Tag Archives: Nick Gerhart

What I Learned at Google

As a regulator, I am often told I thwart innovation. To the contrary, I am very open-minded and excited by many of the innovative ideas I see and read about. Recently, I participated in an event at the Google campus with insurance experts from around the globe for a day of collaboration and learning. It was an experience I will not soon forget.

We spent the day discussing Google Compare, Waze and autonomous vehicles. Ideas were freely shared, discussed and challenged. What most impressed me was the great excitement the group showed about insurance evolving with new technologies. Oftentimes, the regulators in the room were asked our opinions on these technologies and the inherent regulatory issues. The regulators did a nice job articulating our need to protect insurance consumers and to adequately supervise carriers to ensure financial soundness and legal compliance, while allowing for innovations that work within our regulatory system.

It was a robust discussion, and I learned a number of key things about Google and its view of innovation and, in particular, insurance innovation.

  • Google works to fix problems. The Google employees were clearly driven to fix problems, and that desire took precedence over job titles. This was refreshing to witness first-hand.
  • Google thinks big picture. With a number of insurance regulators and insurance company executives in the room, it was eye-opening to hear a Google employee discuss statistics or numbers when solving problems only to admit the statistics or numbers were not precise. The Google employee considered best estimates that were “probably close enough” to a true statistic or number to be good enough to keep the ball rolling. Insurance company executives generally would only rely on exact figures to prove a business point, which requires actuaries to pound through data for weeks to get the correct number. Unfortunately, during the lengthy look at the data, innovation likely sits idle.  Google’s ability to not think in a vacuum or silo appears to be critical to moving innovation and ideas forward without being totally entrenched in analysis paralysis.
  • Google focuses on the customer. Repeatedly, Google employees drilled home how they view their relationships with their customers and their desires to constantly improve the lives of those customers.
  • Google wants to work with insurance regulators and policy makers. Google understands, respects and embraces the important role regulators play in protecting consumers. The fact that invited me to participate demonstrates this commitment.
  • Google is incredibly mission-focused. All the people I met from Google discussed the mission they had for their particular projects over everything else. Whether the missions were saving lives, improving buying experiences or lessening traffic and use of fossil fuels, these employees know the mission of the projects they are working on and how they relate back to the overall mission of Google.
  • Google could be a powerful force in the insurance space. Google has smart people who understand customers and the demands of the customers. Combining this with a desire to improve customers’ experiences and the immense technological and mobile resources Google possesses likely makes it a strong source of innovation in insurance.
  • Google employees are powerful brand ambassadors. How employees act says more about an organization than any activities the employer does. Every Google employee I met was a true Google ambassador. From the individual who welcomed us, to the person who showed us around, to the staff in the cafeteria, to the executives. Google’s employees understand Google’s mission and, more importantly, have bought into the vision.

I have spent a lot of time working with innovative ideas and new companies. These experiences assist me in my role as commissioner in fulfilling the mission of the Iowa Insurance Division. As a leading insurance state, we focus on insurance innovation, and I’m excited to invite you to register for the third annual Global Insurance Symposium in Des Moines on April 26-28, 2016.

During this symposium, renowned industry keynote and panel speakers will engage in dialogue on regulatory trends and issues that are affecting the industry, as well as focus on innovations in insurance across the globe.

Don’t miss your chance to participate, ask questions and learn from some of the brightest minds from around the world. Visit www.globalinsurancesymposium.com for more information.

 

 

Fraud: the Cost You Will Never See

Do you know one of the large drivers of your insurance costs may be something you will never see listed as a line item by your agent or insurer? This is not a hidden fee the industry masks. It is not one you could ever find or have disclosed. It is the cost we all share for insurance fraud, which is the second largest financial crime in America (behind tax evasion).

In Iowa, the crime of insurance fraud happens when a person or business provides false information to an insurance company in a claim for benefits or in an application for insurance, with the intent to defraud the insurance company. Federal laws also contain provisions related to insurance fraud.

