Tag Archives: InsurTech

What Makes Insurance Invoicing Different

While every business uses invoices to handle customer payments, in the insurance industry they can be a serious matter. 

Unlike other businesses, insurance agencies are bound by state and federal laws that restrict how they can cancel policies, which can have an effect on invoicing at every stage. 

Insurance laws in every state require that a written notice of cancellation be presented to the policy holder by the U.S. Postal Service a certain number of days before the policy is canceled. (The number of days varies by line of business and by state.) 

If the reason for cancellation is non-payment, and the insurance carrier or agent or carrier accepts any payment on this policy before the cancellation date, then, by law, the entire cancellation process has to start from scratch. 

This is important because, when the policy is being canceled for non-payment of a premium, the insurance carrier is still required to show the amount of premium that is due as revenue. The amount due minus the amount received is money that is never received and will be written off as an expense. This is a real cash loss to the carrier, because the agent’s commissions for unpaid premiums are also withdrawn from the agent’s commissions earnings by the carrier. Therefore, it is a real cash loss to the agency, as well. 

Additionally, if a claim-and-loss occurs during this newly reset cancellation period, the carrier is required to pay the loss — regardless of the outstanding premium that is due. Most states cannot deduct the past-due premium from the loss payment. The only exception to this is if the insured fails to pay the renewal premium. In this instance, no notice is required. The insurance policy simply cancels as “not accepted” on the renewal date. 

Cancellation laws make insurance invoicing more complicated than a typical business invoice. It is important to control the time in which the payment will be accepted, the amount of payment accepted and the specific policy to which the payment is being applied. 

These complex laws can be tricky for insurance agencies, but one way to make them easier is to use software that is designed to meet those needs

When setting up an invoicing system for your agency, make sure that it addresses these problems.

Your system should allow you to set the date after which the payment in your link invoice will not allow a payment to be processed. In practice, this means you should set this date as the cancellation date for the policy, which will keep your customer from paying any amount after the cancellation date. 

You should also be able to set the exact amount of the payment that can be made. This should be the correct amount due to pay for either the rest of the policy period or, at a minimum, the amount due before the next scheduled policy installment payments. This amount should also include any and all appropriate late charges and other fees. 

See also: Designing a Digital Insurance Ecosystem

Make sure your system allows you to set the amount due as a range rather than a fixed dollar amount, allowing the customer to pay any amount above the minimum amount due. 

If your system allows people to pay multiple policies on the same invoice, make sure it properly separates out payments to be applied to specific policies. 

If you do not apply specific premiums to specific policies, you cannot use non-payment of premium to cancel any of these specific policies. 

By following the advice laid out in this article, you can protect your agency and your insurance carrier from resetting cancellation notices; incurring increased unpaid premiums and commissions; and paying claims during the longer time required for cancellation during the time when a partial payment resets the cancellation notice cycle. 

Invoices are trickier in the insurance industry, but that doesn’t mean they have to be more work. 

State of Mental Health in the Workplace

Discussions around the impact of mental health and well-being in the workplace are frequent Out Front Ideas with Kimberly and Mark topics. May is Mental Health Awareness Month, so we are offering our thoughts on the current state of mental health in the workplace.

Even before the pandemic, benefits managers were adapting employee benefits to better equip employees and plan members with mental health resources. However, as the work from home assignments continued and social isolation set in, employers became even more aware of the impact of mental health and well-being on productivity, absence and performance. With a greater emphasis on employee well-being, we hope programs initiated during the pandemic will continue to support improved access to care and will break down the stigma related to mental health.

Employers took advantage of employee resource groups (ERGs), either existing or newly implemented, to foster peer interaction, open conversation and joint problem-solving related to issues that have an impact on their personal and professional lives because of the pandemic. Group collaborations focused on important topics at that time with employees, such as home school successes, caring for an ill family member, loneliness and depression, challenges with family and positivity sharing, to name a few. Many found the sessions to be an excellent way to bring positivity and support into their life and provide a break from the hectic pace of working at home. As companies create back-to-office and hybrid workforce models, ERGs continue to be a priority to ensure all who want to can participate.

