Ben Stiller

Somehow Gets It Right

In spite of a piddling 25 out of 100 review from Rotten Tomatoes and a Golden Raspberry “Worst Actor” nomination for its star, Ben Stiller, the 2004 film Along Came Polly was an audience fave. 

M&A 2018 As Printed

See the full supplement in PDF format.

Going My Way?

New relationships, same old economy... for now.

Private capital is more diverse, more long-term and more interested in the insurance industry than ever before.

Insurtech Number Cruncher

Regulating Across Industries

A Flexible Framework

Is Your Client Covered?

Here’s what a typical EPLI policy covers.

Which Businesses Have the Most Complaints?

Four industries account for more than half of all EEOC sexual harassment complaints.

Numbers Cruncher

‘Same Old’ Economy?

M&A continues to heat up, but the long-term outlook throws some headwinds in the face of this continued pace.

Whether we are headed into a hardening market in 2018 remains an open question to MarshBerry for a number of reasons. Overall, the p-c insurance industry remains very strong on a relative basis, with all-time highs for policyholders surplus, which stands at $719.4 billion, and ratio of net premiums written to surplus, which was 0.76 as of September 2017. 

Behind the Curtain

The top 10 buyers offer a peek into their strategies.

The March to 2022

No slowdown yet, but buyers can’t escape the long-term effects of the new tax code.

When will the merger and acquisition bubble burst? This question has been looming over the rush of activity for the past couple of years—and 2017 showed no slowdown after a record number of deals and growing interest from new private capital players who are entering the insurance brokerage space as investors.

Los Angeles, California

Jerry Sullivan, Chairman, The Sullivan Group, shares his hometown highlights.


April 4, 2018, marks 50 years since Martin Luther King Jr. was assassinated in Memphis, Tennessee.

Decent Fighting Form

P-C and health insurers were tested in 2017 but remain strong.

There was no shortage of excitement in the U.S. property-casualty and health insurance markets in 2017. Like seasoned boxers, the p-c markets were tested by several roundhouse punches in the form of large catastrophes in the third and fourth quarters, while health insurance markets continue to weave and bob with every new jab at the Affordable Care Act. 

Integration: A ‘Dirty’ Word?

The many ways buyers approach integration can make the process feel like a great unknown to sellers.

Integration—what does it really mean? This critical merger and acquisition transition process can feel like diving into murky waters for sellers, who often aren’t sure what to expect. 

New PE Players

Private capital is more diverse, more long-term and more interested in the insurance industry than ever before.

For those of you who have not been paying attention, private-equity backed brokerages have taken over the M&A world. They completed 316 announced transactions in 2017, which represented 57% of the total announced deal activity for the year. 

The Call to Insure

Upswings in religious violence bring coverage needs for places of worship.

The immediate aftermath of a mass shooting often leaves citizens and politicians in a mass gridlock of gun control versus the Second Amendment.

Insurtech Charges, Cyber Lags

The most successful insurance companies are those leading the insurtech charge, IBM finds in a survey of 1,200 insurer, insurtech and venture capital firm executives. IBM found 81% of outperforming insurance businesses either have invested in or are working with insurtech businesses. 

Machines Learn Policy Review

Chris Cheatham, Co-founder and CEO, RiskGenius

As he pored over millions of documents, Chris Cheatham decided there had to be a better way. His startup, RiskGenius, applies machine learning to speed policy review. 


Insurtech Number Cruncher

Click. Bind. Repeat.

London portals make placing small business for U.S. brokers easy and profitable.

High-tech wizardry is revolutionizing our world. When insurers began selling auto and homeowners cover directly to clients over the internet long ago, thousands of agents were thrust out of work over a few short years. 


New websites enable brokers to buy cover without sending a fax, opening an envelope or picking up the phone.

Ascent Underwriting of London receives tens of thousands of online inquiries each year from 90 brokers.

A process that has taken days or weeks using traditional channels can now be completed within minutes.

Digital Therapy

Q&A with Rob Guigley, VP of Sales and Health Plans, Omada Health

Omada Health has developed a 16-week digital behavioral-change program meant to help participants lose weight and reduce healthcare costs. Leader’s Edge sat down with Omada Health’s Rob Guigley to discuss the potential of digital wellness programs for combating obesity and its related health conditions. 


#MeToo means more coverage needs for your clients.

It started with Harvey Weinstein. When The New York Times and The New Yorker magazine broke their explosive stories that dozens of women reported incidents of sexual harassment, abuse and even rape by the Hollywood film producer, the revelations lit a fuse that had clearly been waiting for this breath of oxygen to spark.


The business community is suddenly focused on its exposure for managers’ and employees’ atrocious behavior.

Since 1991, the year of the Clarence Thomas hearings, the number of carriers offering EPLI coverage has risen to more than 50 from five.

When cases result in defense and settlement costs, the average bill is $160,000. Jury awards often go much higher.


Read the Sidebars

Which Businesses Have the Most Complaints?

Is Your Client Covered?

Bon Appétit!

Cyber regs are a mouthful.

Business and trade associations have long argued that companies can manage their cyber-security programs without government interference. Those groups seem perilously close to losing the argument.


While business has avoided government regulation of cyber security, U.S. and European authorities appear ready to prescribe controls.

Last year’s cyber attacks caused unprecedented disruptions and soaring losses.

The NotPetya malware, begun in Ukraine, crippled global organizations, including Maersk, Federal Express and Merck.


Read the Sidebars

A Flexible Framework

Regulating Across Industries

Ross Buchmueller

President & CEO, PURE Insurance

This business is a journey without a destination.

When a Deal Goes South

You’ve done the deal and find all is not as it seemed. How could you have avoided this?

It’s called reps and warranties insurance, and it once was used primarily in mergers and acquisitions between private equity funds. Today, it shows up in all segments of the M&A market, including insurance brokerage M&A deals. 

Read the Numbers

Understanding financial concepts is crucial for managers and sales professionals.

What do an English major, a history major and a biology major all have in common? They can all end up working for an insurance agency. 

Thinking Outside the Sandbox

Insurtech experimentation is proliferating in sandboxes across the globe.

For children, it’s a chance to explore and create within a confined space. Adults need a similar opportunity—including those in the no-child’s-play, multibillion-dollar insurance sector. 

Who’s Buying?

Following another record M&A year, we are seeing a plot twist with new private capital entering the marketplace.

Are you a potential seller in today’s overcrowded M&A marketplace? If so, it is important to understand the market you are entering.

Medicare for All?

This train is gaining steam, especially if the Democrats take back Congress.

I think one of the fundamental, but not expressly discussed, debates driving our health policy discussions in the United States is this: should the objective be that everyone has access to the same healthcare, or should it be to ensure everyone has access to a minimum necessary level of care? 


Numbers Cruncher

The Uphill Battle

We’re past due on moving diversity and inclusion initiatives forward.

We find ourselves in a unique time. It’s clearer by the day that the pace of social change in our country is simply not fast enough, and the resulting effects are being underscored in the business world.

Peter Ustinov

Hercule Poirot, Insurance Investigator

Hercule Poirot, Agatha Christie’s brilliant Belgian detective, made a bit of a comeback last winter when yet another version of Murder on the Orient Express hit the big screen, with a deadpan Kenneth Branagh as the detective.

Playing Favorites

The dismantling of net neutrality could undermine telehealth.

The dismantling of so-called Net Neutrality rules regulating service providers that connect consumers to the internet may have unintended consequences for the rapidly growing telehealth industry.

Surprising Growth

Central and Eastern Europe’s growth is outpacing that of its western neighbors.

In two years, Central and Eastern Europe (CEE) will celebrate the 30th anniversary of the fall of the Iron Curtain and the restoration of the market economy. The region has seen great change over the past 80-plus years.

Virtual Class on Company Culture

“A Company Culture for Today’s New World”

15 Steps to Safer Cyber Security

Data-Driven Care

Q&A with Jim Meadows, M.D., Chief Medical Officer at Narus Health

Finding the Right Partner

The Questions Brokers Should Ask

Who Are Some of the Providers?

Their fees and methods vary.

Virtual House Calls

Telemed saves money and means the doctor is always in.

Time is of the essence in the agricultural industry, given the short window of opportunity to harvest fruits and vegetables in their peak condition. When workers feel under the weather from a cold or stomach virus, they typically have to drive a long distance to a medical clinic or hospital emergency room for treatment. Time is spent waiting in the facility. An entire day’s work can be squandered.


Telemedicine is on-demand healthcare provided remotely by a doctor or other medical specialist.

Employees with non-life-threatening illnesses communicate their concerns to a medical specialist, who prescribes treatment.

The online consultation may involve video, phone, photos, a written exchange—or all of the above.


Read the Sidebars

Who Are Some of the Providers?

Finding the Right Partner

Traveler’s Briefcase

Mark & Graham pouches, Audi Q5s, and a luxury retreat in China

From Trading Floor to Keyboard

The Empire is over. Wooden ships sunk. Bringing risk to a pinstriped man in London is no longer the only option.

To reach the office of the chairman of Lloyd’s of London, you must cross the cathedral-like room known as the Lloyd’s trading floor. It’s early afternoon when I pass through, so the usual buzz is absent. Only a few juniors with gourmet takeout sandwiches are on the box (in the underwriting booths). 


In 2003, Carnegie-Brown said the future of London wholesale broking rested on its ability to embrace technology. Today, the same market faces the same challenge.

The goal isn’t new for Lloyd’s, but so far every comprehensive attempt to modernize the placement process has failed.

Under the plodding old ways of Lloyd’s, brokers still wait in queue to make their pitch to underwriters.

Incubating Healthcare Tech

Think Tank

Accelerator programs offer access to innovation.

Paul Tyler moved to Hartford, Conn., in 2016 as chief marketing officer for Phoenix Life Insurance. Hartford has long been an insurance hub, and Tyler was eager to learn how the industry was responding to changes in consumers’ buying habits.


Accelerators have shown they can provide a range of benefits—jump-starting a local economy among them.

In addition to giving industry stakeholders in-person access to insurtech technologies, accelerators can help these stakeholders keep tabs on what competitors are doing or identify rising talent.

Startups that participate with an accelerator can gain valuable insight into what their products need to be a viable investment.


Read the Sidebars

Incubating Healthcare Tech


This insurtech startup sees brokers as essential.

When it came time to name his new startup, brokerage industry veteran Phil Edmundson thought of crows and their cousins among the birds.

Kate Armfield

COO, AHT Insurance, Leesburg, Virginia

I didn't want to be just the boss's daughter.

Culture Is Your Business

Reduce turnover by engaging employees with a refined company culture.

We know Peter Drucker’s line: “Culture eats strategy for breakfast.” But do we take it to heart? 

Global Budgets: Testing Ground

Q&A with Jesse Pines, M.D., GW Center for Healthcare Innovation and Policy Research, and Jessica Galarraga, M.D., MedStar Health Research Institute

Father Time Will Prevail

A staggering amount of supply was evident in 2017.

You have heard the saying before, right? It typically is used in relation to aging athletes as they attempt to hang on and extend their careers. 

Little Rock, Arkansas

Martin Rhodes, President & CEO of Stephens Insurance, shares his hometown highlights.

2018’s “It” City

The city is celebrating its 300th anniversary, right in time for RIMs!

Cybering Up for Your Safety

This 15-step program will help you recover from unsafe practices.

After a number of significant cyber attacks last year, many organizations are looking for ways to make 2018 a “cyber secure” year. But coming up with a list of solutions to improve an organization’s security posture is no easy task. 

The Devil in the Details

Can Amazon, Berkshire and JPMorgan Chase Forge a New Healthcare Frontier?

Three of America’s most admired companies—Amazon, Berkshire Hathaway and JPMorgan Chase—representing close to two million employees, recently announced the formation of a company to tackle the unsustainable and surging costs of healthcare plaguing their businesses.

Your Customer Consort

Client demands are changing the reigning delivery model.

At the front end of our Legislative & Working Groups Summit last month was an attention-grabbing session on the customer experience, facilitated by Wharton Executive Education. Customer experience is something you’ve heard me talk about ad nauseam, but it really is that important. Customer demands are changing the way business is delivered.

The Magic Bullet?

Feds expand use of association health plans in hopes of combating rising costs.

Since at least the second Bush administration, association health plans (AHPs) have been touted as a magic bullet to combat rising healthcare costs and dwindling coverage options in individual and small-group markets. 

Talking Pot

The marijuana market is booming.

In a follow-up to our recent feature, Council Chief Legal Officer Scott Sinder gives us the latest on this booming business.

Traveler’s Briefcase

Scandinavian hot spots, breakfast at Tiffany’s and Priority Pass

Model Law Moving

The NAIC data security model law moves to the states.

The insurance data security model law adopted in October by the National Association of Insurance Commissioners moves to the states in 2018, and South Carolina is likely to be among the first to take it up, says South Carolina insurance director Raymond Farmer, chair of the NAIC’s Cybersecurity (EX) Working Group.

Linda Fiorentino

It’s the women you have to watch out for.

And now for something completely different: an insurance movie where the female lead is evil, promiscuous, snarky and vicious and stays that way throughout, without reform. (This role is usually given to the male CEO; see The Rainmaker.)

Andy Vetor

Executive Vice President, Employee Benefits, MJ Insurance, Indianapolis

I tell people in some ways cancer is the best thing that ever happened to me. It gave me a perspective I could never otherwise get.

Savannah, Georgia

David Paddison, President of Sterling Seacrest Partners, shares Savannah’s secrets.

What’s Old Is New Again

Baltimore balances its rich history with modern sensibilities.

Inside ACOs

Q&A with The Leavitt Partners’ chief development officer, David Smith, on accountable care organizations.

Accountable care organizations (ACOs) are a payment arrangement made between healthcare payers and providers to assume responsibility for the care of a particular patient group. To date, there are more than 930 ACOs across the country covering 32 million lives. 

Technology Driven

Q&A with Ted Devine, CEO of Insureon

Making Sense of Something

Crazed Washington will keep us both jumping in 2018.

Each year we ask our intrepid lobbyists, Joel and Joel (that’s Wood and Kopperud to most of you), to take up their partisan cudgels and defend their passions, explain their political visions and give us some clarity about our industry’s political future (i.e., what the hell is Washington doing to us now). This is their latest salvo, via traceable emails, of course (this is Washington, after all). —Editor 

Don’t Tell, Don’t Ask

Can genetic testing give consumers the edge in long-term care?

A simple test can now tell consumers if they have an increased tendency to develop chronic diseases such as Alzheimer’s disease. For carriers, is it an opportunity in disguise or a threat to their risk pools?


Increases in cognitive dementia and Alzheimer’s disease are looming pitfalls for Americans and for the long-term care industry.

Since 2010, most major carriers have left the long-term care market.

From age 65, men will be chronically disabled for an average of 20% of their future life expectancy.

Undergrads Launch Bermuda Captive

Butler University’s program may just be the answer industry talent scouts have coveted.

On the first day of Michaela Neal’s Special Topics in Risk Management course at Butler University, Professor Zach Finn welcomed the class with the news they’d be creating a student-run insurance captive.


Fewer than 100 risk management and insurance degree programs at American colleges produce about 4,000 graduates each year.

Filling the jobs being left by retiring baby boomers will require 500,000 new hires.

Once students learn of the vast opportunities the industry presents, it’s not such a tough sell.

Broker ACO Checklist

Critical Mass

Are ACOs an option for small and midsize employers?

The very definition of an ACO is a group of providers that assume responsibility for the care and quality of a defined population of patients. And, as in most healthcare spaces, the more lives covered the better. 

Double Vision

In theory, ACOs promise great value, but how do they fare in practice?

In theory, everyone wins when you create an accountable care organization. Providers earn financial incentives for providing higher-quality, more coordinated care while avoiding wasteful spending, and insurers spend less on a system that’s better tailored to patients’ needs. That’s the theory, anyway.


ACO providers agree to financial rewards or penalties based on their ability to meet benchmarks.

Since their creation in 2010, ACOs have delivered mixed results.

One expert says the most successful ACOs are those that have been at it the longest.


Read the Sidebars

Critical Mass

Broker ACO Checklist

Hungry for a Challenge

Are your millennials lazy or just bored?

When my children were little, they would often come to me and say, “Mommy, I’m hungry.” If this was not around traditional mealtimes, my first response was always, “Think for a minute. 


Carriers wallow in inertia and impede innovative program administrators’ progress.

Many carriers struggle to meet the needs of program administrators. What gives? Program carriers are not keeping up with the demands of administrators and, in fact, are making it more difficult to innovate. 

Family Time

States and employers are stepping up to implement PFL benefits.

What do New Jersey, Rhode Island, California, Facebook, Deloitte and Nordstrom have in common? They are leading the way in implementing proactive paid family leave (PFL) benefits.

A Reboot

Leader’s Edge will be transitioning this year in a new direction.

It’s hard to believe it was 2003 when Ken Crerar and I sat down to map out a plan to launch a new magazine for commercial insurance brokers. It was an audacious idea, what with so many insurance business magazines in the market, yet it was difficult to believe there wasn’t one targeted exclusively toward commercial brokers. 

The Onus Is on Us

We are an old industry that needs new blood, and we need to invest in that talent now.

I’m passionate about a lot of things, but topping the list these days is a desire to change the story of what a career looks like in the insurance industry. As this year’s Council chairman, I plan to drive this passion.

Beware IRS Letter 226J

Clients face stiff fines if they don’t respond within 30 days.

Your clients are starting to get the letters.

When Will the Madness End?

Deal count and price continued to rise in 2017.

Here we are again. I honestly feel like a broken record. It has been at least three years of the same commentary. 

Making Sense of Something

Crazed Washington will keep us both jumping in 2018.

Each year we ask our intrepid lobbyists, Joel and Joel (that’s Wood and Kopperud to most of you), to take up their partisan cudgels and defend their passions, explain their political visions and give us some clarity about our industry’s political future (i.e., what the hell is Washington doing to us now). This is their latest salvo, via traceable emails, of course (this is Washington, after all). — Editor

New Health Benefit Option for Small Employers

Agencies issue guidance on QSEHRAS. Here’s what you need to know.

A somewhat overlooked provision in the 21st Century Cures Act allows some employers to offer a new kind of tax-preferred arrangement—qualified small employer health reimbursement arrangements (QSEHRAs)—to their eligible employees.

Bob Hope

A life insurance policy for a gunslinger? That’s the premise of Alias Jesse James.

“BOB HOPE as the Most Wanted TRIGGER in the West!
RHONDA FLEMING as the Most Wanted FIGGER in the West!”

Don’t Just Change in 2018. Improve.

We began the year with uncertainty, we wanted to end it with purpose.

One of the most creative and, quite honestly, fun parts of working on Leader’s Edge is the art process. We want our content to keep you engaged and interested over the long term, but we also want our art to delight and inspire you immediately. We want it to draw you in. And that’s no small task. 

Telematics Goes Mobile

Smart phone apps offer useful driving data.

Virtual Claims

Q&A with CJ Przybyl, Co-Founder and President, Snapsheet

Indianapolis, Indiana

James Roe, President of Arlington/Roe, shares his Indy.

On the Waterfront, Off the Grid

Three miles off of Key West is Stock Island, an emerging luxury destination.

Public Players Tested

Bring It

Your 2018 leadership challenge

I was thrust into the biggest career change of my life at the age of 34: CEO. It was exciting and there was much to accomplish but admittedly, I didn’t know anything about leadership. 

Follow the Money

While the losses from this fall’s catastrophic events were massive, financial diversification and innovation will ease some of the pain.

England’s 1603 Insurance Act declares: “The loss lighteth rather easily upon many, than heavily upon few.” In this tradition, claims from even the most damaging storms are divided and distributed around the world, to be spread over many pools of capital. Still, the recent spate of tempests will truly test the efficacy of a system in which major losses are shared among the many. 


The 2017 Atlantic hurricane season will erode the industry’s enormous capital base.

But the season might also drive a longed-for rise in market pricing, potentially reversing its fortunes.

Morgan Stanley analysts described the third quarter of 2017 as potentially the worst insured natural catastrophe experience on record for the period.


Read the Sidebars

Public Players Tested

James (Jim) J. Maguire

“Believe what you are and become what you believe.” —James J. Maguire

Robert (Bob) J. Newhouse Jr.

A transformative leader, an idea man and a true gentleman

Game Changers

Honoring a transformative leader and a true American spirit.

Each year The Council recognizes those who have made extraordinary contributions to the insurance industry and commercial insurance brokerage. We call them Game Changers. —Editor

Building on the Future Today

The Council Foundation awards 75 scholarships to future industry leaders.

In an effort to build our industry’s future, The Council Foundation’s scholarship program has awarded $375,000 in scholarships to 75 college juniors and seniors interested in pursuing a career in insurance brokerage. 

Dave Eckroth

CEO, Parker, Smith & Feek

We always say we don’t do easy very well.

Riding the Tech Wave

Risk management has a key role in our understanding of new technology and protecting against new exposures.

In the past decade, technology has changed significantly, transforming how businesses plan, execute, innovate and grow. Critical business tasks previously reliant on manual labor or paper processes are now completed by automated systems, connected machines and artificial intelligence. The “future” of business isn’t distant; it’s here.

A New Perspective

A summer internship at an insurance brokerage changed my view of what a broker really does.

I will admit I had a skewed misconception of the insurance brokerage business. I thought the only responsibilities of a broker were to obtain insurance at the cheapest price possible for the client and sell as much as possible. However, this summer, as I interned at Johnson, Kendall & Johnson (JKJ) in Newtown, Pennsylvania, it became clear that I was wrong. 


The market is flush with record activity.

The year-end push for deal closings is at full speed as sellers try to decide whether it is more advantageous to close their transactions on December 31 or January 1. 

Let’s Stop the Silliness

It’s long past time for agent appointments to go.

“I’m supposed to be the franchise player, and we’re in here talking about practice…Not a game…Not the game that I go out there and die for and play every game like it’s my last. Not the game, but we’re talking about practice, man. I mean, how silly is that?”
—Alan Iverson, May 2, 2002

Keep It Real

Local colleges are a great resource for young talent. But these recruits need a real experience.

The war for talent is escalating. More than 400 first-round interviews were recently conducted at the annual conference of Gamma Iota Sigma, the industry’s risk management, insurance and actuarial science fraternity. There were 50 insurance organizations onsite but very few insurance brokerages.

Finding Happiness, Even at Work

It’s a season of stress. Here’s how to find happiness in the chaos.

’Tis the season to be jolly…May your days be merry…It seems, no matter where you look, you’re being told that you should be happy this month.

Numbers Cruncher - Dec 17

Playing senior risk analyst Reuben Feffer, Stiller knows that an average of 39 people have put their filthy hands in the nut bowl on the bar and that only one in six washed those hands before that.

“I’m a risk analyst,” he says. “It’s my job to worry.”

Poor, exacting Reuben. Even without his beloved risk/reward software, he can spot a bad idea—except in love. His wife runs off with a French scuba instructor on their honeymoon, and Reuben soon takes up with Polly Prince (Jennifer Aniston), an itinerant waitress who lives in a bad neighborhood, drags him to iffy ethnic restaurants, and dances at dodgy salsa clubs.

She slashes open his throw pillows when Reuben notes that removing and replacing the pillows on his bed costs him 56 minutes per week. The spicy foods at her favorite spots make him desperately ill. Can this work?

When Reuben’s wife returns to him, he runs the risk/reward software on both women. In the end, of course, he ditches the math and goes with his gut. He even agrees to insure Leland van Lew, a young zillionaire with a penchant for very dangerous sports, on the grounds that the man has cheated death a thousand times.

Whoever ran the risk/reward software on financing Along Came Polly perhaps knew that the flimsy romcom would be roundly booed but the megawatt stars would be a draw. Made on a $42 million budget, it grossed more than $173 million. But it is charming, and part of that charm is Reuben’s endless recitation of the odds. Who knew insurance could be this much fun?

—Louise Lague

Click here to view the supplement in full.

For those of you who have not been paying attention, private-equity backed brokerages have taken over the M&A world. They completed 316 announced transactions in 2017, which represented 57% of the total announced deal activity for the year. The demand that continues to drive activity within the industry seems to be endless. And it has led to more investor diversification, creating a new category of investor—private capital.

Download the full Publication here.

$697 million
Insurtech funding in Q4 2017

Increase in funding from $271 million in Q4 2016

Total Q4 2017 transactions, second-highest quarter on record

U.S. share of Q4 transactions, compared with an average of 62% since 2012

U.K. share of transactions

Share of Q4 investment rounds focused on front-end processes (product and distribution)

Share of Q4 investment rounds focused on back-end processes

$30 million-plus funding rounds in Q4 2017

Half the top 10 Q4 funding rounds went to companies outside the United States

Source: Quarterly InsurTech Briefing from Willis Towers Watson and CB Insights

Although most cyber-security regulation has been targeted at specific data or industry sectors, one of the most effective ways to push requirements out to all businesses is to impose regulations, or “guidance,” on government contractors and public companies. The Securities and Exchange Commission and federal procurement regulators have chosen this path and have become increasingly specific with respect to cyber-security requirements.

The Federal Information Security Management Act (FISMA), enacted in 2002, imposed cyber-security requirements on agency and contractor systems and compliance with certain Federal Information Processing Standards. It requires risk-based information-security measures and applies to data and systems operated by a contractor on behalf of an agency.

In 2016, the Federal Acquisition Regulations (FAR) on Basic Safeguarding of Contractor Information Systems was implemented, which requires 15 security controls. The regulation applies to all government contractors and is effective when included in contracts.

Following a series of breaches at agencies and defense contractors, the Department of Defense, in 2013, created its own cyber-security procurement regulations, which require contractors and subcontractors to safeguard computer systems and report data breaches within 72 hours. The rule does not apply to contracts for commercial off-the-shelf technology. The Defense Federal Acquisition Regulation Supplement (DFARS) now requires defense contractors to comply with NIST guidance on protecting controlled unclassified information, notify the Defense Department of incidents within 72 hours, save all data associated with an incident for 90 days to enable the Defense Department to review or inspect the system, and notify the department if a cloud provider will be used.

“Concern grew exponentially as the end of 2017 approached and contractors realized they were not in compliance with DFARS requirements, particularly NIST 800-171,” says David Bodenheimer, a public contracts partner at Crowell & Moring. Bodenheimer points out that the Defense Department has several avenues to enforce its cyber-security requirements, including refusing to do business with the contractor or disqualifying it; giving the contractor a negative past performance review, thereby reducing its opportunities for future awards; suing the contractor for breach of the cyber-security safeguards clause in the contract; blacklisting or debarring the contractor; and bringing a False Claims Act suit against the contractor if it falsely implied in its proposal that it was in compliance with 800-171.

“Subcontractors are particularly vulnerable, as their prime contractors may cut them from contracts if they are not in compliance with 800-171,” Bodenheimer says.

The SEC formally entered the cyber-security regulatory realm in 2011 with its “Corporate Finance Disclosure Guidance: Topic No. 2,” which guides public companies on disclosure of cyber-security risks and cyber incidents. The SEC advised companies to disclose cyber-security risks if these risks are among the most significant factors that make an investment in the company speculative or risky. In February, the SEC issued “interpretive guidance” to assist companies in preparing disclosures about material cyber-security risks and incidents. The guidance expands on what cyber risks may be material and puts more responsibility on directors and officers for managing cyber risks.

In 2014, the SEC conducted a series of examinations of the cyber-security programs of registered broker-dealers and investment advisors to identify cyber-security risks and assess cyber-security preparedness in the asset management industry. The following year, the commission issued “Guidance to Registered Investment Funds & Advisers on Cyber Security,” which discusses a number of measures funds and advisors may wish to consider when addressing cyber-security risks, including risk assessments, cyber-security strategies, and policies and procedures.

In 2017, the SEC established a cyber unit in its Enforcement Division to focus on targeting cyber-related misconduct. The unit wasted no time. Last December, it obtained an emergency asset freeze to stop an initial coin-offering fraud that had raised $15 million from thousands of investors.

The SEC means business (even though it took until September 2017 to disclose its own breach, which took place and was detected in October 2016). “Businesses should take seriously the SEC guidance on cyber security and the need for well tailored and consistently implemented policies and procedures around data, vendor and network risk management,” says Gwendolyn Williamson, a partner with Perkins Coie who represents investment and business development companies.


While the financial services sector has seen heavier cyber regulation than other industries, the federal government has acknowledged the importance of cyber security across industries. In 2013, President Obama issued an executive order calling for the National Institute of Standards and Technology (NIST) to lead the development of a framework to reduce cyber risks to critical infrastructure. The NIST Framework, released in 2014, was meant to “provide a prioritized, flexible, repeatable, performance-based, and cost-effective approach,” according to the executive order.

Thomas Finan, client engagement and strategy leader for North America at Willis Towers Watson Cyber Risk Solutions and former senior cybersecurity strategist and counsel for the Department of Homeland Security, credits NIST with helping set in motion a flexible mindset and approach that provides a road map for what industries should think about and prioritize for cyber security. “And what NIST recognized…is that every organization is unique and has a unique cyber-risk profile. But there are shared common approaches and issues.”

Finan believes the NIST Framework provides the backbone an organization of any size and in any industry can use to build on and further develop as needed. And, according to Gartner research, 30% of U.S. organizations had implemented the framework two years after it was released, with 50% predicted to implement it by 2020.

“I think the federal government has spoken through NIST with the cyber-security framework,” Finan says. “And I think what you are likely to see, and what you are seeing, is that industry sectors and associations are responding to the framework with their own interpretations on how best to implement it. That’s what’s getting traction right now.”

  • Sexual harassment
  • Discrimination
  • Wrongful termination
  • Breach of employment contract
  • Negligent evaluation
  • Failure to employ or promote
  • Wrongful discipline
  • Deprivation of career opportunity
  • Wrongful infliction of emotional distress
  • Mismanagement of employee benefit plans

Source: Insurance Information Institute

1. Accommodation and food services            14.23%

2. Retail trade                                                 13.44%

3. Manufacturing                                            11.72%

4. Healthcare and social assistance                11.48%


Source: Center for American Progress

Number of Republicans who sit in districts won by Hillary Clinton in 2016

Average number of seats lost at midterms for the president’s party since the end of World War II

Average number of seats lost at midterms for the president’s party when the president’s job approval is below 50% (Depending on the poll you read/believe, the president’s job approval rating was hovering around 40% on March 1.)

The industry appears to be well capitalized and able to withstand large payouts. The headwinds and potential trends toward a hardening market include: (1) a significant increase in catastrophic claims, (2) larger underwriting losses, and (3) a rise in premium rates, especially for personal lines and commercial auto.

Catastrophe. Although it is too soon to finalize full-year 2017 U.S. catastrophe claims, the impact of hurricanes and California wildfires and mudslides is expected to lead to insured losses in excess of $90 billion. This would represent the highest level in the past 25-year period.

Underwriting. The combined ratio jumped to 104.1 for the first nine months of 2017, up from 100.7 at year-end 2016, according to the Insurance Information Institute. The significant increase in the industry’s underwriting loss is due to high claims and claim-adjustment expenses as a percent of earned premiums. This is not a surprise given the year’s catastrophe claims.

Premium Rates. Compared to prior years, we saw in 2017 a decrease in the positive development of loss and loss-adjustment-expense reserves among U.S. p-c insurers. Higher premium rates and pricing looking forward is supported by a combination of lower reserve levels and higher reinsurance rates based on U.S. natural catastrophes. This is especially the case in certain lines of business such as personal lines and commercial auto, as carriers might be compelled to readjust pricing for risk and exercise greater underwriting discipline. 

Private Equity Continues to Drive M&A

The merger and acquisition space continued to see high levels of deal activity in 2017, resulting in a record year. Within its proprietary tracking deal database, MarshBerry recorded 557 announced brokerage transactions, up 26% year over year and up 22% from the prior record-breaking count in 2015 of 456 deals.

Private-equity backed buyers—including those with private capital backing—continue to be the main driver of deal activity and value, representing 57% of all deals (316 deals) in 2017. Out of the top 21 most active buyers (defined as those completing five or more deals in the year), which represented more than 61% of total deal activity, only six do not have PE or private capital backing.

In fact, again in 2017, nine of the top 10 buyers were PE-backed, including those with private capital backing (read more on that in the “New PE Players” story). There has been a significant increase in PE-backed buyer activity during the past 10-plus years. Private equity represented just 7% of deal activity in 2007.

Interestingly, the number of PE-backed buyers in the marketplace in 2017 was similar to that of 2016, with 26 in 2017 compared to 27 the previous year. However, these buyers were more active in 2017 and completed 316 total deals, up from 242 in 2016—an average of almost one per buyer, per month.


The top 11 PE-backed buyers (including a tie for 10th place) represented 48% of the total 2017 deal activity in the industry and 85% of the total private-equity backed deals. Although there are indications that interest rates are on the rise, the availability and relatively low cost of capital continued to help drive PE-backed buyers to target insurance brokerages at an accelerating rate, driving activity within the industry overall. With investors searching for higher yields in a low interest rate environment, we are seeing that there continues to be heightened interest and demand among private equity in the insurance brokerage space. 

Leading Acquirers

The top five buyers in 2017 included four of the top buyers in the prior year. Of the five top buyers, one does not have private equity backing. The top three buyers are identical to 2016.

The top five most active buyers accounted for 35% of all transactions in 2017 (195 of 557).

Acrisure was the top buyer for the third year in a row with 72 announced deals. Acrisure typically does not announce the target name of any acquisitions, and 2017 was no exception—only a handful of targets were named. It is likely that Acrisure successfully completed more than 72 transactions during the year.

Hub announced 42 U.S. deals and five deals in Canada, bringing its total North American deal count to 47. Its U.S. deal count was up more than 30% from last year’s 31 deals. Almost 17% (7) of its 42 U.S. transactions were managing general agents or non-traditional brokerages, which have made up Hub’s historical acquisition activities. Nearly 25% of its announced U.S. transactions were California-based agencies (10 of 42), but interestingly, the next two most active states were Alaska and Maryland, where Hub completed four acquisitions each.

BroadStreet Partners has been consistent the past few years, with 26 deals announced in 2015, 28 in 2016, and 32 in 2017. BroadStreet has a somewhat unique capital structure with the Ontario Teacher’s Pension Plan as its main source of private equity funding (among other minority investors), although these medium- to long-term investors are becoming more prevalent within the space. The firm has completed approximately 286 transactions including core agencies and tuck-ins since 2001, with a compound annual growth rate since 2010 of 23%. 

Gallagher reported 25 U.S. deals during 2017, tying for the fourth most active buyer in the U.S. market and earning it a place back among the top five most active buyers for the first time since 2014. The agency indicated on earnings calls throughout the year that competition remains high for deals and, through the third quarter 2017, it had paid a blended rate of about 8x EBITDA. 

AssuredPartners also announced 25 U.S. transactions. Completing a reported 190-plus acquisitions since its founding in 2011, AssuredPartners has grown annualized revenue to more than $940 million. The company has 200 offices in 30 states and London.

First-Time Acquisitions

We also saw continued interest from PE firms entering or expanding their portfolios within the insurance distribution space with first-time acquisitions made by the following private-equity backed buyers:

Baldwin Risk Partners (four deals) was founded in 2012 as a holding company above Baldwin Krystyn Sherman Partners, a middle-market multi-line insurance brokerage and consulting firm that was founded in 2006. See “New PE Players” for more on Baldwin Risk Partners and its funding structure.

U.S. Retirement Partners (two deals) is a national financial services company that specializes in employer-sponsored retirement and financial planning needs. It entered into the brokerage acquisition marketplace in 2017. Its private equity sponsor is Centre Partners, which invested in the firm in 2008.

AIMC (one deal) serves the senior market as a national developer and distributor of Medicare Supplement products. It merged with Integrity Group, a broker of L&H insurance products with financial backing from middle-market PE firm HGGC.

DOXA Insurance Holdings
(one deal) is entirely focused on acquiring MGAs with less than $75 million in annual premiums. DOXA Insurance Holdings is backed by private funds and investors.

Gravie (one deal) entered the brokerage M&A market with its acquisition of Breitenfeldt Group in 2017. It received private funding from several sponsors during the year. 

In addition, the following firms changed or added new private equity sponsors during 2017: 

USI Holdings was backed by PE firm Onex Corp, which announced in January 2017 it was exploring the sale of USI. It hoped the deal would value the firm at $4 billion—nearly a 12x multiple based on reported EBITDA of $347 million in the 12 months leading up to the end of the third quarter of 2016.

In May 2017, KKR and Caisse de dépôt et placement du Québec (CDPQ) announced they would acquire USI from Onex, as equal partners, at a $4.3 billion valuation. CDPQ is a long-term institutional investor that manages funds primarily for public pension plans, which indicates there is not likely to be a quick flip of the investment as we typically see with more traditional private equity sponsors. We believe that this may signal an emerging trend of buyers with longer investment time horizons entering the insurance brokerage market. See “New PE Players” for more. 

OneDigital Health and Benefits entered into a new sponsorship with New Mountain Capital, which purchased a majority ownership from Fidelity National Financial Ventures in mid-2017. OneDigital is exclusively focused on employee benefits and support, with more than 9,000 employees and more than 35,000 companies as clients.

 NFP Corp. entered a definitive agreement with HPS Investment Partners to make a substantial minority investment in NFP. Announced in 2016, the deal successfully closed in February 2017. HPS invested $750 million in NFP. Madison Dearborn Partners, NFP’s previous sponsor, maintained its controlling stake in the company. 

First-Time Acquisitions

We also saw continued interest from PE firms entering or expanding their portfolios within the insurance distribution space with first-time acquisitions made by the following private-equity backed buyers: 

Baldwin Risk Partners (four deals) was founded in 2012 as a holding company above Baldwin Krystyn Sherman Partners, a middle-market multi-line insurance brokerage and consulting firm that was founded in 2006. See “New PE Players” for more on Baldwin Risk Partners and its funding structure. 

U.S. Retirement Partners (two deals) is a national financial services company that specializes in employer-sponsored retirement and financial planning needs. It entered into the brokerage acquisition marketplace in 2017. Its private equity sponsor is Centre Partners, which invested in the firm in 2008. 

AIMC (one deal) serves the senior market as a national developer and distributor of Medicare Supplement products. It merged with Integrity Group, a broker of L&H insurance products with financial backing from middle-market PE firm HGGC. 

DOXA Insurance Holdings (one deal) is entirely focused on acquiring MGAs with less than $75 million in annual premiums. DOXA Insurance Holdings is backed by private funds and investors.

Gravie (one deal) entered the brokerage M&A market with its acquisition of Breitenfeldt Group in 2017. It received private funding from several sponsors during the year. 

In addition, the following firms changed or added new private equity sponsors during 2017: 

USI Holdings was backed by PE firm Onex Corp, which announced in January 2017 it was exploring the sale of USI. It hoped the deal would value the firm at $4 billion—nearly a 12x multiple based on reported EBITDA of $347 million in the 12 months leading up to the end of the third quarter of 2016.

In May 2017, KKR and Caisse de dépôt et placement du Québec (CDPQ) announced they would acquire USI from Onex, as equal partners, at a $4.3 billion valuation. CDPQ is a long-term institutional investor that manages funds primarily for public pension plans, which indicates there is not likely to be a quick flip of the investment as we typically see with more traditional private equity sponsors. We believe that this may signal an emerging trend of buyers with longer investment time horizons entering the insurance brokerage market. See “New PE Players” for more. 

OneDigital Health and Benefits entered into a new sponsorship with New Mountain Capital, which purchased a majority ownership from Fidelity National Financial Ventures in mid-2017. OneDigital is exclusively focused on employee benefits and support, with more than 9,000 employees and more than 35,000 companies as clients. 

NFP Corp. entered a definitive agreement with HPS Investment Partners to make a substantial minority investment in NFP. Announced in 2016, the deal successfully closed in February 2017. HPS invested $750 million in NFP. Madison Dearborn Partners, NFP’s previous sponsor, maintained its controlling stake in the company.

Independent Brokerages Edge Up Slightly

Independent agencies and brokerages completed 136 deals, or 24% of all activity, in 2017. It was proportionately the same rate of acquisition as in 2016 (24%) but slightly higher in absolute terms from the 107 deals completed the prior year. There were 106 buyers (up from 83 in 2016), approximately 14% of which completed multiple transactions and 67 that announced their first acquisitions in 2017. 

Cross Insurance, based in Maine, announced five deals in 2017 (one fewer than the previous year)—three located in Massachusetts and one each in Maine and New Hampshire. Cross is family owned and operated and has historically focused on the New England area. Cross has “absorbed” over 120 operations since its founding in 1954. 

World Insurance Associates, based in New Jersey, announced five transactions in 2017 (in line with its five announcements in 2016), continuing its expansion of retail agencies in New Jersey and New York. Four of the five agencies acquired in 2017 were multi-line agencies. World Insurance Associates specializes in transportation, hospitality, coastal properties and high-net-worth individuals. 

Ryan Specialty Group
, based in Illinois, also announced five acquisitions during 2017, up from two in 2016. RSG is a specialty distributor, focused on the wholesale and MGA space. All five of its acquisitions during the year fell into these categories (four MGAs and one wholesaler). 

Leavitt Group Enterprises, based in Utah, announced five acquisitions during the year, which varied across the western states of Washington, Colorado, Texas and California and included p-c firms, employee benefit firms and multi-line agencies. Leavitt is a top 100 p-c agency, with p-c revenues of almost $150 million in 2016.

These independent agencies each announced three transactions in 2017:

  • Florida-based Acentria Insurance completed three deals in Florida.
  • New York-based Evergreen P&C Insurance Agency completed one deal in Florida and two in Nevada.
  • Arizona-based RightSure Insurance Group completed one deal in California and two in Arizona.  

