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Agents Must Better Explain Their Value

If agencies can’t do a better job of explaining their value, better marketers will convince consumers they are more ethical than you.

A recent press release from an insurtech caught my attention and ire. What first caught my eye was how the startup measured success in coverage placed, i.e., total policy limits rather than premiums or commissions, to make themselves look successful. For people who don’t know the difference, it was impressive that a 12-person startup agency could place $2 billion in coverage in four years! The average 12-person agency only has $1.2 million to $1.6 million in revenue. This insurtech is outperforming the average agency by 1,430 times!

$2 billion in coverage at $1 million in liability only is just 2,000 policies. Assuming there is some auto and comp and whatever else in there, let’s say 1.5 policies per customer; that is only 1,333 customers; or, in other words, they basically wrote one account per day over four years. Those kinds of policies average around $500 commission each, which may be generous but I’ll use that figure. That amounts to $667,000 in revenue. Divide that by 12 people, and the result is $55,000 revenue per person.

Insurtech is supposed to be about scale. The definition of scale, in all directness, is doing more with fewer people. Scale is nothing else. $55,000 in revenue per person is not scale.

What next caught my attention was their statement that the traditional insurance model provides agents incentives to sell customers policies they don’t need or contain inflated coverage limits. I’d really like to see solid proof that this regularly occurs. I don’t know the captive agent world well, so maybe it happens there, but I doubt it. I know the independent agency world extremely well, and I have rarely seen this happen.

The system actually works the opposite of their statement. In the traditional agency model, for many complex and intertwined reasons, agents actually have more incentive to sell clients less coverage than they need even though they are threatened with E&O suits for doing so! I have seen a large number of agents sued for not selling adequate limits or the right coverages. In the COVID-19 world, has anyone seen an agent sued for selling too much business income insurance?

For 25 years, I have been cajoling, arguing, demanding, yelling and screaming at agents to use coverage checklists, and yet agents are no more likely to use coverage checklists today than 25 years ago. (I’m a failure!) It has been proven over and over in E&O studies that using coverage checklists to ensure clients are offered adequate coverages is the best solution for both clients and agents!

I have only seen one suit brought in the independent agency world for selling too much insurance, and the suit was aimed at the carrier because it was the carrier’s practices, not the agencies’ practices, that allegedly resulted in excessive and unnecessary limits. I’ve never even heard of an agent being sued for selling clients too much insurance.

This insurtech advised that their model works because they make up the difference with finance fees. Their story sounds great to a large proportion of consumers. Consumers do not know how much insurance they need because no agent has ever educated them on how much insurance they need. I teach a lot of insurance classes and have conducted a lot of E&O audits; few people ever discuss the importance of drop down UM coverage on an umbrella policy (in fact, many agents and customer services representatives don’t even talk about the importance of an umbrella policy). Selling unnecessary coverage is really, I mean really, really hard when most agents do not even offer necessary coverage. I was with a retired family member who had paid off his mortgage and wanted to drop his homeowners’ insurance. I explained he would lose his liability coverage. This is an extremely smart person and yet not one single agent in 40 years had ever explained the importance of liability coverage to him!

Professional agents will lose if they don’t educate their clients as to why they need more coverage. They will lose to agents who actually advise those same clients, who do not have enough insurance, that their incumbent agent has actually sold them too much coverage! Pay for what you need, they say, but the consumer has no idea what they need!

See also: 4 Post-COVID-19 Trends for Insurers

A huge proportion of producers exacerbate this problem when their client asks, “How much liability should I purchase?” The producer frequently answers, “As much as you can afford.” What is the difference between this “professional” advice and insurtechs’ advertising, “Buy as much as you can afford.” It’s the same advice! The correct response is to help your customer figure out what they can afford to lose and then recommend that they buy an appropriate limit.

The insurtech’s press release articulates so much of what I see as wrong and unfair in this industry. Yet, the failure of agents to educate their clients and offer the right coverages and their own lack of knowledge about coverages has opened the door wide for this kind of upside-down and sideways marketing pitch to actually make sense to consumers. A low down payment with significant finance fees has been a successful business model for a long, long time.

