Tag Archives: insurance companies

Why Low Loss Ratios Can Be the Wrong Goal

Many agency owners take great pride in generating low loss ratios year after year. These agencies are often very, very profitable — they are the perfect cash cows, in business school parlance. But, in my experience, their growth is painfully slow. Often, their agencies are not managed closely, beyond the focus on loss ratios. And the agencies are often small. 

These agency owners are not happy with the many carriers who have deemphasized loss ratios. They cannot fathom why any carrier would not LOVE their good loss ratios. The result has become stressed, or even fractured, agency/company relationships.

These agency owners do not understand that loss ratios that are too low (and each company will define “too low” differently) are not in some companies’ best interests. How can too high a profit margin be bad?

  1. When loss ratios are too good, it may mean rates are too high, resulting in too little growth. Companies, particularly stock companies, need to show growth, especially after the softest market in industry history.
  2. If growth is too slow, companies may be losing market share. Company management often has considerable pressure to attain specific market share.
  3. Loss ratios that are too low may also mean that profit is not being maximized.

Maximizing profit is not the same thing as achieving a high profit margin. The former is in dollars, and the latter is in percentages. This is a crucial difference between running a company and running an agency, and agency owners are well-served to understand it. If a company wants to maximize profit, it might want to increase revenue by lowering rates even though that would mean higher loss ratios. For example, if a company has a 35% loss ratio and $100 million in premiums, its gross profit (excluding expenses) might be $65 million. However, if it decreased its rates and subsequently increased premiums to $125 million at a 45% loss ratio, it would generate $68.8 million in gross profit. That is a $3.8 million improvement.

Many agency owners would like to increase their books 25% and go from a 35% loss ratio to a 45% loss ratio, too, but those that focus on low loss ratios probably will not get their share of that 25% growth, yet their loss ratios will still increase.

Frustration at agencies greatly increases when companies price to a 55% , or higher, loss ratio. The company still makes plenty of profit at a 55% loss ratio (if it does not, then the company has serious expense issues that go far beyond the points of this article). However, agency owners make most of their money in contingent bonuses from carriers for growth, retention, low losses and so on, and profit sharing by carriers declines precipitously at 55%. The agency owners' lifestyle is curtailed. The value of their agencies is impaired. Their business model is in shambles.

If a company is truly pricing to a loss ratio in the mid-50s or even higher, agency owners might consider doing business with different carriers whose philosophies more closely match theirs. Easier said than done, obviously, so maybe a better solution is updating their business model. Growth is more important today to many carriers. Sitting on a cash cow annuity for a decade or more is not as feasible as it once was, and wishing otherwise will not help.

Many companies desire fast growth because:

  1. Some executive bonuses are tied to fast growth.
  2. The company is being set up to sell.
  3. The company has reserving issues and needs the extra premium to dilute the effect of a reserve increase. Growth is only a temporary solution, but companies have used it forever. The fast growth, which makes executives look heroic, is almost always created by low, unsustainable rates that eventually result in higher loss ratios. Nonetheless, growth is initially far more important than profit. (The smartest executives are gone by the time the problems arise, leaving their successors to sort out the mess.)

Agents doing business with companies that emphasize growth may want to evaluate whether there is risk to the agency and its clients. If so, creating a plan to offset these risks can create excellent opportunities.

Agents can fight reality, and fighting will feel good for masochists, but few will be able to avoid doing business with at least a few growth-focused carriers. Don’t keep telling carriers how short-sighted they are. Capitalize instead by understanding their perspective and using your resources to deal with the carriers you choose.

NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.     

States of Confusion: Workers Comp Extraterritorial Issues

As states passed workers compensation laws, each state established its own system. This resulted in a mishmash of laws, benefits, compensability and eligibility from state to state. Courts have ruled that a state has the right to apply its own workers compensation rules and standards to each case. Hence, most states simply don’t care what other states allow, only what is required under their workers compensation laws. There is little meaningful cooperation or coordination among states. Challenges for agents, employers, insurance companies and adjusters include understanding:

  • When coverage is required in jurisdictions where the employer has operations or employees working, living or traveling in or through.
  • How coverage is provided for various jurisdictions.
  • What jurisdictional benefits an employee can collect.

The policy

The two items that reference what states are insured under a workers compensation policy are 3.A. and 3.C. on the information page. (Federal coverage can only be added by endorsement.) 3.A. is fairly simple. The insurance agent for the employer instructs the insurance carrier to list the states where the employer operates when the policy goes into effect or is renewed. 3.C. is a safety net – at least most of the time. That item lists states where an employer expects it may have employees traveling to or through or working in. If an employer begins work in any state listed in 3.C. after the effective date of the policy, all provisions of the policy apply as though the state were listed in 3.A. Notice must be given “at once” if work begins in any state listed in 3.C., although “at once” is not defined in the policy. If the employer has work in any state listed in 3.C. on the effective date of the policy, coverage will not be afforded for that state unless the carrier is notified within 30 days.

