Tag Archives: insurance thought leadership

ESG Means ‘Extremely Strong Gains’

Global institutional investment is increasingly influenced by environmental, social and corporate governance (ESG) considerations, with sustainable investment now exceeding $30 trillion. That’s up almost 70% since just 2014 and up 10X since 2004; within these figures, the insurance sector forms a significant share of overall investments.

Further, sustainable investing’s market share has also grown globally and now commands a notable share of professionally managed assets in each geographical region, ranging from 18% in Japan to 63% in Australia and New Zealand, according to the Global Sustainable Investment Alliance (GSIA). Clearly, sustainable investing constitutes a major force across global financial markets.

While dedicated ESG funds remain a small part of the global stock market, the broader trend is toward all asset managers becoming more focused on these issues. ESG-focused equity funds have taken in nearly $70 billion of assets just over the past year, according to EPFR, while traditional equity funds have suffered almost $200 billion of outflows over the same period. 

This enormous swing in investor focus can be attributed to better awareness and consequent commitment on the part of companies and investors. Companies have come to appreciate how socially responsible investing can protect their long-term futures through sustainability. 

Out with the old, in with the new

Investors have seen these investments gain traction and allocated a part of their portfolio to them. Society, too, has collectively decided that it’s tired of the old “exploit to the max and then discard” model and has demanded a paradigm shift toward the “people, planet and profit” model.

These beliefs seem to have become stronger still during the COVID-19 pandemic, with people having more time to reflect. So, the impact goes beyond the balance sheet to include customers’ buying habits and employees’ attraction to work for companies that share their values. 

Don’t think, however, that these huge asset allocations to ESG investments are driven solely by some sort of macro-level conscience shift, with megafunds piling cash into them to salve their conscience, or that the investment community is buying into these funds purely on the basis of some kind of karmic compensation. 

The reality is quite the opposite. So much so that we could reasonably start interpreting ESG as “extremely strong gains.” 

See also: Crisis Mitigation Beyond COVID-19

A recent McKinsey report has digested more than 2,000 studies of the impact that ESG propositions have on overall equity returns and has found that 63% of the studies concluded with positive findings.

Many healthy, stable and profitable firms with poor cash flow management can struggle to survive an unforeseen dry spell with little or no cash coming in, as we have witnessed through the forced lockdown and consequent shuttering of businesses around the world as a result of the COVID-19 pandemic. McKinsey’s years-long research on the subject reveals that ESG drives cash flow in five significant ways.

Driving top-line growth

ESG-focused companies stand in good stead with both consumers and governments. On the consumer side, that means it’s easier to consolidate market share, ward off competitive advances and launch products. The companies’ good social standing also favors more rapid approval from governments in terms of regulatory approval and licenses, making it easier to expand into new territories, thereby expanding their global footprint and further diversifying their revenue streams.

Reducing costs

Effectively harnessing the “E” (environmental) in ESG can reduce a company’s operating costs, with the savings going straight to the bottom line. Clearly, newcomers to the ESG party are likely going to have to swallow some significant one-off adaptation and business process reengineering costs, but the long-time converts are already seeing the benefits. As McKinsey notes, FedEx is making a determined push to have its entire vehicle fleet running on electric or hybrid engines, and the 20% that have already been reconfigured are delivering savings of 190 million liters of fuel annually.

More nimble legal and regulatory approvals

Strong and meaningful ESG engagement enhances a company’s public image, and this can help grease the administrative wheels when entering new markets or applying for operating licenses in sensitive or highly regulated sectors. And governments looking for allies in public-private partnerships are logically going to get into bed with organizations of good social standing ahead of their less transparent and committed competitors. Supervision or intervention by governments in critical industries is less likely to affect companies that focus on the “G” (governance) in ESG, and poor relations with governments can ultimately cost millions in terms of legal appeals, rejected takeover approvals and corporate reputation.

Engaged workforces

People want to feel good about the companies they work for. Organizations that deliver on the “S” (social) in ESG enjoy higher productivity, and higher productivity translates directly into higher earnings. Not to mention talent retention and acquisition, which is critically important to those companies seeking in-demand profiles to spearhead their digital transformation strategies. 