One other possibly dubious claim is that insureds will still save 35% because carriers are willing to reduce their price because the insurtech agent is so efficient. This claim may be true in some instances because reducing acquisition cost is a huge goal for carriers today. However, a 35% savings? Let’s do the math on this:

The industry average loss ratio has been 61% over the last five years. The average profit margin is around 10%, including investment income. Independent agents are paid an average of around 13%, including comp. So, no matter what an agent does, the most carriers can save is 13% by eliminating agency compensation. An argument may exist relative to some additional savings relative to frictional costs, but not enough. The carriers’ average total expense ratio is around 28% excluding LAE. If I remove the commission of 13%, that only leaves 15%. A 35% reduction in expenses is impossible.

Additionally, using a 61% loss ratio, and if the rate is 35% less, the loss ratio would be 96%, all else being equal. Even if all commissions are eliminated, the loss ratio is still 83%. An 83% loss ratio is not sustainable.

Now, maybe the quoted 35% savings is meant to mirror other disingenuous price saving advertising such as, “The average customer who switched saved $350!” That is an entirely pointless but quite effective ploy. Let’s say 1,000 people shopped that carrier’s site, and 990 stayed with their existing carrier. The remaining 10 saved an average of $350. The people who did not switch may have saved an average of $350 by not switching, so they did not switch! Only counting one side of a ledger is illegal in finance, and perhaps advertising rules should be revised along the same lines. Either way, advertising that carriers are offering lower rates when it is just a math gimmick is mixing and matching in a manner that is highly questionable.

A true 35% savings from the same carrier requires special filings by that carrier or the use of a special purpose PUP company with previously filed deviated rates. That is an awful lot of work for a startup agency that has so little commission they announce sales in total policy limits.

See also: 10 Tips for Moving Online in COVID World

Always check the math on claims like this startup’s. More importantly, sell the right coverages, educate your clients on how much coverage they actually need and show them you won’t sell coverages they do not need. Don’t let firms like this insurtech beat you.

You can find this article originally published here.

5 Hurdles to Insurtech Success

We like to joke that we started an insurtech because we wanted to make money as slowly as possible. It’s an exceedingly painful joke.

We were asked recently to discuss issues that insurtech companies face. We came up with five things that stand between insurtechs and success. Here they are, but, please note, your mileage may differ.

1) The math – All insurtechs have one super-challenging math equation to overcome –

Risk = Bad

Insurtech = Risk

Therefore, Insurtech = Bad

Insurtechs are busy trying to make themselves more inventive. Which only makes them riskier. As this equation shows us, that’s a bad thing. Much more attention needs to be paid to how insurtechs can de-risk themselves and make it easier for insurance professionals to rely on them.

2) Insurtechs are talking revolution to an industry that makes evolution look fast. Most insurtechs believe that they are going to revolutionize the insurance industry. Unfortunately for the revolutionizing insurtech, insurance has been around for 300 years without them and can probably be around for another 300 years without them. Insurance is an incremental improvement industry. It’s evolution over revolution.

3) Insurtechs don’t understand who they’re selling to. If you’ve never been to an insurtech pitch-fest, it’s filled with T-shirt and torn jeans entrepreneurs pitching to suit-and-tie-wearing insurance executives. We’re not saying that the insurtechs should be wearing suits, but a nice pair of pants and a coat wouldn’t hurt you. And we’re not even broaching the subject of industry knowledge here.

See also: Insurtechs Are Specializing  

4) Insurance companies are slow. When an insurance company talks about doing something this year, the earth will revolve three times around the sun before that something happens. They’re called insurance-years. They’re like dog-years but in reverse. Insurtechs have to plan for their first real sale being three years away, not three months. Blaming carriers for their slow sales cycles means you haven’t prepared properly.

5) Even the best mousetrap will not cause insurers to beat a path to your door. Insurance companies and the law of large numbers work together very well to make money. It’s very hard to break through the status quo, even with the latest and greatest whatever-it-is. Insurance employees aren’t normally rewarded for taking chances on something unproven. This lack of urgency to do something different can kill your insurtech.

