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‘Interactive Finance’: Meshing with Google

Insurers are at a tipping point. The way forward -- to a future like Google's or Facebook's -- involves giving rewards for information that details risk.

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The insurance industry is poised to enhance its power, burnish its prestige and increase its income in the 21st century by developing interactive finance to mesh with Internet enterprises. By interactive finance, I mean rewarding institutions and individuals with financial or strategic advantage for revealing information that details risk. Insurance industry success requires recognizing information as this century’s distinct commodity, analogous to steam in the 19th and oil in the 20th. Information also needs to be seen as an indispensable element in fresh, emerging digital currencies. Information technologies are adequately mature, and mobile and broadband communications networks sufficiently widespread, that digital currencies like Bitcoin are beginning to emerge. Cognitive computing, big data, parallelization, search, capture, curation, storage, sharing, transfer, analysis and visualization are commonplace; three-quarters of American households enjoy broadband access; and nine in 10 Americans carry mobile telephones. User-generated information now is everywhere. Insurance industry leaders would be wise to cultivate interactive finance. It could be used to manage institutional investments with less risk and more liquidity. Interactive finance could also be used with retail consumers to create experiences, incentives and products to help manage what promises to be massive, new wealth. A key part of interactive finance -- navigating crowds and matching parties -- is up and running. For instance, with Airbnb and accommodation or Uber and ride sharing, individuals reveal information voluntarily to enable counter party matching. Both are emerging as phenomenally successful simply by using information in new ways to create efficient markets. The glimmerings of these potential gold mines are now eliciting insightful commentaries about how insurers might aggregate and parse information gathered through “crowd-sourcing.” Sharing portions of the reward with institutions and individuals through protected communications channels -- also known as interactive finance -- will provide the broad avenues and fastest expressways to 21st century wealth among insurers. In two, insightful articles published here on ITL, Denise Garth discerns the key value of information. “Consider the explosion of new data that will be available and valuable in understanding the customers better so as to personalize their experience, provide insights, uncover new needs and identify new products and services that they may be unaware of,” she observes of the strategic alliance betweenFacebook and AXA. “For insurers, the coming years promise unparalleled opportunity to increase their value to their customers. Those that are best able to capitalize on the key technology influencers will reap the most in rewards,” Garth notes in an earlier article on Google. Indeed, Facebook is poised to offer a money-transfer service in Europe. Pending regulatory approval in Ireland, Facebook would be permitted to employ user deposits in fiat currencies to become a payment services powerhouse with what seems tantalizingly close to a virtual currency. “Authorization from the central bank to become an ‘e-money’ institution would allow Facebook to issue units of stored monetary value that represent a claim against the company,” the Irish Times reported. The company will use its acquisition of WhatsApp for access and traffic and will build on its 30% participation in revenue with Candy Crush Saga and Farmville games. Facebook will also take advantage of “‘passporting,’ which allows digital payments to be used across EU member states without having to gain regulatory approval from each one,” according to a news report. Should Facebook succeed, AXA’s partnership with Facebook would put it well ahead of its competition in employing mobile markets to acquire and retain clients. In an article on ITL on how Amazon could get into insurance, Sathyanarayanan Sethuraman enumerates “the convenience of on-demand buying. . . personalization of product and service delivery.” Crucially, he notes the importance of “building trust through transparency in pricing,” which provides impelling “reasons for insurers and Amazon to create a distribution model to match ever-evolving customer demands.” Brian Cohen indicates in a thoughtful commentary on ITL that companies can collect customer feedback that is volunteered on social media and can also use new channels to provide new types of information. For instance, he says that, when inclement weather approaches, agents can caution readers to secure objects that may cause damage to their property, as a means toward generating webpage traffic and strengthening client relationships. Joseph Sebbag cautions that technological mismatches can threaten insurance industry value. “Insurers’ numerous intricate reinsurance contracts and special pool arrangements, countless policies and arrays of transactions create a massive risk of having unintended exposure,” he notes in an intriguing essay evaluating information technology and reinsurance. Focusing on a company with which I am very familiar, former Comptroller General David Walker says Marketcore has transformative IP in interactive finance that could provide pathways to phenomenal growth for the insurance industry and, in general, finance. The mechanism is incentives for “truth, transparency and transformation” that will make risk vehicles and markets perform more efficiently and reliably. (Walker is honorary chairman of Marketcore; I am an adviser.) Marketcore generates liquidity by rewarding individuals and institutions for sharing information, such as the history of individual loans being bundled into residential mortgage-backed securities. The reward could be a financial advantage, say a discount on the next interval of a policy for individuals purchasing retail products. The reward could also be a strategic advantage, say foreknowledge of risk exposure for institutions dealing in structured risks like residential mortgage-backed securities or bonds, contracts, insurance policies, lines of credit, loans or securities. Through interactive finance, Marketcore creates efficient markets for insurers and reinsurers. All do well as each does good. Risk determination permits insureds, brokers and carriers to update risks through “a transparency index. . . based. . . on the quality and quantity of the risk data records.” Component analysis of pooled securities facilitates drilling down in structured risk vehicles so insurers and reinsurers can address complex reinsurance contracts and special pool arrangements with foreknowledge of risk. Real time revaluation of contracts clarifies “the risk factors and valuation of [an] instrument” and, in so doing, “increases liquidity and tracks risks’ associated values even as derivative instruments are created.” These interactive finance capabilities are at tipping points for insurers and reinsurers, as outlined so thoughtfully by