It should be noted the insurance policy does not determine what law applies at the time of injury. The law determines what is payable. In addition, note that the workers compensation policy does not apply to Ohio, North Dakota, Washington and Wyoming, “monopolistic” states where coverage may only be purchased from the state. Although larger employers may self-insure in Ohio and Washington (but not North Dakota or Wyoming), no private insurance carrier can write workers compensation coverage for an employer.

It would seem the safe bet is to add all states except monopolistic states to 3.A. However, most underwriters are unwilling to do this or even add the ideal wording for 3.C.: “All states, U.S. territories and possessions except Washington, Wyoming, North Dakota, Ohio, Puerto Rico and the U.S. Virgin Islands and states designated in Item 3.A. of this Information Page.” The reason for the underwriters’ unwillingness varies. Common reasons underwriters provide include:

Licensing issue

The insurer is not licensed in all states. Many regional insurers are only licensed in a handful of states while other carriers may only be licensed in one state…often for strategic reasons. Carriers frequently assert it is impossible — and possibly illegal — to list a state they are not licensed in (even though policies contain wording whose clear intent is to allow carriers to pay benefits in states where they are not licensed).

Underwriting considerations

The insurance carrier may not want to provide insurance in certain states it considers more challenging from a workers compensation standpoint or because carriers do not want to write in states where they have little or no claims adjusting experience, established provider networks and knowledge of the nuances of the law.

Underwriters’ lack of awareness or knowledge

Underwriters are not claims adjusters and do not always have a full understanding  of workers compensation’s jurisdictional complexity and the employer’s risk (no coverage) and agents’ risk (errors and omission claims) for not securing coverage for all states with potential exposure. Agents are often told the employer does not need coverage in the state in which the agent is requesting coverage — which the home or primary state benefits will pay. However, the chance that an employee will be successful in securing another state’s benefits — even if the employee is only there temporarily — is just too much of a risk.

Physical location

Carrier underwriters frequently cite the “physical location” — actually needing an address — as a roadblock to adding a state to 3.A. The National Council for Compensation Insurance (NCCI) has rules on this issue. Most states that follow NCCI rules allow entry of “no business location” — but not all.  States that follow NCCI rules (including the independent bureaus like Texas) will often modify some rules. Arizona, Kentucky, Montana and Texas do not allow “no business location.” It is a regulatory reporting issue. Possible solutions to secure 3.A. coverage include:

  • Providing an entry of “Any Street, Any Town” or “No Specific Location, Any City” for the state. Many carriers will use this.
  • Using an employee’s home address in the state if there is an employee working from home there.
  • Using the agent/brokers address if they have an office there.

Compliance

Only Texas and New Jersey have workers compensation laws that are elective. New Jersey employers still, in effect, cannot go without workers compensation insurance. In Texas, any employer can “unsubscribe” to the workers compensation system and “go bare” and be subject to the tort system. All other states require employers to purchase workers compensation insurance for their employees or qualify for self-insurance.

Which benefits apply? 

If an employer has employees traveling on a limited basis from their home states, the headquarters state may have established a time limit on coverage for out-of-state injuries. The most common limit is six months. This may be written into the statute or may be silent, but over time case law has made determinations. In other words, if an employee usually worked in Michigan but spent three months working on assignment in Kentucky and was injured in Kentucky, the employee would most likely still be eligible for Michigan benefits. In states with a timeline, an employee working in another state for more than the designated duration is no longer entitled to benefits in the home state, but the employee is probably entitled to the compensation in the state in which he or she is currently working.

One of the most important factors is that an employee injured outside of his state of residence may have selection of remedies (benefits) if he lives in one state and works in another. The Michigan employee injured in Kentucky may want Kentucky benefits because Kentucky has lifetime medical and Michigan does not. Or, an employee may have been injured on the way to work, and the state where she was injured does not allow for workers compensation in this circumstance even though this would be a compensable injury in the employee’s headquarters state. Perhaps there is a disqualification in one state because of, for example, an employee’s intoxication that would not be a disqualifier in another state. In addition, the maximum amount of income benefits available to employees varies considerably from state to state.

Piggybacking benefits

Piggybacking occurs when an employee files in one state and then in another state where he qualifies for additional benefits. What is allowed in additional payments will depend on the circumstances of the claim and the states involved. This issue has become particularly dangerous for employers that have not arranged coverage in other states because they are unaware there is an exposure there. The employer then becomes liable for the benefits due in the uninsured state, including all costs to adjust and defend the claim if litigated.