Success IS possible in insurtech! Between new data, new processes and interesting technologies, insurtechs ARE winning. By understanding some of the hurdles you’ll face before achieving success, you might be able to shave some time off one of the most daunting sales challenges ever invented – selling to the insurance industry. Good luck, and we’ll see you in the marketplace!

This article was originally published on HazardHub.

An Inconvenient Sales Truth

When discussing acquisition strategy with producers, I’ll often hear them say, “Yeah, we compete on price, but we retain on service.”

The fact they even make this statement is a sign they know price alone isn’t enough. Yet, they don’t take the time to build a sales process that takes the decision away from price alone.

Price is always a factor; however, in most instances in this industry it is the level playing ground. With precious few exceptions, brokers have access to the same carriers, same plan designs and same prices. By admittedly competing on price, brokers/advisers never give themselves a fair shot at earning new business. This is why close ratios and new business volumes in most instances are way too low.

At least when it comes to fully insured plans, isn’t getting quotes one of the most basic tasks a broker does? By “basic,” I don’t necessarily mean it’s easy, but being able to get quotes and negotiate the renewal is, undoubtedly, a minimum expectation that business owners have of their adviser.

In baseball, the tie goes to the runner. The “runner” in our game is the incumbent broker who will almost always win the spreadsheet game.

You retain on what?

Now, let’s talk about the “we retain on service” declaration. Once again, isn’t this just another minimum expectation a business owner has of an adviser? Don’t they expect you to fix problems, advocate on their behalf and respond quickly?

Now, put both of these back together. If a business owner was working with an adviser who wasn’t able to handle the renewal effectively or who didn’t provide good service, what do you think the owner would do?

No doubt, the owner would fire the adviser in a heartbeat. The owner would fire the adviser because he wasn’t even meeting the minimum expectations.

Service PLUS

Some try to use a capabilities presentation as a tie-breaker. They accumulate a long list of “value-added services” (we prefer to call them non-insurance solutions) and drone on and on about all the extra stuff they provide their clients.

See also: Will COVID-19 Spur Life Insurance Sales?

Guess what? In today’s benefits’ world, that list of stuff is now part of the minimum expectations. If you don’t have the tools, don’t even bother showing up for the job.

Sure, you will occasionally win with the spreadsheet when going against a way-too-traditional broker. You may even catch the incumbent asleep at the service wheel and pick up an account that way from time to time. And, just maybe, you were an early adopter for that very solution an employer wants but hasn’t yet been offered. It does happen, just not often enough.

Don’t find a false sense of security from those occasional wins.

The universe insists on balance

Here’s the reality of client attraction and retention. You will lose every account the same way you won it. This happens because you train clients on how to buy based on the way you sell to them in the first place.

The most hypocritical of all are “spreadsheeters,” who are offended when a client asks other brokers to quote at renewal. Who do you think taught them that?!

Advisers whose value proposition is limited to the price of the insurance product and fixing stuff when it breaks are effectively saying, “Hire me because I can meet the minimum expectations better than your current guy/gal.”

A subtle but profound shift

We’ve already agreed, price is important. However, what is way more important than the price on the spreadsheet is an adviser’s ability to put together an overall cost control strategy. THIS is what should be discussed during the sales process. The spreadsheet is simply a lagging indicator (yes, I know underwriters are predicting future claims) of what has already happened. You should be competing based on your ability to develop a strategy that will help moving forward.

We also agree the non-insurance solutions in your capabilities binder are essential. However, just scrolling through the list of what you have to offer leaves you sounding like every other broker.

It’s time to dig into those solutions the way they were intended to be used. After all, you invested in them because they solve real problems faced by clients. Put yourself in the seat of that buyer. Do you think the buyer is more interested in listening to your we-have-it-too list of resources or in the list of problems they are struggling with that they need to solve? No-brainer, right?!

See also: Crisis Mitigation Beyond COVID-19

Don’t be lazy

This isn’t some profound insight, I know. However, most of your competitors are taking the lazy route to new business. Genuinely solving an expanding list of problems takes work. It is no longer enough to show up with a fancy spreadsheet, promises of better service and a capabilities presentation.