Conversely, organizations that leave the social dimension aside in the ruthless pursuit of profit will trip themselves somewhere along the way: Weak relations with staff will potentially lead to more strikes; poor supervision of outsourcing collaborators can disrupt supply chains; and consumer sentiment can wane quickly in an economic slowdown.

Better investment frameworks

A solid ESG proposition can boost a company’s investment return by directing capital to promising opportunities that can offer outsized yields as a result of getting in on the ground floor. Refreshing investment capital allocation can also help prevent expensive write-downs on historic investments that have reached the end of their useful life. Better to adapt and spend now than run the risk of having to play catch-up later down the line.

MAPFRE’s commitment 

At MAPFRE, we have committed to stop investing in electricity companies in which more than 30% of its income comes from energy produced from coal, nor are we going to insure new coal mines or the construction of new coal-fired power generation plants.

MAPFRE also has a mutual fund, Capital Responsable (“Responsible Capital”), which follows on from the existing Good Governance Fund and is complemented by a pension scheme and a mutual society (EPSV). The fund is the first of its kind to be launched in Spain and will invest in the shares and fixed income securities of European companies selected on the basis of their ESG attributes.

The Mapfre Inclusion Responsable fund invests in profitable European companies that pursue the inclusion of people with disabilities in their workforce. The goal is to demonstrate that, in the long term, companies that take these factors into account are much more sustainable and profitable than those that do not.

MAPFRE and, we believe, increasingly others, too, will continue to invest in ESG for the good of society but also for the extremely strong gains that will surely follow.

Threats, Openings for Workers’ Comp

Workers’ compensation systems have been a central and meaningful part of our social safety net for over 100 years. This longevity was accomplished despite social and economic change and technology revolutions, through wartime and peacetime, economic crises, etc. Two features have been central to this enviable record of continuity. The first is a fundamental and enduring premise that workers’ compensation systems should provide a fair balance between (1) adequate income benefits and timely medical care for injured workers in their time of need and (2) an affordable cost to employers, which must compete in an increasingly global marketplace. The second feature is a robust, albeit imperfect, process for redressing significant imbalances that inevitably occur from time to time.

What does change look like? When systems stray significantly out of balance, legislators and regulators are mobilized by injured stakeholders to change the laws and regulations to move systems back toward that fundamental balance. Note that the direction is “toward” a better balance — not to some specific “ideal” definition of balance. In this context, “balance” has always been and necessarily remains an amorphous concept. Sometimes, the reform process falls short, and other times it overshoots. Having a reform process that generally moves the systems in the direction of improved balance has been one key to workers’ compensation systems’ successful adaptation to many twists and turns over the course of a century.

A few examples illustrate this. In the early 1970s, the benefits paid to workers were inadequate, according to a report by a national commission appointed by President Nixon. In the ensuing decade, legislatures in many states increased statutory benefit levels. By the late 1980s, the pendulum had swung in the opposite direction. Claims costs were rising at unsustainable double-digit rates; many elected and appointed insurance regulators were unwilling to pass these large cost increases on to their employer constituents; and the availability and affordability of workers’ compensation insurance became a serious concern. Over the next decade, many state legislatures addressed key cost drivers, deregulated insurance prices and created competitive state insurance funds as both the insurers of last resort and as competitors to private sector insurers. Claims costs were reduced, insurance was more affordable for employers and insurance markets were stabilized.

This book examines these questions:

  • Is there a plausible scenario in which many state workers’ compensation systems become seriously out of balance in 2030? And where the workers’ compensation reform process is unable to restore a reasonable balance?
  • If so, what will be the likely causes of the imbalance? Why will the workers’ compensation reform process be unlikely to deliver effective solutions?
  • What might replace state workers’ compensation systems?

When the balance in workers’ compensation systems is disturbed, the causes fall into either of two broad categories: developments outside of the workers’ compensation systems or developments within the systems. Internally generated imbalances typically involve the workers’ compensation statutes and regulations, as well as the incentives and behaviors of the system stakeholders and their agents and vendors. Externally generated imbalances result from forces like structural changes in the economy, societal norms and values, federal government actions separate from workers’ compensation or developments in the larger healthcare system.