Typically, if an employee collects benefits in one state and is successful in perfecting a claim in another state with higher benefits, the benefits collected in the first state are offset from the second state’s benefits payment. For example, assume an employee collects $10,000 from Indiana then files in Illinois, which grants $18,000. Only the difference between $18,000 and $10,000, or an additional $8,000, would be paid. Employers with employees in both “wage-loss” and “impairment” states face an additional challenge: Employees could qualify for both states’ benefits with no offsets.

Most states don’t care what other states have allowed, only what is required under their laws. If the employee collected under another state’s law but qualifies in our state for additional benefits, well, so be it. If an employee has traveled to, through or lived or worked in another state to create a “substantial” relationship with the state, there is a very good chance he or she will be granted workers compensation benefits in that state.

State statutes, case law, common law and tests

State statutes, case law or the common law in a jurisdiction may influence what benefits an employee may collect. Various criteria that may apply include:

  • State of hire
  • State of residence
  • State of primary employment
  • State of pay
  • State of injury
  • State in agreement between employer and employee (unique to Ohio, and only Ohio and Indiana recognize the agreement)

The “WALSH” test is a good guide to questions to ask, in order of importance:

W   Worked – Where did the employee work most of the time?

A    Accident – Where did the accident occur?

L    Lived – Where is the employee’s home?

S    Salaried – Where is the employee getting paid from?

H    Hired – Where was the contract of hire initiated?

Just about all jurisdictions indicate an employee is entitled to the benefits of their state if the employee was working principally localized in the state, was working under a contract of hire made in the state or was domiciled in the state at the time of the accident. This is why “worked” and “accident” are given the most weight.

Reciprocity

Several states will reciprocate another state’s extraterritorial provisions. Each state has its own reciprocal agreements, with as few as a half-dozen states or as many as 30. For as many states that cooperate with reciprocity, just as many states will not.

In addition, not all reciprocity agreements address the “claims” aspect of compliance. In other words, the reciprocity means the employer does not have to secure “coverage” for an employee temporarily in another state; however, it does not mean that the employee could not pursue a claim in that state. If the employer was relying on the reciprocity provisions of the state law and did not secure coverage in that other state, the employer may be without coverage for that state and may also become “non-compliant” with the state and be subject to fines. The employer (or its agent) has decided to rely on the employee accepting his home state benefits. If the injured employee goes back to her home state for benefits, no harm, no foul.  However, if the employee perfects a claim in another state or in some instances simply chooses to file a claim in that state, then the employer would be considered a non-complying employer and could be subject to penalties.

Washington does not reciprocate in construction employment unless there is an agreement in place. Washington has these agreements with Oregon, Idaho, North Dakota, South Dakota, Montana, Wyoming and Nevada.

Some specifics

Massachusetts, Nevada, New Hampshire New Mexico, New York, Montana, and Wisconsin require coverage in 3.A.

Kentucky allows no exceptions for family members, temporary, part time or out-of-state employers performing any work in the state of Kentucky. Kentucky does not accept the Ohio C110 form.

New York made a significant change in its workers compensation law [Section 6 of the 2007 Reform Act (A.6163/S.3322)] that affected employers if they conducted any work in New York or employed any person whose duties involve activities that took place in New York. Effective Feb. 1, 2011, the New York board clarified coverage requirements. Detailed information can be found on the New York Workers Compensation Board’s website: http://www.wcb.ny.gov/content/main/onthejob/CoverageSituations/outOfStateEmployers.jsp

Florida, Nevada and Montana require all employers working in the construction industry to have specific coverage for their state in 3.A. Ohio and Washington require that employers purchase coverage from the state for all employers working in the construction industry. Otherwise, Florida, Nevada, Montana, Ohio and Washington will honor coverage for temporary work from other jurisdictions. Florida also requires the coverage be written with a licensed Florida carrier. 3.A. coverage status is required for any employer having three or more employees in New Mexico and Wisconsin even on a temporary basis.

The standard workers compensation policy exclusion for bodily injury occurring outside the U.S., its territories or possessions and Canada does not apply to bodily injury to a citizen or resident of the U.S. or Canada who is temporarily outside these countries. State workers compensation will apply, however, for those employers that have employees regularly traveling out of the country; the Foreign Workers Compensation and Employers Liability endorsement should be added to their workers compensation policy. This endorsement is used for U.S.-hired employees who are traveling or residing temporarily outside the U.S. The coverage is limited to 90 days. For employees out of the country for long periods or permanently, coverage needs to be arranged under an international policy.

