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August 20, 2019

Workers Comp: Tip of the Spear on Innovation

Summary:

Participating in a panel last week in Orlando at the WCI360 event brought into focus two ideas about innovation in insurance that aren’t understood fully enough yet. One is that workers comp will lead the way, because innovation can happen in so many more ways than is true for other parts of the insurance industry. The second is that many of the innovations won’t occur in what we have come to know as insurtechs.

That second point may be the harder one to accept. We’re in the insurance industry, so we view innovation through an insurance lens—but that doesn’t mean our customers do. Kodak executives thought customers loved physical prints in yellow boxes as much as the executives did and now probably reminisce about the good old days by texting photos of themselves and their families to each other.

Just talk to the risk managers who were part of the panel that Chris Mandel of Sedgwick moderated at the 74th Annual Workers Compensation Educational Conference and the 31st Annual Safety and Health Conference, which brought together professionals from around the world at the largest workers comp conference. Soubhagya Parija, chief risk officer at New York Power Authority, and Brad Waldron, vice president, risk management for Caesars Entertainment, are innovating hard—but not through insurance. While many risk managers still see theirs as largely an insurance function, Parija and Waldron would rather eliminate the risks than tie up capital for them.

Waldron opened more than a few eyes when he said that, because of the sort of spectacular entertainment that Caesars does, “On any given week, I have to quantify the risk of some guy pancaking on a street in front of our marquee performing a 30-story BASE jump, then complete the same risk analysis for two motorcyclists jumping through a 40-foot ring of fire indoors.” He’d much rather ensure the safety of the performers, even though, he said, “I realize most of the people in this room are from insurers.”

Parija said NY Power is strategizing on how to provide vehicle owners incentives to dramatically increase the number of electric vehicles so that this utility giant can temporarily store power in the cars—not exactly an insurance-based approach to risk management. NY Power is also embracing new technologies that reduce injuries for line workers as well as those performing other high-risk tasks.

While insurers are innovating on traditional issues, such as getting an injured worker back on the job as quickly and empathetically as possible, risk managers such as Waldron and Parija are focused on getting rid of injuries/loss events entirely.

In thinking about innovation, workers comp insurers need to cast a far wider net than in other areas because of my other point: that innovation can come from anywhere. Consider robotic fish. Yes, robotic fish. Risk managers at Whole Foods, with a non-insurance focus, jumped in as early adopters of robotic fish from Aquaai Research to provide aqua farms with the option of keeping divers out of dangerous situations in North Atlantic salmon farms. Worker injuries dropped 85% for two consecutive years.  This example is particularly relevant as an open opportunity for an insurer. (Send me a note at the email below, and I’ll provide details.)

Auto insurers know they need to track developments in driverless technology, but they don’t need to worry about advances in genetics or exoskeletons. Workers comp insurers need to track all of the above—and a whole lot else besides.

Our Innovator’s Edge data base tracks some 35,000 early-stage efforts, roughly 11% of which are insurtechs. These are the startups attacking problems that are recognizably about insurance and are the core of what most insurers need to track; for workers comp insurers, these companies focus on issues such as rating and recovery. But workers comp insurers may be affected by just about all of that remaining 89%, too. They have to think not just about insurtechs but also about what might be called risktechs, companies that are changing the nature of risk itself. Risktechs manage risk through prediction and prevention, cannibalizing the loss itself, or significantly extending the time before an inevitable loss.

Here is a table showing the number of early-stage companies in Innovator’s Edge by categories aligned with the current model of insurer-based workers comp:   

CLAIMS MANAGEMENT95
FUTURE OF WORK47
HEALTH AND WELLNESS396
SAFETY953
TELEHEALTH61
WELLNESS835
WORKERS COMP36

Source: Innovator’s Edge

Now, here is a table that reflects the remaining categories and counts of early-stage entrepreneurial companies, most of which aren’t giving the impact on insurance a second, third or fourth thought even though those who succeed at scale may, as a byproduct, have a profound effect on the risk management ecosystem. Can you identify a category that does not have a potential connection to improved worker-related safety or care of injured workers? 