Garth, Sethuraman and Cohen. As those thought leaders say, large Internet enterprises like Google, Amazon and Facebook are striving for market reach and domination. Because of distributed wire line and wireless networks and the Internet, experts project that global trade will grow to $45 trillion from $6.5 trillion in less than 10 years. Global mobile transactions are projected to show more than 33% average annual growth, with 450 million users in a $720 billion market by 2017. Only if Amazon, Facebook and Google offer new services can they exert market power in global electronic commerce analogous to late 19th century railroads, energy and steel industries. Each of them needs services like insurance no less than railroads required passengers and freight; than coal and oil required factories, homes, offices and motor vehicles; than steel required cities, railroads, trollies and cars. These Internet enterprises must have insurance, among other services associated with their brands, to remain dominant. All seek to create voluntary, de facto, walled gardens for their brands, and what better way to do so than to get users to rely on their brands to manage risks and pay bills? None of these Internet search-and-connect giants can recoup its investments in mobile applications, drones and data centers unless it has voluminous, recurrent transactions and traffic engaging its mobile capabilities. For instance, Derek Thompson reports that the iPhone drives 60% of Apple revenue and that mobile advertising accounts for 60% of Facebook advertising revenue. John Greathousespells out the implications for advertising in a thoughtful essay on conversion rates and mobile formats. A service like insurance brings in users and encourages stickiness. In this way, insurance is the correlative to apps, drones and data centers. All these Internet giants are less without it. Similarly, consumers and institutions are keen to participate in the value that they create with their participation in information technology and communications networks. Citizens and consumers, while resenting unremitting spying, shrug off the constant sale of metrics about their data to advertisers as inescapable and would love to turn tables on all these massive, intrusive public- and private-sector forces. People would willingly patronize a firm rewarding them for revealing risk information that they are comfortable sharing. By rewarding institutions and individuals with financial or strategic advantage for voluntarily revealing risk-detailing information, interactive finance expressly rewards users for what they forego voluntarily with daily Internet use. At this stage, the Internet firms have first-mover advantage when it comes to gathering and using people’s information. When I recently watched streaming video of Masterpiece Theatre’s “Mr. Selfridge,” there was the anomalous propinquity of an advertisement for an Internet tire seller in the bottom right portion of my display – within a day or so of my searching Google for motor vehicle tires. Clearly, Google, Internet ad placers and, in my case, the tire vendor are selling and purchasing access to user experiences. The sole party excluded from the value chain is the person who creates value in the information. Earlier loyalty programs prefigure some of the notions of interactive finance. In mid-20th century America, supermarkets, gasoline stations and retailers often rewarded customer loyalty with S&H Green Stamps. Airlines, grocery chains and hotels employ loyalty programs and provide reward cards to provide incentives for recurrent patronage. In keeping with the times, Bellycard supports customer retention with a scannable card and mobile application. Each time I buy Italian bread and scan the card at the local bakery, I earn points toward a pastry. What of insurance brokers, who reward consumers with incentives on forthcoming purchases for revealing risk information that they are comfortable sharing? Or insurer carriers, which protect asset values and boost shareholder confidence through enhanced capacities for risk detection and real-time valuation of risk exposures? From here on out, the emphasis needs to be on rewarding customers and institutions by enabling them to create wealth with the information they are willing to reveal and by commanding information as a commodity and as the cornerstone component of emerging digital currencies. Insurers that can tap Internet industry demands for users, provide rewards for information and equip themselves to manage their risks more effectively can position themselves to dominate their sector well into the second quarter of the 21st century. “Insurance is above all a relationship,” remarks Elise Manzi, account manager with Biddle & Company Insurance Brokers, based in Newtown Square, Pennsylvania. “We’re devoted to continuing to provide our clients with the exceptional services they have come to expect of us through these new communications capabilities. Interactive finance sounds like a great relationship builder.” Ernest Tedesco, head of Philadelphia-based Webesco, says, “For brokers, web services support client retention and communication. For large retail carriers like Progressive and Geico, web services enable them to reach consumers directly with service and product offerings. Anything kludgy on one of these sites will send customers scurrying to competitors.” He adds that if Google and other Internet giants get into the retail insurance space, current industry leaders need to be ready to respond aggressively with technology or will be disintermediated. “Back-office executives managing trillions in risk will find themselves at competitive disadvantage without real-time and near-real-time risk detection, which web services visualize.” By meshing with Internet industry firms on interactive finance terms, the insurance industry will have all the strength of the Internet yet sustain more discretion to manage institutional and customer experiences on terms much more favorable than those that musicians and publishers experience with Apple. As Erik Brynjolffson and Andrew McAfee point out in The Second Machine Age, digitization both spawns vast new bounty and stimulates an increasingly drastic spread between the small fraction of winners and everyone else. How better to build crowds and grow volumes than to provide incentives to customers by rewarding them for sharing information they are willing to reveal and to serve institutional clients with foreknowledge of oncoming risks to sustain competitive advantage and protect liquidity. It is as straightforward as that. For my part, I am optimistic about Marketcore because its IP enables insurance industry adopters to organize, channel and reward rich, diverse crowds of capital accumulation through interactive finance. Large, incumbent Internet firms like Amazon, Facebook and Google may still prosper from first-mover advantages based, in part, on recognition that information is the distinct commodity of the 21stcentury. But each and all now must offer more to maximize return on investments in capital-intensive operations. And that’s where any insurers, deploying Marketcore IP as sword and shield, stand most to gain for themselves and the people and institutions whose trust they hold.  

