ITC 2018: Q&A with Jay Weintraub, Co-Founder and CEO, Insuretech Connect

His perspective on ITC and how he expects the industry to evolve and adapt in the coming years.

On the last day of ITC we had the opportunity to sit down with Jay Weintraub for an exclusive interview to discuss his perspective on ITC and how he expects the industry to evolve and adapt in the coming years.

ITC 2018: Q&A with Ali Safavi, Global Head of Insurtech, Plug & Play

An emphasis on broker-focused insurtech solutions.

We met one-on-one with Ali Safavi to discuss Plug & Play’s investment strategies and how the investment firm is trying to put more of an emphasis on broker-focused insurtech solutions.

ITC 2018 Interview with Adam Demos, CEO of TowerIQ

A deep dive into TowerIQ and the product it offers.

We had the opportunity to sit down with Adam Demos, CEO of TowerIQ, for a deep dive into TowerIQ and the product it offers.

ITC 2018 Interview with Chris Cheatham, CEO of RiskGenius

Using AI to introduce efficiencies into the insurance value chain.

We asked Chris Cheatham, CEO of insurtech firm RiskGenius, to take us through how they used AI to introduce efficiencies into the insurance value chain, as well as how his firm engendered partnerships with incumbents.

ITC 2018: Spotlight on Small Commercial

Transform small business insurance.

In the Spotlight on Small Commercial panel Tuesday afternoon, we heard from innovators in the small commercial space to discuss how they plan to transform small business insurance, go direct, streamline inefficiencies, and remove friction in the process, with a heavy focus on the consumer journey.

ITC 2018: Moving Beyond Legacy

Bettering the customer experience.

At another panel Tuesday afternoon, John Drzik, President of Global Risk and Digital at Marsh, and Greg Hendrick, CEO of AXA XL came together to discuss the different areas of innovation at play in the insurtech space, including the study of new risks and bettering the customer experience, as well as the best path forward to move on from the legacy systems so pervasive in the industry today.

ITC 2018 Fireside Chat with Inga Beale

Attracting and retaining new, young talent.

Inga Beale, CEO of Lloyd’s of London, was at InsureTech Connect on Wednesday to discuss modernization and how to attract and retain new, young talent in the insurance industry.

ITC 2018 Interview with Debb Smallwood, CEO & President, Strategy Meets Action

Navigating InsureTech Connect.

We asked Debb Smallwood, CEO & President of insurance strategic advisory firm Strategy Meets Action (SMA) about their investment strategy and how they’re navigating ITC.

ITC 2018 Interview with Kacie Conroy, Director of Information Technology, M3

Innovation from a broker perspective and more at this year’s ITC.

We had the opportunity to speak with Kacie Conroy, Director of Information Technology at member firm M3. We asked her about the dialogue around innovation from a broker perspective, M3’s current investment strategy, and their mission at this year’s ITC:

Living Is Easy

With more than 70 beaches, life’s a breeze in this global city.

Shirley MacLaine and Jessica Lange

Feeling Their Whole Life Oats

In a 2016 film frolic, two old gray mares take a comic romp through la dolce vita after an insurance error loads them with dough.

INTERNal Perspective

What do your summer interns really think of brokerage? We asked them.

This summer we asked four Council interns to survey interns at member brokerage firms. We wanted some real feedback on how college students view the industry and how their perceptions have changed since working in it. After analyzing their survey data for trends and following up with multiple phone interviews, they wrote this article to convey their findings. —Editor

FAST FOCUS

Internships provide companies with opportunities to identify rising talent and engage them in their business.

College students who don’t understand the industry overlook the opportunities that a brokerage provides.

Once students are exposed to all the industry has to offer, many of them can envision insurance as a potential career.

Intimate Relationships

QBE North America has a limited distribution model that promotes meaningful relationships and industry expertise.

No two farmers are alike. Whether it’s how they work their fields or pay for the land or grow their crops, farming is a uniquely specialized business venture. 

A Light in the Tunnel

Mining is one industry that has had proven success with wearables.

Caution: Falls Likely

Wearable technology is opening employers’ eyes to danger zones.