Internally generated system imbalances are not unusual. In the past decade, several groups have raised concerns about the performance of state workers’ compensation systems. Some expressed concerns that too many state systems were not serving injured workers adequately. Other groups maintained that the systems were unnecessarily costly for employers and that alternatives may provide better benefits for workers at lower costs to employers.

In the wake of these critiques of state workers’ compensation systems, two groups convened “national conversations” among stakeholders from diverse perspectives. These conversations discussed the strengths and limitations in current state systems (IAIABC, n.d.; 2016 Workers’ Compensation Summit, 2016). Examples of the issues they suggested that should be addressed include:

  • Reducing the complexity of workers’ compensation systems (both groups)
  • Increasing the consistency/uniformity of state programs to reduce expenses (IAIABC)
  • Emphasizing a focus on worker outcomes—e.g., return to work and medical recovery (both groups)
  • Reducing the reliance on adversarial processes (both groups)
  • Ensuring adequate (equitable) benefits (both groups)

These are examples of issues that are typically resolved by incremental changes to the features of existing systems—as has been done in the past. Hence the historic change process has opportunities to address these concerns and improve system balance where needed.

See also: The State of Workers’ Compensation  

The developments discussed in this book are different from these. They originate outside of the workers’ compensation systems. Because of this, they are much less amenable to solutions developed by the workers’ compensation reform process.

Scenario for the 2030s

Workers’ compensation costs triple since 2016, with no real change in benefits to injured workers. Both employers and worker advocates agree that the systems are seriously out of balance. Despite multiple attempts at workers’ compensation legislative and regulatory reforms, too many larger workers’ compensation systems remain badly out of balance.

What are the drivers of this scenario?

Demographic Change

  • Baby Boomers exit the workforce at an accelerating pace, creating historic labor shortages. During labor shortages, employers lower hiring standards. Labor turnover also increases. The shortages extend to healthcare providers, delaying care for injured workers. Claim frequency increases, and disability lengthens.
  • Restrictive immigration policies and practices worsen the labor shortages, magnifying the effects of the shortages on workers’ compensation systems. Automation mitigates the labor shortages but not nearly by what one might expect from reading the headlines about automation “destroying” large numbers of jobs.

Healthcare Reform

  • Accelerating growth of high deductibles in nonoccupational health insurance policies leads more insured workers to shift soft tissue injury cases to the free care alternative—workers’ compensation.
  • As Congress and the administration repeal and weaken key elements of the Affordable Care Act (ACA), more workers lose their health insurance— particularly those covered by Medicaid and nongroup policies. These workers will look for ways to continue coverage for many conditions. For soft tissue conditions, the free care alternative offered by workers’ compensation will be attractive. As the number of uninsured climbs, the number of cases shifted to workers’ compensation will increase.
  • Fee-for-service contracts are being replaced by payment models where provider organizations assume financial risk if costs exceed targets. These contracts cover most of the care paid by commercial insurers, Medicare and Medicaid. Workers’ compensation remains fee-for-service. Providers increasingly shift soft tissue injury cases to workers’ compensation to earn the fee-for-service payments, while not counting the costs of care for these cases against the performance contracts with the other payers. Workers’ compensation claims increase.

SSDI Solvency

  • Congress addresses the solvency crisis in the Social Security Disability Insurance (SSDI) program by abolishing reverse offsets. Moreover, new SSDI set-asides, akin to the Medicare set-asides, are mandated for workers’ compensation indemnity benefits. Workers’ compensation costs increase, as do the expenses involved in resolving claims.

Together, these developments raise workers’ compensation costs significantly—plausibly triple the level of 2016. Both claim frequency and cost per claim see large increases. The large increase in claim frequency is surprising because it is a stark contrast to the falling claim rates that we have come to expect over the previous several decades.

Workers’ compensation systems are seriously out of balance—costs to employers triple but benefits to injured workers have no real increase. In the past, the reform process would have moved the systems back toward balance. Yet this does not occur. Because the large cost increases arise from causes outside of the workers’ compensation systems, the typical workers’ compensation reform process has limited success in restoring balance in the systems.

Other developments outside of workers’ compensation systems also converge to create historic urgency (1) for both historic tax increases and spending cuts in virtually all government programs and (2) to improve the competitiveness of American businesses. This urgency pervades most public policy and strategic business decisions—including the search for solutions to what becomes known as the Workers’ Compensation Problem.