Security Lessons From Concentra and QCA

"Covered entities" should consider using the Concentra, QCA and other resolution agreements as a road map for tightening HIPAA compliance.

"Encrypt your laptops and other mobile devices."

That is one of the key lessons that leaders of health plans, health care providers, health care clearinghouses ("covered entities") and their business associates should take away from the Department of Health and Human Services Office for Civil Rights (OCR)'s April 22 announcement that Concentra Health Services and QCA Health Plan of Arkansas collectively are paying $2 million under separate resolution agreements stemming from thefts of unencrypted laptops.

The agreements contain equally significant, more broadly applicable lessons about some of the specific processes, actions and documentation that OCR wants covered entities and associates to implement. They must be prepared to defend the adequacy of their Health Insurance Portability and Accountability Act (HIPAA) "culture of compliance" if they file a breach report or otherwise face a HIPAA audit or investigation from OCR.

Consequently, covered entities and their leaders should also consider using these and other resolution agreements as a road map for reviewing and tightening their management oversight and other HIPAA compliance documentation and practices generally.

Concentra Resolution Agreement

Under the Concentra Resolution Agreement, Concentra agrees to pay OCR $1.7 miliion and adopt a corrective plan to settle potential violations of the HIPAA Privacy and Security Rules and evidence their remediation of OCR’s findings.

OCR opened a compliance review of Concentra after receiving a breach report that an unencrypted laptop was stolen from its Springfield Missouri Physical Therapy Center on Nov. 30, 2011. OCR’s investigation concluded that Concentra previously had recognized in multiple risk analyses that a lack of encryption on its laptops, desktop computers, medical equipment, tablets and other devices containing electronic protected health information (ePHI) was a critical risk. While steps were taken to begin encryption, Concentra’s efforts were incomplete and inconsistent, leaving patient PHI vulnerable throughout the organization. OCR’s investigation further found Concentra had insufficient security management processes in place to safeguard patient information.

QCA Resolution Agreement

QCA’s much smaller $250,000 monetary penalty under the QCA Resolution Agreement also resulted from a breach notification of the theft of an unencrypted laptop and also requires corrective actions. OCR opened its investigation after QCA reported in February 2012 that an unencrypted laptop computer containing the ePHI of 148 individuals was stolen from a workforce member’s car. OCR’s investigation revealed that while QCA encrypted its devices following discovery of the breach, QCA failed to comply with multiple requirements of the HIPAA Privacy and Security Rules, beginning from the compliance date of the Security Rule in April 2005 and ending in June 2012.

To resolve OCR’s charges that it violated HIPAA, QCA agreed to the $250,000 monetary settlement and is required to provide HHS with an updated risk analysis and corresponding risk management plan that includes specific security measures substantially similar to those imposed on the Concentra Resolution Agreement to reduce the risks to and vulnerabilities of  ePHI. QCA is also required to retrain its workforce and document its continuing compliance efforts.

Lessons 

Unquestionably, encryption of laptops and other mobile device is a key takeaway of the resolution agreements against Concentra and QCA. OCR Deputy Director of Health Information Privacy Susan McAndrew made this point clear in the announcement of the agreements, stating: “Covered entities and business associates must understand that mobile device security is their obligation,” and, “Our message to these organizations is simple: Encryption is your best defense against these incidents.”

However, leaders of covered entities and business associates must not overlook the more subtle but equally important messages in these resolution agreements about the management oversight and other specific actions, documentation and other evidence that OCR may expect organizations to produce. The Concentra and QCA resolution agreements, as well as their predecessors, contain detailed information about various other processes and procedures that OCR views as necessary or helpful to compliance efforts. 

Both the Concentra and QCA agreements, as well as the Skagit County Resolution Agreement announced in March 2014, require specific attestations from an officer of the entity that she reviewed reports, made reasonable inquiry regarding their content and believes them to be accurate. These attestation requirements send a clear message that OCR views leaders as responsible for taking ownership of HIPAA compliance in the same manner as typically applies to other federal sentencing guideline compliance efforts. See HIPAA Covered Entities Should Review & Correct HIPAA Policies In Response To New County Hospital Resolution Agreement, Other Developments. In light of this, leadership of all covered entities and their business associates should evaluate the adequacy of their current management oversight and documentation in proving the “culture of compliance” expected by HIPAA.

Both resolution agreements require that Concentra and QCA conduct and document and report to OCR on a series of specific steps toward compliance. OCR requires Concentra and QCA, among other things, to conduct a "thorough risk assessment" of the potential vulnerabilities to the confidentiality, integrity and availability of all ePHI, then develop and implement a "detailed risk management plan" that addresses the identified compliance concerns, the plan and timeline for their redress and steps for monitoring and verifying that those actions are taken.

From the resolution agreements' discussion, leaders should expect that the documentation and evidence that OCR may require their organizations to produce will include:

  • A detailed risk management plan that explains the strategy for implementing appropriate security measures;
  • Evidence of all implemented and all planned remediation actions, along with timelines for their expected completion; compensating controls must be identified that will be in place in the interim to safeguard Concentra ePHI;
  • For any changes to information technology (IT) infrastructure, software or other components, an updated risk analysis must be prepared for ePHI;
  • Documentation of the encryption status of mobile and other devices and PHI; an organization must track compliance with requirements to encrypt devices containing ePHI and must require specific review and documentation that ePHI will not be used on computer or other devices that are unencrypted.
  • Documentation that required workforce training is completed, along with the training materials used, the topics covered, the length of the session(s), when training session(s) were held and attestations or other documentation from individual workforce members that verifies participation, understanding and affirmation of the need to comply with HIPAA.

The resolution also suggests what OCR expects from privacy officers in terms of periodic reports about compliance with HIPAA, and some of the types of information that should be included:

  • A summary of the organization’s security management process and the security measures taken during the reporting period, including, if applicable, any documentation of training related to those measures;
  • A summary of the organization’s encryption efforts taken during the reporting period; and
  • A summary of the organization’s security awareness training efforts taken during the reporting period.

So, leaders of covered entities or business associates should consider requiring periodic reporting to management on their organization’s ePHI and other privacy and security compliance that will produce documentation.

