Tag Archives: healthcare

How to Live Longer? Drink More Coffee

This idea is taken from The Doctor Weighs In post by Dov Michaeli.

As the article says, “Coffee drinkers have a reduced risk of dying prematurely from all causes, and consequently live longer.” Coffee is a “vice” that is most worthy, and one to be embraced.

Some health attributes of coffee include reduced risks of death from:

  • Cardiac arrhythmia
  • Type 2 diabetes
  • Dementia
  • Pneumonia
  • Lung disease
  • Accidents
  • Strokes

That’s quite a list. The good news is that a 50-cent cup of coffee works as well as a five-dollar cup. Any amount of coffee is better than none. According to results of a study by the National Institutes of Health (NIH), “Compared with people who drank no coffee at all, men and women who drank six or more cups per day were 10% and 15% less likely, respectively, to die during the study.”

Don’t tell wellness true believers about this. They may want to start charging coffee-free employees a higher health payroll deduction.

Insurance at a Tipping Point (Part 2)

This is the second in a series of three articles. The first is here.

With the entire insurance industry at a tipping point, where many of the winners and losers will be determined in the next five to 10 years, it’s important to think through all the key strategic factors that will determine those outcomes. Those factors are what we call STEEP: social, technological, environmental, economic and political.

In this article, we’ll take a look at all five.

Social: The Power of Connections

The shifts in customer expectations present challenges for life insurers, many of which are caught in a product trap in which excessive complexity reduces transparency and increases the need for advisers. This creates higher distribution costs.

A possible solution lies in models that shift the emphasis from life benefits to promoting health, well-being and quality of life. In a foretaste of developments ahead, a large Asian life insurer has shifted its primary mission from insurance to helping people lead healthier lives. This is transforming the way the company engages with its customers. Crucially, it’s also giving a renewed sense of purpose and value to the group’s employees and distributors.

Further developments that could benefit both insurers and customers include knowledge sharing among policyholders. One insurer enables customers to share their health data online to help bring people with similar conditions together and help the company build services for their needs. Similarly, a DNA analysis company provides insights on individual conditions and creates online communities to pool the personal data of consenting contributors to support genetic studies.

A comparable shift in business models can be seen in the development of pay-as-you-drive coverage within the P&C sector. In South Africa, where this model is well advanced, insurers are realizing higher policyholder retention and lower claims costs.

This kind of monitoring is now expanding to home and commercial equipment. These developments are paving the 
way for a move beyond warranty or property insurance to an all-’round
 care, repair and protection service. These offerings move the client engagement from an annual transaction to something that’s embedded in their everyday lives. Agents could play
 an important role in helping to design aggregate protection and servicing.

In banking, we’ve seen rapid growth in peer-to-peer lending; the equivalent in insurance are the affinity groups that are looking to exercise their buying power, pool resources and even self-insure. While most of the schemes cover property, the growth in carpooling could see them play an increasing role within auto insurance.

Technological: Shaping the Organization Around Information Advantage

More than 70% of insurance participants in our 2014 Data and Analytics Survey say that big data or analytics have changed the way they make decisions. But many insurers still lack the vision and organizational integration to make the most of these capabilities. Nearly 40% of the participants in the survey see “limited direct benefit to my kind of role” from this analysis, and more than 30% believe that senior management lacks the necessary skills to make full use of the information.

The latest generation of models is 
able to analyze personal, social and behavioral data to gauge immediate demands, risk preferences, the impact of life changes and longer-term aspirations. If we look at pension planning, these capabilities can be part of an interactive offering for customers that would enable them to better understand and balance the financial trade-offs between how much they want to live off now and their desired standard of living when they retire. In turn, the capabilities could eliminate product boundaries as digital insights, along with possible agent input, provide the basis for customized solutions that draw together mortgages, life coverage, investment management, pensions, equity release, tax and inheritance planning. Once the plan is up and running, there could be automatic adjustments to changes in income, etc.

Reactive to preventative

The increasing use of sensors and connected devices as part of the Internet of Things offers ever more real-time and predictive data, which has the potential to move underwriting from “what has happened” to “what could happen” and hence more effective preemption of risks and losses. This in turn could open up opportunities for insurers to gravitate from reactive claims payer to preventative risk adviser.