These external developments include:

Widespread Fiscal Distress at All Levels of Government and Millennial Voters Come of Age Politically

  • We begin the repayment of the massive governmental debt and unfunded liabilities accumulated under the Baby Boom generation. This severely limits governments’ ability to maintain many current programs. Privatization and consolidation of government services increase.
  • Because of the inherited public debt, millennials face the prospect of taxes doubling and historic cuts in government programs. Millennial elected officials and voters abandon many of the government budgeting norms and processes that had been used to kick the hard decisions down the road (from Boomers to millennials). Rather, they begin to make hard decisions on government spending to mitigate the impending tax increases. Given the debt that they inherited, millennials are unwilling to incur unnecessary public debt or additional unfunded liabilities that would burden future generations.

Globalization Pressures Intensify

U.S. employers face intensifying globalization pressures, driven by broadening diffusion of telecommunications technologies, especially in a handful of under- the-radar African and Asian economies that account for half of the world’s population growth. As competitors arise in emerging economies, U.S. firms are required to more often choose between aggressively reducing production costs of U.S.-made goods and services, moving production to lower-cost nations and losing business to foreign competitors.

See also: How Should Workers’ Compensation Evolve?  

Sclerotic Legislative and Regulatory Processes

The processes for improving public programs, including workers’ compensation, become increasingly sclerotic. Pragmatic problem-solving and compromise- based solutions become the exception, rather than the rule, in both legislative and executive branches at the federal and state levels. Too often, pragmatic problem-solving is replaced by all-or-nothing processes driven by ideology, camouflaged self-interest, electoral tactics and fake “facts.” This makes it more difficult to move the now out-of-balance workers’ compensation system toward a better balance.

‘Yoga Your Way’ to Better WC Results

With the advancement of telehealth and mobile workforces, an exciting concept has emerged to assist employers and employees to take control of their body and provide better quality of life. This new concept is Yoga Your Way.

Yoga popularity has grown tremendously in the past several years, and National Health Interview Survey data conducted by the Centers for Disease Control and Prevention (CDC) show increased usage for complementary and alternative medicine (CAM) treatments. In 2007, yoga was the seventh most commonly used CAM therapy. There has been a steady rise in the use of yoga since 2017 to treat musculoskeletal conditions; the limiting factors are cost, convenience, timing of class and access to studios.

Derived from the Sanskrit word “yuji,” meaning yoke or union, yoga is an ancient practice that brings together mind and body. Practicing yoga is said to come with many benefits for both mental and physical health. Proven yoga physical benefits are: reduced inflammation, reduced chronic pain, improved flexibility and balance, improved breathing and sleep. Yoga also has psychological benefits of decreasing stress, anxiety and depression.

If there is a work-related injury, yoga is considered self- care, as it can help prevent seeking medical care. It not only leads to better outcomes while helping to eliminate OSHA recordables and workers’ compensation claims, but it is a skill that can increase quality of life and be used to prevent work-related injuries in the future. Yoga, in comparison with spinal manipulation, physical therapy and acupuncture, may be more cost-effective because it can be delivered in a group format and self-administered at home. However, actual cost analysis of yoga interventions is needed.

This literature review suggests that yoga is effective in reducing pain and disability and improving both physical and mental function.

About one-fourth of U.S. adults report low back pain, lasting a whole day or more, with average duration of three to six months. It is the most common cause of limited activity in people below the age of 45, the second-most frequent reason for visits to a physician, the third-most common reason for surgery and the fifth-most common cause of hospital admission in the U.S., according to Spine Journal The majority of individuals with back pain and sciatica recover from an acute episode in four to eight weeks, and 80% to 90% return to work within 12 weeks post-injury. However, 25% to 80% of patients with low back pain experience some form of recurrent back problem in the following year. Among those who suffer from an episode of low back pain, one year later as many as 33% have moderate intensity pain, and 15% may have severe pain.

In other words, there is a huge opportunity for yoga to address.

See also: How to Optimize Healthcare Benefits  

Yoga Your Way is a new concept in a trend to take yoga outside of the studio and allow anyone to practice and integrate the benefits of mind-body interaction. Yoga Your Way can be brought to the worksite and paid for by the employer as a employee health benefit, providing customized yoga videos designed for a person’s ability and needs.