Because the Concentra and QCA& resolutions are only two of several existing ones, and likely will be supplemented by others, management also should ensure that resolution agreements and other guidance and developments under HIPAA are systematically reviewed and responded to in a well-documented manner.

CMS' New MSA Toolkit for Self-Administration

Finally, CMS has recognized the Achilles heel of Medicare Set-Asides -- self-administration -- and done something about it.

The Achilles heel in Medicare Set-Aside compliance in workers' compensation settlements has always been self-administration. For cases within the CMS' “review threshold,” carriers and self-insureds have procured Medicare Set-Aside allocation reports at no small expense. They file for CMS approval, insisting that settlement documents provide for separate set-aside funding. Then, in 99% of the cases, the money is turned over to the claimant with little or no direction other than to go forth and administer your own set-aside account.

Most of us would be unable to keep track of the moving target of which medical goods and services Medicare will pay for. We’re not so good at submitting annual reports, either. According to the Pew Research Center, only about a third of Americans even prepare their own tax returns. Yet, insurers and self-insureds leave themselves open to Medicare Set-Aside reimbursement liability by trusting that the injured workers will be up to the self-administration task.

Finally, CMS has seen the problem and done something about it. On March 21, 2014, CMS published a Self-Administration Toolkit for Workers’ Compensation Medicare Set-Aside Arrangements. This booklet guides the self-administering former claimant through the steps, which are numerous and not all easy.

For many on both sides of the negotiating table, review of this booklet may be the deciding factor in choosing professional administration. The problem is that many settlements are too small to make custodial administration cost-effective. Some carriers and third party administrators have access to the Medicare Secondary Payer Charitable Foundation, which provides no-cost professional administration. Its account starting minimum is $25,000. Parties should check on the availability of this option before finalizing the settlement.

The purpose of Medicare Set-Asides is to prevent a double-dip: The U.S. taxpayer should not be paying medical bills for which the claimant already received advance payment through insurance. Publication of the toolkit is an important further step toward that goal.

Reimagining Insurance: More on AXA-Facebook

The bold partnership by AXA and Facebook, and others like it, are ushering in the dawn of a new future that is full of possibilities. 

The reactions to the Strategy Meets Action blog “The Shot Heard Around the Industry: AXA and Facebook” have been enlightening. The blog has drawn polarized reactions ... from some who envision the potential, and from others who only see today’s view of Facebook and insurance. The responses of this latter group explain a lot. They see the industry as risk-averse, steeped in tradition, lacking in creativity and slow to change, labels that inhibit an insurer’s ability to be imaginative. This time-worn outlook will need to change if insurers are to survive and thrive in this fast-changing environment.

Like it or not, the increasingly rapid pace of change is because of modern and major influencers: the customers' being in control; the new business models used by other industries and companies like Facebook, Google and Amazon; and next-gen and emerging technologies that are converging and challenging decades of business traditions and assumptions.

A new perspective is required that can inspire new directions for insurance.

Industries -- including retail, books, travel, entertainment and pharmaceuticals -- have found the very foundations of their long-held business and operational models challenged, necessitating innovation. Those that have not innovated … well, they are no longer the market leaders in their space, or maybe even no longer in existence. Just consider the iconic brands of Kodak, Blockbuster, Circuit City, Time magazine, Borders, the Boston Globe, CNN or JC Penney. Their inability or unwillingness to see and act has cost them greatly. Even companies that were recently considered innovative are challenged. Look at Yahoo, Blackberry and Nook.

Yet other companies are embracing innovation, new technologies and outside-in approaches. As noted by one response to our blog, automotive companies like Ford, BMW and GM focused on the “connected car.” Companies offering “shared car services” like Uber, Zipcar and Lyft are recognizing the importance of being customer-driven. And Facebook and Google keep expanding the realm of possibilities to grow and strengthen the customer relationships and experiences through acquisitions such as Facebook’s Instagram, Face and Oculus, or Google’s Nest, Titan Aerospace and Zagat, to name a few.

What separates those who innovate from those who don't? It’s the vision of leadership. Leaders who can innovate can define a future vision, create a culture of innovation, identify and understand the influencers of change and embrace an outside-in approach.

The insurance industry must learn and respond fast, because it is facing the same types of challenges that have reshaped other industries. The strategic partnership of AXA with Facebook is a game-changer, distinguishing their leadership and their willingness to take an outside-in approach. We are not likely to see the inner workings for competitive reasons, but AXA has taken a bold step toward becoming a next-gen insurer. By leveraging a company like Facebook with massive expertise in understanding the digital experience and the changing expectations of customers, AXA is being transformed to a digital insurer in terms of brand presence, customer experience and customer loyalty.

Being a digital insurer is so much more than just having a website, more than using channels like social media to sell or advertise and more than having a mobile app to report claims. A digital insurer is a powerful integration -- of the website, mobile platforms, social media, mobile messaging, location services, crowdsourcing, business and customer applications, online video, content management, customer communications, sales enablement, branding and marketing – that creates a seamless, engaging customer experience. And the digital insurer is underpinned with sophisticated data and analytics that know, influence, anticipate and engage the customer in a way that creates a next-gen customer experience.

After all, in today’s world it really is all about customer experience and customer loyalty. AXA’s bold move in taking an outside-in approach -- by partnering with a company that has been a leader in redefining the customer experience, redefining the digital experience, embracing new technologies, and using data and analytics -- has created an opportunity for AXA to do different things that will position it as a leader in this new digital world.

The coming years hold the promise of unparalleled opportunity for insurers to increase their value to their customers. Those that remain tied to tradition and the past, choose to ignore the key influencers or wait too long to react will risk losing relevance. Those that are willing to take the bold steps forward will stand to gain the greatest rewards.