Seven other buyers reported two acquisitions each in 2017, with newcomers including Linnett Group and Hanson Insurance Group, which both announced acquisitions for the first time in 2017. We believe that the increase in the number of buyers in this category indicates that, despite the stiff competition in terms of agency valuations from the private-equity backed buyers, independent agencies are continuing to find ways to convince sellers there is more to life after the deal than purchase price. 

Public Brokerage Share Remains the Same

Public brokerage activity was up 12% in total deal count during 2017 (37 announcements versus 33 in the prior year). However, the overall proportion of deals represented by public brokerages did not change from 7% in 2016. There were four public brokerages in the market during 2017 (unchanged from 2016 and 2015), compared to nine public brokerage buyers in 2005 and more than 100 independent buyers in the marketplace in 2017.

Gallagher announced 25 U.S.-based transactions, up from 23 in 2016. Last year was its most active acquisition year since 2014 and earned it a place among the top five most active buyers during 2017. Gallagher also announced eight international brokerage acquisitions, bringing the total count to 33 brokerage acquisition announcements.

Brown & Brown announced seven transactions during the year, a step higher than the four announcements from 2016.

Marsh & McLennan Companies completed four U.S.-based transactions in 2017, compared to five reported deals from last year. All four were completed by subsidiary Marsh & McLennan Agency, which is focused on the middle market.

The fourth public brokerage, CBIZ, completed only one deal in 2017, the same number as in 2016. 

While activity was suppressed for some buyers, we expect public brokerages to continue seeking external growth opportunities to supplement their organic growth rates and meet investor expectations. The newly minted tax law has brought lower corporate tax rates that should have a positive impact on the after-tax cash flow of the public companies. Thus, we expect them to be more competitive in the market. 

Rounding Out the Field

The buyer segment of Insurance Carrier & Other includes PE firms (direct investments from private equity firms themselves and not the previously described acquisitions through PE-funded insurance brokerage aggregators), underwriters, financial technology firms, specialty lenders and other unclassified buyers. Activity within this buyer group increased to 46 deals in 2017, up from 39 in 2016; however, proportionately, buyers in this group did not change much, representing 8% of deals in 2017 compared to 9% in 2016.

  • PE companies accounted for 15 deals within this category, including some PE firms acquiring their second or third insurance brokerage business.
  • Insurance carrier buyers completed 18 deals, compared to 13 the prior year.
  • Non-PE, non-insurance companies (mostly credit unions, private investors and other undisclosed buyers) represented 13 deals within this category.  

Banks and thrifts completed 22 acquisitions in 2017, largely unchanged from the 22 announcements in 2016, but represented only 4% of the total deal count, down from 5% in 2016. Acquisition activity in this segment has steadily declined over the past decade, as banks have either typically divested themselves of insurance operations or stopped acquiring at the same pace.

  • There were 19 bank acquirers in the market in 2017 (seven of which announced their first transaction), with only three completing multiple transactions.
  • Fifth Third Bancorp, Cashmere Valley Bank and OneGroup NY announced two acquisitions each in 2017.  

International Activity Down

International M&A activity was not as robust as the domestic market during 2017. The total number of recorded announced international transactions, completed by both domestic and foreign buyers, during the year was 80, down from 98 in the prior year. There were 44 unique buyers internationally in 2017, down from 63 in 2016.

  • Fifteen buyers were based in either the United Kingdom or the United States, representing nearly 70% of the international deal activity.
  • Of the 80 deals announced internationally, 37 were independent agency/brokerage acquirers, 29 of which were PE-backed. In all, PE-backed agencies represented 36% of the international deals in 2017, far less proportionately than the domestic market.
  • Public brokerages had a larger share of the market, making up 24 of the acquirers, or 30% of all deal activity.

Aon and Gallagher were the most active acquirers internationally, with nine and eight announcements respectively. One of the larger transactions announced during the year was Aon’s purchase of Netherlands-based Unirobe Meeùs Groep. Announced in August and completed in November, the acquisition was valued at €295 million, or roughly $350 million. Aon noted that the acquisition would help strengthen its small to midsize enterprise and consumer capacities within the geography.


The United Kingdom was the most active M&A market outside the United States and was home to 41 of the 80 target companies, or just over half of all international deal activity. Several holdings of Tosca Penta Endeavour Limited Partnership, a PE-backed firm, completed six of the 41 U.K. acquisitions, making it the most acquisitive in the geography. Nevada Investments Topco Limited (under the Finch Commercial Insurance Brokers Limited name) and Aon rounded out the top three buyers in the United Kingdom, with four and three acquisitions during the year, respectively. 

Canada was the second most active venue during the year, though a distant second to the United Kingdom, with nine deals. Hub acquired five of the nine targets in Canada. Founded by the merging of 11 brokerages in 1998, Hub has its original roots in the Ontario and Quebec provinces of Canada.

Costs Drive EB Acquisitions

In 2017, employee benefits and consulting (EB) firms were involved in more M&A transactions than in any of the prior five years, at 123 deals (with another 144 deals involving multi-line firms). Ten acquirers completed two thirds of the announced EB transactions in 2017, with the five most active acquirers closing more than half of the announced transactions.

The top buyers of EB firms in 2017 included Acrisure, Hub, OneDigital Health and Benefits, Alera Group, and NFP and Gallagher (tied for the 5th most active acquirer). The next five most active buyers represented roughly another 15% of the transactions.

Employee-benefits firm owners who consider selling may be motivated by a number of things, including:

  • Continued Market Uncertainty. The Affordable Care Act did not put EB firms out of business, but the lack of solutions to address the key problems related to the cost of healthcare have not been addressed, and that leaves the industry vulnerable to continued politicking. As a result, while the EB market continues to evolve, it is considered less stable by some, as compared to property-casualty, and that continues to drive many owners of well run, high-quality EB firms to consider a sale of their firm. That sale brings diversification and, frequently, access to p-c markets and the ability to cross-sell, as well as access to additional EB resources.
  • Lack of Investment in New, Competitive Resources. The vast majority of employers with more than 50 workers continue to offer health benefits (90% of firms of 50-99 workers and 96% of firms with 100 or more workers), according to a survey conducted by the Kaiser Family Foundation in 2017. As health insurance costs continue to rise and premiums continue to increase, EB advisory firms are looking for ways to help employers keep costs in check and still provide a competitive benefit plan to their employees. This has led advisors to move from recommending fully insured medical plans as the bedrock of the benefit plan to offering more creative solutions, often involving self-funded plans, partially self-funded plans and captives, and tailored offerings of ancillary benefits and voluntary benefits.  

As a trend, employee benefit plans are becoming more comprehensive of employee well-being and may include employee financial wellness, personal information protection and identity theft protection, and flexible work arrangements, in addition to the traditional medical coverage, employer-paid ancillary coverages, and voluntary benefits. 

  • New Buyers with a Compelling Story. The number of buyers of EB firms has held consistent over the last few years, with Hub and Gallagher repeatedly in the top five. In December 2016, PE-backed Alera Group emerged on the scene by bringing together 24 independent agencies. Alera completed eight EB deals (of 15 total deals) in its first 12 months of operations, which is no small feat. This past year brought an additional uptick in activity in the employee benefits space from Acrisure, with 24 employee benefits deals (of 72 total deals) compared to three EB deals in the prior year, and from newly recapped EB firm OneDigital, with eight deals compared to three employee benefits deals in the prior year.

    The most active buyers, which generally have large EB practices, have developed solutions and resources for their broker base nationwide, making them attractive to smaller firms struggling to finance and develop the resources required in the current competitive landscape. Buying firms continue to look for high-quality EB firms to join their organizations. High-quality firms typically have consistent organic growth, a youthful ownership group, strong operating profit, a sophisticated client service model, and/or some unique attribute to add to a larger organization, such as geographical presence, specialty expertise or programs, an innovative leadership team, or a unique approach to the market. These types of firms typically command higher valuations

Specialty Distributors Remain Attractive

Entering 2017, the environment for specialty distributor M&A was muted due to concerns about, among other things, the economy, political and regulatory uncertainty, market volatility and valuations. Those concerns waned as the year progressed due to the increasing prospects of significant pro-business legislation, including tax reform, which materialized at the end of the year.

As a result, deal flow in 2017 went gangbusters. Of the 557 announced transactions in 2017, specialty distributor deals represented approximately 13% of this total, or 74 deals. In absolute terms, the number of specialty distributor deals in 2017 (74) was up 7% year over year; however, on a percentage basis, 2017 continued a decreasing trend of specialty distributor deals as a percentage of total announced transactions. 

Specialty Distributor Transactions (% of Total)

  • Year-end 2017: 13%
  • Year-end 2016: 16%
  • Year-end 2015: 18%
  • Year-end 2014: 20%  

Notwithstanding this trend, we are seeing that specialty distributors continue to rank high on acquirers’ depth charts for a multitude of reasons, including: 

  • Inventory. Inventory of sellers remains high, particularly property and casualty sellers.
  • Age. The average age of owners exceeds 54 years, and many baby boomers lack functional perpetuation plans.
  • Valuation. The delta between internal and external valuations is significant.
  • External factors. The economy is robust, and interest rates remain relatively low.
  • Demand. Investors are plentiful and capital abundant.
  • Cost of capital. Debt capital remains cheap and access thereto easy.


Consistent with recent years past, private equity represented the largest buyer group of specialty distributors in 2017. Of the 74 deals, PE and/or PE-backed brokerages represented 37, or 50%. Private equity is now a household name with potential sellers.

Furthermore, many established consolidators are now pursuing investments in the specialty distribution sector. Traditionally, only a few consolidators—namely Gallagher (via Risk Placement Services), Brown & Brown, and Ryan Specialty Group—put their proverbial money where their mouths were in terms of specialty distribution platforms. Their consolidator competitors seemingly kept to the retail sector. However, this trend is noticeably transitioning. For example, last year we saw the following consolidators (all PE backed) acquire specialty distributor operations:

  • Acrisure
  • Alliant Insurance Services
  • AssuredPartners
  • Hub (via Program Specialty Group)
  • NFP
  • Risk Strategies Company.

Specialty Distributor Top Buyers

The top five buyers of specialty distributor operations accounted for 23 (of 74) deals, representing 31% of the total specialty distributor deals consummated in 2017.

Leading the charge on the buy side was Hub’s Specialty Program Group, the specialty distribution arm of Hub, with six deals. Next in line was Ryan Specialty Group with five deals, followed by NFP, Assured Partners, and US Risk, each with four deals.

  1. Specialty Program Group (“Hub SPG”) = 6 deals
  2. Ryan Specialty Group = 5 deals
  3. NFP = 4 deals
  4. AssuredPartners = 4 deals
  5. US Risk Insurance Group (“US Risk”) = 4 deals


Program Administrator Top Buyers

All six of Hub’s specialty distributor deals last year represented program administrators with significant contract-binding authority commission revenues. In other words, they took a pass on the traditional wholesale brokerage model, thereby ameliorating channel conflict with their large retail operations. Hub was consistent throughout 2017, closing one or more transaction(s) each quarter end. Hub’s acquisitions included a diverse mix of industries, p-c lines of coverages, and geographies, including:

  • Transportation commercial lines via the acquisition of Paul Hanson Partners Specialty Insurance Solutions, based in California
  • Financial and professional liability covers via the acquisition of Capitol Special Risks, based in Georgia. 

Sharing the silver medal in terms of program administrator deals was the traditionally retail-focused consolidator Assured Partners, which made a large splash in the program administrator space with four acquisitions, and serial acquirer Ryan Specialty Group, also with four deals. Rounding out the top five were retail consolidators Acrisure and NFP, each with three deals.

  1. Specialty Program Group (Hub) = 6 deals (2 deals in Q4)
  2. AssuredPartners = 4 deals (3 deals in Q4)
  3. Ryan Specialty Group = 4 deals (3 deals in Q1)
  4. Acrisure = 3 deals
  5. NFP = 3 deals

Wholesaler Top Buyers

On the wholesale side of the equation, AmWINS Group, Gallagher, and US Risk each consummated two wholesale brokerage acquisitions. 

Transaction Pricing and Structure

2017 wrapped up another seller’s market. High values remain prevalent, and the leveling of prices we saw in 2016 gained further momentum with platform, stand-alone and roll-in transitions all showing an increase in average total realistic purchase price multiples. However, in conjunction with the increase in purchase price multiples was an increase in the required growth rates to achieve the earnouts seen across most platform and stand-alone acquisitions.

Pricing Structure Breakdown

Two forms of purchase price are generally referenced in the industry: multiples of EBITDA and multiples of revenue. Here, we refer to multiples of EBITDA. To analyze transaction pricing, we’ll break the price down into three key components:

  1. Base Purchase Price: The dollar amount paid at close plus the live-out the seller is expected to receive.

            Paid at Close: The amount of proceeds paid at closing, including any escrow for potential indemnification items.

            Live-out: The amount a buyer may initially hold back but which is paid as long as the seller’s performance does not materially decline. This may also be paid at closing but could be subject to a potential adjustment. If the live-              out is not paid at closing, this payment is usually paid within one to three years, contingent upon delivering on the seller’s pro forma revenue or EBITDA. 

  1. Realistic Earnout: The anticipated purchase price to be achieved in the future based on a number of factors including seller historical and expected performance, buyer and seller realistic discussion of earnout metrics, etc.

            Realistic Purchase Price = Base Purchase Price + Realistic Earnout

  1. Maximum Earnout: The additional earnout above the realistic earnout that, if achieved, would generate the maximum possible earnout payment.

Maximum Purchase Price = Base Purchase Price + Realistic Earnout + Maximum Earnout


Purchase Price Trends

For sellers, a key goal is to maximize the purchase price paid up front, or base purchase price. Buyers realize that how a company performs after the transaction is critical. The earnout, or “at risk” component, should fairly reflect the risk profile the buyer supposes that, for the seller, will ultimately help drive shared risks and rewards. 

>> Earnout: A provision of the purchase agreement that states the seller is entitled to future compensation if it achieves certain goals, typically related to growth of revenue or EBITDA. In past years, stemming from the overall market- and industry-specific conditions, buyers sometimes reduced the base purchase price and shifted a larger portion of the total purchase price to the earnout. We saw this shift most recently in 2012.

However, up until last year, we saw continued increases in the amount sellers were paid up front, with gradual increases in the earnout potential as well. This past year showed a renewed increase in both the base purchase price and the earnout, with a more notable shift seen in the platform and roll-in acquisitions. However, buyers are also expecting greater growth hurdles for sellers to achieve higher earnouts due to the increase in base valuation.  

>> Pricing Ups and Downs: In 2017, the average base purchase price increased nearly 0.24 times EBITDA (or 3%) to 7.97 times EBITDA. The average realistic purchase price was 8.84 times EBITDA in 2017, up 0.31 times EBITDA (or 4%) from 8.53 times in 2016. The additional maximum earnout potential in 2017 was slightly lower than last year (0.07 times, or 4%), resulting in an average maximum purchase price of 10.37 times EBITDA in 2017, which in total is up 0.25 times (or 2%) compared to 2016. 

Industry Close-up: A Look at Purchase Transactions

Agency and brokerage transactions are classified into three major categories: platform, stand-alone and roll-in.


A platform agency is typically a larger agency that has a well-established territory, brand recognition, seasoned professionals and scalable infrastructure, among other attributes. The buyer of a platform agency is typically looking to establish a presence in a specific region or niche. 


A stand-alone entity may be based on size or geographic location. The firm is large enough to maintain its physical presence but likely reports into a larger platform within the given region. 

Whereas multiples for these firms dropped in 2016, we saw in 2017 an increase back up to levels consistent with those of 2015. Both the average base purchase price and realistic purchase price increased 3% over the prior year to 7.93 times EBITDA and 8.79 times EBITDA, respectively.


A roll-in transaction typically involves the sale of a small, privately held agency or book of business, which gets physically rolled into the buyer’s existing operations, either at closing or within a reasonably short period of time. 

In 2016, we saw a shift in focus for many buyers who acquired smaller roll-in firms with one assumption: that buyers were looking to complement their network of platforms. Another assumption made was that, due to the high valuations that have continued to increase over the last five years, buyers were looking to blend the average multiple paid across their acquisitions. We believe this trend continued through 2017. The average base purchase price increased 9% in 2017 to 7.20 times EBITDA, and the realistic purchase price increased 6% to 7.81 times EBITDA.

While purchase prices remained relatively flat in 2016, we saw a renewed increase in valuations in 2017, climbing to an all-time high despite rising interest rates and an uncertain tax environment. If early 2018 transactions are any indication, we believe the valuation environment will continue to blaze despite the continued economic uncertainty.



Just like in 2016, nine of the top 10 buyers in 2017 were backed by private equity—with one public brokerage rounding out the group. There has been a significant increase in private-equity backed buyer activity during the past 10-plus years—PE represented just 7% of deal activity in 2007. Each buyer has a unique approach to acquisitions. We asked them to share a bit of their strategy.



Last year, an uncertain political climate and concern over how tax reform would impact valuations led many to believe those factors would be the needle that popped the so-called bubble. But in fact, valuations are holding their ground for now.

We expect the total number of deals in 2018 to still be strong. And we anticipate seeing a fair number of larger firms potentially selling this year, with rumors of these significant deals supporting an outlook that 2018 will be a dynamic, exciting year for M&A.

What will continue driving M&A in 2018? Aside from attractive multiples and valuations, we are seeing a diversification of buyers. New private capital includes family offices, pension plans, sovereign wealth funds and long-term equity that is giving agencies an opportunity to focus on strategic growth. And it’s giving agencies options—more players at the table in addition to traditional private equity, which we expect will continue its assertive role in insurance brokerage M&A.

As the U.S. economy stays on a path of moderate growth—with positives like consumer and business spending and tax cuts freeing up disposable income—we do expect some higher interest rates in 2018. That said, any increase would bring rates to more “normal” levels. We believe that the moderately growing economy along with a potential hardening rate environment should result in more organic growth for agencies.

There is an undeniable uncertainty related to U.S. trade regulations, the stock market, government spending and regulations. No one is sure of the timing of changes—but what we can say with confidence is the factors we thought would potentially put a dent in M&A activity have not done so…yet.

We are beginning to see growing concern that the slow, steady fire that was burning in the economy may be flashed out by a number of different accelerants. The biggest concern is the long-term effect of the new tax code. While it may not have an immediate impact on 2018, it is our opinion that valuations are going to take a hit leading up to 2022.

The new tax code created lower corporate tax rates but also put a limitation on the deduction companies can use for their interest expense. Currently, they can deduct interest expense equal to only 30% of the firm’s earnings before interest tax depreciation and amortization (EBITDA). This is a significant change for firms that are heavily leveraged with debt. Some firms in the industry have debt equal to 7-8x their EBITDA on their balance sheet. This creates a lot of interest expense.

In today’s marketplace, the reduced tax rates offset the impact this limited deduction has on buyers. However, in 2022, the 30% limit starts to measure off of earnings before interest and tax (EBIT), which is a much smaller number for acquirers in the marketplace because of the significant amount of amortization they have from all of their historic acquisitions.

So what does all of this mean to you? It means that the cash flow of buyers is likely going to be significantly reduced in 2022 and beyond. Buyers are going to have a few options. They will likely either deleverage (which means reduce the amount of debt on their balance sheet) or be willing to take lower returns.

As we take a step back and look at this logically, the second option doesn’t seem like a real option. Firms putting private capital into the insurance distribution market are in the business of making money. Hoping that these financially oriented investors will make a lower return so that high valuations can continue is not the most prudent bet in our opinion.

What is more likely to happen? Buyers are going to use less debt in their deals. This means they are also likely to reduce valuations because they are not going to want to put more equity into their investments.

Additionally, the Fed intends to increase interest rates, which will likely exacerbate the problem. You can expect PE-backed firms to trade out their sponsors in the next couple of years because, if they wait and increased interest rates coincide with lower leverage, the larger firms are not going to get the valuations they counted on when they raised their capital from their current sponsors.

The sky isn’t falling yet. But we think you can expect changes in the market—and most likely very soon. We believe the volume of deals will continue at a record pace—59% of ownership still sits in the hands of baby boomers, and more and more private capital thinks insurance is a solid investment. We are confident, as are many of the private-equity funded buyers, that valuations will decline rapidly as we march toward 2022.

What’s to love
The weather! Further, downtown has gone through a dramatic change in the last 20 years and is a busy place 24 hours a day. There are new restaurants, hotels and attractions. It’s a safe city and a great place to live and work.

Food scene
There are so many restaurants opening these days. You can find any kind of food and atmosphere you might want.

Favorite restaurants
My favorites are two family-owned Italian restaurants, La Bruschetta Ristorante and Guido’s Restaurant, both of which are on the West Side. La Bruschetta is more elegant. The chef and owner, Angelo Peloni, has been making his homemade pastas and breads for 35 years. Guido’s serves more traditional, family-style dishes. But I like both of them for the same reasons. Everyone is friendly, the service is excellent and the food is delicious. Guido’s also has an outstanding wine list and a well-stocked bar. I love to entertain clients there.

My favorite watering hole is The California Club, which is in a landmark building in Downtown, across the street from my office. It’s one of the friendliest places I’ve ever been. While it is private, many of our “visiting firemen” stay here. The third-floor bar has an outdoor patio. In excellent L.A. weather, it is a delight in the evenings. I’ve never made a request that the staff hasn’t happily accommodated. As we say around the Club, what makes it special is that “it works.”

If you want to stay downtown, I’d recommend the J.W. Marriott Los Angeles L.A. Live, which is in the heart of things. You can walk to many good restaurants and the Staples Center. On the West Side, the only place to be is The Peninsula Beverly Hills. It’s a beautiful hotel and close to the shops on Rodeo Drive.

I love to hike with my dog, and there are many delightful areas to hike in the hills in town and up in the Santa Monica Mountains. Temescal Canyon is one of the easier places to hike. Most trails are about two hours up and down. The views are incredible. On a clear day, you can see all the way from Century City to Manhattan Beach.

Remember that everybody on our freeways are the survivors, so they’re much better drivers than most people think.

April 4, 2018, marks 50 years since Martin Luther King Jr. was assassinated while standing on a balcony at the Lorraine Motel in Memphis, Tennessee. Today, the motel is part of the National Civil Rights Museum, where interactive exhibits, oral histories of civil rights foot soldiers, and emotionally charged historical documents, objects and images tell the story of the American civil rights movement as well as five centuries of history preceding it.

As you walk to the museum’s entrance, along the motel, past room 306, where King stayed, you can stop at listening posts to hear the personal stories of people who were there in 1968 during the sanitation strike and other events that led to his death. It is a powerful experience.

What most people don’t know is that the Lorraine Motel is also entwined with the city’s musical history. An African-American couple, the Baileys, purchased the motel after World War II, creating an upscale place for black musicians to stay and play when they were in town recording at Stax Records. They also welcomed white guests (Steve Cropper, the guitarist for Booker T. and the MG’s, wrote “Knock on Wood” here) and served home-cooked meals to soul greats like Wilson Pickett, Otis Redding and Aretha Franklin. As Isaac Hayes was quoted as saying about the Lorraine, “We’d lay by the pool and Mr. Bailey would bring us fried chicken and we’d eat ice cream… We’d just frolic until the sun goes down, and [then] we’d go back to work.”

You can learn more about this chapter in Memphis history, a strand of the city’s DNA, at the Stax Museum. The self-guided tour begins with a short film that includes archival footage of performances and interviews with the musicians who worked at Stax, many of whom, like Cropper and David Porter of Sam & Dave, lived in the neighborhood. The tour lays the foundation for exploring the fascinating exhibits that document the evolution of the Memphis sound.

Jim Stewart, who founded Stax with his sister, Estelle Axton, was inspired to become a music producer by Sam Phillips, a Memphis radio technician who founded Sun Records and Sun Studio, where Elvis Presley made his first recordings. A stop here is another don’t-miss Memphis experience. A plumbing business and auto parts store set up shop in the studio during the two decades it was closed, but today the studio appears much as it did in its heyday. Among the cool features of this birth-of-rock-’n’-roll tour: listening to the original audio of Elvis, Johnny Cash, Carl Perkins and Jerry Lee Lewis bantering during an impromptu jam later dubbed the “Million Dollar Quartet” session.

Both markets, however, benefitted from underlying improvement in the U.S. economy and relatively strong capital markets. In short, both are in decent fighting form entering 2018.

P-C Disciplined

The U.S. p-c industry has been in an above-average financial position for most of the past 20 years, with the exception of the late 1990s to early 2000s. During this time, rates dropped considerably, and the U.S. entered a recession, causing financial distress at a number of large p-c organizations. The hard market pricing that ensued from 2000 to 2004 resulted in strong earnings and larger net capital gains, both of which helped repair balance sheets.

ALIRT has developed an industry composite score derived from 45 financial metrics that measure individual insurers on a holistic basis. These composite scores mark the financial pulse of the entire industry over time. Since the global financial crisis of 2008-2009, the industry has bumped along the long-term industry average score of 50, except for the period of 2013-2014, which benefitted from both low catastrophe losses and a “mini” price firming cycle. Gradual improvement in the U.S. economy has also helped boost exposure units.

As of nine-month 2017 financials, despite the large catastrophe losses, personal lines saw a higher ALIRT score than commercial, reflecting stronger net capital gains and improved parent company growth and earnings. The commercial lines score, however, saw a seven-point decrease due to weaker underwriting and operating profitability.

In 2018, aggregate industry rates should trend up slightly for commercial lines and somewhat higher for personal lines (largely in auto) while prior-year reserve releases remain positive but ease for both sectors.

In a “normal” catastrophe environment, look for near break-even underwriting results for commercial lines, with the personal lines industry perhaps a bit worse than break-even. While the relationship of rate versus loss-cost trend is important, much will also hinge on expense control and the quality of selected risks.

The contribution from investment income may continue to wane as current money yields catch up to portfolio yields. However, higher interest rates should ultimately boost operating profitability. Equity markets remain a wildcard.

Financial performance differs across the board in the commercial lines arena, with subsidiaries of Chubb, The Hartford and Travelers tending to outperform, while those owned by Liberty Mutual and AIG currently exhibit weaker financial profiles. Absent any extreme loss event, capacity remains ample for commercial and personal p-c sectors, dampening upward pressure on pricing; however, overall, the U.S. p-c market seems disciplined.

Larger Health Insurers Stable

The health insurers tracked by ALIRT have shown more stable scores than their p-c counterparts, reflecting relatively narrow swings in underwriting and operating profitability and a stable surplus/capital base. These scores have also trended above the long-term average health insurer score in each of the past 12 years, indicating that the 100 companies comprising the composite tend to be larger and more stable than the many small health insurers tracked by ALIRT.

Membership and premium growth have trailed off for the composite since 2012, with the exception of 2015, when both metrics rose due to higher enrollment in public exchanges. Premium growth, however, has consistently exceeded membership growth, given the impact of steady rate increases. The industry’s risk-adjusted capitalization has deteriorated somewhat over time, and insurers report more aggressive net premium leverage and large dividends paid out to parent companies.

The uptick in the composite’s score in the third quarter of 2017 largely reflects a sharp improvement in underwriting and operating profitability, as both medical loss and expense ratios improved (the latter helped by a one-year suspension of the Affordable Care Act’s health insurance tax).

In 2018, aggregate industry premium growth remains in the mid-single digit range while plan membership lags. The industry will continue to report a larger mix of government-sourced business while traditional commercial and individual health enrollment flatlines or declines.

Outsized underwriting profitability may fall back to longer-term averages, in part due to the return of the ACA fee, which will put upward pressure on expense ratios. That said, incremental improvement in the medical loss ratio over the past several years could well persist.

The industry will remain adequately capitalized despite the likely continuation of sizable shareholder dividends paid to large publicly traded parents.

Scale remains important, benefitting the large national health organizations. Almost all of the large national carriers tracked by ALIRT exhibit financial profiles substantially stronger than that of the industry average. Smaller health insurers, which lack the necessary scale, often exhibit much weaker financial profiles, resulting in scores well below composite average. Large groups should continue to make investments in technology/data mining as well as pursue additional strategic acquisitions, including provider groups.

David Paul is principal at ALIRT Insurance Research.

What will happen with the brand, technology and human resource functions? How will the coming together of two organizations impact the culture? What does it mean for the people?

Without thoughtful consideration of the following different integration items and approaches, sellers may find themselves facing challenges to preserving their culture during the transition from independent agency to third-party ownership. If expectations are not clearly set or communicated in an effective way, changes in staffing, policies and procedures may negatively impact the culture an owner has worked so hard to build. It can be very easy in the event of a sale to create a perception of secrecy and exclusion if the impact to employees’ roles, responsibilities and compensation is not clearly communicated in a timely manner.

To be sure, integration means different things to many buyers and sellers, and that’s because there are several different approaches to the process. In our experience, buyers generally can be categorized into three buckets in terms of how they view integration: centralized, decentralized or somewhere in between. (See what we mean by murky waters?)

  • Centralized: Buyers operating under a more centralized structure integrate acquired companies into a larger corporate infrastructure in all functions, including IT, accounting, HR, claims and licensing.
  • Decentralized: Buyers in a decentralized structure absorb few, if any, duties on the local level. Usually after the deal closes, day-to-day operations do not change.
  • Somewhere in Between: Not all buyers fall into the completely centralized or hands-off categories. Plenty of buyers take a hybrid approach and will roll in certain operations (accounting and HR, for example) while leaving other areas up to local offices.

The reality is sellers typically do not know what to expect when it comes to integration, even though they often have goals they want to achieve. Some sellers relish the idea of getting rid of all things accounting/finance, while others have a strong, strategic accounting/finance function and want to maintain that at a local level. And sellers can mistakenly assume that by “giving up” functions to corporate, they’re eliminating a cost. However, responsibilities that the buyer decides to centralize often come at a cost to the seller’s income statement, impacting the earnings before interest, tax, depreciation, and amortization (EBITDA) at closing and during an earnout period. So while a seller might think an operating expense is eliminated, the buyer is actually replacing that with some type of cost allocation. For this reason, among others, it’s important for buyers and sellers to come to the table with a clear understanding of each other’s integration expectations and goals.

Four Key Integration Areas

We believe branding, IT, HR and accounting/finance are key to integration. Here’s how different acquirers treat those operations based on their approach.

Branding: Branding integration can take on many different forms. Some buyers are quick to transition letterhead, logos and websites—they want to maintain brand continuity and leverage a strong national reputation in the marketplace. Others make little to no changes to marketing or branding. Buyers might allow acquired businesses to maintain their logos, websites and trade names in the marketplace. These buyers might even forgo a public announcement of the transaction or reference to the change in ownership. Finally, there are acquired agencies that carry two sets of business cards—depending on the client or prospect they are visiting, they may use whichever one they feel gives them an advantage at the table.

When there is a transition, we often see the buyer and seller work together to gradually implement branding initiatives. An acquired business might use its own brand and/or co-brand as a “division” or “partner” of the acquiring agency. The co-branding phase can last months to a year, depending on the circumstances.

Information Technology: There are several phases of IT integration. First come simpler tasks that are tackled soon after a transaction—like creating new email addresses or redirecting website traffic to a new landing page. Other IT-related issues, such as getting the seller under the same contract for duplicative software and systems (e.g., agency management systems, ratings software, subscriptions), may not be so easy. The acquirer might have to let the term of the current contract with the vendor run out before consolidating onto one master agreement. Other applications may be so unique to a seller’s niche that the buyer doesn’t currently utilize anything substitutable, so nothing changes. Hardware like phones, printers and computers tend to be handled case by case, with some larger national buyers utilizing national contracts but many leaving these to be managed locally. Some buyers do not even require a common agency management or accounting system if monthly reporting can be completed in an acceptable format.

Human Resources: Some buyers synchronize timing of raises and reviews, standardize titles and paid time-off allowances, while others allow acquired agencies to keep their own schedules and policies. Nearly every buyer in the marketplace will require a seller and its employees to terminate their benefit and 401(k) plans and join the parent company’s plan. Often, there are concerns about employment discrimination or fairness that could be raised if different benefits are being offered to different employees of a parent company. Recruiting and onboarding are also handled differently by different buyers, with some opting to use national/corporate resources to potentially draw a larger pool of candidates and others leaving these tasks up to local offices, where there is a greater knowledge of the community and available talent.

Accounting and Finance: Accounting and finance tends to be the area most integrated by buyers, regardless of size. There are often meaningful efficiencies to be gained by consolidating functions like accounts receivable, accounts payable and direct bill reconciliations. Most buyers have a corporate chief financial officer who will either manage a corporate team of accountants or the agency’s local staff. Accounting policies and procedures are often standardized to make sure reporting across agencies is consistent.

Is Integration Really a Dirty Word?

Integration can be the elephant in the room during an M&A transaction. There are plenty in the marketplace that view integration as a dirty word, and they’re reluctant to discuss it in detail early on in the transaction. Many integration details do not emerge until after a letter of intent has been signed. But having the talk sooner and maintaining open communications is key. Sellers should know how and in what ways their organizations will be integrated after the deal is done. How will the transaction impact the operations and culture? Do the buyer’s goals and objectives align with their own?

Some sellers are eager to release themselves of certain corporate responsibilities and decisions, while others are interested in maintaining complete autonomy after a sale. Not having a clear understanding of where a buyer may fall on the spectrum could lead to either a deal that does not close or disappointment and resentment after the fact when expectations fall short of reality. So talk about integration early and often. Make this discussion a part of the M&A transaction process so there are no surprises after the ink dries.

The demand that continues to drive activity within the industry seems to be endless. And it has led to more investor diversification, creating a new category of investor—private capital.

The typical private equity structure includes funds that deploy capital raised from multiple sources. The PE firms focus on a strong return that is created through earnings growth and an exit strategy typically three to seven years long. Private capital includes traditional PE players, and it extends to other sources, including family offices, pension plans, sovereign wealth funds and independent capital. These investors, who typically are investing directly into PE funds, are recognizing the value of buying into the insurance brokerage space: recurring revenue, stable performance, a must-buy product, relatively low risk. They are making the decision to bypass the PE fund and are investing directly. Additionally, many of these private capital investors bring a long-term perspective to the table. For example, when BroadStreet Partners aligned with the

Ontario Teachers’ Pension Plan, it was told an average hold was 18 years.

How are these new private capital players partnering with insurance firms? What opportunities are they providing in the industry, and how do they complement private equity as we know it? The deals that follow showcase the different types of private capital.

The Long View
USI Insurance Services

“We wanted to get off the treadmill of trades that happened every three to five years,” says Ed Bowler, chief financial officer at USI, an insurance industry leader that started in 1994 as a single office of $6.5 million in revenue and 40 associates and today is approaching $2 billion in revenue with more than 7,000 associates in 150-plus offices.

While the ongoing buy/sell cycle with PE meant a “mark on the equity,” Bowler explains that it also can be distracting, time-consuming and expensive. “We had been hearing about more permanent capital, or evergreen capital, coming in, so we took it upon ourselves to reach out in the marketplace.”

USI interviewed pension plans and long-term equity funds that put capital out over a 10-year period—double or more what USI had been experiencing with traditional private equity.

Then, the KKR/CDPQ proposal came forward. KKR had accumulated a healthy sum on its publicly traded balance sheet that it wanted to invest long-term. It created a joint venture with Caisse de dépôt et placement du Québec (CDPQ), and their core private equity partnership (including KKR’s funds and CDPQ’s pool of capital) allows for attracting investment opportunities with a longer duration and lower-risk profile.

This was exactly what USI was seeking—a partner that could support strong management and long-term strategic business building. And for KKR/CDPQ, the insurance industry and USI were enticing because of the stability of the industry and USI’s history of high performance. “We reached out to them and had the discussion and really liked what they had to say,” Bowler says.

In March 2017, KKR/CDPQ acquired USI from Onex Corporation. “This is the final owner of USI, as far as I’m concerned—and we’re real excited about that,” says Bowler, who has been with the firm through seven owners.

The long-term investment means internal rates of return (IRRs) are not as important, Bowler says—it’s more about “money on money.” Bowler points out, “I can’t spend IRR; I can spend money on money, so I’m happy with that focus and growing that capital.” While IRRs are critical to traditional PE funds for raising capital for the next fund, “they are less important to pension plans,” Bowler says. “And with what KKR has on its balance sheet, they were looking more for multiples of money over time.”

What will change at USI with a longer-term owner? With new acquisitions, will those owners have equity in the deal, and what does liquidity look like for management and future leaders in the firm?

After five years, there will be a potential for internal trades. But, Bowler says, “most of our people aren’t selling their shares, and we don’t have the cry for liquidity now. We will likely have an internal process not dissimilar to what an employee stock ownership plan does if people do want to cash in and gain liquidity.”

If USI meets its goals, it will begin paying out dividends five to six years out from the time of the trade. “Assuming we achieve our plan, this will be a dividend-performing stock because of the cash flow,” he says. “So, if you hold your shares, you are going to start getting chunky dividends in years five, six, seven and so on.”

The business will prosper as it continues strategically growing without being on the “PE toll road,” which results in costly trades every few years, Bowler says, noting that he envisions more pension plan and long-term equity opportunities for the insurance industry. “They like the insurance brokerage world for all the reasons we know—the recurring revenues, it’s a product that needs to be bought and there isn’t the obsolescent risk.”

Owning It

Greg Williams believes that Acrisure is unique. And as co-founder and CEO, he wanted to keep it that way. But the rolling ownership of PE made that difficult. In early 2016, when the company’s private equity partner Genstar Capital had decided to exit, Williams began discussing ownership options with his operating partners. The company had acquired 150 agencies over a three-year period, so a prosperous and meaningful exit was contemplated by all parties.

“I asked two simple questions,” Williams says of his conversation with his agency partners: “Are you interested in rolling equity assuming we secure a new capital partner that supports our objectives? And if so, how much equity would you be interested in rolling?”

Williams was pleasantly surprised when 99% of his agency partners said yes—they were in. And he was thrilled their aggregate equity roll was approximately 60%. So Williams did the math and figured that, with a slightly higher equity roll, he could present to a new investor a capital structure that would result in Acrisure’s management team and its operating partners becoming the majority shareholder of the business, including governance control.

“I felt strongly if we had majority interest and board control, it would help us grow from an M&A perspective, given there would be permanence in our capital structure. This permanence would ensure our unique and highly appealing operating model would not change, and our agency partners would not have to concern themselves with another sale of the business. We would be officially off the private equity train,” Williams says.

The value proposition was important, as Williams later had to go back to his operating partners with a specific request—he needed 75% of equity. For two and a half weeks, Williams and Acrisure’s chief acquisitions officer, Matt Schweinzger, did a “road show” for the company’s top 60 shareholders individually. They hit four or five cities a day, holding personal meetings. “We laid out a proposed capital structure if we rolled 75% of our equity,” he says.

It was a highly attractive scenario with a very positive reaction. “It gave me the opportunity to then go to potential investors in the market and say, ‘Look, we are more of a buyer than a seller. We are rolling approximately $700 million in equity.’” Williams offered a preferred equity position in exchange for governance control. “I received a number of interested parties,” he said of third-party investors. What resulted was a $2.9 billion management-led buyout. Today, the management team and its operating partners own 82% of the common equity, with outside investors owning 18%. Further, “we control the governance of the company, which is translating to comfort internally and externally because current and prospective partners don’t have to worry about that flip in three years,” Williams says.

The ultimate objective: “We want to own 100% of the business—and we are well on our way to achieving that.” Ownership and governance control is a competitive advantage in the marketplace, Williams says. “It makes us unique—it’s the private equity model turned upside down,” he says. “Value creation benefits owners, so our operating partners benefit from our growth at a disproportionate rate as compared to our competitors,” Williams says. “And, given our international expansion, our story is now being told in different parts of the world,” he adds.

Acrisure will continue to build the business both organically and through M&A, driven by a great deal of enthusiasm with its operating partners. Williams added “the excitement for being part of Acrisure is very high, evidenced by the number of employees that desire to become shareholders. We have an internal market that allows employees, based on certain criteria, to register to buy shares. Currently, the number of registered buyers to sellers is 10 to 1,” Williams says.

Looking at the value of the Acrisure stock today compared to 2013 when Genstar acquired the firm, the operating partners have realized over 11 times multiple on their equity, Williams says. “This has created wealth beyond their wildest dreams.” And, because of that dynamic, there is “extreme enthusiasm to continue growing the business both organically and inorganically,” Williams says.  

Head of the Class
BroadStreet Partners

For more than five years, BroadStreet has been aligned with the Ontario Teachers’ Pension Plan (Teachers), the largest of its kind in Canada, with more than $200 billion in assets. As an investor, Teachers provides BroadStreet with a long-term capital base that has helped drive consistent, high growth for the company.

It all started in 2012 when BroadStreet began exploring alternatives to support its growth plan, says Rick Miley, who founded the business in 2001. At that time, State Automobile Mutual Insurance Company (State Auto) was BroadStreet’s primary partner, and its funding appetite was not as strong as BroadStreet’s desire to grow. Both agreed that a change was necessary in order for BroadStreet’s model to flourish.

With State Auto’s support, BroadStreet began to explore a number of options, which included meeting with several private equity firms. “We had upwards of 10 individual PE companies come visit with us and discovered that they weren’t a good fit,” Miley says. The three- to five-year investment time frame was not appealing to BroadStreet, which was looking for a more stable capital base. “We needed a financial partner, not an investor with a pending flip date. Our business is based on a co-ownership model, which gives our core agency partners the freedom to run their businesses independently. In order to do this effectively, we needed a financial sponsor with a long-term outlook.”