Before being appointed insurance commissioner, I do not recall thinking about insurance fraud much. Because of my experience in the insurance industry, I certainly knew that there was insurance fraud.  I recall stories I heard second- and third-hand of people who filed claims on boats that became ruined and then were insured after the fact, or of healthcare providers that billed health plans for procedures that never occurred. But I admittedly did not think about insurance fraud much.

People often think of these types of acts as victimless crimes, because no one is hurt except big insurance companies. However, we are all victims of these acts because fraud affects how much we pay for our insurance.

Insurance regulators see all types of fraud and know the cost is great. According to the Coalition Against Insurance Fraud, nearly $80 billion in fraudulent claims are made annually in the U.S. This figure encompasses all lines of insurance. The Federal Bureau of Investigation estimates that fraud costs each insurance consumer in the U.S. between $400 and $700 annually in increased premiums. These are calculable costs, which probably are far less than the total cost we all pay as insurance consumers, because a lot of fraud is not reported.

In Iowa, we would like to think that there is no insurance fraud. However, the statistics demonstrate a much different picture. On average, the Iowa Insurance Division receives 1.97 referrals each day of potential insurance fraud. From Jan. 1 to Sept. 17, 2015, my team processed 532 referrals with a reported financial impact of $3.7 million. However, only about one quarter of the 532 referrals reported what the financial impact was. Therefore, the $3.7 million is far less than the total financial impact.

Fraud prevention and elimination is a major effort for insurance regulators and insurance companies. It is an area where regulators and companies collaborate. In 42 states and the District of Columbia, fraud bureaus receive and review potentially fraudulent insurance claims. States have robust laws in place to protect consumers and the insurance marketplace from insurance fraud. Companies are required by state statutes to report insurance fraud.

Although these reporting requirements and laws help protect our markets and mitigate the cost of insurance fraud, it is far from eliminated. The need to mitigate or eliminate fraud presents huge opportunities for insurance companies and entrepreneurs to develop innovative tools to combat insurance fraud.

As we all now recognize, insurance companies are big data companies. They possess vast data on their policyholders. This puts insurance carriers in an evolving position to better help deter and eliminate fraud. With advancing data analytics, predictive modeling and simply more data, catching and possibly preventing fraud should become easier.

State insurance departments operate within tight budget constraints. In Iowa, we see innovation and technological developments as very helpful in aggregating data and identifying trends and issues. We are looking to these developments to help us increase efficiency in our investigations so we can combat insurance fraud and protect our consumers.

However, I have no false hope that all fraud will be eliminated. I have every belief that those who want to continue to do damage by committing insurance fraud will also be innovative and adapt to change. In other words, while technology and innovation will help find fraud, the scammers will soon figure out how to get around the new detection methods, too.

Fraud is a fact in every industry, and insurance is no different. However, I believe in the insurance industry there is more opportunity and incentive to commit fraud because of the value of the items insured and the amount of money in play. In addition, because insurance fraud is seen as a victimless crime, it may even be viewed as justifiable. Insurance regulators and companies are improving the capabilities to combat fraud using more technological tools. Credit card companies made tremendous strides in cutting down fraud, and insurance is working toward that goal, too. Innovators and companies that figure out how to succeed in this area will have lower prices and increased market share, and in the end that rewards consumers.

A Commissioner’s View of Innovation

There’s a thundering herd running through Iowa this year — and not just the herd of presidential candidates. There also is a herd of technological innovators driving considerable change in insurance.

Many people find it intriguing that technology innovators are coming through Iowa, but Iowa is an insurance state and home to some of the largest insurance companies in the U.S. Iowa also is home to niche companies that price out very specific risks to targeted markets.

In my role as Iowa’s insurance commissioner, I’ve met with many entrepreneurs whose ideas will improve, enhance and create value for insurance companies and consumers. In these meetings, I hear a fairly consistent and constant theme: State insurance regulators are a major burden for entrepreneurs and, in turn, for their ideas for innovation.

However, when I walk them through what regulators do and provide them a copy of the Iowa insurance statutes and regulations that empower my office, I’ve found that most haven’t read even one word of insurance law before working on an idea or creating a product or service.

To be clear, I don’t believe I stand in the way of innovation. On the contrary, I am very supportive of innovation.