AGENT AND BROKERS129INTERNET OF THINGS1,181ANALYTICS DATA INTELLIGENCE339LIFE INSURANCE120ARTIFICIAL INTELLIGENCE1,796LIFE SCIENCE658AUGMENTED REALITY302MACHINE LEARNING1,393AUTO INSURANCE190MEDICAL DEVICE1,978AUTOMATIC SPEECH RECOGNITION6MICROINSURANCE25AUTONOMOUS VEHICLES225MOBILE INS MGMT53BIG DATA1,879NANOTECHNOLOGY280BIOMETRICS120NATURAL LANGUAGE PROCESSING301BIOTECHNOLOGY4,179NEUROSCIENCE197BLOCKCHAIN228ON-DEMAND INS52CHAT BOTS35ONBOARD VEHICLE SENSORS15CLOUD COMPUTING1,301OUTPATIENT CARE5COMMERCIAL INSURANCE35P2P INSURANCE33COMPLIANCE MANAGEMENT53PERSONAL INSURANCE67CONNECTED VEHICLES30PREDICTIVE ANALYTICS247CYBER SECURITY565PRESCRIPTION DRUGS26CYBERRISK33PRODUCT INSURANCE36DATA INTEGRATION299PROPERTY INSURANCE94DATA MINING192REGTECH4DENTAL INSURANCE11REINSURANCE60DOCUMENT POLICY MANAGEMENT27RISK MANAGEMENT393DRONE MANAGEMENT20ROBOTICS650DRONES204SENSORS1,218ELDER CARE56SHARING ECONOMY138ENTERPRISE INSURANCE25SMALL BUSINESS INS69ENTERPRISE SECURITY38SMART BUILDING110FITNESS COMPANIES850SMART HOME259FRAUD DETECTION140SOCIAL IMPACT62GENETICS459SOFTWARE & TECHNOLOGY925GEOSPATIAL101SPECIALTY LINES57HEALTH AND WELLNESS396TELEMATICS101HEALTH DIAGNOSTICS914TRANSPORTATION3,398HEALTH INSURANCE238TRAVEL INSURANCE53HOME HEALTH CARE51UNDERWRITING107HOME SECURITY47USAGE BASED INS26HOMEOWNERS RENTERS33USER ACQUISITION53IDENTITY MANAGEMENT257VEHICLE SAFETY32IN-VEHICLE INTELLIGENCE21VEHICLE SERVICES16INFRASTRUCTURE BACKEND12VIRTUAL REALITY42INSURANCE1,273WEARABLES496INSURANCE COMPARISON TOOLS116WEATHER INSURANCE10

Source: Innovator’s Edge

Risk managers who aren’t looking through an insurance lens are asking, “What if we could…?”, and they may just get their wishes through robotics, life sciences or any number of other innovations in the categories listed above. So, workers comp insurers had better be asking those same sorts of questions, based on the whole panoply of innovations that may come from the full list of 35,000 early-stage companies we are tracking, spanning 173 countries.

At the moment, most insurers are not. I’ve been inside eight major workers comp carriers making presentations to boards or corporate leadership teams. Only one is gearing up to prepare for a world where the nature of risk has changed.

After the panel, three attendees approached Waldron and me and posed a tough question: “How do you get existing companies to grow their appetite for risk and innovation?” Waldron responded: “I knew how our organization approached managing risk, and everyone knew we were struggling. I went to our corporate leadership and challenged them to eliminate as many rules of the road as they could. We needed a new rule book.”

When customers are offered a choice between expedited recovery and eliminating the need to recover, they will have been provided a new rule book, insurers had better get one, too.

Guy Fraker
Chief Innovation Officer
guy@insurancethoughtleadership.com

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