As in many other industries, the next frontier for insurers is to move from predictive to prescriptive analytics (see Figure 2). Prescriptive analysis would help insurers to anticipate not only what will happen, but also when and why, so they are in a better position to prevent or mitigate adverse events. Insurers could also use prescriptive analytics to improve the sales conversion ratio in automated insurance underwriting by continually adjusting price and coverage based on predicted take-up and actual deviations from it. Extensions of these techniques can be used to model the interaction between different risks to better understand why adverse events can occur, and hence how to develop more effective safeguards.

figure-2

Environmental: Reshaping Catastrophe Risks and Insured Values

Catastrophe losses have soared since the 1970s. While 2014 had the largest number of events over the course of the past 30 years, losses and fatalities were actually below average. Globally, the use of technology, availability of data and ability to locate and respond to disaster in near real-time is helping to manage losses and save lives, though there are predictions that potential economic losses will be 160% higher in 2030 than they were in 1980.

Shifts in global production and supply are leading to a sharp rise in value at risk (VaR) in under-insured territories; the $12 billion of losses from the Thai floods of 2011 exemplify this. A 2013 report by the UN International Strategy for Disaster Reduction (UNISDR) and PwC concluded that multinationals’ dependencies on unstable international supply chains now pose a systemic risk to “business as usual.”

Environmental measures to mitigate risk

Moves to mitigate catastrophe risks
 and control losses are increasing. Organizations, governments and UN bodies are working more closely to share information on the impact of disaster risk. Examples include R!SE, a joint UN-PwC initiative, which looks at how to embed disaster risk management into corporate strategy and investment decisions.

Governments also are starting to develop plans and policies for addressing climatic instability, though for the most part policy actions remain unpredictable, inconsistent and reactive.

Developments in risk modeling

A new generation of catastrophe models is ushering in a transformational expansion in both geographical 
breadth and underwriting applications. Until recently, cat models primarily concentrated on developed market peak zones (such as Florida windstorm). As the unexpectedly high insurance losses from the 2010 Chilean earthquake and the 2011 Thai floods highlight, this narrow focus has failed to take account of the surge in production and asset values in fast-growth SAAAME markets (South America, Africa, Asia and the Middle East). The new models cover many of these previously non-modeled zones.

The other big difference for insurers is their newfound ability to plug different analytics into a single platform. This offers the advantages of being able to understand where there may be pockets of untapped capacity or, conversely, hazardous concentrations. The result is much more closely targeted risk selection and pricing.

The challenge is how to build these models into the running of the business. Cat modeling has traditionally been the preserve of a small, specialized team. The new capabilities are supposed to be easier to use and hence open to a much wider array of business, IT and analytical teams. It’s important to determine the kind of talent needed
 to make best use of these systems, as well as how they will change the way underwriting decisions are made.

Emerging developments include new monitoring and detection systems, which draw
 on multiple fixed and drone sensors.

Challenges for evaluating and pricing risk

Beyond catastrophe risks are disruptions to asset/insured values resulting from constraints on water, land and other previously under-evaluated risk factors. There are already examples of industrial plants that have had to close because of limited access to water.

Economic: Adapting to a Multipolar World

Struggling to sustain margins

The challenging economic climate has 
held back discretionary spending on life, annuities and pensions, with the impact being compounded by low interest rates and the resulting difficulties in sustaining competitive returns for policyholders. The keys to sustaining margins are likely to be simple, low-cost, digitally distributed products for the mass market and use of the latest risk analytics to help offer guarantees at competitive prices.

The challenges facing P&C insurers center on low investment returns and a softening market. Opportunities to seek out new customers and boost revenues include strategic alliances. Examples could include affinity groups, manufacturers or major retailers. A further possibility is that one of the telecoms or Internet giants will want a tie-up with an insurer to help it move into the market.

More than 30% of insurance CEOs
 now see alliances as an opportunity to strengthen innovation. Examples include the partnership between a leading global reinsurer and software group, which aims to provide more advanced cyber risk protection for corporations.

Surprisingly, only 10% of insurance CEOs are looking to partner with start- ups, even though such alliances could provide valuable access to the new ideas and technologies they need.

SAAAME growth

Growth in SAAAME insurance markets will continue to vary. Slowing growth 
in some major markets, notably Brazil, could hold back expansion. In others, notably India, we are actually seeing a decline in life, annuity and pension take-up as a result of the curbs on commissions for unit-linked insurance plans (ULIP). Further development in capital markets will be necessary to encourage savers to switch their deposits to insurance products.