Yes, there are lots of details to be defined, piloted and implemented over the next few years in the AXA-Facebook partnership. And there will always be naysayers. But this bold move and others like it are ushering in the dawn of a new future that is full of possibilities. This is transformation and innovation. This is what will define winners and losers. And that is what is so exciting!

A Better Way to Measure Claim Risk

Very powerful information residing in claims data is, for now, virtually ignored: diagnostic codes in the form of ICD-9s.|Very powerful information residing in claims data is, for now, virtually ignored: diagnostic codes in the form of ICD-9s.

The medical portion of workers’ compensation claims is now almost 60% of claim costs. That fact alone should easily convince payers to focus on the rich medical information in their data. Yet, very powerful information residing in claims data is virtually ignored -- diagnostic codes in the form of ICD-9s. The problem is few in the industry really understand ICD-9s or how they could supercharge medical management. ICD-9s, which are not unique to workers' compensation, are the World Health Organization's International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). They are a standardized method of describing injuries, illnesses and related issues worldwide. ICDs are the codes that classify mortality data worldwide. The ICD-CM is used to code and classify morbidity data from inpatient and outpatient records and doctor’s offices. The purpose of the ICD is to promote international comparability in the collection, classification, processing and presentation of mortality statistics. Revisions of the ICD are implemented periodically so that the classification also reflects advances in medical science. Those who bill for medical services in the U.S. are required to use one of two standard forms from CMS (Centers for Medicare and Medicaid Services), the HCFA-1500 (Health Insurance Claim Form) for outpatient services and UB-04 (Unified Billing) for hospitals and other facilities. Both standardized forms require the medical provider to list ICD-9s appropriate to the medical procedures for which they are billing. The data derived from these forms should be analyzed and incorporated into medical management processes. Bill review organizations and payers capture data from the standardized billing forms in their systems. Nevertheless, while the ICD information is documented in systems, its use ends there. ICD-9s are difficult to interpret in the form seen on bills.ICD-9s are displayed in the form of codes, not descriptions of injuries and illnesses, and they number in the thousands. Individuals cannot remember the codes, nor do they have the time to look up codes for interpretation. Instead, they simply ignore them. Yet knowledge resides in ICD-9 codes that can be translated to powerful medical management tools. When the ICD-9s in a claim are monitored electronically and concurrently, they reveal and inform. ICD-9s reveal migrating claims, which are those where the injured worker is moving away from recovery, rather than toward it. Such claims always accrue ICD-9s. However, few notice what is happening. Standard processes and systems in workers’ compensation only record the ICD-9s. They do not monitor, interpret or even count them. Migrating claims are those becoming more complex and costly, often an insidious process that is missed by claims adjusters and medical case managers until considerable damage is done. What happens in migrating claims is the injured worker is not recovering and is referred to multiple specialists. Each specialist adds new ICD-9s to the claim, thereby increasing claim risk. Using a computerized system designed to monitor ICD-9s is a powerful knowledge solution. Alerts can be sent to appropriate persons when the number and severity of ICD-9s in a claim increases beyond a certain point. Migrating claims cannot be missed, and intervention is implemented early, thereby significantly improving effectiveness. A way to optimize the power of ICD-9s is to score them individually for medical severity. Each claim then contains a total ICD-9 score in the system, which translates to the claim risk score. A system designed to monitor ICD-9 scores in claims keeps a running total, the claim risk score. As ICD-9s are added, the claim risk score increases. As a claim migrates and accumulates ICD-9s, an alert is transmitted to an appropriate person. Migrating claims cannot go unnoticed. Claim ICD-9 scores are predictors of risk and cost. Claim ICD-9 scores can be monitored from the outset and throughout the course of the claim. The claim ICD-9 score reveals the seriousness and complexity of a claim. Medical doctors managing difficult claims can be differentiated from those handling less arduous claims, thereby creating fairness in measuring provider performance. The ICD-9 contains thousands of codes, and the ICD-10 revision will triple the number of codes, making its information value exponentially greater. ICD-10 is to be activated in October 2014. However, it now may be postponed to 2015. Regardless of the government’s decision about when the ICD-10 is required, wise medical managers are using the ICD factor as an important and revealing evidence of claim progress -- or regression.

How to Turn Workers’ Comp Into an Advantage

Workers' comp costs are so high that they are either a competitive advantage or disadvantage for contractors. Your choice.|

Workers’ compensation should be a win-win proposition for employers and employees, but many contractors describe it as an insurance and risk-management pain point. Workers’ compensation premium is a major part of contractors’ total insurance costs, and the indirect costs associated with claims are a significant multiplier.
Additionally, recent formula changes have caused some companies to receive a higher experience modification rate (EMR). The increasing use of prescription medications, improper use of medical services and diagnosis of comorbidity conditions (i.e., disorders related to a primary disease) among workers are boosting medical costs, which have surpassed lost-time indemnity benefits as the largest component of loss costs. And the construction industry’s workforce shortage is leading to the hiring of less-experienced workers, who are more vulnerable to injuries.
In short, employee injuries affect productivity, quality and profitability on projects, thereby affecting a company’s overall financial performance. As such, workers’ compensation can be either a competitive advantage or disadvantage.
Companies that do not gain control over their workers’ compensation processes will face pressures to reduce costs elsewhere or carry higher levels of unallocated overhead. The result will be felt by higher insurance costs, increased bid rates and decreased productivity yields, as well as squeezed profit margins.
Start with an audit
A workers’ compensation audit diagnoses relative strengths and weaknesses of policies, procedures and protocols, and provides a roadmap to improve performance. An insurance advisor can help evaluate the company’s capabilities in three important phases, each targeting a diferent focus and desired outcome (see chart).
It’s important to review injury and claim performance metrics. A comprehensive loss analysis of the number, type, frequency and severity of claims is useful, especially when compared with exposure (whether payroll, work hours or full-time equivalency). The median duration of lost workdays per lost workday case can be compared against industry metrics by type of contracting operation. Although these are lagging indicators, they provide clues about where to focus prevention-based activities that then can be monitored as leading indicators.
Larger contractors with more payroll exposure and more complex operations also may be interested in an alternative insurance program structure, such as intermediate or large-deductible, retrospectively rated and captive insurance programs. Many contractors seek to reinforce management accountability for workers’ compensation improvement by instituting premium-allocation and loss-cost chargebacks to operating divisions or departments. This information is useful in bonus program calculations.
A workers’ compensation audit should carefully consider the classifications of workers by job type and payroll code. Proper classification is essential to ensuring workers’ compensation premiums are being properly calculated. This helps prevent adjusted premiums or return premiums following a premium audit, and helps ensure proper classification of the company’s EMR. It may be advisable to review open major claim reserves well in advance of carriers filing unit stat reporting data for purposes of calculating EMRs.

