Tag Archives: operating cost

Traditional Insurance Is Dying

Finance. Taxis. Television. Medicine. What do these have in common?

They’re all on the long–and growing–list of industries being turned upside down by disruptive technology. 

The examples are legion. Once-sure-bet investments like taxicab medallions are at risk of going underwater. Bitcoin is giving consumers the power to bypass banks. Traditional television is at risk from online streaming.

Insurance Is No Different

In fact, innovative players have been disrupting the insurance market since before “disruption” was the buzzword it is today. 

Look at Esurance, which in 1999 rode the dot-com wave to success as the first insurance company to operate exclusively online. No forms, no policy mailers–it didn’t even mail paper bills.

By going paperless, Esurance told customers that it was the kind of company that cared about their preferences–and established itself as a unique player in an industry that places a premium on tradition. Insurance isn’t known for being innovative. 

Most insurance leaders operate under the assumption that if it ain’t broke, you shouldn’t fix it. And in a heavily regulated industry, that’s not totally unreasonable. 

But you only have to look at the scrappy start-ups that are taking down long-established players to understand what awaits the companies that aren’t willing to innovate.

Thinking Outside the Box

Take Time Warner–profit fell 7.2% last quarter as industry analysts foretold “the death of TV.” Meanwhile, Netflix’s profits are soaring beyond expectations–even as the risks it takes don’t always pan out. 

Remember the “Marco Polo” series that cost a reported $90 million? Neither does anyone else. But for every “Marco Polo” there’s an “Orange Is the New Black.” Highly successful programs on a subscription model show that Netflix’s willingness to take risks is carrying it past industry juggernauts.

The market is changing–and if you want to stay competitive, you need to use every weapon in your arsenal. Millennials aren’t buying insurance at the rate their parents did

To a consumer population weaned on technology like Uber and Venmo, the insurance industry seems positively antiquated. Facebook can advertise to you the brand of shoes you like–so your insurance company should be able to offer a product that you actually want.

The Information Importance

According to Accenture, “Regulated industries are especially vulnerable” to incumbents. When there are barriers to entry based on licensing requirements or fees, competition is lower. Decreased competition, in turn, leads to less incentive to innovate. This can leave regulated industries, such as insurance, healthcare and finance, in a highly vulnerable position when another company figures out a way to improve their offerings.

Other attributes that can make an industry vulnerable, per Accenture’s findings, can include:

  • Narrow focus: If a brand focuses entirely on cost savings, convenience or innovation, it isn’t effectively covering its bases. A disruptor that manages to offer two or three of these factors instead of just one has a near-immediate advantage.
  • Small scope or targets: Failing to expand offerings to all demographics can mean that industries or service providers aren’t able to replicate the broad reach of disruptors.
  • Failing to innovate: Disruptors don’t always get their product right on the very first try. Companies must innovate continuously and figure out ways to build continuous improvement into their business model.

Tech start-ups use information as an asset. How can you tell if information is a valuable weapon in the battle you’re fighting? 

“Big data” isn’t just a buzzword; industry analysts are calling it the wave of the future. At Citi, they’re talking about “the feed”: a real-time data stream that leverages the Internet of Things to reshape risk management. 

Auto insurers are turning to connected cars to let them reward safe drivers. Some life insurers are even offering discounts to customers who wear activity trackers.

It Can Happen to You

For most insurance companies, incorporating an unknown element into the way they operate is daunting. 

But talk to any cab driver, grocery store clerk or travel agent, and they’ll tell you that the only way to survive in a technology-driven world is to innovate.

Look at the insurance technology market to see what improvements you can incorporate into your organization, and think expansively about how you can use information: for agency management, to attract new customers and retain old ones, to expand your profit margins or to streamline operating costs. 

Your survival depends on it.

6 Red Flags for Work Comp Premium Fraud

Workers’ compensation insurance premium fraud is a major issue affecting our industry. Not only is it illegal, it hurts the bottom lines of both producers and carriers and leads to higher insurance premiums for honest businesses. It can also cause a loss in commission for agents, have a negative impact on a state’s rate-making system and create an unfair business advantage for the perpetrator through artificially reduced operating costs.

To protect their interests as well as the interests of honest policyholders, agents need to be aware of the different types of premium fraud and their warning signs. Agents also need to know the steps to take if they suspect premium fraud. Armed with the right information, independent insurance agents – who are a key conduit between policyholders and insurance carriers – can play a crucial role in identifying and preventing workers’ compensation insurance premium fraud.

Types of Workers’ Compensation Insurance Premium Fraud

There are three basic types of premium fraud: under-reporting payroll, misclassification of employees and experience modification evasion.

Under-reporting of payroll occurs when a policyholder inaccurately reports its work staff to the insurance company, often by paying employees off the books or presenting employees as sub-contractors or independent contractors rather than actual company employees.

The second type of premium fraud is the misclassification of employees, which occurs when a high-risk employee such as a construction worker is classified as a person with lower risk, like an office clerk. This misclassification is intended to result in a lower workers’ compensation premium for the perpetrator.

The third type of premium fraud is experience modification evasion. It occurs when an established company with a greater than average loss history attempts to re-emerge as a new company on paper to obtain a lower experience modification factor. However, the business is actually unchanged in its operations and still presents a greater than average risk.

Warning Signs for Agents

Here are common warning signs that indicate business owners may be attempting to commit workers’ compensation premium fraud. The presence of two or more of the following should raise concern and warrant further examination:

  • The business address is a mail drop or P.O. box, or the business is physically located in another part of the state from its mailing address.
  • A prior carrier has dropped the business or the business frequently changes carriers.
  • An excessive number of certificates of insurance are issued on a small policy.
  • Reported injuries are not consistent with purported job titles or duties.
  • There is an unusual ratio of clerical to non-clerical staff for the type of business.
  • The business avoids audits or has never been audited.

How Agents Can Protect Themselves

Agents are not immune from being accused of advising policyholders to commit fraudulent acts. There are simple steps agents can take, however, to protect themselves and assist in workers’ compensation fraud investigations. Foremost, they should be aware of and monitor for the common warning signs of fraud and work with carriers that offer active anti-fraud programs.

Agents should also maintain detailed records of their interactions with policyholders, including all e-mails. Agents should verify the identity of the policyholder or person of contact with a driver’s license, and original signatures should be obtained on all applications. By keeping this information on file, agents can help protect themselves against false accusations and help prosecutors in a criminal case, if necessary.

If agents ever suspect a policyholder is engaging in workers’ compensation premium fraud, they should inform the carrier’s special investigation or fraud investigation unit. In certain cases, law enforcement may also need to get involved.

If criminal charges are eventually filed against a policyholder, the evidence agents possess will be important to the prosecution’s case. When a prosecutor serves a subpoena or search warrant for an agent’s records, the types of evidence most often required are applications, copies of checks used for payments, correspondence (including e-mail) with the accused policyholder and any documents signed by a person responsible for the business.

Agents play an important role as a critical front line defense against workers’ compensation insurance premium fraud. It is important for agents to be aware of the different types of fraud and their common warning signs. They should never hesitate to report any suspicious activities to the carrier for further investigation.