Then, Teachers approached Miley. “They said they wanted to get involved in the insurance distribution business, and we connected—and that connection developed into them buying out State Auto’s interest,” Miley says. As for taking on a pension plan as a financial sponsor, “they think in decades rather than years,” Miley says. “We found out that their average hold time for a direct investment far exceeded the typical private equity time frame, and that was music to our ears.”

Teachers’ long-term investment horizon has made all the difference. “Alongside our core agency partners, we are developing this business knowing that Teachers has a desire to hold it a long time,” Miley says. “They encourage our core agency partners to bring on new producers, and they support capital expenditures in technology and scalable resources. They are averse to high amounts of debt and leverage, so we have a lower leverage ratio than most of our peers. In turn, our core agency partners generate significant free cash flow, and we use this cash to fund acquisitions, distribute dividends to our core agency co-owners and reinvest in the business.” 

BroadStreet’s co-ownership approach is an important distinguishing feature of its model that aligns interests and pairs well with a long-term view of the business. Importantly, BroadStreet creates and encourages liquidity for co-owners. “Our business thrives when ownership transitions among core agency leaders. Having an available market for our core agency partners to enter and exit equity holdings is critical for succession planning and reinforces the culture of ownership at our core partners,” Miley says.

Looking toward the future, BroadStreet anticipates a continued long-term relationship with Teachers and continued growth, which includes supporting its core agency leadership teams and creating opportunities to develop the insurance brokerage industry’s next generation of talent.

All in the Family
Baldwin Risk Partners

Aligning with a family office to provide long-term capital has given Baldwin Risk Partners a “forever partner” with multi-generational investors and complete control over their business. “We are insurance entrepreneurs and want that freedom and flexibility,” says Trevor Baldwin, president.

The model is a significant differentiator in the marketplace, according to Baldwin. “We want to build an organization that is a true partnership,” Baldwin says. “So what we have created is the best of both worlds: we have the operating environment and flexibility of a boutique privately held firm with the economic engine of a PE-backed business that allows us to create liquidity for partners and supercharge returns on the business.”

Baldwin Risk Partners’ share price has increased 450% during the last five years. “That doesn’t include the dividends we paid, which were substantial,” Baldwin says. “Factor that in, and you’re looking at close to a 700% return in five years, which you’re pressed to find anywhere. We expect that in the long-term, over the next five to 10 years, we can continue to generate annual returns in the 30-50% range for our shareholders.”

Baldwin says the ultimate goal is to be recognized by clients as a firm that delivers industry-leading innovative advice, ideas and solutions. When the time came in 2015 to bring in additional capital, they had to think outside of the box. Baldwin joined the organization in 2010, when the business was about four years old. He led a restructuring, the formation of the Baldwin Risk Partners holding company and the plans for strategic growth. “We were at a point of raising third-party capital, and we spent the next few years preparing for larger-scale growth—building out infrastructure, recruiting the right talent.”

Baldwin Risk Partners’ capital-raising efforts were not at all focused on liquidity, Baldwin says. “In fact, no shareholders of the business received any liquidity when we raised capital—it was all about growth, expansion and the creation of scale,” he says. The company recognized it was at a point where it needed to sell into the wave of consolidation happening in the industry or consolidate itself, “because scale was, and is, increasingly important,” Baldwin says. “We needed the ability to invest in and afford the type of resources necessary to remain relevant and impactful to our clients, and we needed the scale to access capital markets in a manner where we could leverage our balance sheet to create value for current and future shareholders.” What Baldwin did not want was a five-year turn.

They approached a number of capital providers—pension funds, sovereign wealth funds, family offices, and money center banks. The firm ultimately chose to partner with a family office for a couple of reasons: (1) it had an ability to provide continued capital; and (2) Baldwin Risk Partners could maintain control over the business. “The family office investor is essentially a passive investor,” Baldwin says.

The company accomplished its partnership with the family office in 2016 in the form of a preferred equity security that offers a fixed-rate return investment for the family office investors as well as some minority equity that vests over time. “It looks and feels a lot like debt but is structured like preferred equity as far as how it sits in our capital stack,” he says.

This tool gives Baldwin Risk Partners the flexibility to use leverage in a way that provides economic parity to its private-equity backed peers and the freedom to operate the business as a long-term independent brokerage firm, Baldwin says. “It’s the best of both worlds.”

Unlike private-equity peers, Baldwin distributes annual dividends. “Our capital is such that we don’t need to reinvest that into M&A, so our partners continue to get dividends on the equity they roll into the business, which is a nice way to access continued cash flow and makes the experience of ownership feel like what they’re used to as a sole proprietor or closely held private agency,” Baldwin says.

Last year, Baldwin Risk Partners’ organic growth was approximately 25%. It’s expecting similar growth this year. Baldwin says, “By being insurance-entrepreneur owned and controlled, we can generate great returns and create terrific results and outcomes for our clients.”

A True PE Partnership
NFP Corp.

In 2013, NFP embarked upon a pivotal $1.4 billion go-private transaction with Madison Dearborn Partners (MDP), a leading PE firm. This provided NFP with significant opportunities for future growth. In 2016, just three short years later, NFP had been so successful in executing on its five-year plan that a second PE firm decided to invest. The interest from a second PE sponsor was a gratifying validation of NFP’s strategic approach. “We were extremely proud of what we had accomplished. In particular, the real proof of our success occurred when other PE suitors came knocking at our door so soon after the initial go-private transaction,” says Adam Favale, senior vice president of M&A at NFP.

The company was prepared for the quick turn typical of PE investors when it entered into an agreement with HPS Investment Partners, a global investment firm, in which HPS assumed a substantial minority investment in NFP. MDP maintained a controlling stake in NFP alongside its management and employees.

Rather than the traditional PE-backed arrangement with one investment firm in the picture, NFP has two PE players at the table, and each brings valuable perspectives, says Carl Nelson, executive vice president of M&A at NFP. “They really act collaboratively,” Nelson says of MDP and HPS. “We feel fortunate to have two exceptional sponsors that are constructive, thoughtful and supportive partners,” he adds.

At NFP, employees and management, including the entrepreneurs that sold their businesses to NFP, own approximately 20% of the equity. “So we have a pretty big stake,” Favale says, noting that the remaining PE partners own the rest of the shares.

What about entrepreneurs who sell to NFP in the future? Many of them will become equity owners of NFP in connection with the sale of their businesses, and the equity is all one class of stock. This means it’s the same for all investors, employees and executives. “The single class of stock is important,” Nelson says. “It’s the same valuation, same terms.”

Nelson relates how NFP has built the business for the long term and maintains that point of view with liquidity. “We don’t have a view on the timeline of a future liquidity event,” he says. “If you build the business for the long term, liquidity will come at the right time and place.

Favale adds, “We have enjoyed partnering with like-minded investors. MDP and HPS have fully embraced our vision on how to grow the company, which allows us to execute on the strategic business decisions that not only align our employee and client interests but also reinforce the values that are core to our company philosophy.”

The New Faces of Private Capital
Whether an agency is planning to sell or perpetuate, these new private capital players are making a marked impact on the industry, and we believe they’re here to stay. They provide more options to sellers, and they will challenge firms that are perpetuating to constantly raise the bar, evolve and build value. It continues to be an exciting time in M&A, and we expect the momentum to continue in 2018 and beyond with a range of private capital getting involved in the insurance industry. As you consider your new partner, make sure you understand the capital structure and what type of reinvestment opportunity is available to you. More importantly, understand how you can monetize the asset. There are pros and cons in each structure. It is becoming increasingly more important for you to understand not just the business plan your future partner has developed but also how that ties into their long-term capital structure and your liquidity options.

Trem is EVP at MarshBerry.

As Washington continues to debate policy over solutions to help resolve mass shootings, local churches and insurance companies are taking direct action to protect their communities from future devastation.

For many religious institutions, the deadly church shootings of Sutherland Springs, Texas, and Charleston, Va., were a wakeup call to reevaluate their security and insurance. Many churches have turned to religious-based insurance companies for guidance in coverage, cultivating preemptive strategies and safety.

“Over the last two years we have really been working to develop these materials, webinars, and presentations to assist our customers to help them become more aware, to help them become more knowledgeable in what they should do,” said Cheryl Kryshak, vice president of risk control at Church Mutual Insurance. “We have received a large increase in calls particularly since the event in Sutherland Springs.”

Insurance company Brotherhood Mutual has also seen more demand recently. Assistant Vice President of Marketing Jeff Renbarger says that since January of this year, about 26,000 views on Brotherhood Mutual’s website have stemmed from its content detailing information on security and safety in churches.

“Mass shootings sadly have become commonplace in the country now, and so it certainly heightened our awareness of it,” a pastor of a D.C. Presbyterian church who wished to remain anonymous said. “Some religious communities, particularly African American religious communities and Jewish religious communities, have been familiar with security concerns for many years. For a church like ours this is something new, and so we are currently in the middle of a process to develop a security plan.”

According to the University of Maryland’s terrorism analytics program START, religious extremist terrorist attacks have more than tripled since 2000. However, Renbarger says terrorist attacks like these are not the main cause of church shootings. “Today, even though terrorism grabs the headlines, the biggest likelihood for risk in churches still comes from people in the church,” Renbarger said. “An attack is always going to come from someone knowing someone in the church, more so… than a terrorist attack.”

Even if terrorism is not the main cause of attacks on places of worship, it still seems to push spikes in coverage. According to Paul Felsen of Felsen Insurance Services, Inc., many religious institutions, especially Jewish places of worship, have been investing in coverage since early 2000. “Right after 9/11 there was an increase in premiums because the insurance industry was nervous and skittish on all religious institutions, not just those of the Jewish faith. But now, our clients are affected because they are held to a higher standard.” Felson added that these higher standards are similar to the security standards required of a large-scale business, such as a manufacturing plant.

Similar to the large spike in premiums post 9/11, anti-Islamic hate crimes also skyrocketed—from around 50 to more than 500 reported in 2001, according to CNN.

To provide data and recourses to their customers, insurers in this market like Church Mutual, partner with crisis management and security companies to come up with preemptive strategies. While covering insurance costs is what companies in this market do, they also try their best to consult their clients into practicing safety to prevent future accidents, Kryshak said.

Church Mutual advises churches to lock most doors (except the main entrance) and invite law enforcement to do an assessment of the building. Ushers can also play a vital role in safety and security in church. “Train the ushers to be the first line in defense,” Kryshak said. “They are the individuals who are welcoming people. They are shaking their hands, they can get a sense of really understanding the people that are coming in; being aware of those behavioral points.”

In addition to offering risk prevention strategies, insurers in this sector also allow places of worship to customize their coverage for special events and charity work. “We have a large Sunday dinner every week in which we serve a lot of unhoused folks in the neighborhood, and they’ve provided an additional insurance rider to cover that event,” the D.C. Presbyterian pastor said. “So, I think they seem to be aware and sensitive to the particular needs and activities of churches.” Felsen also added that with the high costs of security, the Department of Homeland Security holds a grant program for some religious institutions to apply for.

Church attendance generally spikes during spring and Easter, and both churches and their insurers know this. More and more places of worship are planning extra security measures in anticipation for the worst-case scenario, and insurance companies are stepping up their game to assist.

“We believe that in most cases you can’t stop the armed intruder,” Kryshak said. “However if you are preparing ahead of time and recognize some of those behaviors, [you] could stop a person from going forward with a plan or poor decision.”

Almost three in four insurance C-suite executives say they believe insurtechs are disrupting the industry, but only 43% see this same effect in their own businesses. Among the 400 insurtechs surveyed, 44% said they believe their involvement will be cooperative with the industry while just over a third expect to be competitors.

Companies wanting to thrive will have to innovate. That’s the key to unlocking $375 billion in new revenue globally in insurance, according to Accenture. Insurers that continuously innovate and adapt to changing customer needs will be able to capture emerging growth opportunities and outperform competitors, the firm says. Insurers could generate an additional $177 billion in revenue from areas such as emerging risks in cyber and autonomous vehicles. About $198 billion in new revenue represents the potential shift in market share between insurers who embrace transformation at the cost of less-nimble competitors.

Cyber Opportunities

Cyber does represent a significant growth opportunity, as many firms—particularly smaller ones—struggle to strengthen their defenses. Nearly three quarters of clients face major shortcomings in their cyber-security readiness, according to a Hiscox survey of more than 4,100 small and large companies in the United States, the United Kingdom, Germany, Spain and the Netherlands. Still, nearly seven out of 10 rank the threat of cyber attack alongside fraud as a top risk. And nearly 60% believe their cyber-security spending budget will increase 5% or more in the coming year. Small businesses lag when it comes to cyber insurance. The survey shows only 21% of U.S. firms with fewer than 250 employees have cyber insurance. Some 58% of companies with more than 250 employees have cyber insurance.

A growing cyber threat for 2018 is potential attacks against critical infrastructure as hackers target industrial control systems, according to a FireEye and Marsh & McLennan report. As more industrial and infrastructure systems come online, they become more vulnerable to digital attacks that can cause physical damage to facilities such as chemical and manufacturing plants, energy platforms, transportation networks and water systems.

While strengthening network defenses is crucial for cyber security, some decidedly low-tech risks can go overlooked, such as old-fashioned paper. A study in The American Journal of Managed Care finds that, while network attacks draw the headlines and affect more people, improper disposal and theft of paper records and patient films are more frequent causes of data breaches—even if much less severe. Lost or stolen laptops remain a major risk, according to the study, led by Meghan Hufstader Gabriel of the University of Central Florida.

Going back, you were working as an insurance attorney, so what led you into insurtech?
I got really tired of seeing the same documents over and over during litigation. One of the first cases I ever worked on, I was told to find the words “Montgomery Point” or variations of those words in probably more than a million emails, which took me about three years to review. I started paying attention to technology and different ways of doing things. I started noticing machine learning—in the litigation context, it’s called technology-assisted review. I realized machines could do what I was doing and they could actually do it much better.

How is technology able to tackle something as seemingly complex as insurance policies?
I would argue the policies are complex because of the convoluted way they are put together. A lot of times, a policy is a compilation of forms and endorsements, which is another way of saying it’s a handful of documents jammed together. We realized we could leverage machine learning technology to break an insurance policy down into its individual clauses and we could break the clauses down into their numerical values or the wordings to help people understand them faster. We could do that because of lot of the time the industry was using the same documents over and over and over. Machines are very, very good at sorting out repetitive documents.

You started with a focus on claims. How did the shift to policy analysis come about?
We started working with one insurance company and then another and collecting claim documents at the source and then uploading them to our software. The pivot point was when an underwriter called us on a very large claim. She said, “I’ve been reviewing the underwriting file in your claim document management software and really like it. Can I use this software for policy review?”

Like any good entrepreneur, I said, “Sure! What’s policy review?” I really didn’t know a whole lot about policy review at that time. Slowly but surely, we realized that this was a much bigger problem than the claim document problem we were solving and that we should go solve this policy review problem.

How are policies similar, and how do you find the differences that make a difference?
There are a couple different ways I look at a policy. There is the language, and then there are the numerical values.

Insurance language could be a clause that excludes any damage by war or terrorism or government. Another clause might say, “We do not accept responsibility for anything damaged if there is an attack, which involves missiles by a government person.” Those two different clauses may essentially mean the same thing.

The first thing we did on machine learning was we trained our machine learning platform—we call it Johannes—to understand that both clauses mean the same thing. Both should be labeled “Exclusion—War.” We’ve done this work on more than a million clauses now and identified about 3,000 categories. As of now, we can take wording from one carrier and wording from another carrier and line up similar clauses, even though these clauses are written differently.
Step two was to go deeper into the policy and not only pull out the policy language but also pull out the numerical values.

Imagine you have a war policy deductible for $10,000 and on another policy you have a deductible for a missile shot by a government person and that deductible is for $100,000. In the end, the broker needs to be able to line those up and tell their clients that both of these are deductibles for war and this one’s for $10,000 and this one’s for $100,000 and advise them which one’s better. In that case, you have to be able to apply a common label across both deductibles and show how the data compare. That’s our Policy Check tool we recently launched. It’s standardizing the language and the numerical values no matter what an insurance policy calls it.

Why Johannes?
Johannes is named after Johannes Gutenberg, the guy who invented the printing press. The more we have worked with insurance policies and artificial intelligence, the more I have come to appreciate old document systems. And the printing press was the first document system. Johannes is basically our attempt to pull apart existing insurance documents and turn them into usable data.

When did you launch and how has it been going?
We started building in late February 2015. We launched a beta version in February 2016. That was fun in that we brought people in and they broke the software immediately, which is how it should go. We launched a full version in late 2016 and signed two of our large enterprise customers. One of them is a partnership with QBE. They’re bringing 126,000 insurance forms into RiskGenius so that they can review, research and bind those forms a lot faster.

How do you see machine learning changing the industry?
A lot of the work that brokers have to do is highly repetitive, and they struggle to even get it done on time because there is so much of it. I compare it to Uber, which realized the supply of rides was not satisfying consumer demand. They created more supply by finding more drivers and cars.

On the broker side, there is a lot of demand for the best insurance product possible. A lot of time brokers don’t have the time to provide that analysis to their customers, particularly small and medium-sized customers. Brokers can’t put in the time needed to do that type of work because they need to focus on the big accounts. Our goal is to free up the brokers to do more policy analysis faster so they’re doing less of that repetitive work. In the long run, it’s going to create better relationships between brokers and their customers because they’re going to spend more time on risk management and finding what’s in the customer’s policy and what the best coverage is.

Later, visionary brokerages became aggregators, using sophisticated high-tech engines to allow consumers to find the cover they liked best by entering their details only once. Now insurers are bringing similar technological innovation to the commercial market, allowing distant carriers to offer their products directly to local brokers over the internet through quote-and-bind portals.

These proliferating websites enable U.S. brokers to buy cover—sometimes on admitted paper, sometimes from carriers and MGAs in other states, and even from London—without sending a fax, opening an envelope or picking up the phone. The revolution is wholesale.

“It is absolutely the future of distribution,” says David Umbers, CEO of Ascent Underwriting, a managing general agent in London. His company’s portal, Optio, is a hit in the United States. Ascent receives tens of thousands of online inquiries each year from its 90 selected and registered U.S. brokers. So far, the website delivers two main products to U.S. producers: a modular cyber cover for small to midsize enterprises and a medical billings policy.

More products are in development for distribution through the system, which provides country-specific products elsewhere around the world. Next up is a product for allied health professionals that incorporates cyber cover.

Quote-and-bind portals typically allow brokers to enter the fundamental details of a client’s risk into a secure website, select the coverage options they want, then submit the electronic proposal for instantaneous underwriting—or referral if the algorithms kick it back. If the system accepts the risk, the broker first views the price of cover, then may bind with a click before printing all the relevant documentation, sometimes with the broker’s own corporate branding.

A process that has taken days or weeks using traditional channels can now be completed within minutes. Not only do such systems slash costs from the process; they also allow broader choices.

“Cost is the big advantage,” Umbers says, “because the mechanism of distribution is so efficient, but quite often quote-and-bind portals provide a better product, too. They have to be best of breed. That is the key to Optio’s success.”

The Lloyd’s carriers providing the risk capital that backs Ascent’s portal-policies love it, too. Distribution through Optio allows them to get at small and midsize commercial risks that otherwise would not make economic sense to bring to London through the usual long chain of wholesalers and placing brokers.

“It is a great way of selling high volume,” Umbers says. “It gives us huge operational efficiencies and access to a market that is otherwise impossible to reach. It reflects complete concentration of value within the distribution channel.”

Our average policy premium is $500, so with this model it’s important that the machine take as much of the strain as possible. You almost have to have the mindset that, as soon as a human touches a risk, the agent and the underwriter lose money on such tight margins.

Kevin Kerridge, executive vice president, Hiscox USA

The Range of Options

Not all quote-and-bind portals are quite what they seem. Optio policies always carry the Ascent brand, but many carriers choose to extend their reach through a process known as “white labelling.” Local wholesalers or MGAs apply their own branding to the front end of the website and to the products distributed through it. White labelling is a valuable tool for carriers working with local companies whose home-market reputation and relationships may be stronger than their own, and it has obvious benefits for the distributor.

The systems also have the significant advantage of improving and radically simplifying data capture, dissemination and analysis. By their very nature, quote-and-bind portals capture data at the source, the originating broker. It is then available for analysis and reporting by everyone in the chain, all the way to the ultimate carrier and even to reinsurers, without re-keying.

It all began more than 15 years ago, when insurers first created e-commerce platforms. One first mover was the Lloyd’s operation Beazley, which in 2001 launched a platform called EazyPro to distribute specialist professional liability cover for SMEs directly to U.S. surplus lines brokers. In its first 10 months of operation, it brought in premiums of about $1 million. But things have moved a very long way since then.

EazyPro is now very close to retirement. It has been superseded by a new system called myBeazley. Its ancestor was primarily a quoting system. It priced risks—or referred them to London for underwriters to look over. Either way, risks were bound at Lloyd’s, and the documentation was posted to the broker. Today, myBeazley, like other new-generation portals, has many more bells and whistles and allows online binding of many risks with no human intervention at all. It limits questions to the bare minimum (in the case of professional indemnity policies, just four), then instantly provides pricing. Cover can be bound in less than two minutes, and supporting documentation is printed by the binding brokers.

Like Ascent’s Optio, the system refers more complicated risks to underwriters. Documents and data can be uploaded to them. MyBeazley has a monthly payment option, handles midterm adjustments, allows automatic renewal, delivers broker-branded documentation if desired, and provides management information with a click or two. Its latest new product for U.S.-producing brokers is event cancellation insurance.

“MyBeazley is generally used for SME and mid-market business,” says Paul Willoughby, head of IT strategy and innovation at Beazley. “Brokers can register in three or four minutes and will usually be visited by a Beazley underwriter before they get going for five or 10 minutes of training.” The system offers admitted and surplus lines cover for licensed brokers in the United States. Around the world, more than 400 are using the system to date.

Some systems have even greater reach. StarStone Insurance began developing its Escape portal in 2010 to distribute small umbrella excess casualty cover to wholesalers and MGAs.

“There was a market need for easy access to smaller-scale casualty covers,” says Kardiner Cadet, the insurer’s vice president and head of e-commerce. “Brokers spend the brunt of their time trying to place underlying policies and needed quick responses on the excess or umbrella cover.”

An important change, Cadet says, was StarStone’s move to admitted paper, which gave usage a dramatic boost since it eliminates the extra administration that comes with surplus lines. Admitted policies now account for 86% of those sold through Escape.

API technology means portals will probably be eliminated in the next few years. We have it up and running for our cyber product and could easily do it for myBeazley.

Paul Willoughby, head of IT strategy and innovation, Beazley

The online offering was expanded three years ago to include an equipment floater that offers coverage for contractors’ equipment and miscellaneous property. The most recent additions, now being rolled out, include a senior-care follow-form excess liability product for nursing homes as well as the newly launched Escape 123, an E&O product that targets professional service providers with revenues under $500,000.

The system now delivers about 40,000 policies every year from roughly 5,000 brokers who actively use Escape (about 20% log in every day). Most risks generate premiums somewhere between $750 and $5,000.

One reason for its success is the personnel support StarStone has dedicated to the product. Brokers currently initiate up to 150 live chats daily to consult with one of five dedicated underwriters, who respond on average in 18 seconds and typically conduct three or four chats concurrently. They also answer 40 or 50 phone calls and up to 100 emails on an average day. Meanwhile, e-business development representatives ensure brokers understand the products and the system functionality.

Cadet reports some impressive results. “Eighty percent of the accounts quoted go straight through to bind without the broker having to consult with an underwriter, 20% are referred to an underwriter, and half those are declined,” he says. That suggests a remarkable 90% conversion rate for business quoted across the Escape portals.

Even larger is Markel Online. Its various portals deliver an unusually wide range of products to wholesale brokers, allowing them to rate, quote, bind and issue property, general liability, liquor liability, inland marine and excess liability coverages on a non-admitted basis.

Paul Broughton, Markel’s managing director of marketing, says Markel expects to expand the available offering even further. “We are evaluating additional product line opportunities at this time,” he says, noting that for 2017 Markel expects approximately 250,000 quotes to have been created via Markel Online.

Wholesalers are attracted by the system’s efficiency. “By limiting the amount of data needed to produce a quote, with a complete application, our producers are able to bind a straightforward account in a matter of minutes,” he says. “Of course, a multi-line, multi-class, multi-location risk, or one requiring underwriter approval may require a bit more time.” Speed to quote is always critical when designing a portal, Broughton says.

Like many other quote-and-bind portals, Markel Online is available to specific individuals employed by appointed wholesalers. They gain access to certain products based on prior agreement. “Once a producer contact is created in our agency management system, specific rights are assigned to the user, and a password is provided for them to access Markel Online,” Broughton explains. “Our underwriters provide information on our risk appetite and training on underwing guidelines. Producers are then off and running, with little to no formal system training needed.”

Much of Markel Online’s business is handled by MGAs. “It has provided an excellent mechanism for our MGAs to produce quotes, bind coverage, and issue policies, thus allowing them to more effectively write business on Markel’s behalf,” Broughton says.

Hiscox, the Bermuda-headquartered insurer with its origins in Lloyd’s, uses its $250 million portal system internally, as well as with third-party intermediaries, to provide professional liability, general liability and business owners policies to U.S. companies with revenues up to $5 million. It provides same-day coverage for more than 150 professions. Hiscox handles the billing and, like myBeazley, the portal delivers automatic renewals, which allow originating brokers to earn commission for the lifetime of a policy. In some cases, Hiscox reports, the system has helped wholesalers acquire new clients that may otherwise have been channeled by their retail agents directly to insurers.

There was a market need for easy access to smaller-scale casualty covers. Brokers spend the brunt of their time trying to place underlying policies and needed quick responses on the excess or umbrella cover.

Kardiner Cadet, vice president and head of e-commerce, StarStone Insurance

“We have built this system to help our broker-partners and their retail agent audience bind the necessary coverage small businesses need in a matter of minutes,” says Kevin Kerridge, executive vice president for the Direct & Partnerships Division at Hiscox USA. “We also offer the ability to quote and bind over the phone with call center agents.”

More than 200,000 policies bound through the digital platform are in force today, many accepted through co-branded portals, which Hiscox says it can have up and running for a brokerage within a couple of weeks.

“Our average policy premium is $500, so with this model it’s important that the machine take as much of the strain as possible,” Kerridge says. “You almost have to have the mindset that, as soon as a human touches a risk, the agent and the underwriter lose money on such tight margins.” The results are impressive: 85% of applications get an immediate bindable quote. Still, even with its machine-driven approach to this kind of business, the Hiscox call center takes more than 50,000 calls per month.

Portals into the Future

Although portals are used effectively across many product lines today, some wholesalers are already looking to a next-generation approach that would reduce the number of systems they use during the course of their day, improve their internal efficiency, and let them retain the considerable account data they accumulate when entering risk and client information into portals. Many are embarking on their own system projects that rely on carriers’ application programming interface (API) systems to create internal quoting tools for their own use. An API allows a broker to enter the details of a risk once, then receive a quote from all of the multiple interfaced quote-and-bind systems.

“Brokers can integrate with us through API,” says Beazley’s Willoughby. “They don’t have to log on to the system. Instead, they get their prices directly from us on their own platforms.”

Several larger wholesale brokerages, that in essence have built their own internal aggregators, have developed such systems. Smaller firms might have to rely on re-keying into multiple quote-and-bind platforms for a little longer, until third-party vendors make an off-the-shelf aggregation product, although they typically stick to the quote-and-bind portals they prefer.

Meanwhile, as is so often the case with technological revolutions, some believe quote-and-bind portals are almost obsolete already.

“API technology means portals will probably be eliminated in the next few years,” Willoughby predicts, although currently only a handful of systems have built-in API functionality. “We have it up and running for our cyber product and could easily do it for myBeazley.” Such a move would give brokers’ systems access to everything including a document generation tool allowing them to create paperwork that carries their own branding. The next step in the revolution, according to Willoughby, is the incorporation of blockchain technology. “It could be incorporated, but I am not sure the market is quite ready for that yet.”

Hiscox believes a multi-channel customer experience is the future of distribution. “Whether it’s in person, online or over a mobile device, consumer demand is driving the future,” Kerridge says. “Companies across all industries are looking for ways to connect and transact with their clients in a smart and convenient way.”

But that doesn’t signal the end of the agent or broker. “We disagree with the notion that insurance agents are going the way of the dodo,” Kerridge says. “Agents are here to stay, but they will look different and be much more digitally empowered.”

StarStone’s Cadet is also thinking about the next big thing in technology-driven distribution. “I don’t believe company portals are the be-all and end-all,” he admits. “Technology is always evolving, and carriers need to find different and better ways to make their products more accessible to brokers. We must evolve and adapt.”

That, he says, could include mobile apps, integration with brokers’ management systems, even using bots. “We will see failures as insurtech evolves, but we should not be dissuaded,” he insists. “Most insurtech, while important, is simply a variation on an existing theme, not a true innovation. We must continue to keep our eyes open to spot the true innovations when they emerge.”

Leonard heads the Leader’s Edge Foreign Desk.

What is the target of Omada’s program?
Digital therapeutics are aimed at combatting obesity-related chronic diseases like hypertension and high blood fats. When you combine cardiovascular disease with those, you have the number-one health challenge in the world. There are a lot of other diseases we are trying to get our hands around, but obesity-related ones are clearly an issue: there is a 2030 projected spend of over $1.2 trillion annually on them. That makes it worth focusing a lot of attention here.

What is the difference between digital therapeutics and digital health?
The term digital therapeutics is used to differentiate this subcategory of digital health, which treats diseases by modifying patient behavior through digital programs and then tracks it via remote monitoring. The difference is that it’s evidence based. It’s not just a digital product that augments a medical product.

There are a lot of digital health products not based in science or proven to have the outcomes they claim. What an employer wants to pay for is something they know is going to have a good outcome. In medicine, it would be unacceptable not to have proven data.

How was Omada’s program built?
Our founders were relooking at this space and saw bodies of literature out there, some of which were being acted on on a small scale but which had a lot of opportunity for being grown and developed further. One of those was the Diabetes Prevention Program, whose results were published in The New England Journal of Medicine in 2002. People were being enrolled in the DPP but not at scale. So we asked how we could take this proven method and apply it in a scalable fashion, make it personalized and help affect that cost curve overall. Omada was built out of that.

How did Omada take the DPP work and create a digital program?
The initial body of work looked at a subset of people who were prediabetic and, if left untreated, 5% to 10% of that group would likely become diabetic each year. This is a large public health challenge with about 84 million people in this prediabetic category.

The CDC published this work that compared three groups of people with prediabetes. The first received intensive behavioral counseling, the second group received metformin [used to treat high blood sugar in people with Type 2 diabetes], and the third got a placebo along with basic advice and information from a physician. People who received behavioral counseling had a 58% decreased progression rate to diabetes. That was a significant improvement over the groups that took the placebo and metformin.

A lot of the work in the DPP was in-person settings with a health coach and lessons, and that model was very effective. However, when you are talking about working with 86 million people, you can’t scale that to meet that challenge. A digital format allows you to reach a larger number of people and collect data points to customize and personalize the experience for every individual in the program. Everyone going through has a slightly different experience based upon their inputs and how they interact with their health coach.

What does the Omada program look like?
Omada follows a CDC-approved curriculum. We use a virtual health coach and a cohort of like individuals to go through the program together. Tools people use will vary. Each person gets a cellular connected scale, which is an important element because self-reported weights aren’t very reliable. And from a behavioral perspective, there is value to having it auto-transmit into an account so they can see weight loss.

The elements of the program include weekly lessons for one year around changing food habits, increasing activity levels, preparing for challenges and reinforcing healthy choices. Participants are expected to weigh in daily. Most people stay in for up to two years. More than 140,000 people have been enrolled in the program since its inception.

What does the program cost?
We work with either self-insured employers or insurance companies as a covered preventive benefit for clinically eligible individuals. Because we operate as a benefit like this, we are able to charge organizational customers (employers or insurance companies) on an outcomes-based pricing structure. We do charge the employer/insurer when an individual enrolls; this mainly covers our marketing costs, as well as the cost of the welcome kit for the participant. From there, we charge the employer or insurer only if the participant achieves the desired health outcome (weight loss). We would invoice the employer/insurer monthly, based on how much weight the participant has lost and maintained—so not only is our business structure incentivized to create initial weight loss; we’re also incentivized to maintain that healthy outcome for as long as possible, because the better the outcome, the better the revenue. As long as our contract with a participant’s employer or insurer is ongoing, the participant will never pay any out-of-pocket cost for Omada.

What about ROI?
Of course, morbidity and mortality and prevention of disease are the most important elements, but cost savings is also something we are trying to achieve and is really important too. The program has been proven multiple different times to have meaningful cost savings as early as eight months in.

We did a claims analysis on a large cohort in one payer program started in 2014, and as compared to a propensity matched cohort, there was a $1,338 cost differential among people who went through the program in one year. This didn’t include the cost of program, but it is still in the positive if included.

When it was broken down, inpatient and ER visits were decreased. Only pharmaceutical spend increased slightly, but that’s because people were more compliant with their care, which we want to see. But even that was more than offset by other spend. Generally, within one year, Omada participants lower their risk of Type 2 diabetes by 30%, stroke by 16% and heart disease by 13%. After 16 weeks, individuals, on average, lower their body weight by about 4%.

What does demand look like from insurers and employers for wellness programs?
It’s really strong. People are realizing this is the number-one health challenge, and anyone who has risk for a population is interested in stemming these costs. It’s difficult to find an employer who doesn’t think this is a challenge. From a payer’s perspective, once they prove the cost savings, they want to make it broadly available.

Not all wellness programs are effective. Why are some unable to effect change among participants?
A lot of companies are quitting wellness programs because they have tried them and consistently haven’t gotten good outcomes. You have to have clinical evidence and studies that show the effectiveness of the products.

Compare it to something like chemicals pharmaceutical companies study and how few of those make it to market. If they put every chemical that came out on the market, there would be lots of failures. In the digital health space, anyone that has something that seems like a good idea and can get money can bring it to the market. There are going to be a huge number of failures there, too.

When analyzing wellness programs, brokers need to look at whether they are based in science, if pricing is based on outcomes, if there is published, peer-reviewed evidence that shows that that specific company’s program works, and if they are personalizing the experience. If a benefits buyer is evaluating potential partners with that level of rigor, it can sort this out. We just haven’t always applied those standards to wellness programs.

What do you know about long-term results of the program?
We have studied it for up to three years and shown durable, long-lasting outcomes both from a weight-loss perspective and reduction in HbA1c (blood glucose concentration over two to three months). We will continue to study it as people are in the program longer. The cost savings would be expected to extend for a longer duration, because we know people are maintaining metrics that yield outcomes. But to my knowledge, no one has studied total cost of care claims beyond one year. The Diabetes Prevention Program in general has benefits of up to 10 years. As that is around longer, we will continue to study that. Right now, outcomes look fantastic from a durability standpoint.

Have you looked at the impact on conditions other than diabetes?
We have studied other conditions. They include elements like hypertension, high blood fats and broader obesity in general. We have seen significant reduction in hypertension and triglycerides.

Even though prediabetes is the heart of what we are working on, we don’t just deal with that. We enroll people who are overweight or obese with one or more other risk factors like hypertension or high cholesterol. We can use a questionnaire with a risk-based screener to see who is eligible, or employers’ biometric data can be used to prequalify people for the program.

How can organizations like yours help employers encourage people to take part in digital wellness programs?
At Omada, we have a large engagement team. We work with an employer’s or health plan’s marketing team as a partner and learn what they have done in the past to engage people. But since we have done this well over 150 times, we bring out all of the elements that work best for an optimal campaign to get the most individuals in the program up front.

We optimize and co-brand with the purchaser, and we also have it announced by a leader in the organization. We don’t talk a lot about weight loss but, rather, about a new benefit that will help them improve their lives. We couple our knowledge with the best practices within the organization to get good results.

With such a focus on engagement, what kind of uptake do you get?
Within the known risk population, we can expect to get 20% enrolled. For anyone who has done this before—engaging in programs where you are asking people to enroll or participate—this number is world-class.

That seems like a small number of people actually taking part. What is “normal” for these kinds of programs?
From the outside, you can look at it like, if 20% enroll, it means that 80% didn’t come into it. And yes, there is still a long way to go. Part of the reason people don’t enroll is it’s just not the right time for people. In fact, according to a 2016 U.S. Chamber of Commerce report, more than 80% of people are just not ready to take action and make lifestyle changes at any given time. So, we continue to run refresh campaigns to connect with those people at a later time. There’s a lot of different reasons why it isn’t appropriate or people don’t feel like they have the time, so we try to get around those elements to let them know this is something different.

A lot of these folks have fought with this and been in weight loss programs in the past. So we make sure to tailor content so they realize it is something that will have an impact and we let them know they probably will have different outcomes this time.

The resulting #MeToo movement, a social media campaign that instantly went viral, highlighted just how prevalent sexual harassment is in the workplace. It vividly revealed a culture of harassment and intimidation that extends beyond casting calls and into boardrooms and office cubicles and, finally, the wallets of employment practices liability insurance carriers.

The business community is suddenly focused on its exposure for managers’ and employees’ atrocious behavior. Many expect increased awareness of sexual harassment—and its accompanying greater exposure—will most certainly drive sales of EPLI policies.

A Short History

The television phenomenon “Mad Men” made much of mid-century corporate culture, waxing nostalgic about alcohol-fueled lunch meetings, race relations and, yes, even sexual harassment. But the term itself wouldn’t emerge until 1973, when then-ombudsman Mary Rowe published “Saturn’s Rings,” a report about gender issues at the Massachusetts Institute of Technology.

The term would linger in relative obscurity within the halls of academia for years, until Supreme Court nominee Clarence Thomas’s confirmation hearing in 1991, when attorney Anita Hill testified before the Senate, alleging incidents of harassment by Thomas during their time together at the Equal Employment Opportunity Commission.

The televised hearing would captivate the nation and make “sexual harassment” a household phrase. While the Senate would go on to confirm Thomas to the high court 52-48, Hill’s testimony would energize a generation of women. Within a year, complaints of sexual harassment filed with the Equal Employment Opportunity Commission jumped nearly 60%.

Despite the increased awareness of sexual harassment, the number of complaints has remained relatively static over the past decade and has even trended downward lately. The amount of payout, however, has increased substantially, suggesting that sexual harassment cases have become more expensive. In 2010, for example, the EEOC received 7,944 complaints at a cost of roughly $41 million in compensation. In 2017, the EEOC received nearly 6,700 complaints, resulting in more than $46 million paid out in claims.

Obviously, these are only the incidents that get reported. A recent EEOC study estimated that 75% of workplace harassment cases never get reported because of fear of retaliation, whether subtle or overt.

EPLI risk will likely go up as more women speak out. A 2017 ABC News-Washington Post poll found that 54% of American women have experienced “unwanted and inappropriate sexual advances” at some point in their lives. That works out to roughly 33 million American women who say they’ve been sexually harassed at work.

But it’s not just women. A 2015 survey by the National Center for Transgender Equality found that 47% of transgender people have reported a sexual assault.

Awareness, naturally, is higher than it has been in nearly a decade. That same poll showed 75% of Americans admit sexual harassment at work is a problem, while nearly two thirds called it a “serious” problem.

Additionally, a 2010 Society for Human Resource Management study found roughly a third of U.S. companies had dealt with sexual harassment claims within the past two years.

U.S. companies spent roughly $2.2 billion on liability coverage in 2016, including EPLI policies, according to insurance analytics firm MarketStance. It’s certainly a niche of the property-casualty industry that’s seen a lot of growth. Back in 1991, when Anita Hill testified, there were five carriers offering EPLI coverage. Today, there are more than 50.

Not Fringe Coverage

John Milano, a senior vice president at RCM&D in Baltimore, hasn’t necessarily seen a jump in EPLI sales, but he readily admits an increased awareness of workplace harassment, whether it’s quid pro quo or an overall hostile work environment.

“This awareness has generated additional questions by clients and prospects on EPLI coverage, limits adequacy and the built-in resources that may be available through the insurance carrier providing the coverage,” Milano says.

These policies have long been underrated, he adds, and he insists they’re one of the most cost-effective ways to assist clients and their HR people in keeping up to date with employment policies, procedures and laws prohibiting harassment.

While brokers have seen more interest in EPLI policies lately, they recommend treating it as a mainstream product and part of more comprehensive coverage. EPLI policies typically go above and beyond the coverage included in comprehensive general liability insurance to cover judgments, settlements and the defense of most harassment and discrimination litigation. Covered parties typically include company officers, boards of directors and employees past and present (independent contractors and seasonal employees are usually excluded).

“EPLI, in a nutshell, covers things like wrongful termination, discrimination, sexual harassment and retaliation,” says Susan Combs, CEO of Combs and Co., a New York-based brokerage. “It can also cover things like failure to promote, deprivation of a career opportunity, and negligent evaluation, but these can be really difficult to prove. We see the costs start around $3,000 a year, and they go up from there. The main things that affect the rates are the number of employees and the gross sales of the company.”

State legislatures, like all workplaces, should be free from harassing and offensive behavior. There is an opportunity now for state legislatures to make that happen.

Johnny Taylor, president, SHRM 

Combs also points out that larger corporations are much more likely to face a harassment suit than a mom-and-pop shop that has a much more modest annual revenue. But there are other factors that can come into play when quoting an EPLI policy, Combs says, including the type of business. Industries such as retail and hospitality are more prone to harassment claims.

Companies can mitigate their exposure—and premiums—by having policies and procedures in place not only to prevent harassment from ever taking place but also to deal with it quickly and fairly when it occurs.

While harassment can be defined as unwelcome sexual advances, requests for sexual favors and other verbal or physical harassment of a sexual nature, the Equal Employment Opportunity Commission says it can also be something as simple as offensive remarks about someone’s gender. This can include sweeping generalizations such as “All women are weak” or “All men are lazy.”