Eric Martinez spent six years as executive vice president of claims and operations for AIG in New York. In the course of handling 30,000 workers compensation claims a month, he concluded that insurers were investing big bucks in medical management programs for injured workers but not addressing why the injuries were occurring in the first place.

FAST FOCUS

Wearable technology was all the rage a few years ago, but it has not taken off as quickly as anticipated.

Risk management experts believe wearables will ultimately have a significant impact on workers comp and other commercial lines.

The construction and manufacturing sectors and material-moving organizations have shown the greatest interest in wearable technology.

 

Read the Sidebars

A Light in the Tunnel

Mightier Than the Sword

Insurance has a role to play in protecting schools from mass shootings.

Like many of his colleagues in the insurance industry, Paul Marshall remembers a time when students routinely kept firearms in their cars or pickup trucks in the high school parking lot. “In Ohio, we went rabbit hunting and squirrel hunting,” Marshall, managing director of active shooter/workplace violence insurance programs at the McGowan Companies, recalls. 

FAST FOCUS

To address the enormous costs associated with a mass shooting, insurers have introduced “active shooter” coverage.

Gun control advocates have called for insurers to treat firearms as an “attractive nuisance” liability risk, similar to a swimming pool or large dog.

The industry is moving toward providing stronger risk management to reduce the incidence of school shootings.

The Cost

Aided by technology, new players and the capital markets can step in.

A Terrible Tally

Can We Bear the Cost?

The planet is warming. How can we prepare?

It’s one thing to read about raging wildfires in California and quite another to experience the possibility of such a catastrophe. In early August, our secondary home in Idyllwild, a small town nestled in the San Jacinto mountains, was imperiled by the Cranston fire, just one of the many wildfires burning throughout the state.

FAST FOCUS

Natural disasters caused $337 billion in damage in 2017, the second highest total on record.

Across the United States, wildfires burned more than 9.8 million acres last year, causing $18 billion in damages—triple the annual wildfire season record.

Climate change is a factor in higher precipitation events, such as the 60 inches of rain that engulfed the greater Houston area during Hurricane Harvey.

 

Read the Sidebars

A Terrible Tally

Can We Bear the Cost?

Our Road Forward

Innovators thrive during an era of accelerated change.

The insurance industry operates a lot differently—and a lot better—than it did even a decade ago.

Kurt de Grosz

President, ABD Insurance and Financial Services

Accelerating Change

Q&A with Ingo Weber, Co-founder and Group CEO, Digital Insurance Group

Ounces of Prevention

Internet-connected sensors are providing heavyweight savings.

Lafayette, Louisiana

Dwight W. Andrus IV, President of Dwight Andrus Insurance, shares the art and soul of Cajun Country.

The Dark Side of Winning

Each time we prove ourselves right, we make someone else wrong.

Winning is a concept that’s deeply ingrained in our culture. The problem is when we need to win all the time—even when the stakes are trivial or the price of victory is high.

At Your Service

Societal changes are requiring firms to keep up, especially in the hunt for talent.

We’ve spent much of the year focusing on tech-heavy structural changes in our industry (and our world, for that matter).

Build Pricing Transparency App-titude

Q&A with Mark Galvin, CEO of MyMedicalShopper

Galvin is an advocate of improving transparency efforts to reveal healthcare pricing while implementing high-deductible health plans and health savings accounts. These steps, he says, could not only reduce employers’ and employees’ healthcare costs but could also help transform the system overall. 

Are You a Blockbuster or a Netflix?

Read my letter to the brokerage owner of the future and see how being proactive, strategic and focused can help keep you relevant.

In 2000, a little-known company called Netflix knocked on the door of the movie-rental goliath Blockbuster and proposed a partnership. For about $50 million, Blockbuster could buy Netflix. 

Cyber Property

How much risk do you want to keep in-house?

Not so long ago, as outsourcing, co-location facilities and cloud services began to take hold, risk managers and information security personnel scrambled to manage vendor cyber-security risks. 

Navigating the Channel

As the Brexit deadline looms, insurance agents and brokers face complicated choices.

On March 29, 2017, the United Kingdom notified the European Council of its intent to withdraw from the European Union.

AmWINS’ Outgoing Steve DeCarlo

Retired CEO talks frankly about the wholesale business, life and his future.