The extraterritorial issues arise because many states — Alabama, Alaska, California, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee and Wisconsin — permit concurrent jurisdiction between State and Longshore coverage. Some states — notably Florida, Louisiana, Maryland, Mississippi, New Jersey, Texas, Virginia and Washington —  do not permit this concurrent jurisdiction, and Longshore becomes the sole remedy. In concurrent jurisdictions, the employee can file in both state and federal court, and the employer must defend both.

Summary

  • Recognize that having employees who work, live or are temporarily traveling to or through other states creates premium and coverage challenges for employers and agents.
  • Take time to understand the rules of the state where there is potential exposure.
  • States requiring coverage in 3.A. for some or all situations tend to be strict and impose severe penalties for non-compliance. Many carriers are often aware of the challenges these states present and will work with the agent/employer and add on an “if any” exposure basis.
  • Always attempt to secure the broadest coverage possible under the workers compensation policy, adding to 3.A. as many states with even minimal exposure. As a fallback, get the state in 3.C.
  • Obtain coverage for operations in monopolistic states separately.
  • Address out-of-state exposures when insured by a state-specific state fund or regional carrier that only writes in one or a few states. Remember, the 3.C. wording is designed to pay benefits — by reimbursing the employer — if the carrier cannot pay directly to the employee.
  • Check for employees traveling out of the country and arrange to expand coverage with the foreign endorsement or through an international policy.
  • Check with a marine expert to assess the exposure to the Longshore Act and whether coverage is required.  Longshore is very employee-friendly.

The white paper on which this article was based can be found here.

Who Owns the Customer Experience?

Who owns the customer? For insurance companies that work through intermediaries, it’s a controversial question that often stirs spirited debate between carriers and producers. But there’s another question that’s even more important: Who owns the customer experience?

Regardless of who insurers think owns the customer, the reality is that key parts of the policyholder experience are shaped by external parties—the agents, brokers and financial professionals who distribute insurers’ products.

This presents a difficult challenge for insurance companies, many of whom have kicked off customer-experience improvement initiatives in recent years. After all, how do you holistically manage the customer experience when you don’t control it in its entirety?

Some carriers skirt the issue by focusing on what they do control—customer touchpoints such as billing, correspondence, 800-line interactions, etc. That’s a reasonable approach to start with, but it has its limits.

Consumers don’t always know where the lines are drawn between carrier and agent, where the handoffs occur between the two parties. Their experience, and overall brand impression, is shaped by a wide array of touchpoints spanning pre-sale to post-sale, field office to home office.

For this reason, it’s neither practical nor prudent for carriers to ignore those elements of the customer experience that are administered by their field producers.

But how can a carrier insert itself into aspects of the customer experience that are clearly overseen by the producer? How can the insurer propagate customer-experience best practices beyond the walls of its headquarters and into its field offices, where so many significant consumer interactions occur?

Whether the company works with captive agents or independent brokers, this can be a thorny issue. Many financial professionals consider themselves to be entrepreneurs, and they have strongly held opinions about how to run their businesses.

Overcoming that sentiment requires some diplomacy. If producers sense that the carrier is encroaching on their territory, dictating the “right” way to do business, then friction will ensue, and the insurer’s customer-experience improvements will be relegated to the home office—a poor outcome for carrier, distributor and their shared customers.

So, if you’re an insurer looking to engage your field force in a constructive effort to improve the customer experience, consider these five tips:

1. Acknowledge shared ownership

Disarm territorial sensitivities by readily acknowledging that you don’t own the whole customer experience. Neither the carrier nor the distributor can claim such ownership, because each plays an instrumental role in shaping policyholder impressions.

Such an admission by carrier executives sends an important signal to the field, opening the door to a more collaborative approach for shaping the customer experience, from pre-sale to post-sale.

2. Make the case for action

Demonstrate to field partners, in a vivid and compelling way, why focusing on an improved customer experience is smart business.

The field may acknowledge that happy, loyal customers are good for business —but do they truly grasp how powerfully the customer experience can influence the top and bottom lines? Particularly in the insurance industry, given the economics of up-front commissions and long product tails, small improvements in retention can have a surprisingly significant impact on profitability. Even just from a sales standpoint, an increase in qualified referrals from positive word-of-mouth can be a game changer for any insurance agent/broker.

Perhaps one of the most convincing illustrations of how a great customer experience drives business results is an analysis of stock market performance for customer-experience “leaders” and “laggards”: For the past six years, customer-experience leaders generated a total return that was three times higher on average than the S&P 500.

This is the kind of head-turning data that insurers should put in front of field producers who are skeptical about investing time, energy or money into improving the customer experience.

Whether you’re a public or a private company, the message here is clear: A great customer experience pays off, paving the way for higher revenues, lower operating expenses and better overall financial performance.

3. Educate and equip

Given their entrepreneurial disposition, most agents and brokers won’t take kindly to having the mechanics of their organization’s customer experience dictated by some far-removed insurance company.