It’s also illegal for an employer to retaliate against someone for “opposing employment practices that discriminate based on sex or for filing a discrimination charge, testifying, or participating in any way in an investigation, proceeding, or litigation under Title VII.” In fact, retaliation suits are the largest segment of employee litigation, according to Bermuda-based Hiscox. Nearly 46% of lawsuits brought annually against employers include claims of retaliation.

While most companies on average have only about a 10% chance of facing an employee lawsuit, those odds can vary wildly depending on the state. Nevada employers, for example, have a 55% chance of being sued by a current or former employee because of the state’s more liberal employment laws.

Lawsuits filed by an employee can be expensive and time-consuming. The average case takes 318 days. And while only a quarter of cases result in defense and settlement costs, when they do, the average bill is $160,000. Jury awards often go much higher.

Moving Forward

Statehouses across the country are beefing up outdated and often ignored sexual harassment policies. After a 50-state review, the Associated Press found nearly every state legislature now has a written sexual harassment policy in place.

The renewed effort comes in the wake of harassment accusations that forced more than a dozen state lawmakers in 10 states from office over the past year. And at least 16 others face accusations but remain on the job, says the AP.

The renewed focus on training is a welcome sight to the experts at the Society for Human Resource Management. “State legislatures, like all workplaces, should be free from harassing and offensive behavior,” SHRM president and CEO Johnny Taylor said in a statement. “There is an opportunity now for state legislatures to make that happen. Policies and procedures are important and must be put in place. But they alone are not enough. SHRM calls on state legislatures to build healthy workplace cultures that will support a harassment-free environment.”

Milano also advises employers to do more than just make sure sexual harassment is addressed outside of the employee handbook. “We also recommend seeking out employment counsel to review policies and procedures on an annual basis,” Milano says. “We have also seen employers use mandatory online anti-harassment training to reinforce their policies.”

Elizabeth Schallop Call, of counsel at Steptoe and Johnson in Phoenix, says claims of harassment and discrimination are highly sensitive, especially from a public relations standpoint. While the bulk of her experience is in conducting internal investigations once a concern is raised, she stresses that it’s critical for employers to be proactive about harassment.

“A lot of the harassment I run into is a lot more subtle, such as unwelcome romantic gestures that aren’t reciprocated,” Call explains. “You might have overly touchy contact by a male colleague or someone who comments on someone’s appearance, for example.”

To help build a better workplace environment, Call instructs employers to take a three-step approach. “First and foremost, it’s important that employers have a clear policy in place regarding acceptable behaviors,” Call says. She suggests companies institute a policy prohibiting bullying across the board, which covers issues of harassment, discrimination and retaliation.

Second, she says employers must go beyond the employee handbook and continually refresh employees on the workplace policy. She even suggests using the stories that continue to make the news as a possible entry point to send out an email reminding employees about the company’s policies. She also advises employers to tailor any anti-harassment training to the particular work environment.

Finally, Call emphasizes how important it is that employers take complaints seriously when they do arise. She says employers should conduct very thorough, objective investigations that result in direct consequences. This helps protect the employer as well as reinforcing what is acceptable behavior and what is not. Consistency is key, she points out, so the workforce knows there are no protected employees.

Publisher Condé Nast has perhaps shown employers one way forward. The New York-based publishing giant announced it would stop working with a pair of photographers who’d been accused of sexual misconduct.

The announcement follows months of work on a new code of conduct that began after the Weinstein story broke.

The new guidelines, spearheaded by editorial director Anna Wintour, forbid the use of underage models and alcohol at photo shoots and advise against models being left alone with photographers, makeup artists or any other on-set staff.

Experts also suggest employers take preventive measures not only because it’s the right thing to do but also because it will result in cheaper EPLI policy premiums. To reduce exposure, they suggest:

  • Establishing uniform hiring procedures that include detailed job descriptions
  • Publishing the company’s policies everywhere—online, in the lunchroom and in the employee handbook
  • Ensuring there is a clear and open channel for employees to file complaints
  • Fostering a corporate culture that leaves no room for discrimination or harassment
  • Documenting everything with a comprehensive recordkeeping system.

First and foremost, it’s important that employers have a clear policy in place regarding acceptable behaviors.

Elizabeth Schallop Call, of counsel, Steptoe and Johnson

The process of maintaining a harassment-free workplace is never-ending, experts say, and training is the foundation of a solid program.

Storey is a freelance writer.

Driven largely by increasingly sophisticated and destructive cyber attacks—and the failure of businesses to prevent them—U.S. and European authorities appear ready to prescribe cyber-security controls.

Last year, cyber attacks caused unprecedented disruptions to operations, the theft of massive amounts of personal data and soaring losses. The WannaCry ransomware raced around the globe in May, encrypting data on about 300,000 computers in more than 150 countries. A month later, the NotPetya malware, begun in Ukraine, crippled global organizations, among them Maersk, Federal Express and Merck, which each lost an estimated $300 million. All told, losses caused by WannaCry are projected to reach $4 billion.

More importantly, the WannaCry and NotPetya attacks targeted the viability of systems and the integrity of data, serving as a warning that future systemic attacks could result in catastrophic losses for insurers. A month before WannaCry, a hacker group called Shadow Brokers released a file of cyber software tools used by the National Security Agency, making them available not only to the cyber-criminal community but also to nation states and terrorist groups. The WannaCry attacks were unprecedented in scale, and the United States, Britain and Australia have accused North Korea of launching them.

Though roundly documented, these attacks don’t indicate the broader impact of cyber hacks. Last year nearly 40% of respondents to an AT&T survey said a cyber incident had an operational impact on their organization, and nearly 25% reported a cyber breach resulted in damage to reputation, loss of revenue and loss of customers. Small businesses are as much of a target as large ones; a 2016 Symantec report said 43% of cyber attacks target small businesses.

Last year, a report from Barkly blamed the leakage of the NSA cyber tools on the rise in “clickless infections” (such as NotPetya) that bypass the need for a user to click on a link or open an attachment to enable malware to enter a computer. The report said attackers were creating infections “that are more difficult to block, detect and contain.”

The cyber attacks have caught the attention of regulators, legislators, plaintiff’s attorneys and the public, resulting in an increasingly complex mix of federal and state rules.

Financial Services: Federal Regs or Joint Partnerships?

In 2015, I wrote a report titled “Governance of Cybersecurity: How Boards and Senior Executives are Managing Cyber Risks” for Georgia Tech’s Information Security Center. I found the financial services sector has better privacy and security practices than other industry sectors. But it’s also one of the most targeted sectors for cyber attacks. As a consequence, despite strong security programs, it is one of the most regulated sectors with respect to cyber security.

One of the first cyber-security regulations to hit the financial sector was the 1999 Gramm-Leach-Bliley Act and its corresponding Privacy and Safeguard Rules. The law, enforced by the Federal Trade Commission, requires financial institutions to enact safeguards to protect their customers’ sensitive data.

In 2014, the Commodity Futures Trading Commission recommended best practices for administrative, technical and physical safeguards for financial information subject to the Graham-Leach-Bliley Act. The commission also issued cyber-security regulations in 2012 pursuant to the Commodity Exchange Act and enhanced them in 2016 with requirements for cyber-security testing, remediation and governance.

Recently, however, there has been some shifting away from federal regulatory action and toward partnerships with the private sector to advance information sharing and improve resiliency and response capabilities.

The U.S. Treasury Department’s Financial Stability Oversight Council clearly recognizes the cyber risks facing the financial sector. But rather than responding with regulations, FSOC’s 2017 annual report emphasized the value of public-private partnerships, noting:

If severe enough, a cybersecurity failure could have systemic implications for the financial sector and the U.S. economy more broadly…. The fact that the sector is overwhelmingly owned and operated by the private sector makes the need for a close partnership between government and industry important to better understand these risks…. The Council [FSOC] supports the creation of a private sector council of senior executives that would focus specifically on ways cyber incidents could affect business operations and market functioning and work with principal-level government counterparts on cybersecurity issues.

The financial sector might have also gotten a break from the Trump administration. Near the end of 2016, federal financial regulators jointly published an advance notice of rulemaking on “Enhanced Cyber Risk Management Standards.” The notice outlined a comprehensive set of rules that would cover five areas of cyber-risk management, including vendor oversight and incident response, and additional standards for cyber security. The Trump administration, however, may be keeping its word to pull back on regulations. Arthur Lindo, senior associate director of the Federal Reserve’s division of supervision and regulation, recently signaled the administration would not proceed with the rulemaking on cyber-security standards. “We’re going to try a more flexible approach,” Lindo said.

Compliance with competing federal and state cyber-security requirements is problematic for the industry; we favor a collaborative, risk-based approach and harmonization of requirements—including terminology.

John Carlson, chief of staff, Financial Services Information Sharing and Analysis Center

John Carlson, chief of staff of the Financial Services Information Sharing and Analysis Center (FS-ISAC), says, “Compliance with competing federal and state cyber-security requirements is problematic for the industry; we favor a collaborative, risk-based approach and harmonization of requirements—including terminology.”

FS-ISAC is the global financial industry’s go-to resource for cyber and physical threat intelligence analysis. It was established by the financial services sector in response to 1998’s Presidential Directive 63 (later updated by 2003’s Homeland Security Presidential Directive 7) that requires the public and private sectors to share information about physical and cyber-security threats and vulnerabilities to help protect critical U.S. infrastructure.

States Push Regulation

In 2003, California started a state rush to pass privacy breach notification laws because companies were not disclosing breaches and consumers were being harmed through identity theft as a consequence. New York, as a leader in the financial regulatory arena, may have kicked off a similar movement in cyber-security regulation when the New York Department of Financial Services enacted its Cybersecurity Requirements for Financial Services Companies, which took effect in March 2017. In promulgating the regulations, the department noted the increase in cyber attacks and the lack of a comprehensive federal cyber-security policy for the financial services sector.

The regulations apply to all entities subject to the Banking Law, Insurance Law or Financial Services Law of New York, though there are some exemptions for small organizations. The regulations require each company to conduct periodic cyber risk assessments and develop and maintain a cyber-security program that addresses identified risks “in a robust fashion.” Although a chief information security officer must be designated to oversee the security program, the regulations hold senior management accountable for the company’s cyber-security program. Each entity must file an annual certification signed by the chairperson of the board or a senior officer confirming compliance with the regulations.

The FS-ISAC provided input to New York regulators who were drafting the regulations. Rick Lacafta, director of the center’s Insurance Risk Council, notes the New York Department of Financial Services paid attention to the financial sector’s input and suggested compliance approaches. “It was particularly helpful, we believe, in making the rule more risk-based than prescriptive, which is very important in enabling companies to be nimble and deploy the most innovative approaches.”

In this way, the New York regulations take an approach similar to that put forward by the National Institute of Standards and Technology (see sidebar NIST: A Flexible Framework) and the ISO 27001, which is the international standard for information security. They all give organizations the flexibility to implement controls and technologies suited to their particular risks, which provides more effective security than spending resources on compliance requirements that might not apply to an organization’s operations.

“What I think the New York Department of Financial Services has done is lay out the contours of how organizations should be structuring and thinking about their cyber-security programs,” says Thomas Finan, client engagement and strategy leader for North America at Willis Towers Watson Cyber Risk Solutions. “I think it acknowledges the reality that you can’t prevent every cyber event, that there are determined hackers and other folks out there who mean you harm and you have to have a holistic approach [that] certainly includes steps to identify, prevent and detect a cyber event but also to respond and recover from it.”

The National Association of Insurance Commissioners has taken a similar approach. In 2014, following some highly visible breaches of health insurance data, the NAIC formed a task force to study cyber-security regulations. After six drafts and three years, the task force adopted the Insurance Data Security Model Law last October.

The NAIC gives deference to the New York regulations and deems compliance equivalent to compliance with the Model Law. The association also considers those compliant with the Health Insurance Portability and Accountability Act Security Rule to be in compliance, provided they submit a written statement. The HIPAA Security Rule establishes a national set of security standards for protecting personal health information that is held or transferred in electronic form, and it requires a complete enterprise cyber-security program. In 2009, the Health Information Technology for Economic and Clinical Health Act extended liability for Security Rule compliance to business associates and established notification requirements for breaches involving personal health information.

The NAIC Model Law is well written and more detailed than the New York regulation. It sets forth requirements for an information security program that are consistent with internationally accepted best practices and standards for cyber security. Raymond Farmer, NAIC vice president, South Carolina insurance director and chair of the Cybersecurity (EX) Working Group, expects three or four states may take it up in 2018—and South Carolina will be one of them.

“This is the first step toward uniform cyber-security laws across the country for the insurance industry,” says Farmer. He says although NAIC’s focus and intent was to improve cyber security for the insurance sector, other industry sectors have asked to review the law.

The Model Law also received favorable reviews from federal regulators. “Treasury recommends prompt adoption of the NAIC Insurance Data Security Model Law by the states,” department officials said in an October report. “(I)f adoption and implementation of the Insurance Data Security Model Law by the states do not result in uniform data security regulations within five years, [Treasury recommends that] Congress pass a law setting forth requirements for insurer data security, but leaving supervision and enforcement with state insurance regulators.”

EU Leads in Data Privacy

In 1996, the European Union seized the global leadership role on privacy issues with its Data Protection Directive and declaration that any EU data transferred out of the European Union must be afforded equivalent or “adequate” protections in the receiving jurisdiction. The European Union has dominated the privacy realm ever since.

Most U.S. companies are not familiar with privacy impact assessments, and some of the new privacy requirements currently are not able to be performed by many applications, such as the deletion of data on a person’s request.

Phil Gordon, co-chair, Littler Mendelson privacy and background checks practice

The EU privacy requirements posed great challenges to U.S. industry and global commerce and required cyber-security controls for compliance. After much huffing and puffing, in 2000, the U.S. Department of Commerce managed to obtain EU agreement to the Safe Harbor Privacy Principles, which allowed U.S. companies that registered and self-certified compliance with Safe Harbor to be deemed an “adequate” jurisdiction and legally able to receive EU data. The Department of Commerce and Federal Trade Commission had enforcement authority over Safe Harbor registrants.

Fifteen years later, however, the Court of Justice of the European Union invalidated the Safe Harbor agreement, stating the framework did not provide adequate protections for data shared for national security purposes and made it too difficult for National Data Protection Authorities to intervene and ensure protection of EU data. This decision required U.S. companies using Safe Harbor to put in place the European Union’s standard contract clauses that require adequate protection of EU data for cross-border transfers outside the European Union. Depending on the size of the organization and flows of data, this was a compliance burden for many companies.

Finally, in 2016, the U.S. Department of Commerce and the European Commission agreed on a EU-U.S. Privacy Shield Framework to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union to the United States. A separate Privacy Shield Framework was agreed to with Switzerland. Like Safe Harbor, the privacy shield will be administered by the Department of Commerce and enforced through the FTC.

During Safe Harbor, the European Union grumbled that the United States was lax in enforcing it. The FTC seems determined to be viewed differently in its enforcement of Privacy Shield. The agency wasted no time in filing three actions against companies that claimed they participated in the Privacy Shield program when they actually had initiated a registration but had not completed required steps for compliance.

GDPR Overhaul

When the European Union announced in January 2012 the coming of a new data protection regulation with new privacy requirements and fines of up to 2% to 4% of total worldwide revenue, businesses around the globe shuddered. Compliance with the Data Protection Directive (or Safe Harbor or Privacy Shield) required some changes to applications and controls in security programs, but the new privacy and security requirements in the European Union’s Global Data Protection Regulation (GDPR) would require many more.

The GDPR, which replaces the 1996 Data Protection Directive, came into force on May 24, 2016. EU member states must implement the GDPR into national legal frameworks by May 6, 2018. The compliance deadline for organizations of May 25, 2018, is now looming large over affected businesses.

There are some major differences between the Data Protection Directive and the GDPR. The GDPR has a broader definition of protected data, which includes internet protocol addresses, biometric data, mobile device identifiers and geo-location data. It also gives more power to individuals to obtain the data held about them, to have it corrected, and to request that it be deleted (“right to be forgotten”). Under the GDPR, both data controllers and data processors must be in compliance, whereas only the controller has been responsible under the Data Protection Directive.

The GDPR also requires privacy to be taken into consideration in every phase of the system lifecycle—system design, development, implementation, maintenance and retirement. Privacy impact assessments are required when processing on a large scale, monitoring or profiling are conducted. Warning: the Article 29 Working Party, the advisory body on data protection and privacy that was established by the Data Protection Directive, has interpreted these provisions broadly; large-scale processing can mean a hospital processing its patients’ genetic and health data, and monitoring can mean monitoring employee internet activity.

Another difference lies in the GDPR’s new breach-notification provisions, which require notification to data protection authorities within 72 hours and to controllers and victims “without undue delay.”

One of the most significant differences, however, is the jump in fines. Whereas fines under the Data Protection Directive were usually small and infrequent, the GDPR imposes fines of €10 million to €20 million and up to 2% to 4% of total global worldwide revenue. The threat of such draconian fines has jump-started GDPR compliance efforts around the globe. The revenue penalty, however, appears to apply only to “undertakings,” defined as a parent and its involved subsidiaries. This issue is worth exploring, as many of the articles and documents that discuss the GDPR and onerous fines leap to the conclusion that all infringements of the GDPR may result in penalties based on global revenue.

“Most U.S. companies are not familiar with privacy impact assessments, and some of the new privacy requirements currently are not able to be performed by many applications, such as the deletion of data on a person’s request,” says Phil Gordon, co-chair of Littler Mendelson’s privacy and background checks practice. “There are costly system analysis and integration issues that must be planned for with GDPR.”

But Privacy Relies on Security

Without security, there is no privacy. Therefore, Safe Harbor and Privacy Shield both necessitated controls in cyber-security programs to afford required protections to the data. And just the same, cyber security plays a prominent role in the GDPR. Article 32 on “Security of processing” requires the controller and processor to “implement appropriate technical and organizational measures to ensure a level of security appropriate to the risk,” including pseudonyming and encrypting personal data, ensuring the integrity of data, regularly testing security controls, and ensuring information is processed only as agreed.

Failure to meet these requirements could mean substantial fines. “The big change for businesses in the States is that they might be brought into GDPR merely by targeting customers in Europe,” says Mark Prinsley, a partner with Mayer Brown in London, “and the compulsory data breach notification provisions will drive data governance.”

We have tried to put insurance policies together that state the insurance companies agree to pay the fines and penalties to the fullest extent allowable under law in the jurisdiction most favorable to the insured.

Kevin Kalinich, global practice leader for cyber/network risk, Aon

Francoise Gilbert, a partner with Greenberg Traurig in Silicon Valley, who is also licensed to practice in France, issued a cautionary note about EU member states’ ability to impose additional requirements beyond those in the GDPR. “It takes a lot of knowledge about both the GDPR and additions or changes introduced by member states to maneuver this new compliance landscape,” Gilbert says.

To further complicate compliance, the European Union has also issued a “Directive on security of network and information systems,” known as the NIS Directive, which is broad in scope and authority. The NIS Directive entered into force in August 2016, and member states have until May 9, 2018, to implement it into national law.

The directive requires member states to identify operators of “essential services” within their territory by Nov. 9, 2018. Criteria for identification of such entities is based on whether an entity provides services “essential for the maintenance of critical societal and/or economic activities”; where the provision of the service depends on network and information systems; and whether an incident would have significant disruptive effects on the provision of that service.

Such entities are deemed critical infrastructure companies in the United States.

The annex of the directive lists the types of entities included for essential services, such as electricity, oil, gas, transport companies (air, rail, water and road), financial market infrastructures, health sector, water utilities and digital infrastructure.

The directive grants a substantial amount of authority to EU member states to ensure these identified entities manage security risks to their networks and systems, prevent and minimize incidents, and notify authorities of significant incidents without undue delay. The directive also empowers member states to assess the compliance of the operators of the essential services and requires the operators to provide all information necessary for the assessment and evidence of implementation of security policies.

Thus, private sector companies could be required to allow government authorities inside their properties to conduct assessments and to produce large amounts of highly sensitive documents. U.S. companies operating such entities in the European Union will be required to name a local representative and will have to comply with these requests.

Wow. Congress and U.S. officials must be jealous. Although U.S. businesses have to maneuver a wide range of cyber-security laws and regulations, they have managed to keep the government out of their data centers. The U.S. Department of Homeland Security has tried for years to assess critical infrastructure and obtain similar information from companies, only to be pushed back by industry.

Brokers Face Unknowns

Agents and brokers are working hard to help clients address these privacy and security compliance requirements, but there is no silver bullet and there is the unresolved issue of whether fines and penalties associated with the GDPR are insurable. “Cyber insurance policies need to continuously adapt to this dynamic cyber-risk environment,” says Jeffrey Batt, vice president of Marsh’s cyber practice. “It is our job as brokers to help ensure that clients are both aware of the risks that directly impact them and have sufficient coverage in place.”

Kevin Kalinich, Aon’s global practice leader for cyber insurance, says Aon also is trying to address the uncertainty related to insurability of fines and penalties through policy language. “We have tried to put insurance policies together that state the insurance companies agree to pay the fines and penalties to the fullest extent allowable under law in the jurisdiction most favorable to the insured,” Kalinich says. He noted even law firms don’t agree on whether GDPR fines and penalties are insurable.

But policies will not eliminate the need for system changes that may be necessary to meet the ever-growing landscape of cyber-security compliance requirements. Batt noted that Marsh is trying to raise client awareness and preparedness by engaging its Marsh Risk Consulting team. “We are advising clients on pre-incident planning, quantifying clients’ risk, and utilizing analytical and financial tools populated with client-specific data inputs. With respect to GDPR, we are helping clients understand how coverages will respond to a wide range of scenarios and counseling them on what their options are and guiding them toward potential solutions.”

Kalinich says awareness and education have risen tremendously among clients in the wake of cyber incidents such as WannaCry, NotPetya and Equifax, but execution lags behind. Aon is helping clients determine cyber-risk strategies and priorities by focusing on the financial impact of cyber events. “Consider the recent $80 million settlement of the Yahoo data-breach-related securities class action lawsuit following Verizon’s $350 million reduction in purchase price,” he notes. Enterprise risk management requires a quantitative analysis of factors, of which some are more equal than others, such as frequency, severity and cost-benefit analysis. He says this approach also helps clients prioritize actions since some of the changes required by the GDPR may take years to fully implement. “It is possible that EU GDPR compliance may have had the ancillary benefit of reducing the massive Yahoo loss,” he adds.

“You go back to the focus on a more macro level, holistic approach of cyber resiliency and going step by step through the regulations to comply with those policies and procedures,” Kalinich says. “The good news is the GDPR is so comprehensive it can help you satisfy some of the other 2018 regulatory requirements, such as the New York Department of Financial Services regulations and the updated SEC guidance recommendations.” (See sidebar: Regulating Across Industries.) Kalinich describes GDPR compliance as enterprise risk management that must include management setting a culture of cyber resilience. “If an entity’s culture is set from the top, then you can have a coordinated, unified approach…that can create tremendous efficiencies in the sales process, in the supply chain process, in the risk mitigation process…. It is no longer just an IT security issue.”

Willis Towers Watson’s Finan has a similar perspective. “We all are essentially cyber-security players, whether we recognize ourselves that way or not,” he says. “And if you’re in the business world, a small business or a very large enterprise, good cyber security is an essential part of doing business.”

Westby is CEO of Global Cyber Risk.

Best in Biz Awards just named you Executive of the Year and your company one of the fastest-growing companies of the year. How do you top that?
This business is a journey without a destination. We try to get better and better every day. This week we were named the Best High-Net-Worth Insurance Company at the Private Asset Management Awards. These team awards are really satisfying.

You founded AIG’s Private Client Group before founding PURE. Where did you get your entrepreneurial streak?
When I first explored building a business with AIG, I was 34. Hank Greenberg was 74 and told me that I should work for him because I was getting too old. He went on to explain that, as we were just about to have our first child, I might find it harder to take risks as time went on. I think that was a good reminder to me about the need to have that courage to try things. 

Have you mentored others in that way?
In some ways, but I also feel it’s deeply personal and everybody will make their own decisions. I probably used that advice to better understand why some people don’t want to take a chance.

What else did you learn from Hank?
There are two big themes I carry with me from my days at AIG. One is that culture matters. The other is nothing truly matters if you can’t execute. We spend an awful lot of time creating an environment where people can do great work and then making sure great work gets done.

When you talk workplace culture at PURE, what does that mean?
We fight hard to ensure culture doesn’t become a slogan or jargon. It’s not about our ping-pong tables or free food. It’s about an environment where people feel safe, where people feel encouraged and challenged to do great work, where they gain inspiration from their colleagues.

When you started PURE, how did you decide on the right people to work with?
We started by seeking smart, curious people who were willing to challenge the status quo and wanted to achieve great things. That prescription continues to serve us well.

You’ve had great success recruiting college grads. What have you figured out that others haven’t?
Our company is driven by young people in a way that I never could have imagined—61% of all employees are millennials, and 25% are under the age of 26. The vast majority of the graduates we hire come from liberal arts colleges, and they never imagined a career in insurance. In fact, the one area where we have not had success is recruiting through the college insurance programs. Why? Perhaps it’s easier to describe why we succeed in the strong liberal arts programs. We find intelligent, driven kids from Trinity or Williams or Bowdoin, and we train them to become underwriters or claims professionals or for a career on an actuarial track. Over the years, they go back and lead the next recruiting effort.

How about you. How did you get into the industry?
I went to Trinity College and got recruited on campus—so there you go. The job was in Manhattan. A lot of other jobs were in Hartford. I was a Boston kid, but I liked the idea of living in New York. Now, I am forced to raise Boston sports fans in New York.

Tell me about the Teddy Roosevelt bobblehead doll in your office.
I’ve tried to reinforce to our folks the message behind his “Man in the Arena” speech. In insurance companies, the people in the home office often tell people what to do, but they may never have sold a policy or settled a claim. “It’s not the critic who counts…but the credit belongs to the man who is actually in the arena.

What gives you your leader’s edge?
Having done one thing for over 30 years helps. As much as I think leadership skills are broad-based skills, it sure helps to be a subject matter expert. I do feel like part of my edge is I do know the high-net-worth niche, which is helpful.



The Buchmueller File

Favorite Vacation Spot: Newport, Rhode Island (“We’ve had a home there for years. When I go over the bridge onto the island, my blood pressure is lowered. Everything just feels great.”)

Favorite Movie: The Graduate

Favorite Actor: Clint Eastwood

Favorite Musician: Bruce Springsteen

Wheels: Audi A6

Reps and warranties insurance can help make a deal happen. It is used often to bridge the gap between a buyer and a seller for handling monetary obligations after closing. For anyone involved in negotiating a sales transaction, often the hardest issues to negotiate are those related to post-closing obligations and identifying breaches of the representations and warranties outlined in the transaction document. This includes whether money is going to be tied up, either through a holdback or escrow, to ensure funds are available to pay any future claim.

This specialty product covers the accuracy of representations and warranties made by a seller, subject to retentions, limits and exclusions. Policies are typically purchased by the buyer, but sellers buy them as well. Buyer policies tend to provide more coverage since they cover undisclosed issues at the time of the sale. Since sellers obviously know more about their own business, seller polices tend to cover less.

In a brokerage sale, there is typically one dominant document (the transaction document). Within document, the brokerage to be acquired makes certain statements that include such things as any current or pending litigation. It also attests that financial statements are in accordance with GAAP and the business complies with various legal requirements.

The seller may also agree to reimburse the buyer if the buyer is required to pay a tax liability the business acquired prior to the sale that is assessed after the deal is closed. The scope of these representations and warranties is negotiated. Then, the seller creates a set of disclosures, which set out issues that would otherwise violate reps or warranties if not disclosed to the buyer.

How does all of this come about? The reps and warranties insurance process begins with a broker’s request for a quote, which outlines the coverage needed. An underwriter provides a non-binding indication letter setting liability limits, retention, premium and areas excluded from coverage. It also outlines areas of significant concern, which are likely to be excluded, absent some due diligence.

Exclusions are based on known issues or issues that were not adequately investigated in the due diligence process. For example, there may be an exclusion for data security if the insured owns data centers. This is especially relevant if certain types of third-party testing were not done on the IT systems.

The client and its advisors will be heavily involved in the reps and warranties underwriting process, both in assisting the underwriter in understanding and getting comfortable with the risk and in the policy negotiation. As the broker, you will be in the middle of this process. In most cases, all communication flows through you from submission to final policy negotiations.

Unlike more traditional insurance products, the underwriting of reps and warranties insurance leverages the buyer’s due diligence. These are not cookie-cutter policies where the contours are essentially known at the outset. Legal counsel negotiates the text of the policy, including the exclusions, so no two policies are alike.

Reps and warranties insurance helps by limiting or—more and more—eliminating the need for funds to be held back or escrowed. And subject to the retention amount and the exclusions, it allows the seller to leave the transaction knowing that, for the cost of the premium, the remainder of the sale proceeds (those in excess of the retention) are not subject to clawback by the buyer in the event of a claim (other than fraud, which typically is not covered).

We are seeing more instances where reps and warranties insurance entirely replaces—absent fraud—a seller’s indemnity obligations. While “no
seller indemnity” deals have always been commonplace in public company transactions, reps and warranties underwriters are seeing more of these in private company deals, which creates a dramatic benefit for your clients.

As either the broker or insured, it's key to be prepared. Make sure all due diligence is completed and communicate that to your underwriter.

James Grayer is EVP for underwriting at Concord Specialty Risk.

What else do they have in common? As a rule, they generally do not understand diddly-squat about finance. We know that finance is the language of business, but if you are not a numbers person, finance can be daunting. However, no matter where you sit on the org chart, it is important to understand terms like EBITDA and net present value.

Without a basic understanding of financial concepts, managers can make ill-informed decisions. Those not comfortable with finance and its language “can find themselves struggling to operate as effectively as they could,” according to management consultant PHS Management Training. Business finance is not rocket science, but for those who do not feel they are good in math, it can be a challenge. This discomfort can hold them back from making contributions that their organization needs. Alternatively, managers who are comfortable with the numbers side of business generally make more informed decisions, operate more effectively and with authority, and are promoted more often and at a faster rate.

A Forbes article, “What Are Your Financial Statements Telling You,” identifies some reasons everyone should understand financial statements:

  • Gain a better understanding of the real status of the business
  • Become more proficient
  •  Improve communication skills with internal and external stakeholders
  • Feel better prepared for presenting business ideas and projects because of an understanding of how to analyze, interpret and challenge the numbers.

Not just managers need finance acumen; salespeople benefit
too. Financial literacy
is not taught or
even thought of as
part of the core skills
for the business development team. However, it should be, according to Cara Hogan at sales analytics company InsightSquared: “If you don’t understand the basics of finance, it’s next to impossible to sell effectively, explain the financial benefits of your product or even negotiate a deal.” Producers and account executives are often dealing with buyers steeped in finance. It is extremely beneficial to speak in terms that are relevant to them. When you can identify how your business solution has real financial impact, there can be an “aha” moment for prospects as they realize that your product can make a big difference to their bottom line.

In the LinkedIn article “The Role of Finance in Driving Sales Effectiveness,” Peter Chisambara states that good financial data will allow salespeople to “gain insights about changes in customer behavior which…leads to smarter pitches, shorter sales cycles and opening of new opportunities.”

How can one boost financial acumen?

Rebecca Knight, in the Harvard Business Review article “How to Improve Your Finance Skills (Even If You Hate Numbers),” says, “Stop avoiding finance because you’re afraid of numbers... the math is easier than you think.” The tricky part is the jargon.

The most important concepts to grasp are measuring profitability, EBITDA, operating income, revenue and operating expenses. Immerse yourself in your organization’s income statements. Study the balance sheet.

Reproduce the numbers, turn them into percentages so you can see the breakdown of revenue and expenditures—try to visualize the big picture.


  • Enroll in an online course or community college class about basic financial terms.
  • Review your organization’s quarterly reports.
  • Experiment with the numbers on your firm’s balance sheet.


  • Be intimidated. Business math is relatively straightforward.
  • Go it alone. Identify a trustworthy operations or financial manager who can answer your questions and serve as a sounding board.
  • Overlook the impact of financial skills on your career. If you want to advance, you need financial acumen.

Of course, The Council has your back as well! In May, we are offering a virtual workshop titled “Finance Is Fun.” It will cover the basics of finance, and as the title promises, it will be fun. Check it out at

I spoke to Jeff Lefebvre, the workshop facilitator, and asked for his words of wisdom on why someone should take this course. He said, “Seth Freeman, professor at the Stern School of Business, contends that the financial crisis of 2008 might have been mitigated if managers and leaders weren’t afraid to ‘ask the dumb questions.’ A lack of financial acumen can lead to a lack of confidence in asking the hard questions about why an idea might be good or bad financially. I work with business leaders from a wide range of industries—manufacturers, A&D, insurance, retail. If there is one consistent gap in knowledge across industries, it is financial acumen. And if that means you have leaders who are afraid to ask the hard questions, beware!”

All you liberal arts majors embrace your numbers side. Both you and your company will be better for it.

McDaid is The Council’s SVP of Leadership & Management Resources.

While insurance continues to play catch-up with other industries (including other financial services sectors) in using technology, sandboxes are drawing attention from innovators, investors and regulators.

There is no shortage of fundamentally new, tech-based ideas that can potentially have a profound effect on the way we do business. Regulatory sandboxes are viewed as a vehicle for innovators to explore those groundbreaking technologies in a favorable, controlled environment, while safeguarding the system and consumers’ interests. While their specific requirements vary depending on a region’s regulatory regime, sandboxes generally establish specific competences and financial criteria for operation and participation, provide a framework for real-time input and set a timeline to assess the viability of solutions. They aim to save time and compliance costs for startups while helping to foster innovation and competition.

Sandboxes have already been successfully adopted in the information technology, healthcare and transportation sectors. Smaller, technology-savvy markets are taking the sandbox a step farther by unrolling broader, innovation-focused initiatives to cover most economic sectors. Singapore’s Smart Nation is a great example of this. It is a whole-nation movement to harness digital technologies to drive pervasive adoption of digital and smart technologies throughout the country.

As the sandbox concept gains popularity globally, insurance regulators in various jurisdictions have begun to weigh their options.

Not Everyone’s Cup of Tea

The U.K. Financial Conduct Authority (FCA)—the British financial regulator—was, in 2016, the first to launch a fintech sandbox, and it remains a recognized industry standard. In its benchmark report last year, the FCA reported 90% of firms that completed testing in the sandbox are continuing toward a wider market launch. Most firms were granted full authorization, while 40% of firms from the first cohort received investment during or following their sandbox tests.

Despite its successful track record, the FCA’s vision for the sandbox is not completely shared by other regulators; governments’ sectoral priorities shape sandboxes’ objectives and specify technologies, companies under review and time horizons. As regulators’ mandates differ, those who are charged with promoting competition are likely to have a greater appetite for innovation. For example, the pro-competitive sandboxes in Australia and Singapore allow quicker validation of early-stage technologies, so startups are exempt from onerous licensing requirements.

Other jurisdictions may fall under the “exotic” category, which means they are farther away from the conventional understanding of sandboxes. For example, countries such as Bahrain and Sierra Leone struggle with vast socioeconomic challenges, including young populations lacking competitive skills, inadequate access to risk coverage and lack of full participation in economic activities (like purchasing insurance) among women and minorities. Their regulatory mandates can be dictated by a broader socioeconomic agenda of full employment and financial inclusion.

The sandbox approach may not be embraced by key economies either. When it comes to financial regulations, China usually takes a more reactive, wait-and-see attitude, allowing companies to innovate and stepping in when adverse events and crises strike. Online finance company Ezubao’s Ponzi scheme in peer-to-peer lending, which affected almost one million investors, is a recent byproduct of such policies.

Even in the United States, experts question if sandboxes are necessary, given America’s well-established and tested regulatory structure. They argue the U.S. regime in financial innovation is technologically agnostic, globally competitive and accommodating to new solutions and investors. The numbers, however, may tell a different story. The U.S. share of global insurtech investment has been steadily declining, while Europe’s share increased from 15% in 2012 to 33% last year, and London became the largest insurtech investment destination, ahead of New York and San Francisco. It’s possible that sandboxes may in fact have reinforced mature European financial markets’ global competitiveness to attract capital and talent.
Partners Wanted

Innovation cannot be contained within boundaries; neither does it evolve in a vacuum. Although sandboxes may require that technologies under review explicitly benefit the local economy, the platform is inherently primed to lift borders and test insurtechs’ flexibility and scale. Recently, we have seen a proliferation of international insurtech partnerships among various regulators. The FCA formed partnerships with Canada, China, Japan, Hong Kong and South Korea, while Singapore signed fintech accords with Australia, France, Switzerland, Denmark, South Korea and the FCA.

Future regional and global sandboxes may initially exchange insights on regulatory best practices and developments. Such sandboxes are likely to operate at the intersection of regtech and insurtech functionalities, be designed to clarify rules for companies with cross-border capabilities and encourage regulators to establish consistent cross-border reporting standards and certification requirements. In the long run, cross-border sandboxes can make a substantive contribution in helping develop cross-border solutions, targeting international payments, cyber security, blockchain and risk management for multinational accounts.

As an emerging player, insurtech trade associations have also become an important voice in setting sandboxes’ parameters and infrastructure. Earlier this year, several insurtech NGOs from Australia, Asia and the United Kingdom representing brokers, insurance startups and carriers formed the Global Insurtech Alliance (GIA) to promote global growth in insurance innovation, coordinate international activities and collaborate on industry insight. As the GIA explores its new mandate, insurtech regulation is a natural niche where it can weigh in.

Regulators worldwide are on the lookout for eligible startups for new sandbox cohorts, and so are insurance companies. Insurance carriers’ interest in startups is another manifestation of carriers’ efforts to stay relevant and participate in new insurance trends. As insurtech startups may be bound by investment agreement requirements, their participation in sandboxes can serve as an effective back door for well-established insurance companies to test their solutions or even participate in influencing new rules indirectly. Interestingly, sandbox participants Wrisk, Nimbla and PolicyPal entered into partnerships with established carriers prior to their engagement with regulators.

Since improvements in intermediation remain insurtechs’ focus, brokers should take note of such synergies and stay apprised of regulators’ appetite for competition through sandbox innovation.

Vladimir Gololobov is The Council’s director of international.

In any negotiation, knowledge is power. Step back and be honest with yourself. Are you truly ready to divest yourself of your most precious asset? Buyers are more sophisticated than ever, and deals are getting more diverse, complex and innovative as new private capital enters the insurance market.

For sellers, this means more options. Recently, we watched family offices, pension plans and sovereign wealth funds—not to mention independent investors—knock on the doors of agencies. They recognize the value of our industry’s recurring income, stable performance and relatively low risk. Insurance is an attractive buy for these players, and they’re interested in longer-term investment, which can be appealing to sellers.

Who are some of these new private capital players, and what types of deals are they structuring? Sellers should know so they can attract investors who are bringing more than just a liquidity option to the table. In certain instances, investors are bringing some creative stock options and profit-growing potential for the business.

In this year’s special mergers and acquisition supplement of Leader’s Edge, we explore private capital in the article “New PE Players” by telling the stories of five brokerages that each have a unique capital structure.

We found out what made their deals attractive, how they are structured and what this means for their future. We learned a lot (and we know you will, too).

Here are a few of the themes we uncovered:

  • There are new and different types of capital still entering the insurance distribution space.
  • The brokerage market is still a highly attractive investment for financial investors.
  •  Private capital can provide a longer-term investment than traditional private equity.
  •  Some owners felt relieved to get off the “treadmill” of recapitalizing with a new private equity firm every few years by partnering with an entity interested in longer-term investments, such as a pension plan or family office.

The M&A market shows no signs of slowing down, and we tracked an unprecedented number of deals in 2017 with continued momentum in 2018. The diversity of buyers is an interesting plot twist in the M&A story we’ve been telling for the past few years. And because of the complexity of these deals—and range of opportunities out there—it’s especially important for sellers to become educated and align themselves with the right advisors to assist them in maximizing value, terms and the right fit after closing. 

Buyers are sophisticated. And when sellers are properly positioned, they can take advantage of the opportunities that private equity or other types of private capital can bring to their business. Dig into the complexity of these buyers’ stories in this supplement and let us know what you think. Let’s start a conversation.

Market Update

Deal activity has continued in the first few months of the year. We believe the announcements are trailing the actual transactions being completed. Through February, we have a total of 58 announced transactions.

This is the fewest number of deals in the first two months of a calendar year since 2013. Do not read too much into this, though. I think the public relations teams are just a little behind on the press releases. In talking with many of the buyers, I get the sense that activity volumes are still at the same levels as 2017.

Alera Group has jumped into the year-to-date deal count lead with six transactions announced through February. Arthur J. Gallagher and Hub International are tied for second place, each with four announced deals.

Retail agencies make up 87% (44 deals) of the year-to-date activity. Specialty brokerages make up the remaining 13%, with sellers including six wholesale brokerages and eight managing general agents.

Expect additional announcements of new entrances of private capital into the marketplace in coming months. We think more top-100 brokerages are slated to sell and around every corner will be a new deal announcement that could surprise you more than the last. The rarity continues to be the firm that finds a way to sustain the independence many brokerages claim is their only choice…until a buyer backs up a Brink’s truck and makes an offer that is too hard to refuse.

Trem is EVP of MarshBerry.