Steve DeCarlo made AmWINS what it is today, the largest insurance wholesaler in the United States. In May, at age 60, he walked away from the business, proving there’s life after work and making money. In so doing, he paved the way for others at the firm to move up and continue his legacy. Founding editor Rick Pullen sat down with Steve just before his retirement to discuss his remarkable career and views on how to become a 150-year-old firm when you haven’t even reached 20 yet. —Editor

Fasten Your Seatbelts

Flying cars are already in production. Insurers, get ready for takeoff!

From the Jetsons to Back to the Future to Star Wars, the concept of flying cars is nothing new, but it is only just now becoming a reality. Before we can really get off the ground, though, insurance companies need to figure out how to cover them.

Mindfulness

Statistics prove that engaging employees in mindfulness training could be a factor in improving work performance and satisfaction.

The Big Data Revolution— Is It Our Turn?

The information is out there. What are you doing with it?

As we all are reminded each and every day, we are now in the big-data era. In many respects, the insurance industry was the original big-data industry, relying essentially since its inception on the aggregation of massive amounts of claims and loss data to create underwriting algorithms to insure risk.

Kathleen Savio

CEO, Zurich North America, Schaumburg, Illinois

Two Islands in One

Aruba offers surprising adventures if you look past the typical tourist spots.

Antwerp, Belgium

Pedro Matthynssens, CEO of Vanbreda Risk & Benefits, offers history and culture in his hometown.

Sensor Alert

Millennial-run businesses are more likely to use sensors and other tech at work.

Blockchain Ecosystem

Q&A with Derek Lovrenich, Founder and CEO, and Phil Duncan, COO, of InsureEco System

Catherine Zeta-Jones and Sean Connery

The Bond of Insurance Fraud

It seems even Sean Connery and Catherine Zeta-Jones couldn’t lend sex appeal to the insurance industry. 

Medical Model

Q&A with Don Vaughn, a postdoctoral fellow at UCLA’s Semel Institute for Neuroscience and Behavior

Vaughn conducted research on predictive modeling for patients with inflammatory bowel disease. A multi-disciplinary group was able to predict future hospitalizations and the use of biologics by using insurance data. 

Quiet Your Mind

Clear your head and lead in the moment: a Q&A with Kevin Davis.

Kevin Davis, president of Kevin Davis Insurance Services in Los Angeles, a Worldwide Facilities company, is a devotee of mindfulness. He says it has enabled him to improve his business and, more importantly, his life. Editor in chief Sandy Laycox and founding editor Rick Pullen met with him over breakfast earlier this year for an enlightening conversation.—Editor

Fit for Service

Veterans are highly skilled, hard working and collaborative. How can they flourish in your company?

Patrick Doran spent eight years as a security specialist with the U.S. Marine Corps, but he might be the last person to tell you so. And it has nothing—and everything—to do with pride.

FAST FOCUS

Your motivation for hiring veterans may not always adhere to their motivation behind the job search.

Veterans entering the workforce may experience a loss of camaraderie, mission focus and clear opportunities for job advancement.

Those who haven’t served in the military often find there are lessons to be learned when hiring veterans.

Government Policies

U.S. Ex-Im Bank looks for revival under Trump.

Investing in Emerging Economies

A World Bank case study in insurance-driven investment.

The Trading Game

Trade credit and political risk insurance encourage global trade flows and investment in an increasingly volatile world.

Big money is being invested in projects that aim to facilitate trade flows into and out of various parts of the world. The World Bank says it spends tens of millions of dollars every year to encourage private and public sector-led trade flows because it results in new investment activity. 

FAST FOCUS

Financial and other crises across the globe underscore the persistent hazards of international trade.

Many consider trade credit insurance and political risk insurance to be vital tools for companies engaged in international trade.

In today’s marketplace, companies must offer competitive terms to vie for business against foreign players.

 

Read the Sidebars

Investing in Emerging Economies

Government Policies

Relationships Still Matter in a Tech-Driven World

Millennial business owners are looking to agents and brokers for guidance more than any other generation, and what they want from them is surprising.

When it comes to millennials, stereotypes abound. But it’s a fact that they are now the largest, most educated and most diverse generation in the United States, according to the Council of Economic Advisers.

Flexible Leadership

The ability to adapt to change, including shifting roles, is critical.