Instead of prescribing solutions, carriers would be better served providing tools and education to their field offices. In this way, the insurer can help equip its producers with the knowledge they need to effectively diagnose, and then differentiate, their organization’s customer experience.

That’s a much better solution over the long term, as it helps the field office embed customer-experience management best practices into its operations, as opposed to just tweaking a few isolated customer touchpoints.

Note that this is about more than just traditional “customer service” training. It’s about giving the field office a strategic understanding of the operating principles that customer experience legends rely on to create raving fans.

What great companies like Amazon, Apple, Disney and Costco have in common is an ideology around the design and delivery of their customer experience (see the sidebar that follows). Help your field understand and embrace a similar ideology, and you’ll influence their business practices for years to come.
4. Open the feedback spigot

One example of an ideological component that customer-experience legends share is a commitment to soliciting and acting on customer feedback.

Oftentimes, there is an arrogance in organizations— a belief among executives that they know what delights and what frustrates their customers, what will strengthen their brand experience and what will weaken it.

But as J.C. Penney learned during its recent meltdown, businesspeople can have a myopic view when it comes to understanding what truly makes customers happy.

Help your field offices avoid that pitfall by supplementing internal views with external ones. Carriers can use their purchasing power to bring robust “voice of the customer” survey programs to their affiliated agents and brokers. At the very least, they can offer field offices tutorials about feedback instruments.

Armed with these feedback instruments, your field offices can cultivate customer insights that will help them first shape, and then continually recalibrate, their experience improvement efforts.

5. Co-create the experience

For some parts of the insurance customer experience, field and home office interactions are so intertwined that it makes sense to tackle them with a united front (application and underwriting being a classic example).

This is perhaps the highest step on the customer-experience management maturity curve, where manufacturer and distributor work together to shape an experience that’s impressive and seamless.

Assuming all parties have been educated in the same customer-experience engineering principles, it can be valuable to bring field producers and home office representatives together to dissect, diagnose and redesign a particular piece of the policyholder journey.

By incorporating field and home office perspectives up front, a joint experience design effort is likely to yield a better outcome for all involved.

In today’s social media-connected, information-rich marketplace, customers are more empowered than ever. Nobody truly “owns” them.

But ownership of the customer experience is a different matter altogether. Great companies do take ownership of that, by very deliberately managing the many touchpoints that shape customer perceptions. Great companies even seek to influence parts of the experience that, on first blush, might seem out of their scope. (Consider how Amazon famously obsesses over the experience of physically opening a package once you receive it from their shipping partners.)

For insurance companies that don’t sell directly to consumers, the path to a differentiated customer experience must cross through their field offices—hence the importance of involving and influencing that key constituency. By deftly engaging distributors in the customer-experience improvement effort, insurers can make progress on two important fronts—creating a more positive impression not just on their policyholders, but also on their producers.

The 'Secret Sauce' of Customer-Experience Legends

Companies that do customer experience well tend to use a specific set of operating principles to help shape their customer interactions, from sales to service. The principles that elicit customer delight are remarkably consistent across industries and even demographics.

Below are three examples of such principles, which fans of Amazon, Disney and Ritz-Carlton are sure to recognize:

1. Make it effortless

Be it at point of sale or point of service, the less effort customers must invest to accomplish something with your company, the more likely they are to be loyal to your firm. Look for opportunities to minimize the amount of physical and mental effort that people must expend to, among other things, understand your value proposition, navigate your product portfolio, interpret your customer communications and secure post-sale service. (Case in point: Amazon’s patented One-Click purchase button, which makes it absolutely effortless to buy from them.)

2. Capitalize on cognitive science

Customer experience is about perception, and there are proven ways to leverage principles of cognitive science (i.e., how the mind works) to improve people’s perceptions about their interactions with your business. One example of this is giving customers the “perception of control,” because it’s human nature that we feel better when we’re in control of things and ambiguity is removed from our lives. Something as simple as clearly setting expectations for customers can make all the difference—e.g., how long will I be standing in this line, how many steps are in this purchase process, when will I next hear from you? (Case in point: DisneyWorld’s FastPass, which lets park guests avoid standing in line for popular attractions, making them feel like they’re more in control of their vacation.)

3. Be an advocate

It’s rare that people see companies paying more than lip service to the concept of putting customers first. For this reason, when people come across a company that truly advocates for its customers in a very tangible way, it cultivates stronger engagement and loyalty. One decidedly low-tech but highly effective way to accomplish this is by fostering a workplace culture of exceptional ownership. When your front line—the people actually delivering the customer experience—take personal accountability for owning every request that comes to them, it projects a refreshing sense of advocacy that will distinguish your firm from the “not my job… pass the buck” mentality that customers typically encounter. (Case in point: Ritz-Carlton, whose staff, when asked for directions within the hotel, will refrain from pointing guests in the right direction—instead, they personally escort them, to ensure the guest gets exactly where they need to be.)