Access to care has been a long-standing challenge for those seeking mental health care. Reimbursement rates, timely appointments and limited provider options are some of the issues the industry is working to solve. Previously, while telehealth visits were growing for triage of minor medical and follow-up appointments, there was slow adoption for teletherapy and telepsychiatry. Fortunately, telemedicine was a saving grace for many aspects of healthcare during the pandemic, and mental health care saw a boon. Employers and network partners are now offering multiple options for telemedicine and improved coordination between employee assistance programs (EAPs) and online therapy platforms for mental health care. Phone calls, video conferencing and texting are becoming an integral part of the therapist-patient relationship. With less social connection, this has found success for many in the workforce — and their families. Organizations are now offering various programs, including adult, family and teen counseling.

The Center for Workplace Mental Health is an important resource for all employers. The entirety of its work focuses on helping employers create a more supportive work environment and advance health policies at their organization. They have created a mental health toolkit for Mental Health Awareness Month, which includes topics such as promoting resiliency for people and the organization; promoting self-care; and addressing isolation and loneliness. These programs (and others) can be easily integrated into your company culture to reduce stigma, promote well-being and provide an environment where employees and leaders both care and thrive.

See also: The Long Haul for Mental Health at Work

From a workers’ compensation claims perspective, mental health has always been a complication lurking in the background. The industry tended to ignore the issue because of a combination of stigma and outright resistance. Claims where the injured workers never fully recovered probably had a significant untreated mental health component. Thankfully, that is changing; it is now widely recognized that all chronic pain has a significant mental health component, and, if you fail to address this, it will increase claims cost and lead to poorer outcomes. Multidisciplinary pain management programs now spend as much time on mental health as they do physical health. 

Laws are also changing to make it easier to pursue psychological injuries under workers’ compensation. More states are allowing “mental-mental” claims, which are psychological injuries with no physical injuries. In addition, one of the leading workers’ compensation legislative initiatives for several years has been the expansion of first responder presumption laws, which are primarily focused on post-traumatic stress. In the past, the threshold for a mental health injury was a “usual and extraordinary” experience. That threshold was used to deny very real traumatic situations that first responders encounter because the situations were “usual” aspects of their job. While these traumatic situations may have been expected, there is nothing ordinary about responding to severe accident scenes, seeing your partner shot or having someone die in your arms. In certain ways, public entities created the path to these presumption laws by denying such claims rather than focusing on getting the injured worker the treatment they needed. Public entity employers are now reporting that they are seeing an increasing number of PTSD claims with no corresponding physical injuries being filed under workers’ compensation.

Our Big Problem With ‘Noise’

A new book co-written by behavioral economist extraordinaire Daniel Kahneman points out a major problem that numerous industries, including insurance, only sort of know they have and is surely worse than they recognize. He calls the problem “noise.”

He says insurers are very aware of potential bias based on age, race, gender, etc., especially as they evaluate algorithms driven by artificial intelligence — insurers know to look for consistent favoritism toward, say, white men. But, he says, insurers tend to gloss over the problem of inconsistency, or “noise” — the fact that people come to very different conclusions based on the same set of facts, even when bias is removed from the equation.

Kahneman, who won the Nobel Prize in Economics in 2002 and who has driven so much of the progress on behavioral economics for decades, cites a study he did in 2015 that presented a series of cases to 48 underwriters at a large insurance company. Executives predicted that there would be roughly a 10% variance between the high and low prices that the underwriters provided after assessing the risks — but the typical variance was 55%. Many variances were even more extreme. One underwriter might set an annual premium at $9,500 and another at $16,700.