We live in constant whitewater. Uncertainty and ambiguity are the new normal. Today’s business environment is in a continual state of change.

Meeting Between the Aisle

Q&A with Reps. Tom Reed and Josh Gottheimer, co-chairs of the Problem Solvers Caucus

These days, politics has become overshadowed by the 24-hour news cycle, Twitter-mania, and extremist diatribe. But not all hope is lost. 

Asking for a Friend

There are some questions you may be apprehensive to ask in public, but the answers are important.

D&O in the Crosshairs

Data breach patience is waning. Corporate managers may experience increased oversight demands and D&O liability claims.

Boards and senior management are in the crosshairs of cyber security. Consumers, shareholders, regulators and legislators seem fed up with the endless stream of cyber attacks that has fueled headlines. 

Today’s Leadership Challenge

Take a step back and reflect…on you.

You’re stressed. I’m stressed. We’re all stressed.

Still Underwater!

Congress renewed NFIP again. What are these short-term patches doing to the surplus lines market?

Eliot Spitzer

The infamous attorney general inspired at least three films, none of which comes close in fright to the horror he unleashed upon the insurance industry.

Eliot Spitzer was a vigorous crusader as New York attorney general between 1999 and 2006.

Napa Valley After Hours

Napa is more than just wineries and elegant restaurants. For family friendly fun, float through the diverse array of sights, sounds and sweets.

Bogota, Colombia

Enrique Acevedo Schwabe, General Manager of Correcol, shows there’s much to love in Bogotá.

Open for Business

After wildfires hit hard in 2017, Napa Valley wineries have emerged largely ok.

New Beginnings

Our dynamic magazine is under the direction of new blood.

Our annual July/August double issue is one of my favorites. That’s because each year we focus the entire magazine on something that has been years in the making, challenging us each step of the way, evolving and disrupting (even though I hate that word) our business models at every turn—technology.

Agency Streamlining

Q&A with Reid Holzworth, Founder and CEO, TechCanary

Tech Goes Techno

ProSight uses DJ insurance as a gateway to a digital, gig-worker platform.

Relationship Management

Several crucial tools can strengthen the agency-carrier relationship.

No matter how you cut it, the traditional insurance distribution model is under pressure. Today’s customers increasingly desire new ways of purchasing insurance as they seek to receive the same levels of choice and convenience offered by other industries. 

Food Focus

Q&A with Seth Berkowitz, UNC-Chapel Hill, and Lori Tishler, Commonwealth Care Alliance

Seth Berkowitz, assistant professor of medicine at the University of North Carolina at Chapel Hill, and Lori Tishler, vice president of medical affairs at the Commonwealth Care Alliance, co-authored a study analyzing whether meal delivery programs could reduce healthcare costs among Medicare and Medicaid beneficiaries.

Steve DeCarlo’s Data Anomaly

He saw the value in big data long before the industry caught on.

Steve DeCarlo built AmWINS into the largest wholesaler in the industry. He is an industry leader in data analytics, having started years before any of his competitors. Steve retired in May and sat down with founding editor Rick Pullen to talk about his career. This is an excerpt on his views on data. —Editor 

RiskBlock Use Cases

Three for the Money

Proof of Value

Trust, It’s Verified

The RiskBlock Alliance is bringing together industry competitors who are working together to build a blockchain-enabled insurance value chain.

Anyone who has ever been in an automobile accident is familiar with the back-and-forth interactions with the insurance agent and carrier. It’s a worrisome, frustrating and time-consuming process. 

FAST FOCUS

Blockchain, AI and predictive data analytics form a triumverate of tech.

RiskBlock Alliance is building a global, holistic ecosystem for insurance-specific blockchain activity. 

The alliance is tuning competitors into collaborators and may someday include state agencies and other third parties.

 

Read the Sidebars

Proof of Value

Three for the Money

RiskBlock Use Cases

Back to School

Claims professionals are determined to create a buzz on college campuses.

Claims Adjustment

New technologies are lengthening the tenure of older claims professionals, attracting younger ones and revitalizing a sagging field.

More than half of the insurance industry expects to add staff this year but not without a big struggle. As older workers retire, many companies are scrambling to find enough people to replace them, especially in claims processing.