Implementation of the Affordable Care Act actually could have gone either way with respect to this debate. I previously have ranted at length about the forgone opportunity mandated by that legislation to create a simple, streamlined, economical national plan that would be the basic plan on the exchanges. The Department of Health and Human Services under the Obama administration opted not to implement that requirement, and the Trump administration has taken the same path, at least to date—and despite our advocacy for them to do otherwise.

Instead, we have plans that are too rich and too expensive, and we have individual health insurance markets that seem to be teetering. And, as I am repeatedly reminded, we have done nothing to address the underlying cost of care issues that are the real root cause of access problems, regardless of your philosophical perspective.

But eight years after the ACA’s passage, the focus in Washington has shifted away from efforts to upend the law that dominated the House of Representatives’ debates for so long. The question now is what’s next?

For the balance of this year, more modest efforts to scale back the law and its impact will continue. Efforts to rationalize the ACA employer reporting requirements, repeal the Cadillac Tax and expand the reach of association health plans will continue, and expansion of the state waiver process could begin to erode some of the ACA’s universal coverage objectives. More fundamental reform, however, is off the table for now.

That could change next year, though. In the Senate, the Republicans hold a slim 51-49 advantage. The vast majority of the seats up this year currently are held by Democrats (24 seats) and by two Independents who caucus with the Democrats. Republicans have only eight seats being contested. In addition, 10 of those Senate Democrats seeking reelection sit in states won by President Trump in 2016. The current climate is unpredictable though, and the Republican advantage is razor thin.

In the House, there currently are 238 Republicans, 193 Democrats and four open seats (three Republicans and one Democrat have resigned and not yet been replaced). The Democrats therefore need to win a net 27 seats to get to the magic 218 to take control of the House.

A quick Google search for the “odds of the Democrats taking back the House in 2018” will identify myriad predictions that the likelihood of the Democrats taking control of the House is as high as 75%. Looking at political analyst Charlie Cook’s current race-by-race projections is much more sobering for Democrats, however, as they currently show the Democrats would have to win all of the 23 races Charlie has put into the toss-up category (which includes three seats currently held by retiring Democrats) to hit the 218 go-ahead number.

The bottom line in these volatile political times though: anything can happen.

Let’s do a thought experiment. What happens if (when?) the Democrats do take back the House and the Senate either next year or later? If the individual health insurance marketplace continues to be perceived as struggling, the first initiative might be the “Medicare for All” bills that have been introduced in both the House and the Senate.

Former (and future?) presidential candidate Senator Bernie Sanders first introduced this legislation in 2009. It garnered no co-sponsors initially or when Sanders reintroduced that bill in subsequent Congresses. Until this Congress, that is. The current version of the bill now has 16 Democratic co-sponsors (approximately one third of all Senate Democrats).

Now-retired House member John Conyers (D-Mich.) introduced companion “Medicare for All” legislation in the House last year. That bill now has 121 Democratic co-sponsors (almost two thirds of all House Democrats).

The train might be moving. If enacted, that engine would:

  • Create a universal healthcare system
  •  To provide “comprehensive protection against the costs of healthcare and health related services”
  • Funded by a variety of tax increases and new payroll taxes.

Under the Senate bill, it would be unlawful for “a private health insurer to sell health insurance that duplicates the benefits” that would be available under the bill in any way. Employers would be similarly barred from providing any such benefits.

The House bill includes a parallel bar on private insurers but does not—yet—extend that bar explicitly to employers (although presumably they could offer only self-insured coverage, and it is unclear whether they would be able to access stop-loss insurance).

Both bills also include long-term care insurance as a component of the universal healthcare systems they would create, and both would allow continued private market offering of benefits that would be in addition to those that would be provided under federal law. But the universal coverage floor under these proposals would be quite high overall.

The Democrats may not take control of either chamber next year, but at some point they will. And the momentum within the party to support this effort is growing. Enactment of the legislation in anything resembling its current form would be the ultimate victory for those who favor access to the same healthcare for all. It also would be the end of the employer-provided benefit system as we know it.

If that’s not a call to arms, what is?

Sinder is The Council’s chief legal officer and Steptoe & Johnson partner.

Movements like #MeToo and Time’s Up are transforming the workplace, and companies worldwide are working overtime to learn how to build progressive organizational cultures as quickly as possible.

Diversity and inclusion are nothing new. These are topics I remember hearing about as a kid in the ’70s, only a few years after the Civil Rights Act outlawed discrimination based on race, color, religion, sex or national origin. Yet last month as the world celebrated International Women’s Day, it seemed as though the cry for diversity and inclusion was louder than ever.

Perhaps it was.

Men and women alike are openly pushing for a more balanced world. In 2012, McKinsey & Co. reported that about 50% of all U.S. companies considered it a priority to hire and retain women. Today that number is 90%.

The 11.6 million women-owned businesses in the United States generate more than $1.7 trillion in revenue annually. At the same time however, the World Economic Forum Global Gender Gap Report estimates that it will take 217 years to close the gender parity gap.

There’s been progress, but there is still a long way to go.

Gender parity isn’t the only battle cry. When it comes to building for the future, studies show a company’s ability to recruit top talent increases dramatically when it improves its inclusive workplace culture. That means more respect, more mentoring and better opportunities for women, people of color, people with disabilities, the LGBT communities, millennials and a host of other demographic groups. Inclusivity is not just making sure everyone has an equal seat at the table; it’s creating an environment in which everyone feels able to truly engage in the organization. As author, activist and cultural innovator Verna Myers says, “Diversity is being invited to the party. Inclusion is being asked to dance.”

Studies show organizations that are committed to and see the value of diversity and inclusion not only improve their candidate and employee experiences but also add to their bottom line. A 2016 national survey by Future Workplace found that 83% of human resources departments said that “employee experience” is either important or very important to their organization’s success.

So how do we move the needle? Like most things, real organizational change starts at the top. Executive leadership needs to be committed to diversity and inclusion as part of the organization’s culture and align them with a business initiative so they are seen as valuable investments as opposed to a fleeting “feel good” project. When it comes to creating high-performing teams, neither skin color nor age nor gender nor handicap should matter.

The only way to develop diverse workforces is through a continuum of time, exposure and regular practice. And it’s not just demographic diversity; we can close the gap with cognitive diversity, experiential diversity, diversity of thought and diversity of leadership. All of this collectively affects our ability to recruit, retain and promote.

The message in all of this is clear. It starts at the top. It starts with us. It starts now. It’s time to get uncomfortable about diversity and inclusion.

But no Poirot can compare to Peter Ustinov, who played the role in six movies with subtle wit and sly sophistication.

In the star-studded Evil Under the Sun (1982), an insurance company engages Poirot to track down the ginormous diamond that Sir Horace Blatt gave to his most recent mistress. He wants it back, and the insurance company wants to sell a policy to cover it.

The usual Christie dustup ensues: Poirot follows Sir Horace to the mythical island of Tyrania, played by Majorca, to meet up with his former mistress and her husband, her new lover, and the well-spoken motley crew that always appear in Christie novels.

Everyone wears fabulous over-the-top ’40s clothes by Oscar-winning designer Anthony Powell. (Poirot’s bathing costume alone is worth the price of rental.) Boats are rowed, tennis is played, cocktails are consistently served, the men are civil and helpless, the women are vengeful sirens who plot revenge, snarl and scratch at each other, and change clothes often. (Are there actually insurance jobs this glamorous?) Naturally, there is a shuffling of couples, a murder and the reappearance of the real diamond, which can now be insured. Phew.

Like the movie, Ustinov himself (1921-2004) was soaked in European glamor. Born in Britain, he was the grandson of Russian nobility and counted Italian, French, Ethiopian and German ancestors as well. (He once did a stage play in a different accent every night.)

Ustinov dropped as many bons mots in real life as he did while playing Poirot. To wit: “I imagine hell like this: Italian punctuality, German humor and English wine.”

Next time you’re in Majorca, you may borrow that.

Telehealth, or telemedicine as it is also called, refers to virtual healthcare provided remotely by a doctor, nurse practitioner, registered nurse or other medical specialist. Employers that provide telehealth services to employees are able to reduce absenteeism caused by the need to visit a doctor physically, enhancing employee productivity while reducing overall healthcare expenditures.

In 2017, 71% of employers with 500 or more employees offered telehealth services, up sharply from the 59% that offered it the prior year, according to a study by Mercer. These numbers may go down in the aftermath of the Net Neutrality ruling, which is perceived to have a disproportionate impact on consumers in low-income and rural areas.

Companies in these regions are a key target market of telehealth providers, given the significant distance an injured or ill employee must travel to obtain adequate healthcare. “Reliable broadband connectivity is needed for telehealth services to thrive for all patients and healthcare facilities,” says Mary Kay O’Neill, M.D., senior clinical advisor at Mercer Health and Benefits.

The repeal of the Net Neutrality law effectively allows giant internet service providers (ISPs) to slow down broadband connections for low-income content customers to provide greater bandwidth to more financially valuable forms of content, such as streaming television. “The ISPs can play favorites among different entities that deliver content,” says O’Neill. “Large healthcare systems in primarily urban areas will have an unfair advantage over smaller, rural ones.”

This disparity can have a dire impact on telehealth services like behavioral health. “Employees receiving smoking cessation, weight management, psychological counseling and other forms of behavioral assistance need these telehealth services to be readily available, due to the coaching and frequent back-and-forth texting and FaceTime that occurs to help the person through the day,” says O’Neill. “If this is interrupted, no one benefits.”

The ruling introduces other broadband access concerns. For instance, high-speed internet connections are needed to link personal medical devices and wearable sensor technologies to remote telehealth providers. A case in point is the use of a personal glucometer for diabetes management.

“When the reading exceeds a certain threshold, the information automatically uploads to a database in a cloud, where a nurse can access it remotely,” says O’Neill. “If the data doesn’t upload in time, not only is this dangerous from a patient safety perspective, it is a wasteful use of a healthcare facility’s money.”

She adds, “This is one of the hottest things in healthcare software right now, but it depends on connectivity.”

Forced to negotiate for bandwidth, small rural hospitals may decide to curtail their telehealth programs and invest their financial resources in other areas—to the detriment of companies and people that truly benefit from the service.

What’s the solution? “Really this is a tough one to solve,” O’Neill says. “I would urge rural citizens to urge their legislators to take actions to ensure we don’t have a two-tier system in which lower-income people in rural regions get the short end of the stick.”

Read our feature on telehealth, “Virtual House Calls.”

It enjoyed great prosperity in the 1930s and was later known as the post-Soviet bloc. Recently, CEE has become an attractive destination for global investors, and our insurance market growth has consistently outpaced that of Western Europe.

Despite differing opinions across nations, many people in Central and Eastern Europe believe being a part of the European Union is the best thing that has happened to their countries. Businesses in CEE have been helped by the single market in many areas—it has brought along more consistent regulations across countries, which fosters a better business environment; attracted foreign capital; and facilitated access to the European and global markets. EU support programs for eastern members have added to the region’s success in the market.

In 2016, the mergers and acquisitions market for all industries in the Czech Republic grew 38%. Two of 2016’s Czech transactions crossed the $1 billion mark, and Czech M&A altogether represented $10 billion.

The average sovereign debt in CEE countries is around 60% of GDP. It’s around 100% in the countries of Western Europe. This demonstrates healthy economies in the CEE, so much so that these countries could borrow to fund their future growth, though they don’t necessarily need to. CEE adds 1.3% to each 1% of the EU’s rate of economic growth. The appetite to invest in the region’s business and economic growth go hand in hand with the growth potential of the insurance market.

The region’s assets include a high standard of technical education, the ability to learn from the success stories (and failures) of the West, adoption of new technologies, and stable inflation. Leading companies include the Czech brand LINET, which makes beds for patients in the world’s best hospitals; Avast, the world’s leading provider of PC and mobile security solutions; and automotive manufacturer Škoda (a wholly owned subsidiary of Volkswagen), the most successful Czech company ever.

According to Eurostat, the region’s GDP is 38% of Germany’s GDP. And gross premiums written are 28% of Germany’s, according to the European Insurance and Occupational Pensions Authority. True, the market in absolute terms is smaller than Germany’s, but the past decade of growth and insurance demand suggest a bright future. During that time, the CEE region’s GDP has grown 1.5 times faster than Germany’s. In 2016 alone, CEE’s GDP grew 50%, whereas Germany’s grew 32%. In the past decade, gross premiums written in the CEE grew 61%, which is about three times faster than the 24% growth in Germany.

The growth chart shows the relationship between the growth rate of GDP and gross written premium over the past decade. It demonstrates the real potential of the Czech Republic and other CEE countries to create a bridge between East and West. If the living and economic development standards in Eastern European countries approach those in the West in the coming years, GDP growth in Eastern European countries may be at a minimum three times larger and would pull up the insurance market. There is also a larger gross written premium gap than GDP gap between the regions, which means bigger opportunities for profit growth in the CEE region.

I believe the countries of Central and Eastern Europe have what it takes to ensure continued growth, and I am confident we can take on any challenges (and opportunities) that lie before us. We will build on the best European traditions and cultivate competitive markets, care about security, invest more in education, increase our productivity, foster the business environment and gradually make more countries part of the Eurozone (some, like Slovakia, are already members, and they are better off for it).

Nepala is managing partner of Czech-based Renomia Group.

Culture is a building block for companies. While culture and engagement have been widely discussed, today’s work demands require companies to rethink their workplaces. Thanks to technological, social and demographic changes over the last 15 years, employees have fundamentally changed how they look at work in their lives.

That has caused a major disruption, as turnover and disengagement have grown rapidly across the United States. Some 70% of U.S. workers either hate or are actively disengaged from their job. Turnover rates are at all-time highs. So it’s time to begin to rethink how we work and rethink what our internal cultures need to look like to attract and retain the best talent available to combat the disenfranchisement of so many employees.

Workshop Objectives

In this three-week virtual workshop, participants learn how to create a culture for today’s top talent, the new work world, and the leadership required to match it. The workshop delves into:

  • The context and reality of what these work changes look like
  • Why there are so many issues around engagement and retention
  • What you need to do to create a culture specifically for your company and your target employees
  • What is required from leadership
  • How to get your organization to buy in to the culture and vision you see.

Live Virtual Session Dates

Tuesday, March 6, 2018 – 2-3 p.m. ET
Tuesday, March 13, 2018 – 2-3 p.m. ET
Tuesday, March 20, 2018 – 2-3 p.m. ET

Patrick Kelly
Founder and President of Change Point Consulting

  1. Assign roles and responsibilities for cyber security, both within the executive ranks and at the operational level.
  2. Maintain up-to-date inventories of applications, data and hardware—an organization has to know what assets it has in order to secure them.
  3. Demand strong access controls; use two-factor authentication for remote access (e.g., password and biometric authentication or fob code).
    1. Do not allow shared user accounts.
    2. Require strong passwords or biometric authentication.
    3. Change all default passwords, even on printers, copiers, scanners and digital cameras.
    4. Limit access to only the data and systems needed for job performance.
    5. Privileged access for system administrator functions should be controlled and monitored. Only system administrators can install software or add hardware.
  4. Install anti-malware software, automatically update it and run scans frequently. Use next-generation firewalls.
  5. Use only equipment and software that is within vendor support (check Microsoft products by referring to this site:
  6. Get rid of legacy applications that require out-of-support software or operating systems (no matter how much the business users love them).
  7. Update all software and apply patches within one month of notification—sooner if serious vulnerabilities have been identified.
  8. Allow local admin rights on workstations or laptops only where absolutely necessary.
  9. Use full-disk encryption for laptops and encrypt sensitive data at rest.
  10. Use network segmentation to restrict users and applications to defined areas of the network.
  11. Develop an incident response plan capable of managing all types of incidents and test it involving all stakeholders.
  12. Regularly back up systems and data, store backups offsite, and develop and test recovery plans.
  13. Restrict the use of removable media (thumb drives, CDs, external hard drives).
  14. Develop and implement cyber-security policies and procedures in alignment with best practices and standards.
  15. Perform regular risk assessments of the cyber-security program, including reviews of cyber insurance.

Startup Narus Health seeks to use data analytics and mobile technology to better coordinate healthcare for employees who need it most while improving employers’ return on investment in health benefits.

Tell us about how Narus Health coordinates care for employees and individuals.
We built our business model around monitoring the population, looking for leading indicators that identify individuals who are trending toward or already experiencing a significant illness. When someone gets the rug pulled out from under them, they have multiple issues they must deal with at once. What are my options? What is covered by my health plan? How do I coordinate all these medical visits and remain working if possible? Are these symptoms I’m having to be expected?

Right or wrong, many people feel like they are passive participants in their medical experience—relying on the structure of the health system, the recommendation of their providers, the permissions of their benefits, and the influence of their caregivers—all while dealing with the illness or disease itself. For most, it’s an overwhelmingly exhaustive task.

Great care-management organizations understand the importance of delivering clinical support. The differentiating value of Narus Health is our deep understanding and our ability to manage the non-clinical issues people have. Do they have a caregiver? Can they get to a doctor? Can they afford their medication? And are they compliant with it? All of these things are significant contributors to total medical costs.

We capture these issues, along with their clinical profile, in a personalized care plan. We’ve developed a proprietary, structured-data format both to provide the attending physicians new insight and to build predictive analysis of the psychosocial issues—the soft drivers—and to superimpose them on the clinical drivers of care, painting a fuller picture of each individual and their unique care needs.

We’ve learned over the years the best way to help support people through complex care management is an informed and engaged multi-disciplinary team. Every person we enroll is assigned a dedicated team based on their unique needs: a registered nurse, care coordinator, social worker, chaplain and nutritionist. We’re available 24/7/365 for our patients. We know that, to really help people with complex issues, we’ve got to be available at two in the morning to triage and potentially avoid an ER visit.

Who are Narus’s clients?
We began our business by offering a direct-to-consumer service in March 2017, enrolling individuals who wanted to subscribe to our service. We quickly received recognition from self-insured employers who saw our service as a much more relevant way to provide great support for their employees. Employers have a lot of reasons to work with us, including an enhanced employee experience, full coordination of both chronic diseases and complex illnesses, and total cost savings. We make the healthcare benefit actually feel like a “benefit” again. The employers we’ve worked with say, “Our employees are part of our family, and we want to take care of them.” So they’re replacing outdated disease and case management with Narus Health’s services.

One example of our value-add offering—especially for employees of a self-insured employer—is benefits guidance. We’re able to connect patients and their families to employer resources they may not realize are available. Employers really appreciate that because right now a lot of those benefits happen in silos. There’s not much transparency. We connect people to benefits already being offered and offer insight into their efficacy.

For employer clients, which patients does Narus work with?
Our care-management services are tailored by the employer. For the most part, we provide a core set of services. Number one is population analytics and evaluation of the top 10% of employee claimants that account for 70% of the employer’s healthcare spend. Regardless of what their condition is, they need help. We typically find the top 2% of claimants represent nearly half the medical spend. They desperately want our help. Number two is evaluation of claims data to identify other employees who may benefit from our help—for example, people newly diagnosed with a condition that is likely to be chronic and require extensive treatment, follow-up, lifestyle adjustment and encouragement. Without engagement, many people in this situation will progress to far more complex conditions. Number three is 24/7/365 mobile support for all eligible employees to use for as-needed assistance, such as explanation of benefits, finding a new doctor and general medical education.

How does Narus use technology to coordinate healthcare?
At the center of our technology strategy is our proprietary care-management platform, Compassion. This platform provides our team an optimal way to develop care plans, share data and reports with physicians, schedule appointments, collaborate as a team and deliver a highly personalized care plan.

A second piece of technology is our mPower app, which renders in four different versions, depending on whether the user is the patient, the caregiver, or a friend or family member. mPower is available to all employees and offers a mobile messaging feature that allows any employee of one of our clients to start a secure, confidential conversation with our team. Even if they’re not one of our active, enrolled patients, we can help solve as-needed problems for all employees. We’re able to connect the majority of a company’s employees on the same platform and communicate with all of them, simultaneously. We can send out reminders of flu shots, annual appointments, whatever the case is, through mPower.

How does Narus use data analytics?
Our data analytics team combines numerous sources of data, such as medical claims, pharma and demographics, to help us engage with the right person at the right time on their own terms. That’s a game changer in the care-management space.

Prior to onboarding an employer, our team focuses on clinical and demographic data. We seek to identify co-morbid conditions and patterns of use of the healthcare system for that employer. By understanding patterns specific to an industry, a service line, a geography, we better know what’s happening to individuals in their day-to-day lives. This way, we can identify how we can be most helpful to them and their family.

Once they’re enrolled, we monitor relevant activity while adding new data we’re collecting—psychosocial needs, community resources, the patient’s goals and expectations. Often, we see patterns or similarities not only with individuals but with other employees. For example, if employees living within a community in Tennessee are having problems getting certain medications filled, is that a problem with that employer, the health plan, the supplier or the pharmacy? Knowing this, we can solve for problems before they even occur for other individuals.

Where does Narus fit between patients, doctors, employers and insurers?
We’re partners to the patient, the physician and the employer. We’re in lockstep alignment with the patient, completely and without bias, advocating for them and their family. We work collaboratively with their physician and other providers to better coordinate care with the patient, the caregivers and available employer benefits. We help employers understand the health status of their workforce and the benefits that are most meaningful to the workforce during an illness or injury. We make a significant improvement in the employee’s experience while affecting total cost. We’re one of the few places in the health system that can actually say that—with research and data to support it.

How has Narus been growing?
We are having a substantial burst of growth within the self-funded employer market. Benefit brokers are realizing our services offer a significant enhancement beyond the legacy disease-management and case-management programs currently available. Employees we’ve supported are telling their co-workers, you need to talk to Narus Health. More and more employers are choosing to take control of their own destiny with regard to their health benefits and are becoming self-insured. We also have a strategic partnership with Lucent Health, which is delivering additional customers eager to integrate progressive solutions such as Narus Health.

Why was Narus founded?
We formed this business because we saw an unmet need in the patient experience that required an innovative approach. Each of us, in various roles, has lived the problems we now solve every day as a company. For every one of us, it was a highly personal decision to join a startup opportunity. We all were established in successful careers. We left our former jobs not out of necessity for employment but out of necessity to solve something we had lived.

So many people are in serious need of help, serious need of navigation and serious need of support. The system is not improving fast enough. We’re trying to make people’s lives better and a bit more simplified so they can focus on the things most important to them. We measure our business value in the data we analyze and the savings we generate. But we see the true impact of our care in the cards around our office and the photographs and paintings on our walls—all gifts of appreciation from those we are fortunate enough to serve.

It is for those patients that Narus Health was formed.

Telemedicine is touted for presenting a cost-effective way for employees to receive on-demand care for a variety of low-acuity medical conditions. Physicians, nurse practitioners, psychologists and other medical specialists provide fast access to needed care via the web, video and phone consultations.

For insurance brokers, telemedicine can be an adjunct benefit to the healthcare plans they offer corporate clients and their employees. Benefits include lower employee absenteeism and higher employee productivity, engagement and job retention. Best of all, many employers are extremely interested in offering telemedicine and other virtual care concepts like health-monitoring tools.

When sitting down with a virtual care provider to discuss a partnership, consider the following to ensure the best fit between provider and clients:

  • What kind of access do patients have to their medical information compiled by the provider? Will the patient’s healthcare plan and primary doctor receive this information electronically? Just how and with whom will the patient’s data be shared? If medicine is prescribed, will the prescription be routed to the patient’s pharmacy of choice?
  • What kind of technology platform does the provider support? Does it support video, web and phone consultations? If video is provided, what is the bandwidth? Can video be accessed on a mobile device? Is around-the-clock care provided?
  • What are the specific medical conditions for which care is provided? Does the provider offer on-demand psychiatric and psychological services for behavioral issues?
  • How long does the provider take to respond to a request for service? Is there a time constraint on a consultation with a medical specialist, such as 10 minutes, or can patients discuss their issue for as long as they need?
  • How does the provider charge for services—on a per consultation basis or more of a subscription model? Is there an additional fee for follow-up care for a previously reported medical issue? Does the provider charge a fee to set up its technology with the employer? Are these various charges negotiable? How can a contract with the provider be terminated?

Tim Smith, principal and national leader for healthcare information technology at Deloitte, offers one last tip. “I think it’s sensible to ask a provider for evidence that they’ve actually prevented unnecessary patient admissions to an ER room or walk-in clinic and unnecessary ambulance care,” he says. “You want to be sure they’re good at the front-end diagnosis, using the best technology to prevent costs from spiraling out of control.”

As on-demand, remote medical care via mobile devices increases in popularity, several providers have entered the telemedicine market, each with their own mix of services. Among them are Teladoc, American Well and Virtuwell, whose services and pricing structures vary widely.

Teladoc offers consumer access to U.S. board-certified doctors, dermatologists and therapists on a round-the-clock basis, via online video or phone consultations. The service is priced at $40 per consultation, plus an annual fee of $150 or less. Once a person contacts Teladoc, the average response time is fewer than 10 minutes. The doctor will review the patient’s medical records and history of conditions and medications. There is no time limit for the video or phone conversation.

If necessary, the physician writes a prescription and sends it to a pharmacy of the patient’s choice. In the background, Teladoc shares the electronic data from the appointment with the person’s primary care physician and healthcare plan. Customers include Boeing, Coca-Cola and other large companies, as well as many midsize businesses.

“We’re servicing more than 22 million individuals across the United States,” says Peter McClennen, Teladoc’s president. “The return on the investment for employers is significant. Our research indicates that, by deferring a single visit to an emergency room or walk-in clinic, a savings of almost $500 can be realized.”

The company recently acquired Best Doctors, a network of more than 50,000 medical experts across 450 specialties. The acquisition gives Teladoc the ability to provide second opinions electronically on more complex and critical medical conditions, like cancer.

“Unlike other telemedicine providers, we are uniquely positioned to deliver basic services for pink eye and the cold all the way to cardiac conditions,” says McClennen. He says Best Doctors’ diagnoses save an average $360,000 in medical costs per second opinion.

American Well provides on-demand video consultations with medical specialists on a round-the-clock basis via the web, mobile devices and kiosks. The cost is just under $59 per visit.

“We are a technology company first and foremost, having invested $350 million in our platform, network and infrastructure for optimal electronic healthcare delivery,” says Michelle Gile, American Well senior vice president for health plans and employer solutions.

Like other providers, American Well’s online network offers a robust suite of video-based clinical services for low-acuity medical conditions like colds and behavioral issues like depression and anxiety.

“You simply go to our website, download the AmWell app, and then create an account with basic personal information like your health insurer,” she says. “When you’re feeling unwell, you log onto the app and enter the reason for your visit.”

Depending on the condition, the person will interact with a doctor or nurse practitioner specializing in the medical issue. If a prescription is needed, it is electronically sent to a pharmacy of choice. The company’s online behavioral services are growing, Gile says, giving the ability to consult with a therapist or psychiatrist on an almost immediate basis, as opposed to scheduling an appointment two weeks later.

“Our lactation services also are getting a lot of attention, since all a mother really needs is for a lactation specialist to see over video how she’s positioning the infant,” she adds. “This can be a significant money saver.”

Gile also touts the company’s kiosks as a value proposition other providers lack. The kiosks can be set up at a company’s headquarters or satellite facilities to provide on-demand services. Several medical instruments are also on hand to check blood pressure and heart rate, as is a camera to zoom in on suspicious looking moles to ferret out possible skin cancers.

American Well’s technology infrastructure permits the rapid exchange of patients’ electronic data with their health plan and primary physician. “We’re able to determine within 30 seconds if the patient is still an active member of the health plan, in addition to their deductible and co-pay status,” Gile says.

Virtuwell provides online diagnosis and treatment on the usual 24/7/365 basis at a $49 per consultation rate. Part of Health Partners, an integrated provider of healthcare and health insurance, Virtuwell does not offer video consultations.

Laura Linn, Virtuwell’s senior brand manager, says the company does an online interview with the patient, who responds by typing in multiple-choice answers to questions, beginning with the first one: What’s wrong?

“We provide treatment for 60 medical conditions deemed safe for online care, such as rashes and acne, and sinus and bladder infections,” Linn says. “We submit the claim just like a doctor’s office would do. The health insurer responds back if the person is covered and provides the deductible. If the amount falls within the deductible, the person’s credit card is charged.”

What if a medical condition appears more serious than the 60 listed conditions? “In such cases, our practitioners reach out and ask to see the patient in person, and the per-visit fee is cancelled,” Linn says. “An example is a photo of a patient’s mole that is uploaded to us and does not look right. This is where our parent company, Health Partners, is a key differentiator. Another is that our $49 per visit flat fee includes follow-up care, without the addition of extra fees.”

Insurance brokers are very enthusiastic about the Virtuwell model, Linn says. “Brokers are able to provide their clients with products and services that save them more than they cost,” she says. “We have no hidden fees—no administration costs, licensing costs and setup costs. We’re now approaching 350,000 treatments provided.”

Other providers in the space include This American Doc, LiveHealth Online, Specialists On Call, and AmeriDoc, among several others.


United Agricultural Benefits Trust (known as UnitedAg) is familiar with the productivity pains caused by an employee’s lost time from work. The associated healthcare plan, composed of more than 700 agricultural employer groups with 42,000 members spread across California’s vast agricultural industry, sought a way for workers to receive more expeditious care at the same or higher quality and at lower employer cost.

Telemedicine (also called telehealth) was the solution.

“Our members didn’t have good access to healthcare in the rural environments where they worked,” says Christopher McDonald, UnitedAg’s chief innovation officer. “They also tend to carpool to work. This meant someone feeling ill might not have a car to drive to a clinic. So they end up taking a full day off for a medical condition that could easily be addressed with a simple prescription.”

UnitedAg signed a contract with Teladoc, one of the top telemedicine providers in the fast-growing virtual healthcare space. Telemedicine is on-demand healthcare provided remotely by a doctor, nurse practitioner, registered nurse or other medical specialist. Access is within minutes. Employees with a bad headache, bladder infection or more than 50 other low-acuity (read: non-life-threatening) illnesses log onto an application and communicate their concerns to a medical specialist, who prescribes treatment.

Depending on the telemedicine provider, the back-and-forth online consultation may involve video (like Skype), a phone conversation with uploaded photos, a question-and-answer written exchange—or all of the above.

Not only is this fast-track process more humane for the injured or ill employee, it may sharply reduce the cost of employer-provided healthcare.

“By deferring a visit to an emergency room or a walk-in clinic, hundreds of dollars are shaved off each time,” says Peter McClennen, Teladoc’s president.

Add up those deferred visits, and companies with a large employee population can save a bundle. Other employer benefits include reduced absenteeism and a related uptick in productivity.

“Telemedicine also makes employees feel their employer values them, which increases their engagement levels, improving job retention,” says Aamir Rehman, M.D. and head of clinical services for the United States at employee benefits provider Mercer.

So it’s small wonder that virtual healthcare is taking off. According to Mercer, 71% of employers with 500 or more employees offered telemedicine services in 2017, up sharply from the 59% that offered the services in 2016. “It’s just exploding,” Rehman says.

Spiraling out of Control

Today’s healthcare system is in disarray, with competing agendas in Congress and no clear consensus on an optimal solution. “The volume of research papers today on healthcare is outsized—literally hundreds of papers published per day,” McClennen says.

Meanwhile, the average total health benefit expense per employee keeps creeping up for employers—from 2.4% of revenues in 2016 to 2.6% in 2017. Deductibles in traditional preferred provider organization plans also continue to rise, reaching nearly $1,000 on average in 2017 for employers with 500 or more employees and nearly $2,000 for companies with 10 to 499 employees.

Other examples of rising healthcare costs include:

  • Americans pay $858 on average for their prescriptions, compared to $400 per person across 19 other industrialized nations.
  • Doctor-dispensed drugs cost 60% to 300% more than medicines distributed at retail pharmacies.
  • Average annual salaries for nearly all physician specialties increased between 11% and 21% in 2016.
  • The cost of emergency room visits can reach well into the thousands of dollars.
  • Many ER visits are unnecessary, the medical condition easily treated with over-the-counter medications or a visit to a less expensive walk-in clinic.
  • Nearly half (46%) of physicians mandated by law to digitize patient records have spent more than $100,000 each to implement an electronic health record system.

Eight years ago, a company like ours didn’t exist, but neither did Uber. The world is changing. We’re able to bring all the pieces involved in patient care to employees in an automated, mobile way, making access to care easier and more satisfying.

Peter McClennen, President, Teladoc

These various expenses trickle down to affect the overall cost of healthcare for employers and everybody else. Telemedicine offers a way to trim the excess fat, while providing much-valued access and convenience to employees.

Tomorrow’s Healthcare Today

Think of telemedicine as a walk-in clinic without the walking. By all accounts, it appears to be the least expensive option to treat many low-acuity ailments such as bronchitis, athlete’s foot, deer tick bites, pink eye, laryngitis, and sinus, yeast and ear infections. That’s because employees don’t have to make a time-consuming trip to the ER, a walk-in clinic or a doctor’s office to treat such conditions.

“A key driver of telemedicine is to prevent overuse of the ER,” says Tim Smith, a principal at Deloitte, where he is the national leader for the consulting firm’s healthcare information technology practice. “If someone needs a prescription for penicillin because they have a rash, the person does not need to sit for three hours in an emergency room to be handed a piece of paper. With telemedicine, a doctor or nurse practitioner can immediately diagnose the rash and route the prescription to a local pharmacy for the person to pick up at lunch or on the way home from work.”

Telemedicine also puts injured or ill employees in the driver’s seat when it comes to their care. “Historically, if I wanted to see my doctor, I had to make an appointment when it was convenient for the doctor,” Rehman says. “With telemedicine, the doctor sees me at my convenience. For employees at work, this is a great alternative. They don’t have to leave work, drive to the care provider, and wait around in a waiting room for who knows how long. The physical barrier to providing care has been removed.”

Many telemedicine providers offer services beyond low-acuity medical conditions, such as providing dermatology and psychological care. Although the companies price their services differently, most charge a specific fee for a consultation with a medical specialist. UnitedAg, for instance, receives electronic data from Teladoc notifying it that one of its employee members consulted with the provider.

“The fee is well under what a regular doctor’s office or clinic charges,” says McDonald. “We also paid a one-time fee to set up the exchange between their system and ours.” He preferred to keep these amounts proprietary, noting they were negotiated with Teladoc.

The big question about telemedicine is whether the quality of care is on par with or better or worse than seeing a physician in person. Rehman seems to lean toward “on par.”

“As a doctor, when a patient comes to me with a sore throat, I examine the person to see if there might be something else going on,” he explains. “This might indicate that a physical visit is superior to a virtual one.

But we’ve surveyed our clients’ employees about this, and the reality is their doctors spend very little time with them in the examination room. It was painful for me as a physician to read these responses.”

He adds, “The reality is that with telemedicine, patients aren’t giving up much, since their doctors tend to give them so little time anyway.”

Telemedicine, in fact, may be a better alternative to walk-in clinics.

“The quality of care in telemedicine outpaces brick-and-mortar clinics because everything is documented,” Rehman says. “If the patient is prescribed a medication, that person’s personal physician and healthcare provider receive this information electronically. Not all walk-in clinics have this capability.”

That’s not good. Rehman provided an example of a patient who receives a prescription from a nurse practitioner at a walk-in clinic that may exceed the dosage the person’s physician would have recommended, given the patient’s other medical conditions and prescriptions.

“With telemedicine, the patient’s personal physician is alerted immediately to the new prescription, whereas this may fall through the cracks at a clinic,” Rehman says. “If there is a problem, it can be quickly discerned and solved.”

The quality of care in telemedicine outpaces brick-and-mortar clinics because everything is documented. If the patient is prescribed a medication, that person’s personal physician and healthcare provider receive this information electronically. Not all walk-in clinics have this capability.

Aamir Rehman, M.D. and head of clinical services for the United States, Mercer

Several studies indicate virtual care has its plusses and minuses. A 2016 Rand Corporation study indicated the ease of telemedicine consultations actually resulted in overuse, increasing the use of healthcare. A 2013 study published in the Archives of Internal Medicine, comparing telemedicine with face-to-face examinations of patients with sinusitis and urinary tract infections, confirmed the traditional benefits of telemedicine—convenience, avoidance of travel time, and lower costs—but found that telemedicine providers had prescribed antibiotics at a higher rate for sinusitis than did other doctors. And the benefit of antibiotics for sinusitis is unclear.

One can argue this research is four years old—antiquated given today’s blistering pace of technological development. In the interim, video sharing, digital technology and data analytics software have improved markedly, possibly moderating the tendency to overprescribe.

A New Service Line of Business

Telemedicine appears to be a cost-effective and highly valued employee benefit for insurance brokers to present to commercial clients.

“We’re very bullish on this concept of delivering healthcare, as I am personally,” says Deloitte’s Smith. “The technology now exists for patients to have much more interactive conversations with quality caregivers using video and other visual tools. Ten years from now, sitting in a waiting room will be passé.”

Many brokers are already partnering with a telemedicine provider (or several) to offer the product to clients. Aon is a case in point.

“The future of healthcare will be driven by people taking ownership of their well-being, and telemedicine enables this type of behavior,” says Ted Cadmus, senior vice president and a local practice leader in Aon’s health and benefits practice. “Right now too many people go to the ER for things like a sinus infection or a cold, which eats up capital and human resources and does tremendous disservice to the individual…. Telemedicine fits beautifully in our fast-paced, mobile technology world.”

Teladoc’s McClennen agrees that brokers have a lot to gain from presenting telemedicine as an additional employee benefit.

“Undoubtedly, the early movers will have a leading edge, given the trend toward virtual care,” he says. “Eight years ago, a company like ours didn’t exist, but neither did Uber. The world is changing. We’re able to bring all the pieces involved in patient care to employees in an automated, mobile way, making access to care easier and more satisfying.”

While Cadmus believes younger employees are most likely to pursue virtual interactions with care providers, in time every employee will do the same.

“Some older baby boomers who are used to face-to-face doctor visits might still prefer that form of interaction,” he says, “but as they retire, telemedicine and other forms of virtual healthcare, like remote monitoring of patients, will be the primary means for treating diverse medical conditions.”

By remote monitoring, Cadmus is referring to digital technologies that collect medical data from individuals remotely to interpret and monitor their heart rate, blood pressure, blood sugar and other personal health data. Like telemedicine, this component of virtual healthcare is predicated upon reducing visits and readmissions to an ER, clinic or doctor’s office, improving patient quality of life while containing costs across the continuum of care.

These savings can be substantial. Mercer’s study indicates a typical telemedicine consultation costs less than $50, whereas the average office visit costs about $125. And a 2017 study by the online journal Value in Health suggests telemedicine consultations at the University of California Davis saved patients nearly nine years of travel time, five million miles and $3 million in costs.

Another study by Accenture found 78% of consumers are interested in receiving virtual health services. A study by Deloitte came to a similar conclusion, finding 74% would use telemedicine services if they were available at work. Meanwhile, 70% of the respondents said they were “comfortable” with consulting about their medical issue with a medical specialist via text, email or video.

Employers are not deaf to this growing interest. About 90% of large employers said they would offer telemedicine as part of their employee health plans in 2017, according to a 2016 National Business Group on Health survey. Altogether, the virtual healthcare market is expected to reach $3.5 billion in revenues by 2020.

The future of healthcare will be driven by people taking ownership of their well-being, and telemedicine enables this type of behavior.

Ted Cadmus, senior vice president, Aon

“Healthcare is fast becoming one of the most automated industries in the world, making care easier to access and less expensive to acquire,” says McClennen.

All this makes telemedicine an enticing opportunity for brokers. Clients can obtain the aforementioned benefits—increased employee engagement, higher workforce productivity, improved care quality and lower healthcare use—at a much lower cost.

“Depending on the health plan provided by the employer, telemedicine may be a free add-on,” Cadmus says.

Aon has brokered deals for multiple commercial clients involving telemedicine providers Teladoc and American Well. “Which provider we choose depends on the client’s healthcare plan,” says Cadmus. “American Well may be right for one client, whereas another telemedicine provider may be right for a different client. We’re not locked in to any one of them. We play the role of third-party expert for our clients, identifying the solution that’s best for their employee population.”

For this service, Aon receives a commission from the provider on the dollars of business placed, although the firm also has charged fees, depending on the arrangement.

“This isn’t about money anyway,” Cadmus maintains. “The motivating force for us is to clearly demonstrate (to clients) that we’re thinking ahead toward their best interests—always in front of the next technological curve. Right now telemedicine fits this bill.”

Banham is a Pulitzer Prize-nominated author and insurance journalist.

Mark & Graham’s leather pouches have long been a favorite of stylish globetrotters. They are great for stashing keys, sunglasses and other travel sundries. You can throw them into a carry-on bag and easily get to what you need. For traveling techies, Mark & Graham has now introduced the Commute Clutch, a zippered leather pouch that has interior compartments for credit cards, tech cords and cables and a power bank. The clutch is made of imported leather, comes in sky blue, charged pink and other fun colors and can be monogrammed.

Last year, Audi acquired Silvercar, a company that revolutionized the industry with an app that streamlines the car-rental process and offers a fleet of silver Audi A4 sedans equipped with complimentary GPS, Wi-Fi, SiriusXM satellite radio and fair toll pricing. The company is now expanding. In response to requests from business travelers who want a larger vehicle for leisure travel, the company is adding Audi Q5 SUVs to its fleet and replacing all Audi A4s with the swish 2017 model. You can rent a Q5 in Fort Lauderdale, Miami, Denver, Los Angeles, Phoenix, San Francisco, Seattle, Orlando and Salt Lake City. The SUV will be available in all 18 locations by July 2018. Silvercar also plans to launch operations at five new airport locations in the next six months, including San Diego and Tampa.