The tendency is to think that the decisions balance out, but Kahneman says such wide variance suggests that the insurer is actually making two mistakes. The $9,500 quote was likely underpricing and was either leaving money on the table or was winning unprofitable business. The $16,700 might be overpricing that costs the carrier business because competitors will offer better rates.

“Wherever there is judgment, there is noise, and more of it than you think,” according to the book, “Noise: A Flaw in Human Judgment,” which Kahneman wrote with Olivier Sibony and Cass R. Sunstein and which is being released today.

The book focuses heavily on judges’ decisions on prison sentences, both because they are so consequential and because they clearly illustrate the difference between consistent bias (which many companies are becoming good at assessing) and noise (which companies tend to underestimate and thus gloss over).

A study found that a certain set of facts led judges, on average, to impose seven-year sentences. But there was an average variance of 3 1/2 years — a long time. Some of the variance relates to bias: Conservative judges tend to consistently impose longer sentences. But some is just noise. Perhaps the judge has a personal story that makes him identify more with the defendant. Perhaps the judge has had a series of cases that made her more fed up based on the crime committed. Kahneman says variance even happens based on time of day, the day of the week, the mood of the person making the decision, etc.

While he doesn’t try to quantify how much noise reduces profitability for insurers, the sheer size of the numbers involved in underwriting, designing policies, assessing claims, etc. suggests that the potential gains are enormous if decisions can be made more consistently.

Kahneman and his co-authors argue that the starting point for combatting the problem is to conduct a “noise audit.” Insurers could do the sort of test that the authors did to assess how wide the variance is among their underwriters, adjusters, agents and perhaps others, decide what the effects on profitability likely are and determine how much effort should go into reducing the noise.

The book argues that algorithms will be a big piece of the solution — while acknowledging the need to watch out for systemic bias, largely by being super careful about the reliability of the data being fed into the algorithms. Algorithms are nearly free of noise: An algorithm faced with the same information will almost always make the same decision. And, while algorithms can make bad decisions, they can always be learning, meaning that bad decisions can be gradually corrected and turned into good ones.

There will be pushback. Judges largely hated the mandatory guidelines that were established following a major study in the mid-1970s that found huge variance in sentences. Doctors object to being ordered to treat patients a certain way, even when the mandates are based on evidence.

But the evolving state of medicine could provide a solution for insurers: In the same way that AI can now offer suggestions to doctors on diagnoses and treatment — while leaving the final decision to the humans — insurers could use algorithms to generate a suggested range of actions for underwriters, adjusters and agents. The algorithms would provide some guardrails that would at least reduce the unprofitable outliers at insurance companies and would keep learning, continually narrowing the recommended range and moving the choices toward profitability

Although I rarely recommend books — even ones I’ve written — I think this book provides a road map for a relatively straightforward way to improve the accuracy of insurers’ decisions. And, once you’ve become acquainted with Kahneman’s work, you can go back and read his ground-breaking work, “Thinking, Fast and Slow,” published in 2013.

While economists long based their work on the assumption of rational consumers who maximize their utility, we all know that assumption is silly — people are far from completely rational. And Kahneman has led the way in helping us understand how people actually behave, as opposed to how we might imagine they behave or hope they behave.

Cheers,

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

Why Open Insurance Is the Future

More are turning to “open insurance” solutions, under which insurers leverage open APIs to share data and services with third parties.

It’s Time for Next Phase of Innovation

It’s time to break through the first phase of technology adoption and move into a new phase of tech-enabled innovation.

Intersection of AI and Cyber Insurance

While AI is sure to benefit society when wielded properly, cyber carriers remain conscious that AI’s proliferation is a double-edged sword.

Achieving a ‘Logical Data Fabric’

A logical data fabric has the capacity to knit together disparate data sources in insurers’ broad, hybrid universe of data platforms.

Managing Risks for Hydrogen Industry

There is, rightly, enthusiasm around hydrogen solutions for a low-carbon economy, but projects involve complex industrial and energy risks.

The Broad Reality of Diversity

As people return to the workforce, candidates with the potential to revolutionize our industry may present themselves.