FAST FOCUS

As many as one third of insurance professionals will retire this year, a trend that will continue as baby boomers leave the workforce.

An array of high-tech tools is being used to fill gaps in the labor pool.

A 2017 study said the auto insurance sector is facing “a tumultuous time” as the industry struggles to replace retirees.

 

Read the Sidebars

Back to School

The Match Game

Data Sets Sail

A Capital Idea

Shop Around

Data Marketplace

By sharing granular risk data in an open market, brokerages and carriers can eliminate costs and create a new insurance model.

In Lloyd’s coffee house in London more than 330 years ago, the property and casualty insurance industry was formed to spread the risks of cargo-carrying ships plying the world’s seas. The industry grew and prospered, with little change in the underlying model. Now, an entirely new structure is taking shape. 

FAST FOCUS

Insurers and brokerages must begin to share data to reduce acquisition costs and operating expenses.

If they don’t, a giant technology company might beat them to it.

Data analytics and other technology have created a potential entry point for non-insurance entities to compete against brokerages and carriers.

 

Read the Sidebars

Shop Around

A Capital Idea

Data Sets Sail

The Match Game

Kerry Finnegan

Senior Partner, Global Business Solutions, Mercer, Chicago

A Little Gonzo Journalism in Your Insurance Future?

Q&A with new editor in chief of Leader’s Edge, Sandy Laycox.

Leader’s Edge founding editor Rick Pullen recently sat down with new editor in chief Sandy Laycox to find out just who she is and how she got here. This issue is the first under Sandy’s leadership.—The Editors

It’s More Than Pink and Blue

Diversity buy-in requires mechanisms that actually attract and support diverse personnel.

These days, disruption is a hot-button issue on a variety of fronts for the insurance industry, and recruiting is no exception. 

The (Continued) Politicization of Employment?

There are recent developments in labor relations—good and not so good—that employers need to know.

We are now almost a year and a half into what is, for better or worse, the new world that is the Trump administration. From an employer’s perspective, it’s a little bit of both.

Data, Data Every…Where?

Very few companies know what data they have, where their data go or what protections they need.

With the European Union’s General Data Protection Regulation (GDPR) having come into force on May 25, companies around the globe have been struggling to ensure their operations are compliant.

Where Do You Stand?

It is imperative you understand where you fit in the competitive landscape in the market.

It’s a simple question, but one that’s not so easy to answer. Where do you stand in the market among competitors? 

Cave Dwellers

Are the naysayers in your organization causing more disruption than you think?

We all know at least one, the perennial naysayer. No matter what the discussion, from a great place to go on vacation to a major change in your organization, their response is always the same. “Nope. Not happening. I don’t think so.”

World Class Insurance

The World Cup is over but major events always need insurance.

One of the world’s largest sporting events just concluded with France taking the title at the FIFA World Cup held in Russia, and the insurance industry was a heavy participant.

FAST FOCUS

In addition to commercial exposures, Russia is insisting that entry into its borders requires an insurance policy. According to Russia’s World Cup website, insurance for travelers should cover treatment costs for the minimum of €30,000, which translates into $34,822.

Last February during the Winter Olympics in Pyeongchang, South Korea, players from the NHL did not participate in the hockey tournament due to a controversy regarding which organization would foot the bill for player coverage. FIFA, however, has set aside $134 million in coverage for outside clubs and franchises whose players get hurt during the World Cup.

Denver, Colorado

Reed Smith, EVP at CoBiz Insurance, says fly-over city no more!

Polo Anyone?

Palm Beach, Florida, is a tiny town with big names.

Food Fight

Food product recalls are increasing in cost and scrutiny. Check your clients’ cover.

Tighter regulatory supervision, better detection technology and more complex supply chains are increasing the frequency and severity of food product recalls. Contrary to popular belief, property and general liability insurance do not always cover first and third party damages resulting from a product recall. 

Susan Hayes Is Fed Up

Editor in chief Rick Pullen sat down with Susan Hayes, principal at Chicago consulting firm Pharmacy Outcomes Specialists and head of Pharmacy Investigators and Consultants. She audits and investigates corporate prescription costs to help employers control medical expenditures. 

When a Business Should Purchase COLI

COLI is valuable protection for companies against long-term financial loss from a key employee death.