But my fellow regulators and I do have an important job — consumer protection. Insurance is one of the most regulated industries in the nation because, for the insurance system to work, when things go wrong and a consumer needs to make an insurance claim the funds to pay the claim must be available.

The days on which people file insurance claims may be the worst days in their lives, and they may be very vulnerable. Perhaps a loved one passed away; a home is destroyed; an emergency room visit or major surgery is needed; someone may be entering a long-term care facility; a car is totaled; or injuries are preventing a return to work. Insurance is a product we buy but really hope we never use. However, when we need to use it, we want the company to have the financial resources to pay the claim. It’s our job as regulators to make sure the companies in our states are financially strong enough to pay claims in a timely fashion.

Insurance is regulated at the state and territorial level by 56 commissioners, superintendents or directors. The state-based regulatory system has served consumers well for more than 150 years and demonstrated extreme resilience in the last financial crisis. My fellow commissioners and I are public officials either elected or appointed to our respective posts. We are responsible and accessible to the citizens of our states or territories.

However, I do understand that complying with the laws of all the states, District of Columbia and territories poses challenges to entrepreneurs. In recognition of this, state regulators have worked together to help minimize differences between states through the National Association of Insurance Commissioners, thereby creating a more nationally uniform framework of insurance regulation while recognizing local markets and maintaining power in the hands of the states.

The job of an insurance regulator sounds easy. We exist to enforce the state’s laws, to make sure that companies and agents follow that law and to ensure that companies domiciled in our state are in financial position to pay claims when required. As with many things, the duties of regulators are more difficult than they appear. Regulators need to have great knowledge of multiple lines of insurance, technological advances, financial matters and marketing practices. In reality, the execution of our job duties in enforcing our state’s laws may at times cause friction with some innovative ideas.

As I stated, I don’t believe that I or my fellow regulators stand in the way of innovation. I believe that a robust and competitive market that delivers value to the consumer is one of the best forms of consumer protection. However, our insurance laws are also designed to make sure that insurance companies stay in the market and keep the promises that they have made to their customers when the products were originally sold.

In executing my duties as commissioner, I pay a great deal of attention to innovation and developments. I personally spend time with entrepreneurs, investors and others to learn about new trends and ideas. My commitment to enforcing state laws, combined with the laser focus on protecting consumers, requires keeping abreast of innovation.

My office addresses more than 6,000 consumers’ inquiries and complaints every year. People on my staff address issues quickly and care deeply about their roles in helping Iowans. I’ve learned in my nearly three years as commissioner that many consumers don’t understand the insurance they own. They may have relied on an agent, or purchased insurance coverage on their own, hoping it will suit their needs. However, when life happens and an insurance claim needs to be made, consumers may discover the coverage they purchased did not suit their needs. For instance, some people may discover their health plan network doesn’t have healthcare providers near their home. Others may discover too late that certain items lost in a fire were not covered under their homeowners’ policy. Some consumers may discover that the very complex product that they bought simply did not measure up to their expectations.

Having consumers be comfortable with making a purchase and not understanding what they purchased is a culture we need to change. Some consumers desire to simply establish a relationship with an insurance agent or securities agent they feel they can trust, schedule automatic withdrawals from their bank account to be invested or submit their premiums for their insurance products as required so they can ultimately focus their attention on all the other activities that occupy our busy lives. In essence, they forget that they purchased the coverage, and, while it may have been the right purchase at that time, it may not fully suit their needs now or when they need to file a claim.

Insurance regulators and the insurance industry need to encourage consumers to learn more about their coverage needs and the insurance they actually purchase. Innovation that leads to personalizing insurance and better consumer understanding is a good thing. Innovation that increases speed-to-market, enables better policyholder relations through in-force management and provides more value to the consumer is a good thing. However, all that innovation must comply with our state’s laws.

To that end, I’ve met with several entrepreneurs to highlight issues that would arise with certain proposed business models. I enjoy discussing ideas about our industry and sharing Iowa’s perspective. Innovation can help consumers, and it’s my hope that entrepreneurs continue to work with regulators to develop new products and services. This collaboration helps both the regulators and the entrepreneurs and has led to some very positive and healthy dialogue in Iowa.