Why Open Insurance Is the Future

In their quest to deliver customers the personalized experiences they crave, insurers have invested heavily in ramping up the digital capabilities needed to deliver tailored policies. But they may not be doing enough to break out of the outdated paradigms that have held back the customer experience.

To be sure, insurers have dramatically stepped up their innovation game since the arrival of the COVID-19 pandemic. In a recent survey of insurance CEOs conducted by KPMG, 85% said that the pandemic has accelerated their digitization initiatives, with 78% saying that the crisis has intensified their focus on crafting a “seamless digital customer experience.” 

The problem? With billions across the globe having spent the better part of the past year using digital technologies to work, learn and shop, the baseline expectations for what constitutes a quality digital experience have only been raised – making it challenging for many insurers to keep up.

That’s why more and more are turning to “open insurance” solutions, under which insurers leverage open APIs to share and access data and services with third parties – including insurtechs, financial institutions and organizations that possess useful data points that can help insurers more accurately gauge risk and develop personalized coverage. 

For legacy insurers facing mounting competition from digital-forward insurtechs, open insurance offers a promising pathway to shoring up their competitive posture over the long run. Here’s what insurers should know about the benefits of this model and how to go about pursuing it.

The Freedom and Flexibility to Evolve

Open APIs are hardly a novel concept. Open banking, for instance, increasingly uses the common practice to develop new apps and financial services through third-party applications, offering conventional banks the chance to work with fintechs rather than compete with them. 

What will open APIs mean for insurers? Here are just a few examples: By tapping into a rich variety of data, insurers can obtain a much more granular view of risk, paving the way to more accurate, tailored pricing for each individual policyholder. Armed with data-driven insights into their customers, insurers will be able to identify and pursue new revenue opportunities and product offerings, with open APIs facilitating a much faster time to market for new products and services. 

For instance, insurers can take individual software components and seamlessly incorporate them into their offerings, thereby shortening the customer journey, improving customer experience and even adjusting to offer to the customers they are targeting. Some components allow insurers to meet specific organizational needs and minimize the overhead associated with “inventing the wheel.” This provides insurers the freedom and flexibility they need not only to adapt, but to position themselves ahead of the curve.

See also: Insurance Leaders Use Digital for…

How to Get Started

While insurers have long been hesitant to share data, embracing the open insurance model will require them to shed that reluctance and operate with a partnership mindset. In this digitized climate, success demands forging partnerships with relevant organizations both within and beyond the traditional insurance industry.  By combining their offerings with those of business partners outside the insurance industry, insurers can generate new value while achieving stronger and more diverse coverage. 

Incorporating open APIs allows access to insurtech products and technological capabilities, as well as more granular customer information, while still adhering to relevant privacy laws and regulations. Simply put, these APIs make it possible for insurers to significantly increase their technological prowess without having to start from scratch or make massive investments in recruitment or R&D.

Cloud computing serves as a vital enabler for this model of collaboration, allowing for quick deployment, rapid scale and easy access to third-party data and resources that insurers can leverage to develop new offerings. 

Insurers don’t have to face this transition alone. Technology partners can provide insurers with the know-how and capabilities they need to extract the most value from open APIs, roll out new offerings and dynamically evolve in response to changing market conditions and customer expectations.

Preparing for the Future

As the COVID-19 pandemic proves, disruption isn’t always predictable. And in a world that often seems to be moving faster than ever, more seismic shifts may be on the way. 

But while not everything is foreseeable, this much is: Insurers’ ability to survive and thrive in the ‘next normal’ will hinge on their ability to deploy innovative models of open collaboration. As insurers plot their digital strategies, they can’t afford to ignore the promise of open insurance.

It’s Time for Next Phase of Innovation

The insurance industry has slowly embraced digital and mobile technology (strong emphasis on slowly) over the past 10 years. It’s time to break through the first phase of technology adoption and move into a new phase of tech-enabled innovation.