Although “COLI” (pronounced co lee) is a commonly used acronym, it refers to any company-owned life insurance contract on the life of a company employee. 

How Data Track Workforce Generations

Greatest, Boomers and X, Y, Z

Predictive analytics and integrated HR tech explain your multi-generation workforce’s differing wants and needs.

In the world of benefits brokers, one size no longer fits all. Clients today want benefits packages for workers from five different generations with five different desires. 

FAST FOCUS

As compliance issues mount, brokers have an opportunity to separate themselves from the field.

Employers want brokers to assume a stronger role in making decisions about human capital management systems.

HR is evolving into a strategic function that includes change management, company culture and workforce demographic shifts.

 

Read the Sidebars

How Data Track Workforce Generations

Thought for Food

How one good idea inspired a recipe for changing lives.

Impressive though it may be, The Broadmoor—host to The Council’s Insurance Leadership Forum and Employee Benefits Leadership Forum during the last decade—is gaining some serious competition when it comes to delivering guest experience. 

FAST FOCUS

Inspired by The Council, The Broadmoor has begun donating food to the Springs Rescue Mission in Colorado Springs.

Ken Crerar, The Council’s president and CEO, assigned lawyers Scott Sinder and Josh Oppenheimer to analyze the legal issues.

Crerar brought their research to Jack Damioli, president and CEO of The Broadmoor, who worked with Larry Yonker, president and CEO of Springs Rescue Mission.

Voluntary Benefit Snapshot

The array of voluntary benefits on the market is dizzying. Some are meant to make employees physically and financially healthy. 

Vendor Madness

Design-build is changing the benefits industry, but how do you choose from the endless options knocking on your door?

In today’s job market, companies are becoming more strategic about recruiting and retention. They’re also looking for solutions to rising healthcare costs and responding to changing consumer habits and demands. 

FAST FOCUS

Workforce competition demands that employers offer a wide range of benefits, some paid for by the employer and some by the employee.

Some design-build plans cover a broad swath of employees; some look to pinpoint specific groups of needs.

Know what employees want, and get their feedback to make sure benefits are having the desired effect.

 

Read the Sidebars

Voluntary Benefit Snapshot

Storytelling

Are you honestly articulating your company brand? It’s essential to building your firm as well as trust with clients.

In today’s world, how do you define a brand? By definition, it is a name, a logo, a product or a service that distinguishes itself from others. 

Tech at Work

Q&A with David Wald, Aclaimant Co-founder

Aclaimant started with an app to report workers compensation incidents but realized technology has a much bigger role to play in managing risk in the workplace.

One Size Fits One

Q&A with Kim Buckey, Vice President of Client Services, DirectPath

DirectPath recently released its “2018 Medical Plan Trends and Observations Report.” The organization analyzed research from Gartner, looking at more than 900 employee benefit plans to gauge trends in employers’ 2018 strategies. Of particular concern to employers was managing their consistently rising healthcare costs.

A Good Run

From Eliot Spitzer and corrupt regulators to game changers and long-delayed postal permits, we’ve seen it all during the past 15 years.

It all began in June 2003 when Pirates of the Caribbean first exploded at the box office, Dan Brown’s The Da Vinci Code was creating a buzz and Apple had just opened its iTunes store. 

Blockchanges

Blockchain in use, cyber market growth

Ernest Hemingway

Known for his killer novels, he had a hand in film noir.

The Killers, the 1946 insurance movie made from an Ernest Hemingway short story, is an overlooked classic that practically invented film noir. It’s in black and white and spookily lit. 

Shift Your Mindset

Escape the guilt of why you sell.

The dynamic M&A activity we saw through 2017 is still going strong, and with new private capital players entering the game, there is no shortage of opportunity for brokerages and agencies that are considering a play.

Matt Stadler

President, Marsh & McLennan Agency, Southwest

Can you speak to the overall conversation at this year’s event, and how it’s changed over the past three years? Where do you see it going forward?

If we think back to three years ago when we first began, the audience makeup was predominantly early adopters—and who are the early adopters? The early adopters are the investors, the insurtechs and a handful of the forward-thinking—primarily carriers—who are seeing this happening. By and large, it was very early adopters, which meant tech-first, investor first.