Calvin Beyer

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Calvin Beyer

Cal Beyer is the vice president of Workforce Risk and Worker Wellbeing. He has over 30 years of safety, insurance and risk management experience, including 24 of those years serving the construction industry in various capacities.

'Component Medicine': The Medical Team Will See You Now

Historically, medicine was driven by a central force -- the primary-care physician -- but dynamics are changing.

It was an unmistakable conclusion from the recent, eight-hour Medical Institute program that was part of the IAIABC 2014 Forum. Across multiple sessions ranging from opioid abuse to insurance reform; physician dispensing to medical marijuana, one thing was clear. Medicine in this country is headed for an abrupt change, and the way workers’ compensation manages medical care will need to change with it. In reality, we can provide support and focus to that effort.

One of the most interesting points for me was the potential decentralization of medical treatment that may soon be upon us. Historically, medicine has been driven by a central force -- a primary-care provider who examines, refers and directs care for the patient. That doctor generally selected the lab, the specialists and the facilities to be used. Very few questioned these doctors, and many relied upon them for a labyrinth of health decisions. But now, economic forces and insurance reforms are dramatically changing that dynamic.

Please indulge me for a moment while we envision a different medical world, one that I call “Component Medicine,” where doctors with less individual time to commit meet more-empowered patients with new healthcare options available to them.

Everyone is aware that shrinking reimbursements and increased operational costs are forcing doctors to see more and more patients in the course of their day. At the same time, we see a rise in the utilization of physician assistants and nurse practitioners. This is reducing the singular importance of the primary-care physician and spreading the responsibility of care to other disciplines in a manner not seen previously in this country. Nurse practitioners (NP) will be on the front lines of this change as our medical models gradually shift to one of prevention and outcome-based efforts. Likewise, other traditional medical-related services are undergoing dramatic change. The traditional lab may be replaced by a clinic in your local pharmacy, where you can get your blood tests in a more convenient and less expensive location. NPs may also be at that location, or even in your workplace, where they will be able to diagnose and treat illnesses, as well as work with patients on established prevention regimens.

In Component Medicine, care will be closer to home and proactive in nature, as we begin to rely on multiple professionals to meet our healthcare needs of the future. Those professionals will be selected for cost, convenience and consistency in an overall health regimen, giving the consumer more power and influence over the care they receive. Component Medicine will be team-driven, with the centralized role of primary-care physician playing an important, yet less critical, position than previously held.

Technology will also have a hand in this. Video conferencing and mobile monitoring equipment will provide better information to these members of the Component team. That improved information will lead to more accurate care and better results.

Even alternative medicines, those historically shunned by traditional medical providers, may find a playing position on this squad. Even though they may be lacking hard scientific evidence of effectiveness, some alternative and holistic approaches hold value simply because people believe they work, and therefore should not be kept from medical care.

Workers’ comp is, in my opinion, uniquely positioned to help develop and influence the adoption of this concept. Our industry, in its role as a health provision service, has more control over the various elements of care than any other singular entity. We have access to employers, patients and the medical community. In states with directed care, we could have even more immediate impact. As an industry we could help create those systems that provide effective, affordable care close to the patient’s home, and to a greater degree work to provide and support preventive care for those in our system.

Several months ago, I attended a presentation given by Dr. David Pate, CEO of Boise’s St. Luke’s Health System, the largest medical provider in Idaho. He spoke of the need for modern medicine to “get to where the people are” in a proactive sense: in their homes, their schools, their work and their churches. The problem, he noted, was that they had not figured out a way to get paid for doing that, with the result that the “broken” fee-for-services model still ruled the day.

His concept is a classic leveraging of the time-honored adage, “An ounce of prevention is worth a pound of cure.”

Today, the workers’ compensation industry can drive that theory to reality, and with the advent of the PPACA (Obamacare), we might not even have to pay for it all. The level of control that we employ in many states, along with the access and sway we have with key players in the country, mean that we could help channel convenient Component Medical care that offered strong preventive focus for not just those in our system, but their uninjured coworkers, too.

The physician of the future isn’t an individual, rather a comprehensive medical team. It is Component Medicine, and it provides the key to effective, flexible and affordable care for our population in the future.

Data Analytics Comes of Age for Agents

You’ve already done the hard part by moving to an electronic agency management system platform. Now you need to start using your data.  

Sitting down for lunch with one of our top independent agents, I asked him about his business.  

"Things are great – we’re totally paperless now!" he responded triumphantly.

"So what are you doing with all of the data you’re collecting?" I asked.