Amanyangyun, Aman’s fourth destination in China, debuted in January. The ultra-luxury resort and holistic retreat is part of 15-year architectural and ecological conservation project. Set in a relocated forest of ancient camphor trees outside Shanghai, the light-filled suites, villas and pavilions are nestled in a reconstructed historic village of 50 Ming and Qing dynasty houses. The holistic wellness facilities—the state-of-the-art Aman Spa and a fitness center—focus on nutrition, movement, beauty, and emotional and spiritual well-being.

But when a crimson-clad waiter shows me to Bruce Carnegie-Brown’s office on the 12th-floor pinnacle of the corporation, Lloyd’s new chairman is at his desk, sans sarnies. He’s meeting me at lunchtime, but we’re not having lunch.

“There’s not much time in the day,” the affable and clearly clever Carnegie-Brown declares. “Insurers have been slower to give up on lunch than other parts of the financial services market, but I did quite a long time ago in the interest of greater efficiency.”

Indeed, efficiency is the current holy grail for Lloyd’s. Clobbered by costs, everyone is clamoring for efficiency. The companies that comprise the market are investing in it, and joint market initiatives are attempting to drive it. My first impression is that Carnegie-Brown is a man well suited to the leadership of Lloyd’s efficiency drive.

Tech-Driven Efficiency

Back in 2003, when he began a brief stint as president and chief executive of Marsh Europe, Carnegie-Brown said the future of London wholesale broking, and thus the Lloyd’s market—which is dependent entirely on broker distribution—rested on its ability to embrace technology. Nearly a decade and a half later, the same market faces the same challenge. Only about 10% of market business is placed electronically, although the need to go digital is more pressing than ever.

“I am somewhat surprised by how resilient the Lloyd’s model has been, because clearly it has prospered in the absence of making a much more radical transformation,” he says. Outside the high-value, high-complexity end of the insurance market, dramatic change has happened since his time as leader of one of Lloyd’s largest brokerages. Online selling has driven almost complete disintermediation in U.K. personal lines, for example. It’s a subject Carnegie-Brown knows a lot about. Alongside his Lloyd’s job, he is chairman of Moneysupermarket, an online financial services aggregator listed on the London Stock Exchange.

“The most differentiated value of a broker is the provision of advice, and when you’re buying motor insurance, you don’t need advice,” Carnegie-Brown explains. Today in the U.K., more than 70% of consumers buy their auto cover online, most through aggregation websites. Within the space of a minute, they get scores of insurers bidding for their business. “Even the most efficient broker would struggle to compete with that level of efficiency and responsiveness,” the chairman argues, “but the high-complexity lines like aviation, marine, catastrophe and cyber insurance haven’t changed nearly as quickly.”

Not yet, he says, but change must come, even in Lloyd’s complex sweet spots. Expenses are too high and competition too fierce for the plodding old ways of Lloyd’s, where brokers still wait in queue to make their pitch to underwriters, to continue in the age of technology.

“Everyone I meet agrees that the future of the Lloyd’s market relies on our adopting more efficient ways of working and better technology to execute them,” Carnegie-Brown says. “It is a natural occurrence in the evolution of markets. They become more efficient over time. Inefficiency gets squeezed out. If we remain inefficient, we will become uncompetitive.”

The data is adaptable in digital form. Ensuring that all of our data is digital has to be the overarching strategy for Lloyd’s. People can then engage with it in the ways that they choose.

The goal isn’t new for Lloyd’s, but so far every comprehensive attempt to modernize the placement process has failed at the implementation stage, despite the millions London has splurged on tech since the 1990s.

Carnegie-Brown ran Marsh Europe after the failed revolution of Electronic Placing Support (EPS), the London market’s first concerted attempt to join the digital revolution. When EPS simply wouldn’t stick to the wall, the biggest brokerages launched their own electronic trading platforms. But proprietary systems created fiefdoms, which don’t suit the subscription nature of the London market. Since then, things have changed. “The risks of technology transformation are reducing,” Carnegie-Brown declares.

A decade ago the insurmountable challenge was to get everyone to sign up to a single, marketwide approach. Today, efforts to create an open-architecture environment for London’s commercial insurance business should remove the competitive considerations from the market’s uptake of sophisticated IT solutions.

Carnegie-Brown’s technology vision is nuanced differently from his predecessors’ programs. He doesn’t see any single market system as the answer. His goal is more fundamental. “The challenge is to ensure we move from an analog market to a digital market,” he says. “Once there, everyone has a huge number of choices about the applications they use and how they run their businesses.” If any compulsion is involved for those trading in the Lloyd’s market, it will be a means to that end and will be imposed only to drag the laggards along.

Herding cats can be easier than creating consensus in Lloyd’s, even for its chairman. His job is to run the market, not the market’s businesses. He heads the central facilitator, which has provided market infrastructure since 1769, but he has only limited control over how the constituent underwriting players—Amlin, Beazley, Hiscox, Catlin, Kiln and scores of others—manage their own affairs, let alone their systems and data.

He has even less authority over the brokerages. Central strategies have not always been welcome. Market cohesiveness has been greater and growing since Lloyd’s escaped from the perilous brink of collapse in the 1990s, but decrees don’t land lightly.

But like others, Carnegie-Brown believes the modernization prize is too big to shy away from. Conversion to a digital market will bring enormous value, as it should strip away much of the vast cost associated with business processing.

“Data input just once can be used by different market participants in different ways for the different functions of their business,” he says, listing a few examples. After entry, digital information can be used to settle an insurance premium through a foreign exchange transaction or to inform an underwriter’s risk model. A reinsurance broker can use digital information to aggregate a customer’s risk portfolio. “The data is adaptable in digital form,” Carnegie-Brown says. “Ensuring that all of our data is digital has to be the overarching strategy for Lloyd’s. People can then engage with it in the ways that they choose.”

Which brings him back to the topic of efficiency. Digitization, he says, is “part of improving the efficiency of the market: reducing errors, cutting costs and improving the value of our ability to use the data that we have.”

Fundamentally, the value propositions presented by both underwriters and brokers will remain the same, he says, but will get more of the attention they deserve in a digital market. “The huge value in what brokers do lies in providing advice to their customers on risk-management strategies, part of which involves the placement and transfer of risks into the insurance market. That won’t change.”

It will look like good value only when its cost structure is improved so that more of the premium people pay buys risk protection. The future sustainability of the market is intrinsically tied to its ability to be more efficient, which will make it more valuable.

The same, he says, is true for underwriters, whose huge value lies in deploying their experience and data to make informed decisions about risk pricing, capital allocation management, which risks to write and which to refuse. Digitization won’t change that either, he declares.

What will change is all the activity that does not add value. For example, Carnegie-Brown says, “Brokers and underwriters—the people who provide the advice that clients desire—spend too much of their time on unnecessary processing.”

Normally mild-mannered, Carnegie-Brown seems almost offended by this injustice. “The whole process of change is about eliminating the low-value activities that contribute substantially to very high costs in the insurance industry as a whole,” he says.

Global Strategy

Then there’s relevance. The Empire is over. Wooden ships sunk. Bringing risk to a pinstriped man in London is no longer the only option. Alongside efficiency, relevance is Lloyd’s next great challenge. Market insiders have been searching for ways to remain relevant for nearly as long as their quest for efficiency. “We start there already, with Lloyd’s as a global market leader in a whole variety of specialty insurance lines,” Carnegie-Brown says. “Part of the mission is to preserve that status.”

The challenge isn’t child’s play. The world is Balkanizing, he says, with rival insurance hubs growing in places like Miami, Dubai and Singapore. “Lloyd’s challenge is to make sure the business, which historically has always come to London, doesn’t get disintermediated into other centers,” he says.

Carnegie-Brown wants Lloyd’s to change from what he calls a “Walmart model,” one based on a physical footprint, to an “Amazon model,” where flag-planting is deemphasized in favor of a product focus supported by digital distribution. He has already announced that Lloyd’s will rein in its recent near-frenetic establishment of underwriting platforms around the world, which was part of his predecessor’s “Vision 2025” relevance strategy. In Carnegie-Brown’s view of the world, getting closer to the customer (another insurance industry trope) does not necessarily mean physically closer.

Carnegie-Brown would approach Lloyd’s clientele through monitor and keyboard, or maybe smart phone. “We have a central nervous system here in Lloyd’s, with an incredible resource of skills, of data, of expertise,” he says. “We have an opportunity to deploy that resource into new parts of the world, and to do so differently in our existing markets, to make our products available to more customers, and to make them more relevant in new geographies.”

The technology is readily available to make Lloyd’s easily accessible to people in remote locations, he says. “That’s quite a different way for the international insurance industry to look at the distribution of its products,” he admits.

Lloyd’s, through its member firms, already employs some of the most sophisticated internet distribution in the sector, but it remains a very traditional market, and brokers really do still queue up to see underwriters, sometimes laden with foot-thick piles of paper in their slip cases (although the successful implementation of electronic claims filing more than a decade ago has cut many of those large bundles down to size). Late adopters will be coached, tempted, goaded and ultimately shoved into the digital age.

Lloyd’s is open for business. We are enthusiastic to expand our business in the United States, which is our single most important market.

In this, as in all that Carnegie-Brown has to say, his views chime with those of most broking and underwriting executives at the leading edge of Lloyd’s. The urge to remain relevant through modernization while exploiting technology to garner efficiencies propels a large proportion of market companies’ agendas. Another driver is the hope of selling more cover to existing clients.

“The level of underinsurance around the world, even in rich economies, implies people don’t find value in the insurance product. That is one of the reasons they don’t buy it.”

Lloyd’s new chairman acknowledges underinsurance is driven by many factors, but he rates the value proposition as “significant.” It is partly a marketing problem. “We have to do a better job as an industry, as advocates of the purpose and value of our products,” he says. Insurers help to put peoples’ lives back together after a crisis, but, he says, that role often goes unpublicized. “We talk about the transactions and the negotiations, about minutiae, without recognizing the bigger picture, without mentioning what we do to help rebuild people’s lives and livelihoods,” he says.

More than just talk is required, Carnegie-Brown concedes, if insurance is to appear more attractive. “It will look like good value only when its cost structure is improved so that more of the premium people pay buys risk protection,” he says. “We ought to do a better job of focusing outwardly on the solutions we, as an industry, can provide to our customers.”

The Inside Outsider

Many challenges lie ahead, but Carnegie-Brown may just be the right man for the job. He is broadcasting on the same frequency as much of the rest of the market and has the outward credibility to carry it forward.

Many in Lloyd’s had wanted his job to go to an insider, someone weaned in the cathedral-like room, especially after outsider chairmen held the post for nearly two decades. Many thought the city grandees who came before Carnegie-Brown just didn’t get Lloyd’s. But others argued that was the whole idea—that outside eyes would help the market to navigate the radical change reshaping the international insurance environment.

Carnegie-Brown, a banker by background, is insider and outsider after his stint at Marsh and subsequent board-level roles at Aon and JLT and at the Lloyd’s underwriting agency Catlin (whose eponymous founder Stephen Catlin was a popular insider candidate for the chairmanship).

“Any organization looking for a chairman will discuss whether they want an insider or an outsider,” Carnegie-Brown says. “Happily, I am both.” He says he aims to bring a breadth of perspective. His work at Moneysupermarket, he says, informs his thinking about the transformation, over several years, of the commercial insurance model intended to bring efficiency and relevance to Lloyd’s.

Further, his roles in asset-management businesses have left him with an understanding of the centrality of investing that lies at the heart of underwriting. He also knows regulators, which Lloyd’s, with more than 200 insurance licenses, has in abundance.

“A big part of the role of the chairman of Lloyd’s is to provide market oversight from a regulatory perspective and to be the person most accountable to the external regulators, in the U.K. and internationally,” he says.

And he has a few words for the U.S. broking fraternity: “Lloyd’s is open for business. We are enthusiastic to expand our business in the United States, which is our single most important market. We are working hard to ensure access to Lloyd’s gets easier, more efficient and lower cost and that we continue to earn our very strong U.S. reputation as an innovator and a payer of claims.”

Leonard heads the Leader’s Edge Foreign Desk.

Accelerators aren’t the only kind of early-stage investment organization out there. There are angel investors, seed-stage venture capitalists, even incubators. And somewhere among these organizations sits Matter, a three-year-old Chicago-based nonprofit focused on fostering innovation in healthcare. Most of its funding comes from 70 major corporate sponsors, including the American Medical Association, Blue Cross Blue Shield of Illinois, large pharmaceutical companies, device and diagnostic companies, hospitals, insurance companies and other parts of the healthcare industry.

Matter selects healthcare startups at different stages of development to mentor and coach. It offers classes, coaching, clinics and meetings with financial companies, as well as guidance from the mentor firms about what it takes to succeed in healthcare. Matter CEO Steve Collens says Matter’s 200-plus member companies have raised more than $500 million since their inception. The member companies generated more than $71 million in revenue in 2017 while raising $122 million.

Collens says healthcare can be a challenging field for startups to decipher. Matter allows entrepreneurs to work closely with the established industry to fine-tune their products into something the industry will buy.

“We work with the larger companies to understand the challenges they are facing,” Collens says. “What are the business problems that they are looking at? Where are the needs for innovation? How can we work with entrepreneurs and facilitate the collaborations that ultimately are going to get new solutions to market the fastest way possible?”

Matter combines a series of onsite workshops with talks from industry leaders and intensive mentoring from established customers in the healthcare industry to help foster innovation. Its curriculum includes advice on recruiting founders and employees, raising money, identifying and approaching customers, shortening sales cycles, building pipelines, and scaling up for success.

Entrepreneurs are also given access to investors and advice for building relationships with them because, Collens says, the challenges in healthcare are unique.

“Healthcare is particularly complex,” he says. “Unlike most industries—where, if you create a solution that solves a problem, you can expect there will be a way to generate money off it and create business—in healthcare it doesn’t work that way. You really need to understand the economics of healthcare and the workflow of healthcare to develop a business model that will work, in addition to a product that will work. That requires a deep amount of industry expertise.”


“When I arrived in Hartford, I was thinking, wow, there’s got to be a lot of stuff going on,’’ Tyler says. “I started reaching out to a lot of people to see what was happening, and it was very, very quiet, just kind of waiting for somebody to throw a match.”

Two years later, a match has been thrown. Helped by a grant from the state of Connecticut and investments from several major Hartford insurance carriers and other investment groups, Hartford InsurTech Hub opened in January. It’s driven by Startupbootcamp, a Danish firm that operates accelerators in several industries to identify promising new startups and expose them to investors and industry partners. Eleven startups selected from more than 1,000 applicants will participate in the three-month accelerator, where they will be coached on how to improve their products and how to get their ideas in front of the right people in the insurance industry.

“For many years [Hartford] was the go-to place for insurance technology specialists,” says Frank Sentner, sole proprietor at Sentwood Consulting and former technology guru for The Council. “Unfortunately, it plateaued and stayed there for 25 or 30 years. They didn’t invest in technology, so there are very few people here who have the skills necessary to meet today’s needs. Insurance companies are having to go to New

York or Boston to attract people who have the skill set they need.”

Sentner believes the Hartford InsurTech Hub is an opportunity to move past that plateau and bring innovation back to Hartford. Tyler agrees. “A lot of people want to talk about disruption, but I think we’re really focused on evolution,” Tyler says. “And I think we all need to figure out how we rewire ourselves so that we continue to grow and insurance remains a vital part of Hartford. The need here is for this group to rapidly educate itself and start to rewire the industry.”

What’s in It for Me?

Accelerators have shown they can provide a range of benefits—jump-starting a local economy among them. According to a 2016 Brookings Institute report, the first U.S. accelerator was launched in 2005, but growth in U.S.-based accelerators really took off after 2008. Business models vary, with some accelerators making their money from investors who want a front seat to check out new technology, while other accelerators take a percentage of equity from participating startups. They may also charge investors to participate.

Working with young entrepreneurs is a great place to be. These entrepreneurs often deliver in creative ways solutions able to solve world problems in an easier and faster way than we will ever be able to.

Sabine VanderLinden, CEO, Startupbootcamp InsurTech

Startupbootcamp, for example, takes a small equity stake in the startups it accelerates. Additionally, major corporate sponsors contribute to each accelerator that Startupbootcamp offers. In the Hartford case, corporate sponsorship is provided by Cigna, The Hartford, Travelers, CTNext, USAA, White Mountains, and Crawford & Company. In exchange, the sponsors give Startupbootcamp guidance on what types of technology they would like advanced.

“Working with young entrepreneurs is a great place to be,” says Sabine VanderLinden, CEO of Startupbootcamp InsurTech, which is based in London. “These entrepreneurs often deliver in creative ways solutions able to solve world problems in an easier and faster way than we will ever be able to. While they bring product design knowledge, creativity and marketing acumen, large entities provide years of data, regulatory expertise, relationships.”

For The Hartford insurance company, having an accelerator in its backyard allows the carrier to expose more of its employees to new technologies, says John Wilcox, the company’s chief strategy and ventures officer. “There’s obviously benefit for us in terms of outsourced R&D at some level, but there’s also benefit in getting some of our people exposed to this ecosystem and this set of new ideas and the creative thinking of the startup community. That’s hard to do when they are on the West Coast,” Wilcox says. “Having them here in Hartford, we can engage in a much more robust way. It’s easy for us to get mentors and executives to go and spend time there and understand what they are doing.”

The Global Insurance Accelerator (GIA), launched in 2015 in Des Moines, Iowa, also positions access to startup innovation as a selling point for funders. GIA has seven sponsors that contribute $100,000 each to the accelerator. Each sponsor receives an equal share in the 6% equity surrendered by the participating startups, which each receive $40,000. “The ask of these seven was a $100,000 contribution per year and participation from their key leaders,” says Brian Hemesath, managing director of GIA. “The promise of delivery was that there would be this new innovation platform where they could discover new technologies and they could interact with the startup companies and their employees would get a chance to learn from working with them. If you do the math on a multi-member fund like this, where we only take 6%, the potential for return just on that 6% is not anything to get excited about.”

In addition to making it easier for brokers, carriers and others in the industry to witness insurtech technologies in person, accelerators can help these stakeholders keep tabs on what competitors are doing or identify rising talent.

“We get visibility in an efficient way because accelerators are a gathering place for startups,” says Paul Mang, global CEO of Analytics at Aon, a corporate sponsor of GIA as well as Plug and Play, another leading insurtech accelerator. “Startups converge at a place where, for us at Aon, we get more access, more connections to interesting ideas that are coming from outside our own boundaries. Not only do we get to assess the ideas that are coming from different non-traditional sources, but we are there looking for talent. We’re at least looking at people we might track as they develop. And we also get to see what others in the industry are doing, what the other corporate sponsors are doing.”

Marie Carr, PwC Partner–US Advisory, says leaders at carriers and brokerages are beginning to appreciate the innovations being developed by startups. “Insurance moves at a very cautious pace, even if there is a potential need,” says Carr. “What has changed is that every executive that I talk with now is saying, ‘This stuff is so good. That company right there could solve a number of our problems.’ They are really looking at partnering. A couple of them are not only looking at offensively, but defensively, which is, ‘Hey, maybe I should get in and buy this startup because I know my competitors are investing in it too. I think I want to own it.’”

From Insight to Investment

We get visibility in an efficient way because accelerators are a gathering place for startups.

Paul Mang, global CEO of analytics, Aon

For the startups themselves, participating in an accelerator can yield a range of possibilities. Initially, startups can gain valuable insight into what their products need in order to be a viable investment for the industry.
“The terrific thing about them is they are smart people, they understand technology, are creative and high energy,” Wilcox says. “But their depth of insurance expertise varies. Obviously, what we can bring to the table is people who are experienced in business and have deep subject matter expertise as well as just an understanding of what’s required for a startup to scale and be a valuable partner to a large insurance company.”
GIA, for example, aims to foster innovation in the insurance industry by producing an annual, mentor-driven, 100-day program in which startups receive insurance-specific mentoring through one-on-one meetings with industry executives. The startups also receive basic business infrastructure assistance, coaching on garnering investments, and product-specific insights into strategies for increasing applicability to and feasibility for the insurance industry.

Will Dove, CEO of Extraordinary Re, says joining an accelerator provided entry to boardrooms faster than he thought possible. Extraordinary Re, which has created a platform to foster a new marketplace for trading insurance liabilities, went through Plug and Play’s 2017 insurtech accelerator.

“The biggest benefit is just being part of the Plug and Play ecosystem—being on the list that Plug and Play presents to corporate sponsors and investors,” Dove says. “We got dozens and dozens of meeting with some of the biggest insurers and reinsurers in the world, and those kind of relationships and activities continue to this day.

“I do have a lot of connections in the insurance and reinsurance industry, so the companies that we met through Plug and Play I think we could have gotten meetings with, but it would have taken us at least a year to get the number of meetings and the right people at each of the organizations instead of three months through Plug and Play. That’s the real value of an accelerator. You just get through a lot more a lot faster in that environment than you could on your own.”

Steve Sherlock, founder and CEO of Pablow, an Australia-based vacation rental insurance startup, says getting accepted into the Global Insurance Accelerator was transformative. “Since we didn’t understand the regulations that are required in the insurance industry in the U.S.,” Sherlock says, “going through the accelerator gave us access to people, like insurance commissioners, so we could understand what insurance regulations we need to meet.”

Ultimately, many accelerators aim to foster true investment in viable industry solutions that will benefit all stakeholders. “The ultimate goal is to enable startups with solutions relevant for corporates to find their first customers and then the investment required to grow and scale,” VanderLinden says.

Hemesath, from GIA, says investment opportunities arise when a carrier makes a seed investment in a startup and takes a deeper equity position. “At the end of the day, if GIA does not bring startups into the fold to the carriers to actually work with and do pilots and improve the industry, then we shouldn’t be doing this,” Hemesath says. “We hope that we find companies that otherwise are almost broke or don’t have very many prospects to break into this very hard industry to break into. And we hope that we give them the guidance to do those things and that, on the flip side, the industry is better off for it.”

Do they deliver?

At the end of the day, if GIA does not bring startups into the fold to the carriers to actually work with and do pilots and improve the industry, then we shouldn’t be doing this.

Brian Hemesath, managing director, Global Insurance Accelerator

“I think the accelerators have largely delivered what they said they would deliver—the aggregation of innovative ideas and all that,” says Aon’s Mang. “But I think the real question is are the large organizations that are part of them—the partners—are we really getting the most out of it. Are we able to make the most out of that access? I think it’s too early to tell.

“I think the challenge is that getting access to ideas externally has no economic value. The real challenge is how it affects what an organization does to deliver to its own client base.

“[But] we’ve seen in recent months some very promising technologies built into new business models that are addressing real pain points in core insurance operations. I’m excited about innovations that help our industry dramatically improve operational processes that will ultimately provide clients with new, innovative solutions to tricky risk problems. For instance, we have already successfully piloted a machine learning claims management solution and have begun deploying it into the market. There are other core operation solutions being evaluated now and I anticipate this area will gain more attention in 2018.”

Patten is a contributing writer.

“Corvus is the genus of birds that includes crows and ravens and rooks,” Edmundson says, explaining the name of his Boston-based startup, Corvus Insurance Holdings. “These birds are uniquely intelligent in the bird world, and they’re famous for creating and using tools to solve problems. We thought that was a great metaphor for what we’re trying to do, which is to create digital tools to solve risk management problems.”

A co-founder of brokerage William Gallagher Associates, which was acquired by Arthur J. Gallagher in 2015, Edmundson has spent the last few years delving into the burgeoning insurtech world from his perch in Boston. He sees plenty of opportunity for new digital tools to transform commercial insurance—an area where startups have made less headway than in consumer lines, such as auto and home.

“If you’re a tech entrepreneur, you can quickly imagine how the experience of buying or managing your insurance policies could be better by moving things online, by finding efficiencies or finding new ways to buy your insurance,” says Edmundson, a former board member of The Council who launched Corvus in 2017. “But these entrepreneurs stumble frequently when they get to commercial insurance. Part of it is that many of them have an assumption that all intermediaries are bad. They see a broker and they assume that’s a frictional cost, and their goal is to get rid of that. We at Corvus…recognize that brokers can be our best friends.”

Brokers can help startups develop new solutions and bring those products to commercial insurance buyers. And brokers are likely to continue to play a key role in the foreseeable future in helping midsize and larger companies manage their insurance strategies. Corvus distributes its “smart” commercial insurance policies through brokerages such as Conner Strong & Buckelew and Gallagher.

Three Flavors of Startups

“I’ve spent much of my time the last three years, 2015 through 2017, talking to over 100 insurtech startups, and they come in three different flavors in my experience,” says Edmundson, who started in insurance as an alternative to scooping ice cream as a summer job. The first flavor, he says, is startups developing new ways to distribute insurance. The second is companies seeking to leverage technology to create efficiencies—for example, using blockchain to make financial transactions more efficient and transparent.

“The third area,” Edmundson says, “where Corvus is active, is the tech enablement of existing insurance products. It’s the least developed of these three areas, and it’s the idea that there is data available that can be used to price and predict and prevent insurance claims.”

The company’s first product, Smart Cargo Insurance, uses sensors to measure temperature in goods subject to spoilage during shipment. They apply a massive data set on temperature variability in cargo shipments to develop “Corvus Cargo Scores” that identify when companies may be more susceptible to claims and monitor those scores as they change over time. Corvus offers the coverage as an MGA for Argo Group.

“We call this dynamic loss prevention,” Edmundson says. The technology allows Corvus to identify whether a company’s operations are improving as well as where and when problems are developing. “You’re able to build a feedback loop for customers that uses information they didn’t have before to prevent a future claim, and that is everybody’s goal.”

Cargo and property insurance offer other areas of opportunity for this technology-enabled approach, and Corvus is looking at cyber liability, commercial auto, and directors and officers.
“There are a lot of opportunities to deploy different types of data in the same manner to price, predict and prevent commercial insurance claims and bring value to everybody,” Edmundson says.

Step up to the CrowBar

Corvus seeks to bring the entire insurance process into the digital age with its CrowBar platform, which provides online access to up-to-date underwriting, policy administration and claims information as well as data to help clients make better business decisions and prevent losses.

“We want to bring transparency about the insurance process to the broker and to the end customer,” Edmundson says. “We have a technology sense about it. We’re constantly iterating to make the CrowBar better.”

That technology sense stems, in part, from the company’s Boston location. While Silicon Valley draws the technology limelight, Boston boasts a vibrant entrepreneurial spirit fed by, among others, Harvard University and the Massachusetts Institute of Technology.

“Over the last three or four years, I started to see a noticeable trickle and then a stream of young entrepreneurs who found their way to me—and no doubt to other insurance executives in Boston—who wanted to start companies that targeted the insurance industry with some type of digital change,” Edmundson says. “Those entrepreneurs were coming out of Harvard Business School. They were coming out of MIT, inspired by the idea that the next great industry to undergo a change was one of the biggest in the world.”

When it comes to startups in the insurance world, successfully blending what can be two very different cultures is crucial.

“Technology culture is one that values and tolerates high failure rates, and the insurance industry is one that is so very familiar with failure in that we manage the financial consequences of bad things happening in the world,” Edmundson says. “Because of that, we as an industry are frequently focused on the down side of change, and we are more reluctant to drive change in our industry than we’ve seen in, say, consumer products or healthcare or even banking.”

While the insurance industry has been slower than others to embrace the digital revolution, Edmundson says, venture capitalists have taken note of the opportunities. “One of the trends that’s in play is simply that the venture capital industry has decided that insurance is a great next frontier for its investments,” he says.

I’ve done many of these interviews but never with anyone who raises peacocks on the side. Why peacocks?
They’re kind of like jewelry for your yard. I have a cousin who breeds peacocks in Louisiana. She got me started on it.

How many do you have?
Right now I have three. Two met their demise with a utility power line, unfortunately. They sit on the porch and look in the window. You can tell they want to come inside.

How many other animals do you have?
My daughter has a horse boarded somewhere else. We have bird dogs and chickens. We have two German wire-haired pointers and a red standard poodle that came from a breeder in Georgia. They are all bred to hunt. The poodle’s father is world-famous. He’s been on the cover of dog hunting magazines. But our poodle is afraid of the dark.

You grew up in Middleburg, Virginia. What was it like?
My family had a charge account at every store in town, including the gas station. I could walk into a mom-and-pop grocery store and literally charge a two-cent piece of candy.

And you came back 10 years ago. Why?
Because of all that, right? It’s a nice, small community. The people are really genuine. My husband grew up in a rural part of Virginia. We’re country people by heart. [And] with the trauma my family went through, everybody has been super-supportive, and that’s been important to me, too.

Your husband died in December of 2016. How did you cope with that?
People at work were amazing. People in the industry were amazing. We just muddle through.

After graduating from Duke, you worked in Washington politics for a few years. What was that like?
I worked for Maureen Reagan, the president’s daughter. She was then co-chair of the Republican National Committee. I also did opposition research. All of my candidates lost. I figured I don’t have a knack for this. I was really turned off to politics after living it for a while.

You’re the third generation in your family to work at AHT. Is that something you’re always mindful of?
Nepotism is not always a positive in insurance, so I was always mindful of that. I just always tried to work harder. I didn’t want to be just the boss’s daughter.

What was your first job at AHT?
Working for David Schaefer, who is now the president of the company. I’d get in a car with him with a stack of maps—nobody had GPS back then—driving around, eating Big Macs and trying not to get it all over. We have so many stories of life on the road.

What’s the best part of your job as COO?
Finding really good people. We have a woman who’s been here maybe 15 years. She started as an administrative assistant. She came to me after 10 years on that job and said, ‘I love working here, but I can’t imagine typing proposals forever.’ She said she wanted to be a benefits account manager. She’s now a star account manager. Those are the fun things to watch.

What’s kept you in the business for so long?
I think when you become an owner in a company you feel compassionate about creating an environment where people can grow and thrive. You want to pass it on to the next generation better than you got it.

Would you like to see your kids follow in your footsteps?
I don’t think either one would. My son is more engineering- and math-oriented. My daughter, she’s 14. Who knows what she’s going to do?

What business leader, in any industry, do you most admire?
I thought quite a lot of Jay Fishman at Travelers. I’d spent time with him. He always remembered my name, remembered my husband’s name. He always seemed generally interested in what agents were thinking.

What’s something your colleagues would be surprised to learn about you?
I climbed the highest mountain in Austria, called the Grossglockner [elevation: 12,460 feet]. I was maybe 19. There’s a metal cross at the top that has the names engraved of every person who’s died on this mountain.

If you could change one thing about the insurance industry, what would it be?
Finding more innovative ways to attract young talent into the industry.

Last question: what gives you your leader’s edge? 
I would say just trying to be compassionate about our workforce and open-minded as to how to get people on a career path that’s meaningful for them.



The Armfield File

Favorite vacation spot: “Anywhere warm and sunny.”

Favorite book: I love mysteries.

Favorite author: John Grisham

Favorite movie: Airplane

Favorite actor: Robert Redford

Musician: The Rolling Stones (“I’ve taught my children since they first started to talk: ‘What’s the best rock ’n’ roll band ever? The Rolling Stones.’ I feel like I’ve accomplished something as a parent with that.”)

Wheels: Acura MDX (“It has a ski rack on top and a bike rack on back.”)

In the Harvard Business Review article “The Leader’s Guide to Corporate Culture,” the authors note, “Strategy and culture are among the prime levers at top leaders’ disposal in their never-ending quest to maintain organizational viability and effectiveness.”

Why care? Because in the last 15 years, the workforce has changed drastically and 70% of employees are now disengaged or hate their jobs. Turnover is up everywhere.

My friend, Steve Stowell, at The Center for Management and Organizational Effectiveness, says strategy is everybody’s business. He should know. He wrote the book Strategy Is Everybody’s Job. It made me think, shouldn’t culture be everyone’s business as well? Of course, it starts from the top, but every employee must buy into the cultural norms and understand and agree with what is encouraged, discouraged, accepted and rejected. Culture shapes an organization both behaviorally and attitudinally. One of the authors of the above-mentioned HBR article, Boris Groysberg, says, “When properly aligned with personal values, drives and needs, culture can unleash tremendous amounts of energy toward a shared purpose and foster an organization’s capacity to thrive.”

When culture is aligned with strategy, there are positive organizational outcomes.

Groysberg identifies two dimensions that define culture:

  • People Interactions. Some organizations foster highly independent interactions, resulting in autonomy, individual orientation and competition. Other organizations are highly interdependent, resulting in a high degree of integration, relationship management and coordination of group efforts.
  • Response to Change. One end of the spectrum has firms that emphasize stability. Rules are followed. There is consistency, predictability and status quo. On the opposite end of the spectrum, the emphasis is on flexibility, innovation and adaptability with an openness to change.

Plotting firms along these two axes, Groysberg has identified eight cultural styles: caring (Disney), purpose (Whole Foods), learning (Tesla), enjoyment (Zappos), results (GSK), authority (Huawei), safety (Lloyd’s of London) and order (SEC). He emphasizes there is no good or bad style. Each has strengths and weaknesses. Curious about your firm’s cultural profile? Take the assessment:

It’s difficult, but not impossible, to change or evolve a company’s culture since it involves the emotional and social dynamics of its people. Groysberg identifies four effective practices:

  • Articulate your aspiration. First analyze the current culture and then clearly define which current outcomes do or do not align with anticipated market and business conditions. It is important to talk about the change in terms of the present business challenges and opportunities as well as aspirations and trends. Using tangible examples is critical to people’s understanding of and willingness to change. If a firm’s cultural style is results and authority but its industry is facing rapid change, it may need to shift to a learning culture while remaining focused on results.
  • Select and develop leaders who align with the target culture. Since leaders are the catalysts for change, it is important they be engaged, energized and educated about the important relationship between culture and strategic direction. Once leaders understand the relevance, the benefits and the impact they can have on the organization, they will support the change.
  • Use organizational conversations about culture to underscore the importance of change. Colleagues can talk each other through the change. Employees who see their leaders talking about new business outcomes and behaving differently will begin to behave differently themselves. Road shows, listening tours and structured group discussions are all great tools when shifting culture.
  • Reinforce the desired change through organizational design. Use the company’s systems, structures and processes to support the aspiration. For example, aspirational supporting goals should be part of the performance appraisal. Training should reinforce the cultural change. Org charts and reporting structures should be realigned to support the cultural change.

It’s not easy, but Groysberg says, “It is possible to improve organizational performance through culture change...Leading with culture may be one of the few sources of competitive advantage left to companies today.”

If you’re interested in exploring culture further, The Leadership Academy is offering a virtual class, “A Company Culture for Today’s New World,” beginning March 6. We’d love you to join us.

McDaid is The Council’s SVP of Leadership & Management Resources.

Maryland has an unusual history of healthcare regulation. How did that lead to the creation of global budgeting?

Pines: Maryland, for a long time, has been the focus of different payment reform policies and is seen as a test bed. If payment reform works in Maryland, can the programs be disseminated across the country? Particularly with the CMS Innovation Center, which has the ability to change payments without going through the congressional rulemaking process.

Hospitals are regulated by the Health Services Cost Review Commission (HSCRC), which includes setting fixed hospital prices. What makes Maryland different is there are standard rates for patients for hospital care that don’t differ by insurance status. Although Maryland had fixed hospital prices, costs were very high, somewhere near the top 10 in the nation.

It was still an expensive state, so in 2010 they put in a pilot global budget revenue (GBR) program in a handful of rural hospitals, called the Total Patient Revenue. Eight mostly rural hospitals took part in the pilot, which ran through the end of 2013. By 2014, pretty much all hospitals in Maryland went onto global budgets.

How does global budgeting work?

Pines: The unit is the hospital, so it includes the services that fall under it like ambulatory clinics and surgical centers. The hospital gets a target budget at the beginning of the year based on historical patient loads and budgets. If they go over the target, they can’t retain those reimbursements, but if they undershoot, their budget in the future year is reduced.

The incentive is to nail that target where they can maximize their total budget for revenue or, alternatively, to lower costs. If you’ve got to meet a narrow target, really the only way to improve your net income is to lower costs or try to reduce demand for care.

How does global budgeting affect other players in the market?

Galarraga: Each global budget is apportioned among payers based on each payer’s proportion of revenue. Now there is a predictable amount of cost from a payer’s perspective, and the hospital takes on the risk by being accountable for any excess in cost above what was projected. In fee-for-service, if there is excess utilization, the payer takes the risk, and they might transfer that excess in costs in premiums to patients.

From the patient’s perspective, it is still a normal transaction and charge, and they pay co-pays to payers.

What have GBRs’ effect been from a cost savings perspective?

Galarraga: What we are seeing with hospital spending that’s promising under GBR is the five-year goal was to save $330 million in hospital spending under Medicare and they have already reached $538 million in savings in the first three years. But that doesn’t account for non-hospital spending.

Pines: Any time you are trying to reduce costs in one part of the system and there are pockets of fee-for-service, then by the nature of the market, the care will move from the global budgets to fee-for-service because that is where the opportunity is for greater revenue.

In 1983, hospital payments moved to a diagnostic-related grouping system that was a global payment for each hospitalization. What happened after is people started staying for shorter periods of time and there was a big boom in the post-acute market, which was fee-for-service.

The best analogy is squeezing a balloon. If you squeeze one part, another part is going to expand. The only way to do it is grab more of the balloon with the overall goal of reducing the amount of air in there.

The only way to change that is to change the system of payment for overall healthcare services, where it wouldn’t just be hospitals on global budgets but where there would be GBR for other entities, like outpatient clinics. But currently, HSCRC doesn’t have authority to do that in Maryland.

What can be done to rein in costs elsewhere?

Galarraga: One would expect a shift toward non-hospital spending with GBR, but what we are seeing is a disproportionate increase in non-hospital spending, making it tough to meet the state’s goals for total cost of care. When you overly shift from one space to another, there is little to no lowering in total cost of care. You need improvements in cost efficiency across care settings.

In 2019, Maryland is going to roll out the second version of GBR, and the state is going to try to align non-hospital providers with the goals of the GBR model. The huge barrier to accomplishing that is that HSCRC doesn’t have levers it can pull to affect behavior in non-hospital settings.

This creates a lot of pressure on hospitals to take leadership in the state’s healthcare system and influence other settings to help meet performance metrics in cost and quality. Ways they can do that with post-acute care facilities, for example, is having preferred networks. And if providers aren’t performing to meet total cost of care goals, they might risk not being part of a preferred referral network.

If community providers are affiliated with a hospital, there is an organizational framework where hospitals can affect care delivery that helps meet the goals of GBR. But if they aren’t linked, it’s very hard to influence their practice.

The hope is to gather outpatient providers into an alternative payment system that is aligned with the GBR model and to see a better-connected system where everyone is under the same goals of reducing cost and improving quality.

In a report you authored, you found some hospitals reduced costs under GBR and others didn’t. Why?

Galarraga: We still need to see what the characteristics of hospitals are that are associated with success or struggle under GBR. Only one hospital has closed since GBR. It has moved to a more ambulatory setting, but it was having issues before GBR.

There is potential for fiscal instability (under GBR), and what we do know from prior research of other countries that have tried to implement it is that local hospitals do tend to struggle a lot and there tends to be a trend toward consolidation. This makes sense because the resources a hospital needs to improve efficiency of operations and care coordination—which is a big part of being successful in GBR and meeting metrics like reducing potentially avoidable admissions—are easier to obtain in a health system than for a local hospital.

What about quality under GBR?

Galarraga: I would argue quality has improved for two hospital-based measures: readmissions and hospital-acquired conditions. Because they are tied to revenue for hospitals, we have seen dramatic improvements.

But I think the quality question hasn’t been answered. If we are reducing hospital utilization in the inpatient setting, what is happening to those patients? Do they still have access to quality care, and are their healthcare needs being met without hospitalization? Are they coming to the emergency room just as frequently but not being admitted? Or have some of the community health interventions and efforts to improve healthcare coordination been successful in making sure patients are still receiving quality care without requiring the prior rates of hospitalization?

Both are possible, but we don’t know the answer to that question. We need more research to really identify if healthcare quality has improved outside of those two quality measures and outside of the inpatient setting.

Pines: There are areas where hospital-acquired conditions, like catheter-associated infections and central line infections, can be reduced through quality improvement efforts, and we have seen that because those can be very costly for hospitals. But what is lacking is a big picture of what happens to people across settings.

On the broader question if this is a fix for the system, what really differentiates the U.S. from other countries isn’t the volume of care provided but the price. All types of care are more expensive in this country, and a lot of what these GBR models do is take away the incentive for fee-for-service in a system where prices are already very high. So it doesn’t necessarily fix the price issues.

Maryland is ahead of other states because prices are similar for all insurance, so you don’t get the price differential by insurance status. But to affect cost, you really have to look carefully at what people are charging. In this country, we spend much more for pharmaceuticals than other countries, in part because the U.S. can’t negotiate with pharmaceutical companies.

How are commercial payers faring under this structure?

Galarraga: We don’t have data on how insurance plans have been faring. What you can expect from a payer’s perspective is more predictability under GBR because there is a cap to their expenditures. Whether that’s positive or negative, I’m not sure. It’s positive because they don’t carry risk, but in a capitalistic society, some insurance payers may prefer to have risk but also have the potential for more profits at the end of the day.

And with patients, if you have a cap in healthcare expenditures for the state and a portion of that for each payer, you would expect there is less risk for premiums to be inflated.

Is there anything employers or brokers can do to make a GBR system successful?

Galarraga: The way the GBR model is structured, the onus is on the hospital to make sure it is successful.

Pines: This is a rapidly evolving area, and the way to address things is to stay involved and remain part of the discussion. Where possible, share data and look at how GBR is affecting the overall costs and affecting individuals and out-of-pocket costs. This is an area where there will be lots of research in the coming years. On the insurance side, they should want to participate in that and design their own studies to see the potential impact on their business models.