This article first appeared in LOMA Resource.

Winning the War Against Opioid Addiction and Abuse

As we move forward with winning the war against opioid addiction, it can sometimes be challenging to read the daily headlines and stay positive, especially around the holidays. A December article titled “Drug Abusers May be Injuring Pets to Get Pain Killers” shared how police officers and community leaders informed the Ohio attorney general’s office that people have been abusing drugs rightfully prescribed to pets. The US News HealthDay story titled “Secure Your Prescription Drugs When Hosting Holiday Parties” warned readers about the importance of securing prescription drugs in a safe location before guests arrive. When stories deteriorate to addicts intentionally harming their dogs and to people worrying about holiday guests raiding medicine cabinets, rock bottom isn’t far away.

However, 2013 positioned us well for achieving improved results during 2014. Some of last year’s positive developments include:

1.   State law changes establishing clearer standards of care, reporting and tracking of controlled narcotics, bans on abused narcotics, etc.

2.   State and federal agencies aggressively prosecuting individuals who prescribe opioids illegally or  operate “pill mills,” revoking registrations of some pharmacies and compelling healthcare providers and pharmacies to surrender or forfeit their medical licenses to state medical/pharmacy boards

3.   Physician-led education efforts like the Physicians for Responsible Opioid Prescribing

4.   Medical boards actively addressing the inappropriate and illegal dispensing of drugs

5.   Heightened awareness of the neonatal abstinence syndrome crisis in the U.S.

6.   Workers’ compensation insurers leveraging advanced analytics, physician education efforts, evidence-based pain diagnoses and utilization reviews to reduce injured worker reliance on addictive prescription drugs

7.   The Food and Drug Administration’s Risk Evaluation and Mitigation Strategy

8.   The issuance of the October 2013 Trust for America’s Health report titled “Prescription Drug Abuse: Strategies to Stop the Epidemic”

9.   Continuing prosecution and sentencing of healthcare providers

10. Efforts by national medical organizations

The first eight developments were addressed in the authors’ first quarter 2013 Physician Insurer magazine article titled “The Opioid Abuse Epidemic, Turning the Tide” and our Dec. 2, 2013 Property Casualty 360 Claims Magazine article titled “10 Strategies to Combat the Rx Abuse Epidemic – An Insurers Perspective.”

This article will expand on the last two developments and share some thoughts on what may be in our future when it comes to winning the war on opioid addiction and abuse.

Prosecution and sentencing of healthcare providers

2013 was marked by the successful prosecution and sentencing of healthcare professionals involved in various forms of prescription drug diversion. Arguably the most notable of these was the 39-year prison sentence given to David Kwiatkowski, the former New Hampshire hospital technician who caused dozens of people to become infected with hepatitis C when he injected himself with pain killers using syringes that were then used on patients. Kwiatkowski admitted in August to stealing the drugs and leaving used syringes for hospital use for years, despite knowing he was infected with hepatitis C. His case drew national attention to the problem of prescription drug diversion among healthcare workers; caused a number of institutions to finally take a fresh look at their human resource policies and systems being used to detect diversion; and, has, we hope, sent a strong message of deterrence to all healthcare drug diverters — it is only a matter of time before you get caught!

Efforts by national medical organizations (NMOs)

On an extremely positive note, we are beginning to see NMOs join the fight to help stem the opioid epidemic. On Dec. 10, 2013, the American College of Physicians released a position paper titled “Prescription Drug Abuse: A Policy Position Paper From the American College of Physicians.” The goal of the paper was to provide physicians and policy-makers with 10 recommendations to address the significant human and financial costs related to prescription drug abuse. The recommendations include support for additional education, a national prescription drug monitoring program, establishment of evidence-based nonbinding guidelines regarding recommended maximum dosage and duration of therapy, consideration of patient-provider treatment agreements and the passage of legislation by all 50 states permitting electronic prescription for controlled substances.

In turn, in January 2014, the American Academy of Pediatrics (AAP) Committee on Drugs and Section on Anesthesiology and Pain Medicine issued a report titled “Recognition and Management of Iatrogenically Induced Opioid Dependence and Withdrawal in Children.” The clinical report recommended guidelines for prescribers to follow when weaning children from opioids. As noted by lead author Jeffrey Galinkin, MD, “[t]he key reason the AAP was keen to publish this paper and go forward with this guideline is that people are unaware that patients can get drug-specific withdrawal symptoms from opioids as early as five days to a week after having been on an opioid chronically.”