"Oh, I’m too small to do any of that stuff," he said with a shrug.

"You’re not," I said. "In fact, it’s a powerful way for you to generate more business. Let me show you how...."

"Data analytics" sounds like rocket science—sophisticated, expensive, intimidating and beyond the reach of the typical independent agency. It isn't. Data analytics is simply the analysis of data that allows a person to make a better decision than they could without data.

The challenge occurs when there is so much data available that it becomes difficult to determine what information is relevant and what is not. It becomes even harder when the data is not stored in a way that can be easily analyzed.

Today’s technology allows people to analyze huge amounts of data in whatever form. Sophisticated software can identify patterns and relationships between millions of pieces of information that provide better insight into a subject. This is commonly referred to as "big data" analytics.

Don't get overwhelmed by these terms or the complexity of the algorithms used to analyze data. Just remember that the objective is to use data so you and your agency can make better decisions. Here are the key steps to improve your agency's performance:

Step 1:  Understand what you have

Your agency contains a treasure trove of information about your existing clients and potential customers.

Before you can even begin to run a data analytics program, spend time understanding the data you already collect. Start by creating a spreadsheet with all of the data you collect when you onboard a new client -- for example, birthdate, home and work address.

Add information you collect as part of the underwriting process. For example, if you write a BOP policy for a client, capture all the additional data an insurer needs to evaluate the risk -- the number of employees, store locations and industry.

When this spreadsheet is completed, you will discover the sheer volume of data you already collect about your clients.

Step 2: Understand what you want

Who are my most profitable clients? Are clients more profitable if I write both their commercial and personal lines insurance? How many policies per household do I need to maintain a high retention rate? How can I best target new clients? What type of people are my best referral sources? What marketing programs generate the best leads?

If you think you know the answer to these questions because you've asked them yourself, think again. Most agency owners base their answer on individual experience. That's no longer good enough. Insurance sales and marketing has transformed from an art to a science.

While the data you collect is extremely valuable, data analytics tools also allow you to incorporate outside data into your analysis. What information would you like to have about an existing client or a potential customer? What information would you like to know about a certain area or region?

Identify your "data gaps" -- information you don't have but would like to have about a client or a prospect. This might include their net worth, whether they own another home or their business affiliations.  Consider any information you would like to have about a specific geographic area or other external information that would be helpful in allowing you to attract and retain clients.

Capturing all of this additional "outside" data is beyond the capability of any individual agency. But today there are companies that do just that. Find one that offers subscription- or transaction-based solutions, with little or no start-up costs, that are easily accessible by using their secure website. Find a platform you can use any time to plug in or access the data you want.

The data relationships that you build will allow you to create a strategic advantage. Stay away from cookie-cutter solutions that just provide "answers" to data questions. They don't allow you to differentiate the results of the data analysis.

Step 3: Put the data to work

Does your agency management system have a data analytics feature or tool? If it does, subscribe to it. If it doesn’t, demand that the vendor offer such a tool.

If your agency management system doesn't have a data analytics tool, reach out to the insurance company you write a lot of business with and ask if you can partner with them on a data analytics project. Offer to share your information if they will analyze your book of business. Make sure you play a key role in defining the data to be analyzed, and most importantly make sure you define the hypothesis or data relationship you are looking to uncover.

Take action

Today, customer acquisition and retention takes place in real time, or close to it. The more information you have about current and potential customers, the better you will be able to address their needs when and where they want it. That's why you need to embrace data analytics -- it gives you the information you need, when you need it.

If you are like most agencies, you’ve already done the hard part by getting rid of your paper files and moving to an electronic agency management system platform. Now you need to start using your data.  You have a great opportunity to become a sophisticated marketer and drive better performance and growth out of your agency.

What are you waiting for?

Medical Marijuana Law: Effect in Illinois

Contrary to what you might first think, the act still permits employers to prohibit possession or consumption of marijuana on their property.

Last year, Illinois passed a “medical marijuana” law that became effective Jan. 1, 2014, known as the Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130/1, et seq. The act allows doctors to recommend and certify the use of medical marijuana by patients who are under the doctors’ care for certain qualifying medical conditions. Certain rights of employers are affected, but in other ways it will be business as usual for employers. Most notably, employers cannot discriminate against a registered patient on the basis of his or her registration (in most cases). This mandate may require employers to reconfigure their drug policies and certain provisions in their employee handbooks to ensure compliance with the act. Also, there will need to be management training to educate managers and supervisors. Contrary to what you might first think, the act still permits employers to operate a Drug Free Workplace. Employers are allowed to prohibit possession or consumption of marijuana on their property. Further, the act specifically allows employers to enforce work rules, give drug tests and discipline employees exhibiting signs of impairment while at work. Employees beware! The act is not a license to possess or be high at work. Based on the rights that employers still retain, it appears inevitable that sticky issues will arise as the act is implemented and employers struggle with compliance as well as enforcing their own policies. For example, while the act expressly allows employers to conduct drug testing, what if an employee’s drug test registers marijuana use, but the test cannot differentiate whether that use was hours, days or months ago? Would refusing to hire that individual be okay as enforcement of a Drug Free Workplace, or would that decision be discriminating against an individual for his or her “status” as a registered medical marijuana patient? Moreover, the law allows employers to maintain a Drug Free Workplace “provided the policy is applied in a non-discriminatory manner.” It is unclear whether patients will be able to assert disparate impact claims arguing that employers’ facially neutral workplace policies have a statistical impact on their “protected class.” Additionally, the law requires that an employee disciplined for exhibiting signs of impairment must be given an opportunity to contest the basis for the determination, but the law does not provide any guidance as to what type of procedural protection the employee must receive. Finally, it is unclear what, if any, interplay this Illinois law will have with the federal Americans With Disabilities Act. Unfortunately, we believe that many of the gray areas surrounding the act will likely be resolved through future litigation. To make sure your clients are prepared, we suggest that you have a lawyer review your policies and procedures and provide training to your management personnel. Also, ensure that your clients have a robust Employment Practices Liability policy in place that will respond and defend the employers in case they are faced with a discrimination suit in relation to violation of the act.