Jesse Pines, M.D., director of the George Washington Center for Healthcare Innovation and Policy Research, and Jessica Galarraga, M.D., physician investigator with the MedStar Health Research Institute

Father Time slowed down Michael Jordan and Kobe Bryant. Father Time will also eventually catch up to Tom Brady, even though he has seemed to elude it as he earned his third NFL Most Valuable Player Award at the age of 40 (but missed out on the Super Bowl MVP).

Father Time also seems to be catching up to the insurance industry. The 2017 deal count has now been confirmed at 557 announced transactions. That is 101 deals—or 22%—higher than 2015’s record of 456 transactions. That is a staggering amount of supply.

It seems like 2017 was a pretty good year for the insurance industry. Early indications from MarshBerry’s proprietary database are that the average agency posted about 5% organic growth—up slightly from the prior year. Additionally, S&P Global is estimating 4.7% growth in net written premium for 2018.

So firms are growing at a steady clip, the rate environment is trending upwards and the economy is expanding. It’s a pretty good recipe for continued growth and prosperity for agency owners.
But they all seem to keep selling. Why? Pricing is pretty good right now. Actually, valuations are continuing to hold at a high water mark for the industry. However, when you begin to peel back the onion, there is more to it.

The reality is the industry is aging and the collective whole just isn’t reinvesting at a fast enough pace to counteract Father Time. The MarshBerry “2018 Retail Market and Financial Outlook” says 77% of retail insurance distributors believe their next generation of staff will be capable of taking over the agency. However, just 31% of respondents provide a stock ownership opportunity for these high performers in their firm. The moral of that story? We think you’re good enough to take over, but we just aren’t interested in offering you the wealth creation opportunity.

Are the high multiples in the industry causing owners to sell prematurely, or is the lack of reinvestment and diversification of equity ownership forcing the sale? Frankly, I am not sure it matters.

MarshBerry’s research shows baby boomers hold about 59% of the ownership of independent agencies and brokerages in the United States. I believe even if valuations drop, owners will have no choice but to continue to sell at a rapid pace.

The market conditions with 30-plus viable buyers in the retail insurance space are creating a competitive environment that is keeping valuations at record highs. We estimate demand for acquisition in 2018 will exceed supply by roughly four to one. Yet, for most agency owners, we believe it is a matter of not if but when their independent run will eventually come to an end.

Some owners are aggressively reinvesting, and others are selling before their backs are against the wall. Yet a subset of owners will allow Father Time to dictate their eventual sale. Which path is yours?

January Market Update

Deal activity appears to have gotten off to a slow start in 2018 following 2017’s strong finish. However deals are announced retroactively throughout the year, so it is likely we will see January figures move higher over the next several months.

There were 25 deals announced in January, down from 44 in December and 53 in January 2017.

Gallagher did three deals while Ryan Specialty Group, Integrity Marketing Group and AssuredPartners each did two acquisitions. Both Gallagher and AssuredPartners were among the top five most active buyers in 2017.

Independent agencies represented more than 70% of the announcements in January (18 of 25), while seven of the 18 were backed by private equity. Property-casualty agencies continue to be the most popular targets (60% of January totals) along with retail agencies (68%).

Trem is EVP of MarshBerry.

Securities offered through MarshBerry Capital, member FINRA and SIPC. Send M&A announcements to M&

What’s to love
Little Rock has all the advantages of a larger city and the community atmosphere of a small town. The revitalization of the downtown area, particularly along the Arkansas River, continues to be robust. Little Rock is also a very philanthropic-focused city that supports nonprofits that improve young people’s lives.

Dining scene
The dining scene is varied and offers diverse ethnic cuisines. My favorite new restaurant is Samantha’s Tap Room & Wood Grill on Main Street in downtown. The chefs cook a lot of dishes using wood fire, and all of the wines and beers are on tap. It’s a winner due to its creative menu (everything is great) and décor.

Classic eats
Bruno’s Little Italy, which is still operated by the second and third generation of the Bruno family, is my favorite. It is a classic red and white checked tablecloth kind of place with old photos on the walls. Any of the veal dishes are superb.

The place to stay in Little Rock is the historic, five-star Capital Hotel, which opened in 1876. It is beautiful, and the service is impeccable.

Watering hole
I like to take clients to the Capital Bar & Grill. It has a great ambience and convenient location. They make an excellent Moscow Mule and have a good selection of wines.

Things to do
There are a lot of fun and interesting things to do. Verizon Arena attracts big-name musical performers like Alan Jackson. The newly renovated Robinson Center is the home of Ballet Arkansas and the Arkansas Symphony Orchestra and also features Broadway plays and special events. If you like sports, check out a minor league baseball game at Dickey-Stephens Park, which has a view of downtown. The Clinton Presidential Library & Museum attracts visitors from all over the world.

The Arkansas River Trail is a great place for running, walking and biking. It runs along both banks of the Arkansas River for more than 17 miles and has four pedestrian and bicycle bridges. You can also hike Pinnacle Mountain, just outside the city. We also have a lot of very good public golf courses.

Don’t miss
The Arkansas Arts Center. Governor Winthrop Rockefeller began supporting this museum in the 1960s. It has a world-class permanent collection.

The 2018 RIMs Annual Conference & Exhibition will be held in San Antonio, Texas, April 15-18. The timing is fortuitous. On May 1, 1718, the Mission San Antonio de Valero (known today as the Alamo) was established. It was the first of five missions that would grow into San Antonio. In celebration of its 300th anniversary, the city is hosting an array of cultural events throughout the year. San Antonio has also received a stream of accolades, among them Frommer’s “Best Place to Go in 2018,” Travel + Leisure’s “50 Best Places to Travel in 2018,” and National Geographic Traveler’s “Best of the World 2018” list of 21 must-see destinations, making the city one of the places to visit in 2018.
Last year, UNESCO also named San Antonio a Creative City of Gastronomy—the missions are a UNESCO World Heritage Site—the second city in the United States to receive this distinction. After the announcement, Visit San Antonio credited the city’s thriving food scene to its “confluence of many world cultures, such as Mexican, Spanish, German and French,” as well as its being the site of the Culinary Institute of America’s (CIA) third campus, at Pearl, a mixed-use complex.
Once a historic brewery, the 1894 Second Empire-style landmark now houses shops, chef-centric restaurants and a weekend farmers market. Last year, Bottling Dept., San Antonio’s first food hall, opened at Pearl in a new building that was constructed where the former bottling department stood. Five vendors offer something for everyone—rotisserie chicken, burger and fries, gourmet donuts, ramen, and Japanese healthy fare. There’s also a bar where you can order beer and wine from a list curated by the sommelier at High Street Wine Co.
“This is an exciting time for the culinary arts in San Antonio,” says chef Johnny Hernandez, a CIA graduate whose restaurant empire includes La Gloria , a Mexican street-food eatery at Pearl. Two years ago, Hernandez prepared President Obama’s Cinco de Mayo dinner at the White House. His exploration of the diverse regions of Mexican cuisine continues with the recent opening of Burgerteca, which features custom burgers topped with ingredients found in Oaxaca, Pueblo, Veracruz and Yucatan.
While RIMs attendees will miss the tricentennial festivities being held during Commemorative Week, May 1-6, they can enjoy two ongoing events happening during RIMs. Common Currents is an exhibition that illuminates the 300 years of the city’s multicultural history as told and rewritten by more than 300 visual and performing artists. The San Antonio 1718: Art from Viceregal Mexico exhibit at the San Antonio Museum of Art features more than 100 landscapes, portraits, narrative paintings, sculptures, and devotional and decorative objects, many of them never before exhibited in the United States, that cover People and Places, The Cycle of Life, and The Church in the first century of San Antonio.


Embrace the tricentennial spirit at these two boutique hotels, which authentically blend San Antonio’s past and present.


Historic Hotel Emma
• Guests checking into this historic hotel located at Pearl are greeted in the Library with a complimentary La Babia margarita.
• Known for interplay with modern and historic elements, Roman and Williams juxtaposes refined and eclectic contemporary furniture and original artwork with the industrial architectural features of the interiors.
• The 146 guest rooms vary in size and furnishings—for example, Terrace Rooms have a private terrace with a fireplace, handmade tiles and a custom-made mesquite bench. All have a Hotel Emma Ice Box hidden in the armoire and stocked with local beer, farmers market provisions and margarita ingredients.
Book: One of the seven suites on the top floor. Some are two stories. All feature dining areas, original stonework and vaulted ceilings.

Spanish Colonial Hotel Valencia Riverwalk
• A $10 million renovation, which included a total redo of the bar and restaurant, landed the hotel in the No. 1 spot in San Antonio and No. 2 in Texas in the Condé Nast Traveler Readers’ Choice Awards 2017 for hotels.
• Acclaimed designer Lauren Rottet used rustic woods, ironwork, and handcrafted tiles and textiles to create the Spanish colonial meets modern Mediterranean look.
• The sophisticated rooms and suites, some with balconies, have wood ebony credenzas, leather club chairs and plantation shutters. Luxurious touches include white Italian marble in the bathrooms and custom-made beds with seven layers of Egyptian cotton linens.


Argentinian Dorrego’s
• Executive chef Anthony Mesa’s innovative Argentinian-inspired restaurant at the Hotel Valencia Riverwalk serves up options for carnivores and vegetarians in a Spanish colonial setting.
• Smoked short rib ravioli, grilled prawns, quail meatballs and parrillada, a platter of grilled meats—chorizo, blood sausage, chili-rubbed short ribs, Wagyu beef shoulder loin—are among the dishes drawing crowds.
Must-order: Flamed proveleta, Argentinian provolone that is set afire with tequila.

Mexican Burgers Burgerteca
• “Alebrijes,” the colorful papier mâché figurines famous in Oaxaca, are the inspiration for the décor in chef Johnny Hernandez’s new burger joint, which features custom chairs, hand-forged chandeliers, and large slabs of wood for communal dining.
• Burgers are served on freshly baked yeast buns and enhanced with traditional Mexican toppings—chilies, spices, moles and queso—and flavors such as al pastor, pibil and chilaquiles.
Try: Oaxaqueña—an Angus beef patty dressed with mole negro, black bean spread, pickled onions, avocado, and queso fresco; or the Pacifica—seared tuna with chipotle-lime mayo, cabbage slaw, sesame seeds, avocado and tomato.
• The in-house ice cream shop serves paletas (popsicles), raspas (shaved ice) and other frozen desserts.


Common Currents—300 artists were each assigned one year of San Antonio’s history to develop their work for this exhibition, which is presented chronologically through a variety of contemporary media across six venues.

San Antonio 1718: Art from Viceregal Mexico—This exhibit at the San Antonio Museum of Art celebrates the city’s Hispanic roots and cultural ties with Mexico. It features works by renowned New Spain 18th-century artists as well as pieces by unknown vernacular artists.

Pearl—In addition to being a culinary destination, Pearl is known for its shops, events and wellness services. Check out The Sporting District for quality clothing for the modern gentleman. Catch an author reading at The Twig Book Shop. Enjoy a signature hand and foot massage at the new Hiatus Spa and Retreat.


Spirited Away in San Antonio

“Too much of anything is bad, but too much good whiskey is barely enough.” —Mark Twain

Regarding the merits of good whiskey, no doubt Texans would find common ground with Twain. Relaxed state laws covering the distillery process have led to a boom in distilleries and enhanced the distillery tour and tasting experience. There are now more than 90 distillers’ licenses and many award-winning distilleries where tastings and cocktails will put you in good spirits. You can even buy a bottle to spirit away.

San Antonio’s Award-Winning Distilleries

Dorćol Distilling Company—Owner Boyan Kalusevic produces Kinsman Rakia, an apricot brandy, using his grandfather’s recipe. The spirit has received multiple honors, including Best of Category/Gold Medal Winner at the Los Angeles International Spirits Competition 2016. There are 30 cocktails on the menu at the distillery’s tasting room, all of which use brandy as a base. The distillery’s new brewery, HighWheel Beerworks, currently serves Kolsch, Saison, Porter and IPA on tap.

Ranger Creek Brewing & Distilling—Ranger Creek brews handcrafted beer and small batch spirits. For its whiskey, Ranger Creek uses Texas corn, which is milled, mashed, fermented and distilled, then aged in oak casks. Ranger Creek has received awards for its .36 Texas Bourbon, a deep amber bourbon with a sweet undertone, and .36 White, a bourbon (before it is aged in oak) that’s good for mixing. Other Ranger Creek spirits include Rimfire single malt scotch-style whiskey, aged in bourbon barrels smoked with Texas mesquite, and .44 Rye, a 100% rye whiskey. Beers like the German-style San Antonio Lager and Mission Trail Ale, an extra pale ale, pay homage to the city.

Rebecca Creek Distillery—The 2017 “Official Best Of” television program named Rebecca Creek the top craft distillery in Texas. One of the largest craft distilleries in the country, Rebecca Creek uses a 1,000-gallon, custom-built, German-manufactured Christian Carl copper pot during the distilling process. Its small batch spirits include Fine Texas Spirit Whiskey, Texas Ranger Whiskey, Enchanted Rock Vodka and Enchanted Rock Peach Vodka.

An enterprise security program is a complicated mash of hardware, software, networks, configuration settings, and operational policies and procedures. There are numerous best practices and standards, and most have more than a dozen categories and hundreds of requirements encompassing technical, administrative and physical realms.

It is no wonder business leaders often seem uncertain about whether their cyber-security budgets are being spent on projects or technologies that really will make their data and systems more secure. A more simplified view is required.

One way to reduce the complexity is to step back and ask which cyber-security program requirements are critical to reducing risk, which are important to reducing risk, and which are basic requirements in reducing risk.

  • The critical requirements of a security program are those that are essential in maintaining any semblance of a strong security posture and, if not performed, could result in significant harm to data, systems or the organization.
  • The important requirements are essential, but if they are not performed or are partially performed, the harm may be less consequential than that flowing from critical requirements.
  • The basic requirements are security program activities that are best practices but may result in less impact on the organization if they are not performed or are performed poorly.

These are generalizations, of course, but let’s consider some examples. Access controls are critical. If an organization does not have sufficient access control policies and procedures and supporting technologies in place, it will not be able to secure its data or systems, hold users accountable, or maintain accurate records for compliance and forensic purposes.

Equipment inventories are important. Companies should maintain an inventory of equipment provided to employees and check off return of equipment upon employee departure. If they do not, there is a risk that a phone or laptop might not be returned and some company data may be on it. This exposure is limited to internal individuals and may be mitigated by other controls, such as encryption and access policies.

Secured telecommunications cabling is a basic requirement. While it is always a best practice to secure telecommunications cabling against interference or damage, on the whole, most companies have little risk of their cabling being tampered with.

Organizations have limited resources for IT and cyber-security programs, and many executives do not fully understand what an enterprise security program really is or know what is required by best practices and standards. (For more on that, read my previous column “Starving Your IT Budget.”) In the face of an increasingly sophisticated threat environment, executives struggle with understanding which cyber-security activities will matter the most in defending against cyber attacks and protecting company assets.

As a general rule, if companies make sure they meet the critical requirements—and add a few important ones—they will have a strong cyber-security foundation on which to build and a decent chance of detecting, deterring and preventing cyber attacks. In a recent review of the 114 requirements for the ISO 27001 standard for information security, my team tagged 58 requirements as critical, 32 as important and 24 as basic.

From the 58 critical requirements, we identified the top 15 that we believe are essential activities for all cyber-security programs. If you undertake these cyber-security solutions, you’ll put your organization on stronger footing against cyber attacks in 2018.

When reviewing cyber-security budgets and resource allocations, executives should check to see how much of the funding is for activities on this list of resolutions. Management also now has a solid list of critical requirements they can refer to when discussing priorities with IT and security personnel. Agents and brokers also can use this information to better serve their clients and help them make informed decisions on managing cyber risks and improving their organization’s cyber-security posture.

15 Steps to Safer Cyber Security

Westby is CEO of Global Cyber Risk.

The mission is clear: improve the quality and lower the cost of healthcare for their employees. And in doing so, they may potentially deliver a nonprofit, market-based solution focused on reducing waste and improving transparency while using technology to engage consumers in ways never thought possible.

The indictment is clear: today’s cabal of payers, middlemen and disjointed consumer solutions is failing. They are actually hurting our ability to compete as a nation. The implication is that a private, nonprofit solution has a better chance of fixing the obvious problems than today’s earnings-driven players.

The devil, however, is in the details.

As expected, the terms of reference for this joint venture are vague. The timeline for this new enterprise is also vague. The group members said they would focus on their own employees first and would take a considerable amount of time to get it right. If you believe we have a decade at the most before we attempt to legislate a public solution for a growing problem, this effort will not have an endless runway to mastermind a better mousetrap.

This troika of change agents—an exciting roster of corporate superstars—is not the first coalition of employers or large public entities to declare war on rising healthcare costs. Nor is it the first to announce an ambition to tame the U.S. healthcare system. In 2016, The Health Transformation Alliance, representing 46 global multinationals, $6 billion in annual spend and six million covered lives, launched an effort to transform purchasing and the experience of healthcare for its members.

The group so far is focusing on reducing the low-hanging fruit of pharmacy costs by improving transparency and reducing rebate opacity. However, a recent article on the consortium noted that attaining the larger goal is well in the future. That goal is to gain enough purchasing power that buyers can drive down cost and force a shift to value-based contracts that give providers a share of the risk of patient outcomes and quality of care. It seems even six million members may not be a large enough volume to move markets dominated by major health systems that are not anxious to take on risk or give up fee-for-service medicine.

Conflicts of interest can also plague large groups with diverse businesses. And the Big 3 could fall prey to this as well. J.P. Morgan’s Jamie Dimon immediately had to reassure the company’s huge corporate investment banking clients (many of whom are healthcare stakeholders) that he’s not declaring war on them. But I’m not sure how you shrink the pie without giving someone a smaller slice.

Change takes time, and we don’t have much left. A public option is never far from the lips of politicians who see the system as failing average Americans.

Within 24 hours of the media frenzy, Amazon issued an internal memo to its employees, (most likely at the urging of an unnerved corporate HR and benefits team), saying this new venture was not—in the near-term planning—to change any benefits for Amazon employees. Not even a day had gone by and already employees were concerned they may become guinea pigs in a grand experiment that could affect their access to health benefits. This distrust is based on most employees’ assumptions that lower costs can be achieved only by fewer choices and more prescriptive rules over personal health engagement. They’re right!

Eat Your Broccoli

The compounded growth rate of healthcare continues and has outrun corporate profits and GDP by a decent margin. In the process, it has diminished the ability of many companies to compete in a global economy where lower cost of human capital is essential.

Employers are witnessing accelerating intensity of claim episodes, out-of-control and ineffective drug management, bloated intermediaries and myriad analog processes. But the hit to earnings from rising health costs has spurred innovators into action. Too often, a hackneyed term to describe tipping-point transformation—“disruption”—has now become synonymous with technology-based solutions attacking analog problems.

The poster child for disruption has been Amazon. With its iconoclastic CEO, formidable market cap and loyal investors that tolerate low margins in exchange for market share, Amazon, many believe, can declare war on and prevail over any segment of the U.S. economy. An entire investment community is now on its toes eagerly awaiting the toppling of entrenched old-guard healthcare stakeholders.

The probability of storming the lofty palisade of protected interest—a place where so many have failed—sets the stage for a confrontation that will either canonize or embarrass the leaders attempting the mission.

On one hand, you are combining the resources and intellectual capital of the world’s preeminent digital retail and logistics company with a premiere capital market and the world’s most accomplished institutional investor. The management team is a brain trust of risk-embracing, visionary CEOs—all gold medalist performers who have vanquished competitors and blown apart barriers to entry.

There is also no shortage of confidence that a market-based solution is possible to fix employer-sponsored healthcare. Warren Buffett described the U.S. healthcare system as a long tapeworm ripe for transformation and disruption.

Traditional players seem less spooked by this announcement, believing inertia and the enormous moving parts are on their side. Today’s stakeholders seem more preoccupied with legislative actions that could impose transparency and fiduciary constraints on their profit models.

Is a holy trinity of healthcare cost reduction, outcomes improvement and open access even possible? Typically two of these factors can be paired but not all three. You want affordability and access? Be prepared to sacrifice quality. You desire access and quality? Affordability will suffer.

Change means disruption. Shrinking healthcare spend means shrinking 18% of U.S. GDP, which will create casualties—less employment in a healthcare vertical that employs one in five U.S. workers. It means less access for consumers accustomed to open-access PPOs and for a populace that does not want to be told to exercise and eat their broccoli. The challenges are political, socioeconomic, behavioral and institutional.

Imagining Success

Success factors for achieving a sustainable, low single-digit trend are hardly a well-kept secret. Much depends on the will of the plan sponsor to tolerate disruption to members as one disintermediates low-value stakeholders and improves cost and quality transparency.

The roster of offenders is long. One could argue we are all part of the problem: predatory pharmacy benefit managers, runaway RX costs, ineffective claims payers, poor outcome providers, unengaged consumers, misaligned incentives, and corporate clients fatigued and intimidated by the notion of changing vendors and creating disruption for their workforce.

Setting priorities will be the first task for the healthcare group. Most insiders may recommend focusing on highest impact and lowest disruption areas of cost. This may include a focus on RX procurement, a shift to hyper-consumerism anchored by state-of-the-art technology, and a universal adoption of high-deductible health plans. (JPMorgan Chase already employs a full-replacement high-deductible health plan.) There must be a focus on closing gaps in care, finding the asymptomatically ill, and educating chronic and unstable members using consumer-
engagement tools. This seems like a no-brainer for a 25-year-old fulfillment warehouse worker, but it may be a bridge too far for a 54-year-old highly paid investment banker. Gray- and blue-collar workforces tend to be easier to enroll in value-based networks and concentric benefit options than dug-in, analog, Wall Street workers.

Negotiating pricing with providers won’t be easy with only two million members, so expect the group to focus more on high-volume ambulatory services and the use of negotiated networks anchored by episode-of-care and pricing data. Developing innovative age- and gender-driven consumer engagement tools will help, but the demographic that drives modifiable claims today is not always the biggest user of technology. Many older patients still insist on face-to-face encounters with a primary care provider and the ability to self-refer to specialists.

In the end, the healthier the workforce, the lower the consumption of services. Lower consumption makes discounts matter less as inpatient costs decline and people divert to step-therapy-based outpatient services. Care management and better health can dwarf the most favorable discount economics.

It’s time we shift to reducing units consumed and increasing consumer engagement. It’s time for employers to revolt against opaque and one-sided arrangements that have failed to curtail costs. Employers need to see themselves as payers and their various vendors as accountable partners. Many see the Berkshire/Amazon/JPMorgan Chase combo as a call to action. They are taking the future of healthcare cost into their own hands.

We know from a range of studies that first-quartile healthcare cost management can result in as much as a 10% difference in trend in a given year. The issue for most is not skill. It’s will.
If they are successful, they may very well bring the rest of American business along for the ride.

Turpin is EVP and managing consultant for USI Insurance Services.

Customers buy what they want, when they want it and how they want it, and they expect service to evolve and improve with each transaction. Our success is based on our capability to adjust to what those needs and expectations are in a rapidly changing world.

A few weeks ago, I was listening to a CEO of an insurance company talk about the industry. I was struck by his continued use of the word “product.” Product knowledge, product this, product that. The voice in the back of my head was screaming. This is one of the (many) reasons brokers differ so much from insurers. For one thing, brokers don’t connect with the “product” idea. Our model is entirely different. After all, isn’t the offering supposed to be a specific solution to what the client needs? That to me is not a product; it’s a service—a direct, face-to-face opportunity that most companies don’t have—and it’s damn effective.

The core of what we do as brokers is figuring out what our clients’ life or business requires to ensure they have stability. The “product” is the advice and counsel that each broker provides. That means we must focus on the people and businesses we serve. Only at that point do we then find carriers that can fill the need and will cover the risk.

I’ve long thought about the dissonance in the industry, and I’ve concluded the fear around tech and data analytics is really just a matter of perspective. Technology is paving the way to greater efficiency through a more personalized approach toward risk prevention and customer service. The use of data is a way for an insurance company to ensure it is pricing the services it offers with some model for predictability. At the same time, insurtech for brokers is about using data in the context of getting to know clients better and advising them with meaningful information to solve problems. The tools to get there more quickly, more accurately and more completely aren’t going away. We need to stay ahead of technological advancements and invest and adopt quickly. This is not optional going forward—it is necessary—and it is nothing to be afraid of.

“Breaking away from the pack and capturing new revenue opportunities requires a shift in business mindset—a shift from product-focused to customer-focused; from rigid operating models to more fluid and agile operating models that respond quickly to customer preferences; and from going to market alone to partnering with insurtechs and technology behemoths that can help them reach new customer segments and reinforce their brand,” according to Accenture.

The Accenture report is one of many that document strong growth opportunities for those who are ready and willing to adapt to changing customer needs. So long as you continue to focus on the who, what, where and why of your client in this time of change, you’ll be ahead of the curve. Products are commodities that come and go. Who you are and what you bring to the table is what sets you apart and keeps you relevant.

One of my main takeaways from our Wharton session last month was the idea that we live in an age of “hyper-competition.” It’s so true. Which is why, as our facilitator Jim Thompson implored, “the investment choices you make today will determine what your organization becomes tomorrow. Conversely, the investment choices you do not make today will also determine what your organization becomes tomorrow.” I thought it was a fascinating insight. When you truly have customers’ interests at heart, you customize your services with an in-depth understanding of their business and their risks. Selling a product may be a tangible solution. But what a broker offers has the makings to lead to a better customer experience…and that’s the name of the game.

AHPs allow individuals and smaller groups to pool themselves into larger groups to take advantage of the laws of large numbers that tend to drive premiums—and premium volatility—down.

Affordable Care Act passage exacerbated the divide between the individual/small-group markets and the larger-group markets. This was because ACA essential benefit plan mandates and community rating directives do not apply to the larger-group market. Indeed, a significant component of the Trump administration’s executive order to deconstruct the ACA directed the Department of Labor to expand the use of AHPs. It also encourages the sale of health insurance across state lines.

The Labor Department has now issued a proposed rule designed to expand the use of AHPs. This begs the question: mission accomplished?

The DOL Rule

The proposed rule would expand the types of AHPs that qualify under ERISA rules in two fundamental respects. It would eliminate the prior requirement that an association must be created for a purpose other than to offer/maintain an AHP. The proposed rule, however, would still require the AHP to be organized around some “commonality of interest.” Labor provides examples of what would satisfy the more lenient “commonality of interest” test. Employers in the same trade, industry, line of business or profession would qualify, as would employers with principal places of businesses within the same state or metropolitan area (including metropolitan areas like New York and D.C. that cross state lines).

Second—and potentially of more importance—the proposed rule would redefine the relevant terms to allow individuals to participate directly in an AHP without an employer plan sponsor. In both scenarios—AHPs with employer members and those with individual members—the rule would require underwriting at the AHP level. This would allow an AHP comprised of individuals or small businesses to be treated as a “large group” and so the AHP is not itself treated as an insurer.

The proposed rule also would require AHPs to comply with existing Health Insurance Portability and Accountability Act nondiscrimination provisions. It would do this by:

  • Requiring AHPs to comply with HIPAA’s nondiscrimination rules governing eligibility for benefits and coverage premiums. This is the mechanism for requiring underwriting at the AHP level. It also bars discriminatory treatment of individual plan participants. It effectively puts AHPs in a position equivalent to other large-group plans, which are also subject to these requirements.
  • Barring AHPs from restricting membership based on any health factor (i.e., health status, medical condition, claims experience, medical history, disability, etc.).

MEWA Conundrum

The Labor Department says all AHPs created under this new expanded ERISA AHP authority would likely be subject to the rules governing (the dreaded) Multiple Employer Welfare Arrangements (MEWAs). MEWAs are defined under ERISA to include employee welfare benefit plans or “any other arrangements” that are established for the purpose of providing benefits to the employees or beneficiaries of two or more employers.

Until Congress amended ERISA in 1983, MEWAs enjoyed broad ERISA preemption status. But states clamored for greater oversight when many MEWAs failed to pay claims. They had managed to avoid state reserve and contribution requirements, which apply to insurers. Today, states can regulate MEWAs. Under a fully insured MEWA, all benefits must be guaranteed by an insurance contract with a qualified insurer.

State authority over MEWAs undercuts the potential for AHPs to serve as vehicles for insurance sales across state lines. States already are blocking such moves by, among other approaches, making it impossible for self-insured MEWAs to get licensed in the state, imposing physical presence requirements on MEWAs and putting heightened reserve requirements on MEWAs.

Labor’s proposal may make it marginally easier for some AHPs to be considered a single, large ERISA-covered group plan. But ultimately, because of the statutory structure for MEWAs, it is not clear how, without concerted voluntary action or inaction by the states, the Labor Department can meaningfully ease AHP administrative burdens and regulatory variation across state lines.

It is also unclear how, without wholesale statutory changes, AHPs can be the magic reform bullet the administration and others continue to hope they will be.

Sinder is The Council’s chief legal officer and Steptoe & Johnson partner.
Jensen,, and Gold,, are associates in Steptoe’s Government Affairs and Public Policy Practice Group.

Billions of revenue, hundreds of thousands of new jobs projected. But conflicting federal and state laws create a tricky playing field for business owners, bankers and insurers.

Scott Sinder, The Council’s chief legal officer and partner at Steptoe & Johnson, breaks it all down and shares his thoughts on what the DOJ’s latest moves mean in our podcast, “Talking Pot”, below. 

Or, check out or feature, “It’s High Time We Deal with Pot” from our November, 2017 issue.


Priority Pass, a membership program that gives travelers access to independent lounges at airports around the world, is celebrating 25 years of providing a quiet place to relax or work regardless of your class of ticket or frequent-flyer status. The company continues to grow its locations—last year it surpassed 1,000 lounges—and expand its offerings. Its latest amenities include spa treatments at the Club Aspire in London’s Heathrow Airport and dining at seven restaurants throughout the Sydney Kingsford Smith Airport. Choose from three memberships to have discounted or unlimited free access to the lounges, where food, drink and Wi-Fi are complimentary. 


Breakfast at Tiffany’s is not just a movie anymore. The Tiffany & Co. flagship store in New York City has re-opened the renovated fourth floor, where you will find its new home and accessories collection and The Tiffany Blue Box Café. On the menu for breakfast are truffled eggs, a smoked salmon bagel and avocado toast, which you can enjoy for just $29. It’s a smart-looking space with herringbone marble and Tiffany blue walls and furnishings. Among the artful objects you can shop for after breakfast are a bone china tea service and leather accessories in a Tiffany Blue blocking pattern.


The design hotel scene is heating up in Scandinavia. In Copenhagen, the new Nobis Hotel opened in a historic building that once served as the Royal Danish Conservatory of Music. The building’s elaborate detailing is the backdrop for the neoclassicist interiors. 77 rooms are painted in green-blue tones and have wooden parquet floors, high, white-painted windows with crossbars, and bathrooms with gray Italian marble. Located next to Tivoli Gardens and near the fashionable Vesterbro neighborhood, it’s close to both the city center and hip shops and cafés. In Helsinki, the Hotel St. George is slated to debut in spring 2018. A former 1840s printing house, the hotel will have 148 rooms and five suites, a wine room and a winter garden. 

“I have heard of several others that will give it strong consideration as well,” Farmer says.

Many states have already set their legislative agendas for the coming year, and consideration would likely have to wait until later sessions.

The model law, which would apply to insurers, agents, and other licensed individuals in states that adopt it, would set requirements for insurers, agents and brokers to help prevent breaches as well as actions to take in the event of a cyber attack. The NAIC model law has many similarities to the New York state cyber-security regulations for financial institutions that took effect last March and cover banks and other financial institutions as well as the insurance industry.

Average global cost of a data breach: $3.62 million
Average cost of each lost or stolen record: $141

The NAIC model law would require licensees to conduct cyber risk assessments; to mitigate the identified risks; to establish an oversight committee; and to exercise due diligence in selecting third-party vendors. The law also mandates companies develop written incident response plans and certify annually that they are in compliance with the requirements.

“The model does address a number of issues,” Farmer says. “It provides for the implementation of an information security program. It provides for the investigation of cyber-security events and notification to the state insurance regulator about the breach itself. That has to be done within 72 hours.”

That notification would include the date, duration and extent of a breach, the information involved, remediation efforts and an estimate of the total number of consumers affected.

Because some 48 states already have consumer notification laws, the final version of the model law states that licensees shall comply with existing state laws and provide a copy of the notification to the state insurance commissioner.

“We didn’t reinvent that wheel,” Farmer says.

The law recognizes many agencies are small businesses and exempts from the information security program requirements those businesses with fewer than 10 employees and licensees who are compliant with HIPAA privacy standards.

The development of the model law was punctuated by two of the largest data breaches ever. The NAIC announced its cyber-security task force in late 2014, just before health insurer Anthem announced a data breach that affected more than 78 million customers. The adoption of the model law itself came just weeks after credit-reporting agency Equifax announced as many as 143 million Americans had their personal financial information exposed. Anthem later reached a $115 million settlement in litigation arising out of the 2015 hacking incident.

Even small business needs to protect itself against breaches, which can be very costly, Farmer says. The Ponemon Institute estimates the global average cost of a data breach at $3.62 million and the average cost of each lost or stolen record at $141.

Bridget Gregory, played by Linda Fiorentino in 1994’s The Last Seduction, is a seductive, beautiful, icy genius who plays with men’s hearts and other parts of them as well. Sound porny? Screenwriter Steve Barancik has said that the film was pitched as a low-budget skin flick meant to be broadcast on Cinemax way after dark. But the filmmakers secretly wanted to make a movie that was actually good. In the end, Roger Ebert gave it four out of four stars, and Rotten Tomatoes came in with a smashing 94% rating.

Bridget is a whip-cracking supervisor in telephone sales who demeans her male employees all day. One night, she still had enough energy to steal $700,000 from her wimpy drug dealing husband and shuffle off to Beston, near Buffalo. There, she gets a job at an insurance company and seduces fellow employee Mike Swale, a far more innocent character. Bridget cooks up a scheme to sell life insurance to wealthy women who hate their husbands, with a quiet rider that the man will be murdered posthaste. Mike balks, but she tricks him into trying to murder her own husband. Suffice it to say all the men end up dead or in deep trouble, while Bridget deserts the destruction in a limo.

The plot has many more twists: a gleeful widow, a transgender wife, a deliberate car crash—it goes on and on. If there is a moral to the story, it is this: men in insurance are principled and kindly. It’s the women you have to watch out for.

But of course, we know that’s only true in the movies.

What are your New Year’s resolutions for 2018?
To put my iPhone down and be present.

If you could give Donald Trump one piece of advice for the New Year, what would it be?
It’s not about you. Maybe that’s the nicest way I could say it. Leadership requires putting others’ needs ahead of your own. It requires selflessness.

You are Indiana-born and -bred. What was it like growing up in Anderson, Indiana?
I played sports in high school—sports have always been a big part of my life in general. Anderson has the second-largest high school basketball gymnasium in the world. It seats about 9,000 people. It’s bigger than Cameron Indoor Stadium, where Duke plays.

Is there anyone in Indiana who’s not a basketball fan?
People who were born somewhere else.

Your all-time favorite IU basketball player?
Oh, man, good question. Probably Steve Alford or Calbert Cheaney. One of my earliest memories is sitting on my grandparents’ floor watching IU win the national championship with Steve Alford in 1987. I was 7.

You were a student at Indiana University when your picture appeared in Sports Illustrated.
I was in college when Bobby Knight got fired, in 2000. My fraternity buddies and I hung a banner from our window saying “9-10-00/A Legend Dies/Thanks Brand.” Myles Brand was the IU president who fired Knight.

What do people from outside Indianapolis get wrong about the city?
I’m incredibly proud of Indianapolis and the strides the city has made in the past 20 years. People are gravitating back to downtown, and not just millennials. The city is built on a foundation of sports. All the stadiums are right downtown. Part of the huge success of the city was getting the Colts to come here. We also have developed a really good tech scene here as well.

What’s your favorite downtown restaurant?
Milktooth. Conde Nast Traveler named it one of the top 100 restaurants in the world. The chef, Jonathan Brooks, is unreal. He’s a magician. He’s not even a chef. He should change his title.

Your favorite dish at Milktooth?
This is going to sound weird, but they have a biscuit with this pad of infused butter on top. It’s probably the best thing I’ve ever eaten in my life.

You were named a “Rising Star” by the Indianapolis Star in 2010. How’d that happen?
It was very nice to be thought of in that way. I was the youngest shareholder in the history of the firm. I opened our benefits practice in our first office outside of Indiana when I moved out to Phoenix in 2005. After that was up and running, I came back to Indy and in 2013 began overseeing the overall benefits practice for MJ.

You were diagnosed with cancer five years ago. Can you talk about that experience?
I was lucky. I lead our benefits program, and we joined an on-site wellness clinic at MJ, so I went for a physical myself. I had an ultrasound the next day, and two days later the urologist told me I had testicular cancer. I tell people in some ways it’s the best thing that ever happened to me. It gave me a perspective I could never otherwise get.

What was your treatment like?
I ended up having surgery. I was very lucky to have Dr. Lawrence Einhorn, the same doctor who treated Lance Armstrong. It spread to my lymph nodes a little less than year after the first diagnosis. I had to go through three months of chemotherapy, but I have been cancer-free ever since.

What’s the lesson there?
Do the things you need to do to take care of yourself. When I have the opportunity to speak about healthcare, I preach the value of preventive care. I was 34 at the time. It’s a young man’s disease. My son was 1.

Who’s been your most influential business mentor?
Joe Perkins was my mentor, the guy who brought me to MJ. He’s one of our partners. He recruited me from college and attached me to his hip for three years. He taught me the business and a lot of other life lessons as well. I wouldn’t be where I am today without him.

If you could change one thing about the insurance industry, what would it be?
Pharmacy benefit managers—they’re the middlemen between the drug manufacturers and the pharmacies that purchase their medication. The way that system works is broken. The incentives there are misaligned to the employer.

What gives you your leader’s edge?
It’s the people around here, our team. The innovations that we are bringing to the marketplace are the things that give us our edge.



The Vetor File

Vacation Spot: Bald Head Island, North Carolina

Musician: Bruce Springsteen (“I go to five to 10 shows per tour. If I could do anything, I would just follow him for an entire tour. Nothing gets my adrenaline pumping like a Springsteen show.”)

Author: Patrick Lencioni (The Ideal Team Player, Death by Meeting, Getting Naked)

Wheels: BMW X5

What’s to love
Savannah is a small, distinctively southern town that has a cosmopolitan, big-city feel. We have one of the largest Landmark Historic Districts and the largest Army installation east of the Mississippi [Ft. Stewart, covering 280,000 acres]. 10,000 SCAD (Savannah College of Art and Design) students from around the globe live and study in downtown. Gulfstream Aerospace manufactures its exclusive corporate jets here, and the port is one of the fastest-growing in the world. And nearby are incredible undeveloped barrier islands and uninhabited beaches.

The book
Midnight in the Garden of Good and Evil, or “the book” as we call it, was an interesting story that elevated Savannah’s reputation as a quirky town with outrageous characters and tales. While there’s an element of truth to this, what makes Savannah special is its authenticity. We are not afraid to embrace our strengths and weaknesses as a city. There is a spirit here that draws people in.

Dining scene
From the unique Sundae Cafe at Tybee Island to ethnic restaurants like Thai fusion masterpiece The Vault Kitchen and Market and the Persepolis Lounge and Grill, which serves amazing Persian cuisine, there’s something for everyone. Savannah is known for its terrific barbeque, which can be found at local notables Blowin’ Smoke Southern Cantina, Sandfly Bar-b-q and BowTie Barbeque Co. Our sea-to-table offerings are equally outstanding. My favorites are Tubby’s Tank House and Fiddlers Southside.

Favorite new restaurant
The Grey. It is a marvelous re-imagination of a Greyhound bus station, and the food and service are magnificent. Mashama Bailey (routinely recognized as one of the nation’s top chefs) always surprises us with her creative renditions of traditional Southern favorites. Her aged bone-in ribeye is the best I’ve come across. Sunday night dinner at the front bar is our family favorite, but deciding between the gourmet hamburger and the classic pastrami sandwich is always a struggle!

Classic eats
Elizabeth on 37th in a restored turn-of-the-century mansion is hands down my favorite restaurant. My wife gets mad if I entertain here without her! The owners are there nightly to provide the type of world-class dining experience that makes you feel like royalty. I let my good friend and master waiter Kim Tuttle surprise me when I am there. She knows what I like and never disappoints.

Cocktails with clients
We usually start at Local 11Ten, which is around the corner from our office. It features a rooftop bar, and the service is always spot on. Then, we’re off to either The Grey or The Wyld, which is located on the coastal area near Isle of Hope. It’s especially fun when there is a full moon and a high tide.

With incredible furnishings and appointments, experiencing our historic district in one of the grand row houses is the way to go. I recommend a historic bed and breakfast like the Gastonian or the Foley House Inn. Our equally fabulous hotel offerings include the Mansion on Forsyth Park, the Bohemian Hotel and The Marshall House.

Don’t miss
Touring our one-of-a-kind restored historic homes in the Landmark Historic District. I’m partial to the Owens-Thomas House and the Davenport House. There are also walking tours that cover everything from Savannah’s classic architecture to the story of our black heritage and the Gullah Geechee community.

Things to do
There is always something happening no matter what time of year it is. My favorite things to do include the Savannah Music Festival in March (17 days of music from around the world in some of the most intimate venues you’ve ever experienced), a night at historic Grayson Stadium watching the wildly entertaining Savannah Bananas baseball team, or a world premiere at the SCAD Savannah Film Festival.