Studies have shown that practicing yoga 15 minutes per day leads to reduced illness and improved mental health. Yoga Your Way incorporates these principles for the  mobile workforce such as the transportation industry as well for a more stationary workforce. Custom programs can range from simple stretching done in a truck (while parked) to exercises for those overseas in a war zone.

Yoga Your Way is not only providing relief from work-related conditions but is a preventive measure to strengthen and increase endurance, overall health and mind/body awareness.

Yoga is not just stretching in a crowded studio. It it is anyone, anywhere and any time.

How to Cut Insurers’ Legal Costs

If insurers want to lower their legal costs, or at least make themselves less vulnerable to costly litigation, they need to increase their emphasis on safety. 

They need to revise their policies to align with public policy. They need to make it their policy to ensure safety before they insure clients—before they issue insurance to businesses—whose places of business are dangerous or potentially deadly. 

Absent a change, policies for all clients will become more expensive. The expense may be too much for some companies to bear, the expense may be too burdensome for most small businesses to endure, unless the seemingly inevitable becomes the easily avoidable.

That is to say, insurance can be more affordable, and insurers can afford to make more money, if safety is a national priority.

Achieving this goal is a matter not only of listening to what a lawyer says, but doing what he recommends.

According to Howard P. Lesnik, an injury law expert and member of the New Jersey Association of Justice, insurers should listen to what juries have said; insurers should listen to what juries continue to say, that accident victims deserve the damages they seek.

All juries may not say the same thing, but many say what all insurers should hear—the truth.

The truth is: When a place of business is injurious to the public, when the injuries are similar and the place where they happen is the same, when a business does nothing to prevent accidents that have a high likelihood of resulting in physical injuries, then it is no accident that that business is indifferent to the interests of the public.

Insurers must not be accomplices to such indifference. Not when a policy of do-nothingism is a prescription to lose everything. Not when the price of inaction is a possible class action lawsuit. Not when the ultimate price is bankruptcy, morally and monetarily.

See also: Visions of Safety and Pictures of Success  

A policy of conscience, on the other hand, is anything but indifferent.

It is a statement of principle, saying to the nation that insurers do acknowledge, that insurers do accept their role as leaders.

Such a statement would do a lot to define the insurance industry as a symbol of leadership.

To be true to that statement, insurers must listen to what an injury law expert has to say. 

In so doing, a dialogue may ensue. and new standards of excellence may emerge.

This dialogue is too important to ignore or dismiss, given the dangers that exist and the risks that threaten the lives of individuals and the livelihoods of individual workers throughout the insurance industry. 

Silence, in other words, is deadly.

Through an exchange of ideas and an attempt to achieve certain ideals, insurers can promote better business practices, superior workplace conditions and fewer accidents. They can also champion greater oversight and safety.

Let insurers strive to do these things, despite whatever challenges, criticisms or costs may arise.

Let insurers do what is right, despite whatever may happen, period.

Blockchain in Insurance: 3 Use Cases

Insurance, being one of the most conservative, centralized and walled industries, is awakening from its slumber and probing new technologies. Its shy yet solid interest in innovations, particularly in blockchain, is powered by customers’ increased distrust in centralized financial services, which has led to high rates of underinsurance. 

Driven by both curiosity and fear, insurance companies seek to hire blockchain developers to help them out. Curiosity comes from blockchain promising to save time and lower transactional costs. At the same time, insurers fear this innovation as it can open up new approaches for cyber-attacks. 

Let’s explore how insurance companies can adopt blockchain technologies safely and cease to lag behind other financial service sectors.  

What is blockchain in insurance?

First things first, let’s define what blockchain is in the context of insurance.

The blockchain technology is based on the distributed ledger principle that eliminates the need for intermediaries. Copies of the shared ledger are stored across multiple users’ locations, providing any endorsed insurance company, agent, broker or underwriter with access to the same source of data updated in real time. All the transactions registered on a blockchain are verified and encrypted, while all the changes to the records are published as additions to the original data. 

The practical application can look like this: With the help of blockchain, medical records can be encrypted and shared between hospitals and insurers (even across borders), thus cutting duplicated and erroneous records, lengthy claim processing, claim denials and excessive checkups.    