As the reliance on agency channels adds to costs, there are valuable opportunities to offer cost- effective digital distribution. Successful models of inclusion include an Indian national health insurance program, which is aimed at poorer households and operates through a public/private partnership. More than 30 million households have taken up the smart cards that provide them with access to hospital treatment.

The already strong growth (10% a year) in micro-insurance is also set to increase, drawing on models developed within micro-credit. The challenge for insurers is the need to make products that are sufficiently affordable and comprehensible to consumers who have little or no familiarity with the concept of insurance.

Rather than waiting for a market-wide alignment of data and pricing, some insurers have moved people onto the ground to build up the necessary data sets, often working in partnership with governments, regional and local development authorities and banks and local business groups.

Urbanization

The urban/rural divide may actually be more relevant to growth opportunities ahead than the emerging/developed market divide. In 1800, barely one in 50 people lived in cities. By 2009, urban dwellers had become a majority of the global population for the first time. Now, every week, 1.5 million people are added to the urban population, the bulk of them in SAAAME markets.

Cities are the main engines of the global economy, with 50% of global GDP generated in the world’s 300 largest metropolitan areas. The result is more wealth to protect. Infrastructure development alone will generate an estimated $68 billion in premium income between now and 2030. Urban citizens will be more likely to be exposed to insurance products and have access to them. Urbanization is also likely to increase purchases of life, annuities and pensions’ products, as people migrating into cities have to make individual provision for the future rather than relying on extended family support.

Yet as the size and number of mega-metropolises grow, so does the concentration of risk. Key areas of exposure go beyond property and catastrophe coverage to include the impact of air pollution and poor water quality and sanitation on health.

Tackling under-insurance

A Lloyd’s report comparing the level 
of insurance penetration and natural catastrophe losses in countries around the world found that 17 fast-growth markets had an annualized insurance deficit of $168 billion, creating threats to sustained economic growth and the ability to recover from disasters.

Political: Harmonization, Standardization and Globalization of the Insurance Market

Government in the tent

At a time when all financial services businesses face considerable scrutiny, strengthening the social mandate through closer alignment with government goals could give insurers greater freedom. Insurers also could be in a stronger position to attract quality talent at a time when many of the brightest candidates are looking for more meaning from their chosen careers.

Government and insurers can join forces in the development of effective retirement and healthcare solutions (although there are risks). Further opportunities include a risk partnership approach to managing exposures that neither insurers nor governments have either the depth of data or financial resources to cover on their own, notably cyber, terrorism and catastrophe risks.

Impact of regulation

Insurers have never had to deal with an all-encompassing set of global prudential regulations comparable to the Basel Accords governing banks. But this is what the Financial Stability Board (FSB) and its sponsors in the G20 now want to see as the baseline requirements for not just the global insurers designated as systemically risky, but also a tier of internationally active insurance groups.

The G20’s focus on insurance regulation highlights the heightened politicization of financial services. Governments want to make sure that taxpayers no longer have to bail out failing financial institutions. The result 
is an overhaul of capital requirements 
in many parts of the world and a new basic capital requirement for G-SIIs. The other game-changing development is the emergence of a new breed of cross-state/cross-border regulator, which has been set up to strengthen co-ordination of supervision, crisis management and other key topics. These include the European Insurance and Occupational Pensions Authority (EIOPA) and the Federal Insurance Office (FIO) in the U.S.

Dealing with these developments requires a mechanism capable of looking beyond basic operational compliance at how new regulation will affect the strategy and structure of the organization and using this assessment to develop a clear and coherent company-wide response.

Technology will allow risk to be analyzed in real time, and predictive models would enable supervisors to identify and home in on areas in need
 of intervention. Regulators would also be able to tap into the surge in data and analysis within supervised organizations, creating the foundations for machine-to-machine regulation.

A more unstable world

From the crisis in Ukraine to the rise of ISIS, instability is a fact of life. Pressure on land and water, as well as oil and minerals, is intensifying competition for strategic resources and potentially bringing states into conflict. The ways these disputes are playing out is also impinging on corporations to an ever-greater extent, be this trade sanctions or state-directed cyber-attacks.

Businesses, governments and individuals also need to understand the potential causes of conflict and their ramifications and develop appropriate contingency planning and response. At the very least, insurers should seek to model these threats and bring them into their overall risk evaluations. For some, this will be an important element of their growing role as risk advisers and mitigators. Investment firms are beginning to hire ex-intelligence and military figures as advisers or calling in dedicated political consultancies as part of their strategic planning. More insurers are likely to follow suit.