Being able to enjoy the outdoors is one of the things I love about Savannah. There are plenty of golf, tennis and boating clubs. We have a vibrant running community (it’s a beautiful city for running). We also have places to cycle, paddleboard, kayak and fish on the natural barrier islands of Ossabaw or Little Tybee.

Nancy and Bill Devine have been running Faidley’s Seafood in historic Lexington Market, the oldest continuously operated market in the country, since the 1960s. The Baltimore icon dates back to 1886, the year Nancy’s grandfather, John Faidley Sr., opened the restaurant. They still keep their fish on ice stalls. Miss Nancy, as she is called, still makes each of the crab cakes, 6.5 ounces of jumbo lump Chesapeake Bay blue crab meat, by hand. As Nancy’s daughter, Damye Hahn, says, “Baltimore is booming and growing, but we anchor old Baltimore.” Indeed revitalization plans are in the works for Lexington Market, which will incorporate environmental design strategies in a new modern building.

Faidley’s and Lexington Market embody the ongoing transformation of Baltimore, balancing its rich history and culture with modern sensibilities. Kevin Plank, CEO of Under Armour, is playing a pivotal role. As co-founder of Sagamore Development Co., he is spearheading one of the largest urban renewal efforts in America at Port Covington, a mixed-use redevelopment project. Plank opened the Sagamore Spirit Distillery there on the 235-acre parcel of Baltimore waterfront property last April with the purpose of resurrecting traditional Maryland rye whiskey. He plans to make Port Covington the home of a new headquarters campus for his sports apparel company, too.

Plank is also a co-owner of the new Sagamore Pendry Hotel. Situated on the harbor in Fell’s Point, the boutique hotel adds a “gritty luxury” mix of historic and modern to the upscale hotel scene, which includes the Four Seasons Hotel Baltimore and The Ivy Hotel, an exquisite inn located in a beautifully restored brownstone in Mt. Vernon.

While traditional fresh seafood from the Chesapeake Bay will continue to live on at Faidley’s (Hahn says they plan to be around for generations to come, welcome news for fans of possibly the greatest crab cake on earth), the city’s innovative culinary scene is developing a national reputation. In 2015, Baltimore landed in the number-two spot on Zagat’s “Top 17 Food Cities” and made Thrillist’s “7 Most Underrated American Food Cities.” There are two restaurants that have been showcasing bounty from the bay and nearby farms for years that can be credited with raising Baltimore’s culinary profile. Chef Cindy Wolf’s Charleston, which Baltimore magazine has rated the number-one restaurant in the city year after year, and Chef Spike Gjerde’s Woodberry Kitchen. Gjerde, who now has six restaurants, won the James Beard Best Chef: Mid-Atlantic award in 2015, and his farm-to-table restaurant was a semifinalist for outstanding service in 2017.

Though their numbers are rapidly expanding, data showing ACOs’ effectiveness at reducing costs and improving quality are mixed. Leader’s Edge sat down with David Smith of The Leavitt Partners to discuss the landscape of ACOs and their current place in the market.

Let’s start with the definition of an ACO.
Leavitt Partners defines an ACO as a group of providers who collectively agree to assume responsibility for the cost and quality of care delivered across a defined population. Whatever the payment vehicle is, it’s different from just transactional fee for service. It may be fee for service with an adjustment or a per-patient, per-month payment. It can be really broad.

ACOs began in the Medicare space but have moved to the commercial market. Are they working there?
The Affordable Care Act created an organization in the government to explore different value-based payment vehicles in Medicare that would improve the quality of the program while lowering cost. We began to see hundreds of provider organizations make investments and participate in these arrangements. Many commercial ACOs actually went live before Medicare released its rules and started its programs. Today, there are some large commercial carriers that have a high number of ACOs, like Cigna, Aetna, Humana and certain Blue Cross Blue Shield plans. More than 100 payers across the country have at least one accountable care contract.

There are a few big caveats. First, when you are talking about ACOs, commercial or otherwise, you are talking about a different kind of payment to incentivize or induce structural changes to delivery. ACOs have certainly generated some savings, but they are far from driving wholesale care delivery reform or transformation.

Second, a lot of these commercial arrangements have characteristics similar to the Medicare Shared Savings Program (MSSP) or bundled-payment contracts from the federal government. The MSSP has moved the conversation forward, catalyzed investment and changed the way we think about care. We need to take the best of what we’ve learned thus far and create spaces and programs and arrangements that truly reflect what we are trying to do for our specific populations. The MSSP is still the easiest program to enter, as it has a relatively low barrier to entry and organizations can use the two-sided risk versions of it to qualify as advanced alternative payment models under MACRA [Medicare Access and CHIP Reauthorization Act].

Do we have enough data to see how commercial ACOs are performing so far?
While the government is responsible for sharing ACO data with the public, commercial data from payers and employers are difficult to get. As a result, we don’t have a ton of data on the employer or the commercial payer side. For non-government entities, we typically look at certain benchmarks that indicate sustainability—how long they have been in place and if their purchasers, plans or providers have expanded. There is a lot of activity and innovation occurring in the commercial market—it is just still too early in the game to say if they are creating long-term sustainable value. One important metric is how many ACOs renew their contracts, and a majority of commercial contracts have been renewed.

Right now, ACOs cover a small portion of covered lives. How much would they have to expand to prove they are worthwhile ventures?
The payment models today are still fairly fee-for-service or volume-based with a payment adjustment. If we stick with those, I think we could be at 60% to 70% penetration, we might not have the kind of care transformation needed to drive down cost. We are adjusting payments on the margins, and it is led by quality indicators and economic performance and patient satisfaction, but it’s still not always enough wholesale change.

The qualifiers I would give to the question are how quickly do healthcare organizations assume greater risk, how much of their revenue does that constitute, and how many lives is that spread over? When we have alignment over a material number of lives—when 25% of their bottom line is predicated on performing for a unique contract structure—providers begin to take delivery transformation pretty seriously.

Many ACOs commissioned directly by employers and specific providers are in collaboration with major businesses like Boeing. Is there space for smaller employers as well?
I absolutely believe there is space. There is a spectrum here in what’s possible for small to mid-market employers, or even large group with employees dispersed in different markets. On one end, you could establish a small specialty group in a market—something like a center of excellence but focused on increasing value for local employers. On the other end, you could establish a high-performance network that focuses on primary care and key specialties.

But there are challenges. Small employers often don’t have enough purchasing capital to influence what is happening in the market. However, if I am sitting in Dallas and can stitch together 30,000 lives across four different employers in a five zip code area, I can go to a broker (or some other intermediary) and say, ‘Go build me a network.’ I think 5,000 to 10,000 people is what you need to adjust the risk in a population. Ten thousand is probably the ticket to get the attention of folks on the provider side and drive a unique contract.

Employers represent the last bastion of healthcare not subsidized by the government. This is a venue where providers can still make money and employers can still create value, and those two interests are highly in line with each other.

How can employers best evaluate ACOs that might be in their plans or coverage area?
First, you want to make sure the way you want care delivered is aligned with how a provider is delivering it. Incentive alignment and payment are key components.

Second, it’s got to be primary-care focused. To work well, you have to attribute a population, understand their risk factors and have data (which employers have access to if they are structuring it the right way). Then, there have to be resources to manage that care—like a care coordinator—when employees have to leave the four walls of their primary care office for a procedure or psychological evaluation or long-term recovery.

Finally, all other commercial contracts operate in one-year underwriting cycles, but most employers think of employees’ health in a long-term way. So we have to think about keeping employees healthy. That’s creating environments in cities where we operate and promoting healthy behaviors and wellness programs. But not just so they get a $5 Starbucks gift card. We have to focus on incorporating wellness programs that have a clinical evidence base and execute those programs in conjunction with primary care providers that have the right incentives to change employees’ behaviors.

This represents a lot of work, effort and resources. Employers and intermediaries have not seen enough value to put that together to really drive that change.

So you feel a primary care component is imperative for a quality ACO?
A hospital has a basic economic exigent to maintain an economic structure that underwrites its assets. So when you have a hospital-only led ACO, there becomes tension within the organization about the need to meet a margin and the desire to transform and transition the system. Unless there is some compelling reason, the change may go more slowly.

An integrated delivery network that has a hospital and primary care and other assets has the same situation. But if they are allocating resources correctly and can maintain their margin while operating in a new system, they will do it. But I haven’t seen many types of payment models that allow them to do that.

In a primary care group or multi-specialists or federally qualified health centers, they don’t have the same asset base, so they can create new and different value in terms of how to provide care. They can be far more flexible and nimble working within these new payments.

Is there reason to support ACOs even if they don’t appear to bend the cost curve the way employers would like to see?
You can draw a line showing that improved quality leads to improved functionality, which leads to improved productivity, which over the long run creates economic value. You have to do a lot of things over several years to see how that works and if the juice is worth the squeeze. Improved quality is improved quality, and that should be an aspiration.

This is fundamentally a question of the value we get for our healthcare dollar. We spend $10,000 for every man, woman and child in this country, and we get poor outcomes compared to our international cohorts. So the big question is whether or not we can organize resources in a way that creates better efficiency for the dollar.

This song will not go on forever. We will have one or two outcomes: either we are going to figure out how to allocate resources more efficiently of our own volition or our spending will become so unsustainable that we will be faced with very hard trade-offs regarding how to organize those resources. We are going to solve this in a uniquely American way, or economics will compel us to solve it in a different kind of way. We are optimistic it will be the former and not the latter.

Why should traditional carriers welcome insurtech companies?
I don’t believe many of these firms that are called “insurtech” are going to be able to disrupt, disintermediate or destroy the insurance industry in any meaningful way. I think it’s all overblown. When someone calls us an “insurtech disruptor,” I recoil. That’s not what my firm is. That’s not what we’re trying to do.

Agents will be the primary distribution force for insurance over the next 20 years. Brokers are not going away, and carriers will be the primary capital for the next 20 years. None of that is going to be radically changed.

At the same time, we do believe new technologies driven by cloud computing services, modern tools for managing and integrating external data, and algorithms driven by machine learning will fundamentally improve delivery of insurance to customers. As a carrier or an agency, if you don’t understand how those new technologies can be leveraged to improve your firm, then you’re going to be left behind. Not left behind as in you’re going out of business but left behind in that you’re not going to be defined as a winner over the next decade. We firmly believe that.

We also know—given we work with seven of the 10 largest carriers in the U.S.—that all of them are experimenting with different tools to improve their businesses by leveraging technology, data and machine learning.

Can you talk about disruption versus transformation?
I would prefer the term “improvement.” Disruption for me would be if 25% of commercial insurance is sold without a human agent or if 25% of the capital used to insure commercial risks is eventually done by a hedge fund or an alternative capital source. This type of evolution would be true disruption to me, where the ecosystem of insurance is radically changed. I don’t believe that at all.

What I do believe is that carriers miss the point if they don’t understand the power of external data or the difference between a machine learning algorithm and a classical actuarial model. And if you don’t have people inside your firm who understand the latest ways that online retailers and web firms are improving design to ensure customers or agents have a better end-to-end user experience, then you’re not going to be a winner.

Carriers and agents should be looking to insurtech firms for ideas and partnerships—not for an adversarial relationship.

How is technology going to change the way agents and brokers work in the years ahead?
I don’t believe there’s a single element of the business system for an agent that cannot be improved by technology and machine learning. Whether it’s leveraging a chatbot to help a prospect complete an application or using intelligent machine-learning models for scripting to make agents smarter in how they give advice, technology is truly making the service of delivery more efficient in the insurance industry. Over the next year or two, all of those areas will be fundamentally improved by technology and artificial intelligence.

In terms of AI, we use chatbots today as kind of a basic machine-learning application. We don’t believe AI will ever replace a human agent, by the way, but it’s a nice bolt-on to our customer interface. We use machine-learning models through digitization of calls to make our advisors smarter in the advice they deliver to customers. This AI-enabled approach helps our advisors better understand what products they should sell to certain customer segments.

What do you see in the next five years?
I think the application process will be shorter. Carriers are going to do a much better job of leveraging external information to give agents capital more effectively—which ultimately will give agents more time and the ability to sell more policies.

Rather than focusing on cold calling, there will also be an increased opportunity to be much more targeted and strategic in how carriers and insurtech providers attract customers. I don’t know any customer now that doesn’t use multiple channels to research and understand what they should buy. They just don’t walk into an agent’s office. They have the internet, and they use it.

The industry is dealing with buyers who are more informed than ever, and that should play into how they deploy their SEO [search engine optimization] and SEM [search engine marketing] strategies. With this in mind, carriers and insurtechs should provide information that’s much easier to digest, since the modern customer expects an on-demand experience.

In our firm, we want to be the most technically driven, advice-oriented agency in the United States. Every single one of our customers talks to an agent. Again, we never want to cut out the human interaction since we know that our small-business owners want to talk to an advisor. It’s not that the need for agents will diminish. Instead, the winning agencies, brokerages and carriers will be the same ones that adopt the tools needed to make it just a much better experience.

One of the things I say to carriers is that insurance isn’t your product—the customer experience you provide is actually your product. When you’re an airline customer, the product is not just the physical transportation of the plane from point A to point B. It’s how easy and intuitively you can look flights up using the web interface, how available the call center is if you need to change the flight, and the service you receive from the stewards or gate agents. It’s all of those things. It’s not just the plane.

That’s true across every segment of the economy. That’s what the web firms figured out. They figured out it’s the end-to-end customer experience that really matters. That’s why they’re the dominant force in the economy right now, and insurance companies are going to begin understanding this—or they’ll get left behind.

Is there one crucial moment in that customer experience where technology really matters?

It’s not one. It’s everything. At least for us.

From: Joel Wood 
Sent: Wednesday, January 03, 2018 10:50 AM
To: Joel Kopperud
Subject: Don’t Tell My Wife

So, Joel, what to say? It’s not the year that either of us expected. I always think back to election night. We had 75 or so brokers in town (for a MarshBerry conference), and we were hosting an election watch party in our offices overlooking Pennsylvania Avenue. I love you, but I don’t like being around Democrats on election night, as I feel it’s the one night every couple of years when you need to be with your own people. You started pacing early, after Florida and North Carolina and the early Rust Belt returns. I was very happy that the Senate races were looking really good for Republicans but serene in my knowledge that, when Detroit, Milwaukee and Philadelphia results came in, the race would be called for Hillary. When I left at 11, you had the look of that guy at the bottom of the human pyramid at Abu Ghraib, but I still felt like your party was going to win. Hell, I even laid down a thousand bucks on Hillary on some Vegas website from the back of my Uber on the way home (my wife still doesn’t know that). That all seems eons ago.


From: Joel Kopperud <>
Sent: Wednesday, January 03, 2018 4:48 PM
To: Joel Wood <>
Subject: Still Feeling the Pain 

Ugh. Yeah. No offense, but last year sucked. I do my best to not relive that moment. I vividly remember waking up the next morning, turning on my shower, and thinking to myself, “Oh, I still have hot water. That’s good.” LOL. Those following weeks were hard, to say the least. Ever since the “All Dressed Up and Nowhere To Go” party that Blue Dog PAC Chair Kyrsten Sinema hosted for the few Democrats who stayed in town for the inauguration, most of the noise in my circles has been dark. And a lot of us have turned our angst and frustration inward within our own party ranks, looking for new energy and enthusiasm. I go back and forth on the blame, but a status quo approach for Democrats sure doesn’t feel right.

You know there wasn’t a stronger Hillary supporter than me. She lost by 79,000 votes in the states that matter. (138 million were cast. And, BTW, we need to get rid of the Electoral College. She won the popular vote by three million.) If only one of the MANY things didn’t go wrong in the campaign, she would be president—i.e., Russia, Comey letters to Congress days before the election, misogyny…But it should have never been that close to begin with. At the end of the day, it was the candidate and the campaign. Every election is about “the economy, stupid.” It’s always about kitchen table issues. I hope Democrats remember that in 2018. I don’t think Donald Trump and this Congress have done a lot on kitchen table issues for the average American. Yeah, I know, tax reform—that will be a flash in the pan—and the impact it’s gonna have on insurance premiums will negate any tax relief for the average American. Everyone supported tax reform before the election, and congressional Democrats and Republicans were gearing up for a comprehensive package for the Clinton administration to sign. It just would have looked very different from this one…That bill should be good fodder for Democrats, if we can message it right.

That said, our members didn’t do too bad in all of last year’s chaos, considering the threats to employer-sponsored insurance. But there were some questionable deals cut in tax reform on pass-throughs, and if the individual health insurance markets and policies careen off the edge here, we could be in trouble. Ya know, we should have another vote to replace the ACA. Ha ha ha. Just kidding. How about one to finally repeal the Cadillac tax???? Not kidding.


From: Joel Wood
Sent: Thursday, January 04, 2018 6:32 PM
To: Joel Kopperud <>
Subject: Losers and Winners

Wow, you certainly still have a lot of angst going. Sure, let’s give up the Electoral College so that New York and California can pick our presidents? Bad enough that we have a cold civil war on our hands right now…that would be more than cold.

But, there, you got it out of your system, now let’s talk about commercial insurance brokerage and what this presidency/Congress mean. Overshadowing everything, as you note, is the tax reform law. Where you stand depends on where you sit. On the big-picture, unifying issues of our association—preservation of the employer exclusion for group insurance from taxation and continued ability for our member firms to continue to amortize intangible assets—we had good wins, and I feel that we were able to move the dial in the process. Our non-foreign-domiciled C Corporations, too, were big winners, to the extent that many paid high marginal effective tax rates.

For the many firms of our association structured as pass-throughs, Congress did them no favors. The congressional tax writers—a really small, insular, non-transparent group of them working and reworking the entire tax code in the space of only a few weeks—consciously chose to pick winners and losers among the pass-through organizations. They granted significant relief to manufacturing firms and very small businesses, while segregating everyone else into a “services” category that got no relief.

On the one hand, politically, I get it. To give a new low rate to every pass-through would have required finding hundreds of billions of dollars elsewhere in the tax code to save. And politically, their purpose was always to lower the corporate rates, to get repatriation, to advantage American corporations. Part of the political calculus was aimed at manufacturing jobs, and small businesses had to get their slice of relief since major corporations certainly were. But intellectually and substantively, it was wrong to pick winners and losers in this way. This was especially underscored by the carve-out the architects and engineering firms got from the “services” definition by glomming on to the manufacturing sector. I’m sure this is what you’re referring to as “questionable deals” in the tax law. They may not have been dirty deals, but they’re not fair to everyone in the “services” world left in the lurch.

I talked to one of our executives today from a major pass-through-structured firm in the Midwest. The overwhelming majority of his clients are manufacturers, and most of them are pass-throughs. They get relief; he doesn’t. Why should that be? The result is that many firms are now facing the glaring and potentially jarring incentive to convert to corporate status to take advantage of the top corporate rate of 20%. On top of that, the limitations on entertainment expensing and other provisions wind up meaning that many of our member firms receive a net negative benefit from the law. (I’m betting the entertainment expensing is going to create a backlash that GOP leaders didn’t expect and may well regret.)

Said our Midwest exec to me as we completed our call: “I hope there’s a blizzard in Washington and you burn all my tax dollars to keep warm.” I don’t blame him.

Also, private-equity backed firms—an ever-increasing presence in commercial brokerage—got slapped with major new provisions limiting debt financing. The final provisions have a phase-in and aren’t as onerous as some promoted, but they’re still a challenge for those firms.

For me, a lowly House staffer 32 years ago when the last big tax bill was passed, I understand the politics, but I hated the process. After the epic ACA repeal/replace fail, GOP leaders had to pass tax reform. They had to do it, even though public approval for the package was low. The consequences of failure were unimaginable to all of the friends I have in the GOP leadership and rank and file. 

I intellectually understand given the polarization of the country and the Congress, an open, bipartisan, extended process like 1986 would not have succeeded. I just think there’s going to be a lot of cleanup needed, and there are going to be a lot of unanticipated distortions in the economy.


From: Joel Kopperud
Sent: Thursday, January 04, 2018 7:14 PM
To: Joel Wood <>
Subject: Warms My Heart! 

Thank you, professor. A lot of cleanup, indeed. I was reading an interesting blurb in one of the Hill rags that the real winners in tax reform were lobbyists like us, who would be stuck trying to fix the law for years. #draintheswamp 

Hill staff warned me a few weeks ago that there’s going to be a lot of FATCA issues popping up because of this bill, too. Of course there are—and that really concerns me! I was hoping our next big victory would be finally clarifying that p-c premium payments are excluded from FATCA. Sen. Tim Scott, D-S.C., is following our champs in the House (Reps. John Larson, D-Conn., and Jason Smith, R-Mo.) and doing a lot of good work to get this clarification. We’ve been working on this for years, and we’re the closest we’ve ever been. Our challenge has always been the process, not the substance. And the last administration essentially said, “We don’t have enough resources” to fix your issue, considering our niche issue was at the bottom of their FATCA to-do list. We finally have their attention on it. Now, we just have to get it done and hope the barrage of other FATCA issues doesn’t smother us again.

You also forgot to mention the repeal of the individual mandate and the fate of the ACA taxes and employer mandate penalties. We all know the threat that repealing the mandate poses to premiums. It will be interesting to see if 13 million Americans throw up their hands on insurance, as the Joint Committee on Taxation predicts, and how that affects premiums on employer-sponsored coverage. There was also a move at the end of the year to delay enforcement of the mandate penalties. I’m hearing a lot of our members’ clients are getting some really steep penalties for some potentially inaccurate but innocuous reporting. We’ll be supporting congressional efforts to fix this problem.

Of course, our biggest beef here is still with the Cadillac tax. The $87 billion pay-for is still the major holdup, but they almost delayed the tax to 2021, which was a good move—even though 2022 would have been better. The momentum to repeal the health insurance tax is real. We need to get on that bandwagon. It is a demonstrable minority in Congress that support the Cadillac tax. We need to get our champions unified and rallied. It’s not easy for all kinds of reasons, but we’re coming down to the wire again. 

The war on drug pricing and against PBMs is heating up again. I’m gonna keep my mouth shut on that right now, but it’s gonna be a battle I’ll be paying close attention to.

BTW, did you see that control of the Virginia General Assembly was determined by a random drawing? You guys won, but wow, what an election down ballot in a purple state. And we swore in a new Democratic Senator from Alabama this year. I think we’re all cautiously optimistic we might actually right this ship in November. I love hearing Sen. Mitch McConnell, R-Ky., make noise about how bipartisan we’re going to be. Warms my heart!


From: Joel Wood
Sent: Friday, January 05, 2018 8:32 AM
To: Joel Kopperud <>
Subject: Not Going to Happen

Somehow I knew you’d pivot from pass-through tax discrimination to the issue of an exurb/rural Virginia House district electing a transgender Democrat over a right-wing Republican incumbent. And sorry you lost that coin-toss, too.

Your political enthusiasm is justified according to history—parties out of power win in off-season elections, and Trump’s popularity wanes. But you’re looking at a map that’s not friendly to Democrats in either the House or the Senate; the Dow crossed 25,000; employment levels soared; and the corporate tax cut along with repatriation could give the economy some sizzle. What do we know? 

What I DO know is this—Democrats’ retaking control of the House and Senate isn’t good on the benefits front. Bernie Sanders has been introducing his single-payer bill forever, and nobody paid attention. The day last fall he reintroduced it, ALL of your prospective senatorial Democrats who look in the mirror and see the president of the United States—Warren, Booker, Gillibrand, Harris—were original co-sponsors. I’m no Chicken Little on this, but “Medicare for all” is pretty much the mantra of your party these days, and your left-wing “Indivisible” nuts are increasingly driving your agenda. 

So, even if you’re an establishment Republican deeply skeptical of this president and you’re pissed about the tax bill, you’re likely NOT pining for Rep. Nancy Pelosi, D-Calif., and Sen. Chuck Schumer, D-N.Y., driving the agenda (though, admittedly, I do have some good stuff to say parochially about Sen. Schumer; plus, he scares me). 

Finally, as to the Cadillac tax, I think brokers are doing the right thing in counseling clients to assume the tax is going to be imposed. Like DACA, Cadillac is an issue where we’ve been taken hostage. Our support is miles and miles long and yet only inches deep. The latest suggestion from House GOP leadership is that Cadillac should be repealed only in exchange for scaling back the employer deduction for group health benefits. Not. Going. To. Happen.


From: Joel Kopperud
Sent: Friday, January 05, 2018 9:32 AM
To: Joel Wood <>
Subject: Not Feeling Great About Our Direction

Your party openly wants to tax benefits, and you’re scaring our members with single-payer alarms? Everyone knows that’s not going to happen. CBO scores the measure at $32 trillion, and every Dem I know that’s on that measure knows it will never happen. It’s messaging to the base. And my message to them is this: our focus should be on the ends, not the means. We ought to be focused on ensuring every American has good coverage. Not on how they got that coverage. That was the mantra going into the ACA, and the past eight years haven’t been nearly as disastrous as we thought. After all these repeal and replace efforts, we might wind up defending a lot of key pieces of the ACA because the employer-sponsored insurance market relies on them.

Sigh. Anyways, yes, you’re right. Taking back either chamber is still an uphill battle for Democrats. But I come back to what I said earlier about kitchen table issues. I think Trump/Bannon/Ryan/McConnell are actually doing a great job for Democrats. The challenge will be keeping candidates from getting distracted by issues that are good for their base but not the middle (Russia). Let The New York Times talk about that. We need to keep talking about healthcare and the economy. Sure, the stock market is doing great and there are jobs all over the place, but the scenario reminds me of an interview from the ’92 election, when one voter complained to a reporter, “Yeah, I know there are a lot of jobs. I’ve got three of them.” This is about economic inequality and a stagnant middle class. Wages. That was a major issue boosting Trump last year, and ironically could boomerang to help Democrats. 

Democrats need 24 seats to take back the House and only two in the Senate. I could see it happening. I don’t think there are a lot of Americans feeling great about the direction of our country right now...


From: Joel Wood
Sent: Friday, January 05, 2018 9:45 AM
To: Joel Kopperud <>
Subject: Give Me a Break!

Everybody’s only talking to people who agree with them, and we increasingly live in a world where we both physically and virtually reside with those who agree with us. We agree on that. But the readers of Leaders Edge can hear our crap on a thousand cable channels. Let’s talk about a few things affecting brokers in public policy where accord can be found.= 

The National Flood Insurance Program, one way or another, is going to get reauthorized. By a vote of more than 400 (400!) in the House, a bill to incent the development of the private flood insurance marketplace was approved (by making regulators accept non-admitted paper). Some indigestion in the Senate on the private flood stuff (coming from both Ds and Rs), but there’s a good chance there.

You’re right that we’re getting close in eliminating the requirement that international p-c placements should be regulated under the Foreign Accounts Tax Compliance Act. But this isn’t horseshoes or hand grenades; close isn’t enough. The Trump administration Treasury Department has been receptive.

And the Trump administration looks prepared to finally advance a slate of directors for the National Association of Registered Agents and Brokers—a clearinghouse for nonresident agent/broker licensure that will be a boon to our members. It had bipartisan support, but the Obama administration couldn’t get a slate of directors together in two years.

You and I know many areas of bipartisan cooperation on insurance regulatory issues, and they’re not the things that get any headlines. 

But give me a break on “your party openly wants to tax benefits.” Yes, Paul Ryan does, and I hate that. But when there was a provision to scale back the employer exception in the ACA debate, the overwhelming majority of rank-and-file Republicans revolted on that, and it died. It will continue to be whack-a-mole, but it’s wrong to say there’s consensus on taxing benefits among Republicans, when it’s a fact that single-payer healthcare—whether incrementally (greater threat) or all at once (less a threat)—is becoming the religion of your party.

You’ve been attending too many of those little liberal séances on Capitol Hill. Need to get out more to hear our members.


From: Joel Kopperud
Sent: Friday, January 05, 2018 1:44 PM
To: Joel Wood <>
Subject: Fox and Friends

Ha. I’m out there, and I hear a lot of anxiety over repealing without replacing, imploding health insurance markets that are directly tied to the GOP repeal of risk corridors, cost-sharing reduction (CSR) payments and now the individual mandate. The dismantling of the ACA in this fashion is a major threat to our business. Democrats might be making a lot of noise about healthcare for all, but their mission, if they get the majority back, will be to prop up the markets. You’ll see Medicare and Medicaid buy-in options, sure, but they’re ultimately going to work to preserve Obamacare and incidentally ESI. I actually think that notion of propping up the markets could be another area for potential bipartisan support if we can get leadership off the repeal train—and it looks like they’re getting there, particularly after losing the Alabama Senate seat. The bipartisan provisions pushed for by governors of both parties—led by Kasich and Hickenlooper—is a good path toward centrist solutions, and the will behind the Alexander Murray proposals to reestablish CSR payments and provide flexibility for 1332 waivers is a good start. I’m actually optimistic on this. If not this year, then next. 

And you’re right about NARAB movement. This is all positive noise we’re getting from Treasury, but it is wrong to say the Obama administration couldn’t get a slate of directors together. The administration had enough directors together for a quorum and to get the board running, but a handful of nominees, ours included, were held hostage over one Republican senator’s insistence that his former staffer get Senate confirmation to a delicate and circumstantial SEC position. A completely unrelated issue that should have never hindered our nominee. But we are moving forward now, and that’s all that matters. This is an easy area for bipartisan cooperation. 

Changing direction quickly while I have you, I wanna vent a little bit about this governance style. Every major piece of legislation written in this Congress has been written by five people (slight exaggeration but a shockingly few bodies around the table), and the doors have been locked. Members of Congress have been asking us what we are hearing about the latest repeal bills—what’s in the latest tax bill, what we are hearing about government funding bills. That’s offensive. The notion that a handful of people can rewrite the nation’s tax code and health laws and force votes on it within a week with limited input from stakeholders—a scenario that actually had legislative language handwritten into the margins of the bill—is absurd and irresponsible. Every headache in our industry and across the country caused by the short-sightedness of the pass-through deal on service industries could have easily been avoided if this massive tax bill went through regular order and we had a fair chance to discuss and amend it—the way our founding fathers intended. 

Our leadership can’t even figure out a way to protect American DACA citizens or to fund the Children’s Health Insurance Program. And the leader of this mess in the White House cares more about “Fox and Friends” than any of these policy solutions. Michael Wolff contends he barely reads one-page memos put into the simplest terms. I mean, how can you defend this?


From: Joel Wood
Sent: Wednesday, January 03, 2018 4:04 PM
To: Joel Kopperud <>
Subject: Makes Sense to Me 


The giant baby boomer bubble is rapidly moving into old age and is not prepared for the expected health costs of living longer. For aging consumers who suddenly find out they have an increased tendency to get Alzheimer’s, these tests offer an opportunity to game the system and apply for long-term care insurance without the insurer knowing the true nature of the risk.

Increases in cognitive dementia and Alzheimer’s disease are looming pitfalls both for Americans and the LTC industry because both types of dementia require lengthy periods of long-term care. According to the Society of Actuaries, 14.7% of the U.S. population age 70 or older had dementia in 2010, and the average annual cost of that disease was estimated to be $56,300 per person. Alarmingly, annual societal costs due to dementia are expected to double between 2010 and 2040.

Every day, another 10,000 Americans turn 65. A study by insurer Genworth indicates 70% of seniors older than 65 will need long-term care at some point. But will it still be available? Originally created in the 1970s, the traditional long-term care insurance products became victim to a host of factors, mainly related to incorrect pricing assumptions. That made it impossible for some carriers to make money off the product without imposing major changes or cutting their losses. Since 2010, most major carriers have left the market.

The latest body punch is the availability of a simple test originally intended to help people track their ancestry. For about $200, consumers can send a sample of their saliva to companies such as 23andMe to be matched against other samples in the firms’ database and receive more information about their ancestors. They can also receive a health panel that will show whether their sample contains certain genetic markers associated with increased risks for major diseases such as Alzheimer’s disease and Parkinson’s. Women can also find out if they are at a higher risk of breast cancer or ovarian cancer.

“The problem is there are patients who, if they find out they have the gene that increases risk of Alzheimer’s, for instance, may go out and buy lots of life insurance or long-term care insurance,” says Dr. Robert Klitzman, director of Columbia University’s masters of bioethics program. “There is an underlying ethical tension because we respect and need the insurance industry. Insurance provides a certain social good. Since no one knows when something terrible is going to happen to them, we are willing to put money into the system and not know which of us is going to be the one to get really sick or disabled. For that, we need to have an equal playing field.”

Indeed, research by Dr. Robert Green, a geneticist at Harvard University, shows consumers who know they have the gene variant associated with increased risk of Alzheimer’s are nearly six times more likely to buy long-term care insurance than those who know they do not have the variant. As these tests become more prevalent, there is concern the risk pool will be flooded with riskier insureds.

“As an insurer, our interest is to have as many insured as possible,” says Dennis Martin, OneAmerica senior vice president for product and business development. “What we want is to have it done in a fair way that is in a controlled and priceable risk pool. The ideal risk pool follows the law of large numbers. You want to have a million people who are at the very least similar and not anti-selected in. You want a mix of risk over time and no one comes in knowing they are going to get something out of the pool that is above their fair value.”

It has been 16 years since scientists sequenced the human genome. At the time, it cost an estimated $1 billion to sequence an individual’s genome. Insurers and bioethicists predict the science will continue to evolve rapidly and open more opportunities for insurers—not fewer.

Genetics: Long-Term Care? Or … ?

David Hopewell, a senior vice president and chief product officer at Transamerica, says genetics testing could tell consumers at a much younger age they will be prone to maladies associated with aging. That will give them time to prepare financially, with long-term care and life insurance a significant part of that planning.

“The impact changes over time as these tests become more common,” Hopewell says. “Initially there will be a pool of people who discover they are prone to a condition and are late discovering it, leaving them little time to avoid or prepare. They will want protection that would otherwise be unaffordable once they get sick. After a while, as the test is more common, they get tested younger and have more time to prepare. Self-interest becomes focused on prevention as well as protection, which is similar to today’s situation.”

Martin believes a diversified view and product mix can help carriers benefit from genetic advances. “We’re looking at both mortality and long-term care risk, so in a genetics context, these things that can improve mortality significantly will help us on our life insurance products,” he says. “In some ways we have an internal diversification of our products. Anti-selection is something we have to manage, but over the long term, the medical advances in genetic testing are going to help people live longer, healthier lives, which generally should be favorable for long-term care products.”

Martin also notes the current science has identified a gene that is only a predictor of Alzheimer’s, not a guarantee.

“I’m not a geneticist, I’m an insurer, but the gene indicated in the test isn’t the only predictor—it increases your probability, but folks who don’t have that gene also get Alzheimer’s,” Martin says. “But there’s some uncertainty around it, and hopefully when people become aware of some of their predispositions genetically, they act differently, they behave differently. With insurance, especially long-term care insurance, it’s like savings in that the earlier you start the better off you are. So one possibility is that you could see people purchasing long-term care insurance well in advance of when you might normally do it because they have the knowledge from the test. That makes the pricing a little bit better.”

Anti-selection is something we have to manage, but over the long term, the medical advances in genetic testing are going to help people live longer, healthier lives, which generally should be favorable for long-term care products.

Dennis Martin, SVP for product and business development, OneAmerica

Terri Orem, Gallagher’s area executive vice president in the Voluntary Benefits National Practice, says employers looking to buy group benefits are still interested in long-term care.

“We have an aging workforce, and a lot of employees are caring for their parents or grandparents and are experiencing the financial impact of their parents’ aging as they require long-term care,” Orem says.

“Voluntary benefits like long-term care and permanent life insurance that has long-term care riders are becoming more popular. As a broker, we are having the conversation with employers more frequently about how they can better meet their employees’ needs, and long-term care is part of that.”

Orem also believes there is an opportunity to sell LTC to younger consumers.

“Long-term care insurance isn’t just for when you are older,” she says. “A lot of companies will tell you that many of their claims are for younger people who may have had some other event, such as being hurt in an auto accident, or have some kind of medical issue that places them in long-term care.”

Hopewell says Transamerica wants to target the group LTC market and has updated its approach to underwriting. “We have increased focus on underwriting and are assessing what non-genetic techniques provide balance to genetic information,” he says, adding that the company will make greater use of recently available “fast data” and analytics to gain better insight into both medical and lifestyle drivers of mortality.

Transamerica has also created a research team that will assess the information advantage coming from genetic testing as well as the potential for genetically targeted interventions.

“We also increasingly focus our long-term care business in the workplace, where the smaller policies, younger ages and law of large numbers reduce the potential for a few insureds to increase costs beyond what we’ve priced for,” Hopewell says.

Orem says that focus would be welcome in the group sector. “The trend with voluntary benefits is more toward guaranteed issue type products, which doesn’t have any underwriting.” With a strong employee education and engagement campaign, permanent life insurance with long-term care riders is usually offered on a guaranteed issue basis, so there are no questions. But with individual long-term care policies offered through the worksite, there are typically some level of medical questions and a participation requirement for simplified underwriting.

“The challenge with long-term care type benefits is that employers want to offer something that will have broad appeal and not anti-select against people who have conditions,” Orem says. “Ten years from now genetic testing as it becomes more reliable I suppose could be incorporated, but I’m not sure in a workplace type benefit it would be accepted in the same way that it might be for an individual life insurance type coverage where you are willing to give your blood.”

While no one knows what scientific breakthroughs are next in genetics, the aging baby boomers will likely play a major role. The statistics tell a grim story. About 11% of adults age 65 and older had long-term care insurance coverage in 2014, according to the American Council of Life Insurers. Overall, about 8.1 million Americans are covered. That’s just a drop in the bucket compared to what’s coming as baby boomers age.

A 2014 study by the Society of Actuaries showed the creation of Medicare in 1965 has resulted in an increase in life expectancy. But Americans don’t just live longer; they are spending more years with a disability. The Society of Actuaries study found that life expectancy for 65-year-old Americans is currently 17.6 years and 25.8% of these years are spent in a disabled state.

For 75-year-olds, the study says, about 40% of their remaining lifetime will incorporate disability, and for those age 85, more than 60% of remaining years will include disability.

Other key numbers show that from age 65, men will be chronically disabled for an average of 20% of their future life expectancy, at an average expected lifetime cost of $29,000 (in 2000 dollars); for females, these figures increase to 30% and $82,000.

Eighteen percent of all seniors will require more than one year in a nursing home facility. Nursing home residents use about three times more services than those not in nursing homes (mostly due to their more severe disability status).

A lot of companies will tell you that many of their claims are for younger people who may have had some other event, such as being hurt in an auto accident, or have some kind of medical issue that places them in long-term care.

Terri Orem, area EVP, Voluntary Benefits National Practice, Gallagher

Interpreting Genetic Data

Klitzman says every person has gene mutations and most are not serious and will not affect them.

“Most genes are going to be predictive information that is iffy and based on probabilities, making it hard to interpret,” he says. “It will be somewhat like predicting the weather. You would think the weather in New York City would be whatever the weather was yesterday in Philadelphia. But in fact, usually the weather report is not 100% one way or another. It’s usually a 20% chance or a 30% chance. The kind of knowledge that most genetics is going to give us is going to be that probabilistic information.”

Klitzman expects genetics to reveal much about the human condition, but he cautions that the science is in its infancy.

“An analogy would be if someone asked Christopher Columbus in 1500, ‘What did you discover?’ He’d say, ‘Well, I discovered some islands off the coast of India.’ And 300 years later Lewis and Clark are still walking around the parts of America that are uncharted trying to figure out what’s there. It took 300 years to figure out what’s in this land mass that Columbus thought were islands off the coast of India and turned out to be two continents with dozens of languages and dozens of cultures. I’m not saying it’s going to take hundreds of years with genetics—it’s not. But if you look at what we thought 20 years ago or 10 years ago or even five years ago, we’re learning how much we don’t know.”

Margaret McLean, director of bioethics at the Markkula Center for Applied Ethics at Santa Clara University, says society also needs to determine how to ensure a person’s genetics information remains private.

“Genetics is nothing but information,” McLean says. “It’s very special information, but it’s information. So if I get that information, where else does that information go? And who does what with it? I think we’re just beginning to think about those things.

“This is high stakes because what we are teasing apart is us. People want to know and understand where they’ve come from. They want to know and understand what health might look like for them or what their future disease burden might be. Genetic testing is giving us unprecedented windows into all of that, and we’re kind of beginning to look through those windows and see what the implications are.”

Patten is a contributing writer.

Neal was definitely curious—curious enough to Google what a captive was. “I had no idea what I was walking into,” says Neal, 22, who took the class her senior year and graduated in May.

The truth is, nobody really knew what to expect, including Finn. Sure, the former risk manager for the J.M. Smucker Company knew the nuts and bolts of setting up a captive, having done so in his professional career.

But this was a little different. This would be larger than the class, larger than the school—and, if all went well, large enough to help make a dent in the vast talent crisis facing the insurance industry.

Finn, clinical professor and director of Butler’s Davey Risk Management & Insurance Program, speaks of the looming crisis with passion, zeal and purpose. He’s quick to note that the nation’s fewer than 100 risk management and insurance degree programs turn out about 4,000 graduates each year but that some 500,000 workers will be needed in the industry to fill the jobs being left open by retiring baby boomers. He’s also quick to note that, once students learn of the vast opportunities the industry presents, it’s not such a tough sell.

The hard reality, however, is that even students like Neal, who entered Butler as a business exploratory major, often have no idea. And if she hadn’t walked into that class and been part of the captive, she might not be where she is today: a risk transfer specialist at MJ Insurance, the first person to join the organization at the entry level in that role.

“I wasn’t a big leader in high school,” says Neal, who grew up in a Chicago suburb and now lives in Indianapolis. “It