This recommendation was immediately followed by the Centers for Medicare and Medicaid Services (CMS) Jan. 10, 2014, Federal Register Volume 79, Number 7 publication of proposed rules revising the Medicare Advantage (MA) regulations and prescription drug benefit program (Part D) regulations to help combat fraud and abuse in these programs. The proposed rules include requiring prescribers of Part D drugs to enroll in Medicare, a feature that CMS believes will help ensure that Part D drugs are prescribed only by qualified individuals. As reported by Medscape Medical News, CMS is also seeking the authority to revoke a physician’s or eligible professional’s Medicare enrollment if:

• CMS determines that he or she has a pattern or practice of prescribing Part D drugs that is abusive and represents a threat to the health and safety of Medicare beneficiaries or otherwise fails to meet Medicare requirements; or

• His or her Drug Enforcement Administration certificate of registration is suspended or revoked; or

• The applicable licensing or administrative body for any state in which a physician or eligible professional practices has suspended or revoked the physician or eligible professional’s ability to prescribe drugs.

Furthermore, CMS proposes employing data analysis to identify prescribers and pharmacies that may be engaged in fraudulent or abusive activities. In Table 14 of Federal Register Volume 79, Number 7, CMS’ Office of the Actuary estimates the savings to the federal government from implementing its proposed provisions will be $83 million in calendar year 2015, $132 million in 2016, $171 million in 2017, $364 million in 2018 and $589 million in 2019.

Source: CMS

Innovation in our future

In addition to the above efforts, companies continue to innovate and research new ways to address historical challenges.

Vatex Explorations is building a real-time individual-dose monitoring system called Divert-X to reduce drug trafficking, misuse and addictions that result from routine medical care. Divert-X monitors a patient’s individual doses through the electronic transmission of data identifying the time of dose access, location and other measures. The analysis of the data in real time helps physicians and pharmacists identify drug-taking behaviors that fall outside of norms, allowing early intervention before misuse or addiction set in.

In 2012, the Food and Drug Administration approved an ingestible sensor that can be used to track real time data about your pill consumptions habits. The sensor, developed by Proteus Digital Health, was first approved for use in Europe before coming to the U.S. The ingestible sensor is part of the digital health feedback system, which includes a wearable sensor and secure app and is largely focused on serving the transplant population and patients with chronic illnesses. The authors could envision a day when the system could help in the battle against opioid addiction.

Insurance companies are doing a better job of leveraging advanced analytics to understand their opioid-exposed population and the prescribing habits of the physicians treating their injured workers. Through the review of medical bills (e.g., date and types of service and payment, ICD-9 diagnosis codes, CPT-4 procedure codes, etc.) and pharmacy data (e.g., bill frequency,  aggressive refills, NDC drug codes, quantity used, generic vs. brand, supply days, use of prescriber, pharmacy name, etc.), insurance companies can identify usage and treatment patterns that fall outside of expectations using cluster analyses, association rules, anomaly detection and network “link” analyses.

Law enforcement continues to push the envelope in finding innovative ways to combat drug diversion. Take, for example, the strategy developed in consultation with the National Association of Drug Diversion Investigators and Oklahoma Bureau of Narcotics to curb false reporting of the loss or theft of prescription drugs in Stillwater. According to a police spokesman, most physicians in Stillwater require patients to obtain a police report before they will write a replacement prescription for lost or stolen medications. This requirement resulted in an increase in the number of police reports filed, but a new problem emerged. How could anyone determine whether those police reports were legitimate? In response, the Stillwater police department created a database to record the names of any individual who reported the loss or theft of a prescription drug. The department now requires the individual to take a polygraph test before it will accept any subsequent report of a lost or stolen prescription drug. Fail that polygraph, and criminal prosecution may follow. Query: If this strategy were employed nationwide, would the medicine cabinet at home be guarded more closely?

Conclusion

There is no doubt we have come a long way in the battle against opioid addiction in a relatively short time. Although there is a lot of road left to travel, 2014 is well-positioned to carry forward the effective efforts from last year. Given the innovative spirit of the U.S. and passion of everyone involved in winning this fight, a better long-term solution could be just around the corner.

Can Amazon Dominate in Insurance, Too?

In January 2013, LIMRA reported that 90% of industry executives it had surveyed believe that insurance companies will continue to form strategic alliances with “non-traditional organizations” to expand distribution. The example cited was MetLife’s trial alliance with 200 Wal-Mart stores. Then Accenture’s “Customer-Driven Innovation Survey” found that more than two-thirds of customers would consider purchasing home, auto and life insurance from businesses other than insurers—23% were open to purchasing from online service providers like Amazon or Google (which acquired auto insurance aggregator BeatThatQuote.com way back in 2011 in the UK).Amazon has proven leadership as an e-commerce distributor, while Google is seen primarily as an information organization, so I would like to elaborate exclusively on the compelling reasons for insurers and Amazon to create a distribution model to match ever-evolving customer demands.