The final article in this series will look at scenarios that could play out for insurers and will lay out a way to formulate an effective strategy. If you want a copy of the report from which these articles are excerpted, click here.

Agents: What’s That Spot on Your Face?

In December 2008, a spot appeared on my face. It looked like a large freckle. I ignored it.

In March 2009, Floyd and I were having breakfast. He asked, “What’s that spot on your face?” I answered, “A freckle.” He then responded, “What are you going to do about it?” My reply, “Not a thing – it’s just a freckle.” We debated the issue for a few minutes longer, but I’ll save you the details.

The next day, Floyd called to announce my appointment with Dr. Patout (a local dermatologist) in a few weeks. He had called another doctor, but she couldn’t see me until August. Dr. Patout had been booked up until August, as well, but Floyd intervened with her husband (Floyd’s tennis partner) and got me in earlier.

I agreed to the appointment more to shut Floyd up than as a concern for my health. The next week, Dr. Patout removed the “freckle” and sent it to the lab to test. I still felt this was much ado about nothing.

At 1:30 p.m. on April 20, I was walking out of the Regions Insurance Office in Baton Rouge. My phone rang, and I heard a statement I’ll never forget. “Mike, this is Dr. Patout. The test results are in; it’s melanoma.” I took a breath and said, “That’s the kind of cancer I don’t want – right?” She answered: “That’s right. Come see me tomorrow.”

Dr. Patout reassured me that we had gotten it early. She sent me to Dr. Walker, who cut a double-quarter-sized hole in my face and sent this specimen off for more tests. Two weeks later, I got the good news I had prayed for – “Mike, we got it all.” Come see me every three months.

Suddenly, my attitude changed. Going to the doctor and listening to her recommendations were now a priority, not a pain in the butt. On the third visit, Dr. Patout explained, “Mike, understand that if we had waited until August, you’d be dead.” This was (and still is) a sobering thought….

Floyd saved my life. He didn’t find the cancer, and he didn’t cure it. Floyd’s role was more important than that – he was the gadfly who motivated me (read: nagged me) to do what needed to be done.

Now I want to ask you two most important questions – “Is there a spot on the face of your organization?” and “What are you going to do about it?”

In March 2009, I felt good. I looked good (except for a little spot on my face). I was one admonition away from a quick and painful death! THANKS, FLOYD!

The good news is that you don’t have to die, either!

The bad news is that to avoid dying you must change. Change is difficult – the excerpts from the article “Change or Die” by Alan Deutschman from Fast Company Magazine (www.fastcompany.com) explain the challenge of change:

“What if you were given that choice? For real. What if it weren’t just the hyperbolic rhetoric that conflates corporate performance with life and death? Not the overblown exhortations of a rabid boss, or a slick motivational speaker, or a self-dramatizing CEO. We’re talking actual life or death now. Your own life or death. What if a well-informed, trusted authority figure said you had to make difficult and enduring changes in the way you think and act? If you didn’t, your time would end soon — a lot sooner than it had to. Could you change when change really mattered? When it mattered most?

Yes, you say?

Try again.

Yes?

You’re probably deluding yourself.

You wouldn’t change.

Don’t believe it? You want odds? Here are the odds, the scientifically studied odds: nine to one. That’s nine to one against you. How do you like those odds?”

I say this in particular for independent agents. What matters with independent agencies is INDEPENDENCE, the entrepreneurial spirit of this group and its members. You as individuals and operating entities have been declared dead or dying by the experts for decades. You’re prospering – so why change now?

The answer is simple – the marketplace you serve is changing. This is all about people and culture – not products and services. If you haven’t noticed, the Gen Y and whatever follows are much different than their older siblings, parents and grandparents. They are taking charge of the market as we are forced to relinquish control.

Address that “freckle” or die.

4 Rules for Digital Transformation

In 1990, I had the good fortune to meet the founders of a new technology company focused on the automation and real-time adjudication of health insurance claims. The company, Paperless Claims Inc., (PCI) was way, way ahead of its time, deploying “rules-based” logic to achieve an 80% first pass adjudication rate for completed health insurance claim transactions originating from a physician’s office via a dial-up modem. The final claim determination and payment details were transmitted back to the provider’s office in less than two minutes. PCI found some early adopter health payers for their technology, but the industry preferred to use people to process the massive amounts of paper for the majority of claim transactions over the next 20 years.