Make yourself the painfully obvious choice. Your new business acquisition strategy must be built on proving you can continually deliver better results than anyone else. When this is the way you acquire new business, when it’s the client experience you provide, you will find yourself losing fewer and fewer clients.

You can find this article originally published here.

COVID-19 Sparks Revolution in Claims

While coronavirus news is often bleak and sometimes downright depressing, there may be a silver lining for claims management. The global pandemic has pushed the importance of virtual care and claims management technology to the forefront. It has ignited a fire in the workers’ compensation industry, inspiring companies to find ways to quickly identify and safely treat cases, while minimizing the spread of the virus. 

COVID-19 has revealed the importance of a claims management process that is transparent, data-driven and accessible to all stakeholders. From expanded telehealth options to the newest technology in claims management, including integrated platforms and patient-focused tools, the workers’ compensation industry is evolving. 

The future of claims management and virtual care leverages innovative technologies and artificial intelligence, and it is catching fire across the industry. Here are some examples of the revolutionary trends in claims management:

#1. Telehealth is HOT

While telehealth was introduced for workers’ compensation cases about six years ago, the journey to adoption has been slow and bumpy as employers and injured workers were hesitant to make the virtual leap. Before the pandemic, only 8% of Americans had ever used telemedicine, but that changed almost overnight with some medical providers reporting up to 95% of post-COVID-19 patient visits now being conducted virtually.  

Telehealth allows injured workers to quickly connect to providers via telephonic evaluations and video visits. Injured workers can be seen much faster, especially those who may be remote, at a distance from existing medical facilities, or working during off hours. 

Since its introduction, telehealth has significantly improved workers’ compensation management and the care of injured workers. According to CorVel, a national provider of risk management solutions that was among the first to launch telehealth services in workers’ compensation, data measuring the impact of telehealth programs over a five-year period showed:

  • Treatment wait times have been reduced from an average of two hours to 10 minutes
  • Treatment costs have been reduced anywhere from $100 to $850 per visit, depending on the specialty, with improved quality of care
  • The number of unnecessary medication prescriptions has been reduced by nearly 50%
  • Patient satisfaction rates have improved from 3.65 to 4.8 on a scale of 1 to 5

See also: COVID: Agents’ Chance to Rethink Insurance

#2. As COVID-19 Rages, Telehealth Expands to Create End-to-End Solutions

As private insurers and public health programs, including Medicare and Medicaid, are now providing reimbursement for remote office visits, at-home patient monitoring and physician-to-physician consults, it is clear that telehealth is here to stay. However, COVID-19 has forced us to move past traditional telehealth to address the full episode of care—from beginning to end. 

Expanded virtual care solutions provide the ability to engage the injured worker, treat the injury or illness and manage care remotely, minimizing the risk for all parties involved. From initial injury or exposure to return to work, virtual services are playing a role to ease the process for claims management professionals, employees and payers and the injured worker:

  • From the first moment of an injury or exposure, communication is critical, especially in the midst of a pandemic. Virtual 24/7 nurse triage is being used more than ever to connect injured workers with a registered nurse for immediate medical evaluation and care direction. Companies have also implemented special hotlines for employers and employees who present with COVID-19 symptoms or who need additional information. 
  • After being screened by a triage nurse, telehealth connects injured workers with a provider through a virtual visit via a computer or smart device. The virtual visit facilitates more immediate care for remote workers or those who are required to shelter in place. Patients who need testing are directed to a provider who manages the process to minimize the potential for infection and the possible spread of the disease. Follow-up protocols are being put in place for infected patients, making sure they get support and education throughout the incubation period. Remote care and communication ease this process and keep employees and providers safe.
  • Injured workers’ with more complex care or continuing needs can also benefit from virtual services, including rehabilitation by telehealth, video medical visits, home delivery of prescriptions and durable medical equipment and coordination of any diagnostic testing to aid a rapid return to work and minimize exposure to the virus. 
  • When it’s time to return to work, virtual services help companies perform employee assessment screenings and provide education to promote a safe workspace based on CDC guidelines. 