Laura Zaroski

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Laura Zaroski

Laura Zaroski is the vice president of management and employment practices liability at Socius Insurance Services. As an attorney with expertise in employment practices liability insurance, in addition to her role as a producer, Zaroski acts as a resource with respect to Socius' employment practices liability book of business.

The Truth on Workers’ Comp Premiums

As employers try to limit their workers' compensation premiums, my suspicion is that many do not realize that insurers have traditionally relied on investment income to, in effect, subsidize underwriting costs, and that the subsidy is going away. Insurers are relying on “safer” Treasury bonds and are not realizing the returns they received before the Great Recession. Sure, employers feel workers' comp insurers are too profitable. In fact, the combined ratio -- insurers' total costs for covering work-related incidents, divided by total premiums -- was 106 in 2013, according to the National Council on Compensation Insurance. That means that, for every $100 that insurers received in premiums, they paid $106. Insurers need to shrink the combined ratio to be profitable and need to make up for the diminishing investment income, so premiums have been going up for the past three years. Experts expect this to continue. So, to control premiums, employers must improve the experience modifier that is used to calculate their rates. Employers need to address the direct and indirect costs of work-related injuries, illnesses and diseases, investing in workplace safety and return-to-work and other initiatives. Insurers must use predictive modeling to produce more sensitive risk measurements. (Here is a blog post that goes into detail.) The good news is that workers’ compensation claim costs are not out of control as they were in the past. Those of us who are old enough to remember the late 1980s and early 1990s remember just how bad it was. Liberty Mutual, often considered the largest workers’ compensation carrier in the nation, quit offering coverage in its home state of Massachusetts in the early 1990s because costs were spiraling out of control. Today, overall costs are going up but more slowly because the frequency of claims has been declining for 20 years. There are many possible reasons for why frequency has declined. Some point to reforms reducing claims eligibility for workers’ compensation. But, if this were a large factor, I think we would be seeing more work-related claims in the tort system. Others cite changes in workplace exposure. Some point to the shift in the kind of work Americans are doing. For example, high-risk jobs in manufacturing have been exported in recent years. And while some manufacturing jobs are returning to the U.S. because of lower energy costs here, more work is being automated, making it less risky. Meanwhile, still-high unemployment rates mean there is less risk exposure. I believe the No. 1 reason why frequency has declined is workplace safety. While I cannot prove this on a quantitative basis, I make my observations based on 25 years of observing workers’ compensation. Back in the early 1990s, employers were discovering how much they could lower their premiums through safety. When I was the lead reporter for BNA’s Reporters’ Compensation Report in the mid-1990s to the year 2000, I spent a lot of time writing about employers that were discovering strategies to contain workers’ compensation. Many of these approaches are now used widely. There still remain, however, many employers who need to get religion. While medical-cost inflation for workers’ compensation remains a concern, it is not in the double-digits as it was 20 years ago; it has been about 3% annually in recent years. Workers’ compensation insurers still pay more for procedures than health care insurers. Medicare will not pay for opiates dispensed by doctors, but workers’ compensation will in many states. The $1 billion question is how Obamacare will affect workers’ compensation claim costs. Some worry that claims that previously would have been handled under healthcare insurance will be shifted to workers’ comp, but I doubt it because workers’ comp is just too complicated. (It could turn out that Obamacare will be more complicated than workers’ compensation, but a worker still needs to prove work-relatedness for a claim.) As a whole, indemnity claim costs have been relatively flat in recent years. In states where the maximum weekly benefit that workers can receive is relatively low, such as Virginia, indemnity costs are naturally lower than in other jurisdictions, such as the District of Columbia, where the maximum weekly benefit is much higher. Reducing the amount of time workers are on workers’ compensation through quality medical care and return-to-work programs has also helped curtail the financial burden of claims. But, again, more employers still need to get religion, and for reasons that go beyond reducing the time that employees are on workers’ compensation. It is also true that return to work is challenging in the current economy, as there are fewer jobs available. Besides national economic factors, employer premiums are affected by the workers’ compensation conditions in individual states. California’s combined ratio has been in the triple-digits, so employers are seeing bigger premium increases than in other states. Meanwhile, there is always the political wildcard in workers’ compensation that can favor the interests of insurers, employers, organized labor, plaintiffs' attorneys and others, depending on who is in power. Employers often feel too busy to be politically involved in the workers’ compensation system but can be a critical voice for change. Employers that want to make a difference should look into joining UWC in Washington, D.C., and the Workers’ Compensation Research Institute. I have worked with both of these groups in various capacities and believe they are worth the investment. (By the way, neither organization knows I am recommending them.) Making the case for investing in workers’ compensation is a challenge. But because insurers can no longer use investment income to soften the blow of rising workers’ compensation costs, employer investment in curtailing claim costs is more important than ever.

Annmarie Geddes Baribeau

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Annmarie Geddes Baribeau

Annmarie Geddes Baribeau, president of <a href="http://www.lipoldcommunications.com/">Lipold Communications</a> and senior associate at <a href="http://aartrijk.com/">Aartrijk</a&gt;, is also a contributing writer for <a href="http://leadersedgemagazine.com/">Leader’s Edge</a> magazine. She has written and published several booklets and more than 500 articles for national and regional publications on topics related to workers’ compensation, health insurance, human resources and management.