Fast-forward to today when suddenly the insurance segment is “ripe for digital transformation,” and all segments are scrambling for solutions to support online distribution and automated administration for virtually all types of insurance products across the personal lines, accident and health, small business commercial lines spectrum.

How do decision-making executives in the insurance segment know how to move beyond the status quo and put their company on the right path toward digital transformation? There are four key (and remarkably simple) constructs that provide the guidance:

1) All insurance products are the same. When you stop and think about it, all insurance products follow the same path from the acquisition of account data, to underwriting, rating, quoting and binding, then through policy issuance, premium invoicing, (billing), commission administration, financial reporting and renewals. Some products may require more underwriting than others, and others have more fulfillment than others, but, deep down, they all follow the same course.

2) All insurance products are governed by rules. There is a rule for every element of every product: underwriting rules, class codes, Zip codes, type of risk, height, weight, smoker/non-smoker, etc. All the rating rules and quoting parameters, questions around when certain endorsements and riders will apply, the rules for binding accounts and issuing policies, of premium billing, commission hierarchies and financial reporting are all known. The issue in most carriers today is that the application of those rules may vary based on the systems or people applying them.

3) Rules can be (and should be) automated. All insurance product and process rules can be automated, and, when they are, results for each transaction component require fewer touch points. The digital transformation of the process work flow provides users with “real-time” actions. You may say, “But there may be exceptions to rules, like giving an underwriter the ability to change a premium by up to 5%”. And I agree. In that case, you still want capture the reason(s) for the change and have a manager sign off – and both actions are just additional rules.

4) One system is better than many. Most carriers are saddled with single-function, component systems that have been banded together over the years. Every new product (and every product change) requires a Herculean effort to make sure “the system” can handle the business.   Each year “the system” takes up ever-increasing resources for “maintenance,” “data reconciliation” or other non-revenue-generating activities. A single comprehensive system built on a relational database platform will reduce both staffing and maintenance costs and allow you to measure your product time in weeks, not days.

These are pretty simple concepts that can have an enormous impact on your business. Defining all product rules so that the majority of work flow, process transactions may be automated requires different thinking about the approach to systems than has been the traditional insurance segment view. Senior insurance industry executive are beginning to understand and appreciate the power of a comprehensive, platform.

Tips on Evaluating a Wellness Program

This is news you can use.

If you want to evaluate the cost/benefit ratio of a wellness program, the following is a list of costs that are almost always overlooked in wellness evaluations. These are not the only things that need to be evaluated, just the ones most commonly overlooked.

When the items in the following list are fully considered, wellness evaluations can look entirely different.

1. The cost of staff hired to manage the program. A rule of thumb is to multiply their salary times two to account for FICA, benefits, office space, training, workers comp, management, etc.

2. The cost of wages for workers while attending wellness events at work. One company I looked at was spending about $175 per employee per year on this, not a trivial sum.

3. The opportunity cost of the HR staff running the program.

4. The full cost of wellness communications. Sending wellness communications to people at work has a wage cost. See #2 above.

5. The total cost to evaluate the program periodically.

6. The cost of false positives, which come from sending employees to doctors when they’re not sick. This is especially pernicious if you’re paying for wellness exams for employees. At one company, the cost of the false positives, sometimes as high as $80,000 per event, nearly cost more than the physical exams themselves. You have to examine claims data to see this.

7. If you have a fitness center, you need to take into account sports injuries for users. (Understanding this also involves access to claims data.) I’ve evaluated the impact of fitness centers for three very large companies. Taking into account sports injuries, etc., you could not make the case for an ROI for any of the three of them. In one company, we examined claims data on a) moderate or occasional fitness center users, b) people who used the fitness center regularly, and c) nonusers. Nonusers had the lowest average medical costs. Moderate users had higher medical costs than nonusers and regular users had the highest medical costs, a perfect reverse correlation.

Surveys of employees are notoriously unreliable. They measure employee opinions, at best, and opinions are not facts. As we all know, sometimes in employee surveys people will say what they think the surveyor wants to hear.

Medical claims and sick pay data are about the most meaningful ways to measure wellness outcomes. Short- and long-term disability data can be useful, too, as can life claims experience when compared with norms. If you only use employee surveys and other surrogate data, too bad.

I met an actuary who spoke at a conference on this topic and used the measurements above to evaluate wellness programs. He said he’d never seen one that had a positive ROI, except ones that used payroll deduction penalties.