#3. Connecting the Dots: Integrated Claims Management and Artificial Intelligence

While telehealth has made major strides during the pandemic, it is the combination of big data, artificial intelligence and telehealth that is now delivering new improvements in care and claims management. An integrated platform with the ability to manage the full episode of care through one system simplifies workflows, allowing claims professionals more time to focus on the injured worker, while delivering patient-centered engagement, and prompt, open communication for all stakeholders

The application of artificial intelligence combined with big data can catch potential flags and danger signals much faster than a busy claims professional reading reams of text and reports. Leveraging big data and artificial intelligence overcomes the hurdle of significant delays before relevant data is identified, analyzed and acted upon. By quickly analyzing multiple data streams to identify specific patterns and flag potential snags, AI-driven analytics can provide an early warning system that gives claims handlers, case managers, and medical providers actionable information to speed up and smooth out the claims resolution process and ensure that the patient gets the best care, reducing the likelihood of complications, friction and a costly and drawn-out claim.

Instead of spending hours reading through notes and documents to get a picture of the injured worker’s progress, a direct communication alerts stakeholders to a development in the injured workers’ condition that needs immediate attention. 

For case managers and claims adjusters, the ability to automatically identify problems that would have required hours of searching for in notes and files is a huge boon to their efficiency and job satisfaction. Now, they can focus on problem-solving for the injured worker versus being consumed by data and paperwork. 

  • One example of how prescriptive analytics is being used is to evaluate the morphine equivalency of a patient’s medications to detect emerging problems. When a certain threshold is reached, the claims professional receives an automated notice in real time, allowing for immediate intervention to find safer options for pain management. Pairing this will telehealth allows us to offer a biopsychosocial solution for care management versus just the bio-medical model.  

#4 Technology With Heart

To improve case management even further, companies are finding ways to put the thought process of nurses and claims experts at the center of technology. This unique case management codification is changing how claims are managed and improving the claims management process for nurses, claims management professionals, employers and the injured workers. 

Traditional case management reporting has been notorious for voluminous documentation outlining the status and activity of the case manager, requiring the reader to dedicate hours of reading only to try to decipher the significant details and navigate through the medical jargon and abbreviation contained within the report. The value of case management was measured more on words per page versus actual interventions and outcomes.

New codification, leveraging the nurses’ thought process, gives claims professionals the information needed to act quickly without the lengthy process of reading through extensive notes and documentation. It identifies risk and flags potential snags, providing an early warning system that provides actionable information to speed up and smooth out the claims resolution process and ensure that the patient gets the best care. Instead of spending hours reading through notes and documents to get a picture of the injured worker’s progress, claims managers can get direct communication alerting them to a development in the injured workers’ condition that needs immediate attention.

  • For example, codification can alert the claim administrator of pain that is preventing the injured employee from returning to work. The platform immediately notifies the claim administrator when an injured worker is expected to recover but is experiencing decreased function due to pain. Actions are recommended based on data entered by the nurse case manager. This allows the claims administrator to promptly address potential issues that may impede restoration of  the injured worker’s comfort and function. The prompt response can help the employee heal and get back to work as quickly as possible. 

This innovative technology reduces disability duration, improves return-to-work and stay-at-work outcomes and lowers claims costs like never before. In fact, cases referred less than 30 days from date of injury result in 30% higher savings on average, and litigation rates are decreased about 50% when cases are referred to case management within the first 7 to 30 days.

See also: The Case for Paying COVID BII Claims  

What’s Next?

COVID-19 is a reminder that behind every claim is an incredibly valuable worker who needs attention from the first moment an incident occurs. With innovative integrated technologies, we have the ability to keep workers safe and provide exceptional care by leveraging virtual tools and enabling end-to-end care. As telehealth has risen to the forefront during this crisis because of its ability to provide the best care possible at any time and from any location, it is also inspiring several other advancements that will enhance patient care, including:

  • Patient specificity, matching patients with the “right provider,” is on the rise and already being implemented to provide Spanish-speaking workers with a Spanish-speaking nurse and provider. At CorVel, this patient specificity matching is already happening for 85% of Spanish-speaking injured workers. In the future, telehealth will allow us to analyze the specific needs of a patient and then match that patient with the right provider for the case. 
  • Second opinions via telehealth allow us to confer with some of the top specialists in the country, who have no financial interest in the outcome, in order for the patient to make the best care decisions. Anyone who has been through a surgery has seen that the shared decision making on the risk-reward of the procedure is handed to you on a clip board as you are about to be wheeled into the OR. Having an expert second opinion will help guide treatment decisions and put the patient’s mind at ease.
  • As telehealth is expanding to specialists so are the peripheral devices designed to support care in this medium. A great example is the use of Tyto-care, which connects to a smart phone to allow pediatrics to see inside the patient’s ear or throat remotely. As demand for telehealth increases, we can expect to see more FDA-approved devices available to support virtual care.   

Telehealth will remain a critical tool for managing workers’ compensation cases even after COVID-19 because of its ability to reduce costs, improve satisfaction, and keep workers safe. This combination of virtual services to manage care remotely, patient-centered engagement and prompt, open communication for all stakeholders is changing the way claims are managed and is the future of claims management.

COVID-19: The Long Slog Ahead

While sorting through the latest studies and projections about the path of the coronavirus this past week, I was hit in the face with a veritable two-by-four by this piece in Medium by my old friend and colleague Sam Hill. Sam, an all-around smart guy who may be known to some of you because of some high-impact consulting he’s done in the insurance world, writes that, even under the best of scenarios, we’re probably looking at the end of 2021 before the world might return to normal.

Let that sink in for a minute. More than 16 more months of this, in one form or another.

In some ways, Sam’s piece strikes me as quite optimistic. He is counting on having three viable vaccines for the virus in the market by the end of this year.

But it will take months to manufacture and distribute enough to vanquish the virus. Some vaccines may not work or may have disastrous side effects, leading to caution both among public health authorities and among those of us considering getting the virus — “In 1976,” Sam writes, “one person died of a flu strain that appeared to be like the 1918 flu. We rushed a vaccine through. It killed 250 and paralyzed 500.”

Even if the vaccine works, it may only be 50% to 60% effective, not 90%, as we’ve come to expect with smallpox, measles and polio, so a lot of people would be left vulnerable.

By the time you crank in all the steps that have to be completed before life returns to normal, Sam puts the over/under at roughly the end of 2021.

And that’s the best of the three scenarios he lays out.

As long as I’m quoting people this week, here are the two smartest observations I’ve seen recently on how to navigate these crazy times. Both come from Kevin Sneader, the global managing partner at McKinsey:

“The first piece of advice I’d offer a CEO is, forecasts are out, dashboards are in. The notion that you can now forecast the economy, healthcare and other aspects of what can disrupt life, I think, is gone. Now we’re in an environment where we’ve also learned that what you really need to have a handle on are the metrics, insights and what’s actually happening on the ground—the dashboard of daily life.

“You really do have to think like an attacker all over again. Even if you were the incumbent, even if you were the leader before this pandemic, you’re now the attacker, so you must take the steps that attackers take. Think very differently. Look for new opportunities, new markets. Reshape the portfolio and, yes, look at mergers and acquisitions. Plan to do things quite differently as the future unfolds.”

Stay safe.

Paul

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

Why Work-From-Home Threatens Innovation

Non-insurance competitors such as Amazon, Google, Tesla, Comcast, General Motors and many others are not standing still, and neither should insurers.

How Insurers Are Applying AI

Insurers should not invest in technology-driven projects; instead, look for use-case-driven projects.

‘Scalable Compassion’ in Workers’ Comp

As much as claims representatives want to help individuals, there has been no feasible way to provide compassion at scale.

Panic Pricing May Be a Bad Idea

While raising rates might be how the industry has responded to uncertainty in the past, there are reasons not to do so now.

The Problem With Virtual Events

People routinely consume TED talks online and love them — because they don’t bear any resemblance to boring, low-energy Zoom presentations.

5 Things Here to Stay, Post-Pandemic

While responses to where and how people work have varied, several effects on workplaces from the pandemic will persist even once it subsides.