Customer demands

Every information source and every analyst report on insurance in the recent past points to changes in customer’s preferences. Generation X, Generation Y and Millennials prefer doing business with companies that provide:

  • Convenience of on-demand buying and self-service, predominantly through digital channels such as web and mobile.
  • Personalization of product and service delivery, including helping the customer choose the right product.
  • Building trust through transparency in pricing, simplified products and clear articulation of benefits.

So, insurers must innovate in personalizing products, providing transparency in the value of products and services and demonstrating excellence in on-demand distribution. Innovation must also touch “moments of truth” such as claims and policy changes. It is also critical that the distribution lifecycle should be an iterative process to consistently review the value of benefits and help customers fine tune the products and services they purchase.

Insurers are lagging

Insurers have been consistently lagging in product innovation and trying to catch up through distribution. In P&C, all the personal product lines are commoditized. In life insurance, term-based products are commoditized. It is true some product personalization has been in the market for some time, such as pay-as-you-driving with telematics in auto insurance (led by Progressive, which saw a boost in profitability). Yet personalization has not reached its potential because of multiple inhibiting factors both internal (lack of aggregated information on risk, etc.) and external (privacy concern, etc.). The lack of product innovation shifts the responsibility of differentiation to distribution.

Manufacturing and retail have been pioneers in showing how boring commodity products can be differentiated through aspects of distribution such as packaging and channel selection.  A recent example is Coca Cola, which has been managing differentiation based on targeted customer segment and channel (Wal-Mart vs. Walgreens vs. Costco, etc.) and has moved one step closer to the customer by signing a 10-year agreement with Green Mountain Coffee Roasters to bring vending machines into kitchens.

In the past, insurance has learned from retail about channels. GEICO, which was known for selling online, has set up brick-and-mortar agency centers by responding to the fact that customers want to shop online but buy from agents. Allstate, where agents lead distribution, not only built online sales support but went one step further, acquiring Esurance to become a multi-channel insurer.

Now, with retail defining and moving toward omni-channel selling, through what is known as “device-independent e-commerce,” it is time for insurers to piggyback on Amazon, which is on the leading-edge of the emerging distribution model.

Amazon ready to sell insurance

Currently, Amazon merely sells books on insurance, has a limited selection of extended warranties for electronics and provides sponsored links for insurers. But to start selling insurance much more seriously would be easy for Amazon. It could expand its extended warranties and offer valuable personal property (VPP) insurance, as it sells the products that are insurable under VPP. It would also be logical for Amazon to extend and be an aggregator for auto, renters, homeowners and life insurance.

The critical question is: “Will customers want to buy from Amazon when there are other aggregators available?” For customers, having reusable information reduces effort, so VPP insurance would be a natural for Amazon. It gets more complex (and interesting) when analyzing the success factors involved in selling complex products such as auto, renters, homeowners and life insurance.

Few insurers can share data and process across products. Still fewer can share across channels. Aggregators are set up as silos. But Amazon’s shopping cart can provide ease of buying, plus reusability of data across channels (web and mobile) and products. The shopping cart actually can resolve the commodity dilemma of insurers through bundling. It can take the customers’ experience to the next level.

Amazon’s analytics-driven capabilities, such as detailed product features and comparisons (price to value of benefits), product reviews, questions and answers, “customers who bought this also bought,” “customers who viewed this also viewed” and offers for the week can be customized for insurance to offer suitable product advice to customers. Insurers do not have such an integrated view because of internal challenges in the effective use of data.

Amazon’s comparisons on features and pricing could improve transparency for customers. The reviews, Q&A and “similar customers” features would provide advice. “Weekly offers” would help customers continually review and tweak their insurance coverage. Hence, Amazon could become the channel of choice for all consumer insurance needs.

Sacred relationship, and not the competition, is the way to go

While Amazon could become consumers’ “trusted advisor,” Amazon also provides a jump start to insurance companies that want to build on the ready availability of its technology infrastructure, reducing their investment and time to market. Amazon might cooperate with innovative insurers to be an aggregator because that would provide immediate and direct profits from its platform.

Amazon would also generate synergies among its various product lines—for instance, when someone starts buying baby products, Amazon might offer life insurance. For existing homeowners policyholders, it could offer products, such as power generators, to help them get prepared and avoid loss during natural disasters such as hurricanes and ice storms. The customer’s engagement with Amazon would increase, leading to greater share of wallet through cross-selling and up-selling opportunities.

So, an insurer that provides coverage through Amazon would be creating a win-win-win—for Amazon, for customers and, of course, for itself.