How blockchain is implemented in insurance

According to the Accenture Technology Vision 2019 survey, more than 80% of insurance companies claimed they adopted or were planning to adopt the blockchain technology. It’s true: Many blockchain insurance projects are lingering at the proof of concept stage. However, to accelerate adoption, some companies choose to collaborate and form alliances, such as the Blockchain Insurance Industry Initiative (B3i) or the Institutes’ RiskStream Collaborative. 

See also: Blockchain: Seizing the Opportunities 

These trailblazing alliances develop blockchain-based platforms to make the following blockchain use cases possible. 

Fraud and abuse prevention

Fraud costs the insurance industry monstrous amounts of money, mostly because it’s impossible to detect fraudulent activities with regular methods based on the use of publicly available data and private data sources. As a result, the accumulated data is usually fragmented due to legal constraints accompanying personally identifiable information. 

Unfortunately, these gaps in visibility are being compromised by fraudsters. For example, multiple claims can be filed for a single case of care.

When data is stored on a blockchain-based ledger, it’s secured with cryptographic signatures and granular permission settings. It means that all the parties can share data and verify its authenticity without revealing sensitive information. A shared decentralized ledger facilitates historic data consolidation and helps companies spot suspicious patterns, such as:

  • Multiple processing of the same claim    
  • An insurance policy’s ownership manipulation
  • Insurance sold by unlicensed brokers

To attain even higher security, insurance companies can provide customers with encrypted digital ID cards that can’t be faked. 

Boosted transparency and trust

Insurance companies are called walled gardens for a reason. Customers have little chance to see how their data is managed. For example, they will never know that their data is shared with third parties. It’s no wonder that customers grow distrustful of insurance companies, particularly when facing long claim processing times or receiving claim denials—while the cost of premiums is ever-increasing. 

However, when multiple insurance companies choose to contribute data to the same decentralized and shared ledger, it can lead to three big advantages:

  1. Insurance companies can build more complete customer profiles and eliminate duplicate records. As the data in the blockchain ledger is immutable, the insurance companies won’t doubt its authenticity.  
  2. Customers will get visibility into what data their insurers have on them, and how this data is processed. Plus, when blockchain is combined with machine learning and AI, claim processing can be automated, thus accelerating payouts. 
  3. Blockchain helps automatically verify third-party claims or payments made through personal devices. Further on, the insurance company will be able to see all those transactions reflected on the blockchain.

Streamlined claim management

Selling and managing insurance policies is a labor-intensive process. In the context of high competition, insurance companies that stick to slow and paperwork-heavy traditional approaches lose to more digitally savvy competitors. The latter are able to offer lower premiums by automating claim management. 

Some of the processes can be automated by means of smart contracts which are getting popular for property and casualty insurance. When used in combination with connected devices, a smart contract can trigger automatic claim processing when, for example, anti-theft sensors go off under certain pre-programmed conditions. 

However, the truly streamlined insurance management requires increased trust from both insurers and consumers. The best way to reach this balance is to create a blockchain-based ecosystem with a considerable number of high-profile participants. A model illustration is the Bank of China, which has recently partnered with leading insurance companies and launched its own blockchain. Once new records are added to the blockchain, the distributed ledger technology helps update and validate the data against other records in the network, which significantly reduces operating costs, at the same time providing high security for transactions.

The distributed ledger technology also deals with one more factor that slows down claim management—the need for bank transfers. As a rule, customers don’t see payouts in their accounts for weeks. However, when banks and insurers have a single system they trust, the payouts can be processed without considerable delays.

See also: Blockchain, Privacy and Regulation 

Final thoughts

Blockchain is a decisive factor in transforming the insurance industry and helping it break free from outdated traditions. The need for innovation in insurance is critical—customers are craving transparency, speed and cost flexibility. Blockchain is designed to deliver on these desires and meet all the participants’ particular expectations. 

When there’s little to no chance of fraud, people will trust their insurance agents more. When complex policy claims are processed 10x faster, there’s no room for friction. At the same time, when claim processing is automated, insurers have more possibilities to be flexible with pricing. 

What’s more, the covered use cases are just the beginning. With more blockchain-based applications going live and more companies entering into collaborations, the insurance industry can grow its tech ecosystem to create better products for case management, audit and risk modeling.