The early phase of technology adoption usually sees incumbent businesses apply technology to existing products and modes of thinking. So, with the first wave of digital adoption in health insurance, we saw plans launch member portals and mobile apps where users could view their explanation of benefits and chat with customer service representatives online. However, nothing about the underlying insurance plan changed.

When it comes to plan design, insurance companies too often think within existing platform limitations. They most often ask: “What can we design that will work on our existing platform?” Then they design the plan and move on to implementation. This is invariably the sequence when developing insurance products and bringing them to market.

The process makes sense at first, because the development of new platforms takes time and costs a lot of money. But these platform limitations are holding us back from designing new tech-enabled insurance products that can truly change the market and better serve customers.

Tech-Enabled Insurance Innovation Will Guide the Future

Starting from scratch is a startup’s advantage, which incumbent insurance companies don’t have.

Oscar Health Insurance is a great example of a startup making heavy investments in new technology and innovative plan designs to create a better member experience. Its telemedicine service and digital provider directories aim to improve access to free or low-cost care for members with high deductibles.

Major medical health insurance is far more regulated in its plan designs than other forms of insurance. If you could start another ancillary insurance product from scratch, however, what kind of plans would you design? If you follow the old way of thinking, you will design the plan first and then think about how to platform it next.

Granted, there are some advantages to this approach. You can create a better version of existing products, like, for example, critical illness insurance policies. Another advantage to tweaking a known insurance product is that you can often rent an existing technology platform to get to market quickly. But if you do that, you risk designing a product that’s not differentiated enough from existing solutions to entice employers and brokers to switch. You also miss an opportunity to create a better solution for your members that actually improves their health.

When we started Brella, for example, we knew we wanted to make a real difference in the health and financial wellness of our members. We saw that as the only reason to go through the trouble of developing a new insurance product — but we needed to build everything from scratch.

See also: Crisis Invigorates Insurance Innovation

The next phase of insurance product innovation is tech-enabled thinking. When you design a new insurance product, think of it in the context of its tech platform. That means you must have both insurance experts and technologists at the table. This is really powerful; it is what enabled us to come up with the concept of a supplemental health insurance plan that pays benefits on diagnosis.

An example of this is Beam Dental’s dental coverage insurance, which uses a connected toothbrush to reward groups with good brushing habits with rates better aligned to their lower-risk profile. Eden Health is also making strides with its primary care solutions that weave together healthcare navigation services with direct primary care. Its tech platform was nimble enough to quickly help employer customers with COVID-19 screening and testing to keep their teams healthy and working through the coronavirus pandemic.

At Brella, we learned from our customer research that out-of-pocket costs caused by rising health plan cost-sharing are a major pain point for families. Existing supplemental plans were not designed to cover that gap. In addition, those plans were rarely used, and, when they were, customers were far from satisfied with their claims experience and the complex rules associated with the plans.

As we thought about building a supplemental insurance plan to address this need, we asked ourselves: “What does a plan design that pays benefits on diagnosis allow technology to do?” and “What does technology allow us to do with the plan design?”

Our tech-enabled plan design lets us pay benefits sooner because the diagnosis happens early in the care journey. This approach also dramatically simplifies the claims and adjudications processes, so it’s easy for customers to file claims in minutes online and through our mobile app. What’s more, it opens opportunities for automation that didn’t exist in past supplemental insurance plans — which were stuck in the first phase of technology adoption.

These are the kinds of differentiated benefits that help customers and their families. That kind of value is worth the price of change for employers to embrace innovative insurance solutions.

Essentially, tech-enabled insurance plan design asks: “What can you do with the plan that unlocks new technical capabilities?” and “What can you do with technology that makes new plan features possible?”

In the next phase of insurtech innovation, more partnerships between insurance experts and technologists are necessary. We need more tables surrounded by actuaries and engineers to create solutions that will realize the world we all want — one where health hardships don’t become financial burdens.