have suicide rates 10 to 15 times greater than the general population. Yet, millions survive, and many find a way to thrive. Recovery is possible! The bitter irony of Williams’ death was the support he gave for another disease that takes lives: cancer. Williams was a strong backer of St. Jude’s Research Center and Stand Up to Cancer. He would visit cancer patients, sometimes in their own homes, bringing joy into lives that would invariably be cut short, just as Williams’ was. The cancer prevention movement has been so effective in getting people involved – in prevention, in fundraising, in advocacy.  Now many people – whether or not they’ve been directly affected by cancer – Stand Up in solidarity to help fight the battle. They stand shoulder to shoulder with people who are fighting for their lives? They stand to honor those who’ve passed with dignity. They got people like Robin Williams to lean in, and say, “I care. What can I do to help?” The suicide prevention movement can learn a lot from the successes of the cancer prevention movement. How has the cancer prevention movement achieved its goals? It advanced science and promoted stories of hope and recovery. Those who want to stand up for suicide prevention can do this, too. As Dr. Sean Maguire in the movie “Good Will Hunting,” Williams counsels Matt Damon’s Will Hunting on life, love and grief before telling him, “Your move, chief.” Now it’s our move. Let’s honor Williams' memory, and that of every person who has died by suicide, by making suicide a thing of the past.  What can you do to Stand Up for suicide prevention?

• Reach out and ask others who may be going through difficult life challenges, “Are you okay? What can I do to support you?” Let them know they are not alone and that you can help them link to resources.
• Promote the National Suicide Prevention Lifeline (800-273-8255) everywhere – schools, workplaces, faith communities, neighborhoods.
• Volunteer and participate in suicide prevention work like community walks, town hall meetings, crisis line support and more.
• Donate to suicide prevention organizations.
• Learn about the real facts about suicide and the strategies that have been shown to prevent it.
• Then bring others into the circle – your healthcare providers, your employer, your educators and so on. Elevate the conversation and make suicide prevention a health and safety priority.
• Ask your healthcare plan and provider to join you.

As a society, we’ve stood up for so many other important things. It’s time for us to stand up to suicide. When we all stand up and move together, we create a movement. Together, our voices can create significant change in systems, in policy, in funding and in the general view of suicide. We can restore dignity and offer hope and empowerment and save lives. This article was written by Sally Spencer-Thomas with four other members of the National Action Alliance for Suicide Prevention:

• David Covington, LPC, MBA, Recovery Innovations and Zero Suicide Advisory Group
• John Draper, National Suicide Prevention Lifeline and The Way Forward Suicide Attempt Survivors Task Force
• Mike Hogan, Hogan Health Services and Zero Suicide Advisory Group
• Eduardo Vega, Mental Health Association of San Francisco and The Way Forward Suicide Attempt Survivors Task Force

#standup2suicide #zerosuicide #wayforward

New York Times senior economic correspondent Neil Irwin did great public service in his Upshot column provocatively titled, “Why Can’t the Banking Industry Solve Its Ethics Problems?” While Irwin addressed the issue for investors in general, his column should hold particular interest for those in the insurance business because insurers are such large investors and generate such a high percentage of their operating profit from investments. In terms of commercial and multifamily real estate mortgages alone, insurers hold more than $900 billion of investments, 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. Insurers need the investment industry to clean up its problems if they are to get maximum value from these huge investments. Why does fraud occur so repeatedly? Irwin ponders. The answer: gamed markets. Since the Great Depression, investments systems have relied on enforcement after the fact. If companies were investigated, prosecuted and found to have done something wrong, they were punished. Typically, this is now done through fines and stricter monitoring, meaning that current and future staff – not those in place at the time of the fraud – and shareholders bear the costs. Sometimes, individual perpetrators are forced to retire (with pensions). Only in the past few years have the Department of Justice, Federal Housing Finance Administration and Securities and Exchange Commission begun extracting hefty fines and settlements with the largest banks, such as: Citigroup's $7 billion, JPMorgan Chase's $13 billion and Bank of America's $6.3 billion with FHFA and the reported $17 billion with DOJ in connection with residential mortgage-backed securities. As Irwin notes, fraud continues to occur despite extensive efforts to address the problems that led to the near-collapse of the financial system that spawned the Great Recession. Gaming the system through high-speed trading remains legal. As long as there is no insider trading, traders can greatly increase the speed of their transactions with network equipment, software and advantageous location of their computers. Insider trading is illegal but hard to root out. Successful prosecution almost always entails a whistleblower coming forward to provide regulators with precise information. And coming forward as a whistleblower entails consequential career risks. Two innovations address these systemic challenges by providing better information for the market in real time and creating a feedback loop that improves that information – rather than waiting until after the fact to police bad guys. The innovations are interactive finance and confidence accounting. First, Interactive finance rewards institutions and individuals with financial or strategic advantage for revealing information that details risk. That information could be, for instance, about the changing value of a house, about the payment history of the mortgagee, other financial information about the borrower, etc. That information would stay with the mortgage even if it became part of a pool that was sliced and diced into mortgage-backed securities, so that a potential buyer could probe and could track changes in real time, rather than rely on a single-point-in-time evaluation by a ratings agency. Interactive finance – not enforcement – would keep agencies from giving their highest ratings to securities whose underlying assets were suspect, as happened with sub-prime mortgages in the buildup to the Great Recession. Marketcore, an intellectual property firm I advise, offers such interactive finance technology. It supports the determination of risk for financial products, continuous revaluation and analysis of components of pooled securities, among other capabilities that make markets and clear them. Its technology diminishes incentives for fraud by making opacity and concealment anachronistic and replacing them with transparency. The IP also charts effective pathways to employ crowd data and meta data for timely detection of risk, building on the growing availability of information in a “big data” world and allowing for a generational improvement in detecting risk and rating credit. Second, confidence accounting yields greater transparency and accuracy than traditional, prudential valuation. In confidence accounting, you don’t just set a value for an asset. You say there is an xx% chance that the valuation will fall within a certain range. You then roll up all the assessments and have a probability-based understanding of the likely range of total value. You can also use the estimations as a feedback loop and identify people or institutions that consistently overstate value – if someone says asset values will fall within a certain range 95% of the time, do those values, in fact, fall within that range 95% of the time? As risk expert David M. Rowe explains in a current Risk blog (citing work by Ian Harris, Michael Mainelli and Jan-Peter Onstwedder) confidence accounting can illuminate “the degree of uncertainty around valuation estimates…including how to partition uncertainty surrounding current valuation from the more familiar concept of risk from uncertain future events, and the messy issue of how to aggregate valuation uncertainty for specific positions into the implied uncertainty of net worth.” Through these two innovations, interactive finance and confidence accounting, banks would have much easier times detecting rogues and suppressing rascals. In the process, banks would not only increase their own wellbeing but that of their shareholders, employees and the investing public, including insurance companies. Going forward is now a simple business decision for us all. We must pick up the pieces of what we have learned and refashion and rebuild data-refreshing business models in which everyone can participate as an information merchant. We must deliver a common architecture in which data is consistently revalued, in a system that continually rewards disclosures about risks and values. Interactive finance and confidence accounting are emergent technologies poised to  play key roles shaping and defining smarter, faster, ethical trades in 21^st century finance.