“Insurtech” is made up of two things: insurance and tech. We always wanted, from day one, for this to be an insurance show. Tech can be a lot of things, but it’s only as powerful as the people that wield it. For us, insurtech only exists not because of tech but because of insurance. For us, one of the things that’s the most gratifying, and one of the things we always hoped for, was insurtech’s adoption by the broader insurance industry. It’s not just a trend, it’s a movement.

Do you see this conference growing in the same way it has in the past three years?

Insurance is still so large and there is still so much that can be improved that we see no reason why the conference can’t continue to grow. But it’s not about size. For us, it’s about the relationships. There’s a reason this isn’t webcasted, there’s a reason this isn’t a virtual conference. There’s a magic that happens when people are in the room. Our priority from day one has always been quality over quantity.

A lot of emphasis has been on carrier innovation. Where do you see the broker’s role going forward and how do you see ITC engaging with the broker in the future?

I’m glad you asked, because if there’s one thing we’ve become more and more convinced of, it’s that the role of the broker is an essential element to the industry. As we enter into next year, making sure that we can understand and serve their needs is one of our top priorities as we go into the next year and the years to come.

Would you say you see more of an emphasis from your sponsors and attendees on the broker?

I think we’re finally getting there. It won’t surprise anyone the emphasis has been on SMEs, as SMEs are expensive to serve with a human being. And I think that’s where some of the disruption conversation has been misunderstood. People have said, “Oh, I’m taking out the broker or the agent”—they’re really not. They’re actually finding a way to serve a customer that today is too expensive to serve and is actually better served in a self-service manner.

I think we’re finally reaching a point now where enough insurance knowledge has come into the space that people are starting to understand what the real problems and pain points are in the industry. There’s a certain level of sophistication we have to get to and I feel like we’re getting there and that’s exciting.

You come from outside the insurance industry. How has your perception of this industry changed over the past three years and how do you see the role of the trusted advisor as well as the role of carriers evolving?

I’m excited for next year, because I will understand this topic that much better. The trust advisor piece is easy for me to answer: we see time and time again, that when there’s complexity, there’s a need for a trusted advisor. And when there’s choice, you need a trusted advisor. You need that one person that has your back and can fight for you, and I think that keeps everyone in good shape.

Going forward, do you see any opportunity to work with associations like The Council? Where do you see the biggest opportunity for Council members in this space?

To hear what your guys want is what really gets me excited. There are a whole bunch of companies out here at ITC that would alter what they were doing if they had the insights that associations like The Council have into their members. Because what they want to know is, “What does this customer base want?” They’re an idea in search of a customer right now, but you could have instead “I have customers with a problem, so we’re going to give you some good ideas.”

What’s disruption versus collaboration? Investment versus partnerships? How has it changed and what do you see?

I think disruption has been vague. Insurance is, at its core, a mutual peer-to-peer platform. That’s why even if you create the most optimal peer-to-peer platform, it’s not so much disruption as it is improvement. I think a lot of people have a positive view towards it, rather than being scared.

In terms of investment versus partnership, day one everyone thought if we’re talking about a startup that means investing in them, but now they’re looking at startups as a service vendor or service provider. That fundamentally has changed the way everything works.

Plug & Play has a heavy focus on pre-seed or Series B investments. Are you thinking of moving upstream to invest in more established companies?

We’re an early-stage investor, and we figured out early on that to be a good investor we need an ecosystem. What the ecosystem does is provide insights into who to invest in and traction for the companies we work with. We currently work with over 10,000 insurtech startups across 14 industries and different stages. Through that, we try to engage them with our corporate network and decide who would benefit most from investment.

You’re having your Broker Age event on November 15. What made you want to become involved in the space, and where do you see specific opportunities in broker-focused innovation?

It didn’t take us that long to realize how important brokers were in completing our ecosystem.  We see a lot of values in collaborating with brokers and agents—the people who are in the middle. We can get more access, more insights—they have a lot of relationships… The problem is, sometimes, a lot of the smaller firms don’t have the resources to collaborate with Plug & Play on a direct level, so we needed an event that could talk to everyone, not just the Marshes, Aons, Willises.

How many brokers are you expecting to attend? Who are you targeting for this event, and what insurtechs in the broker space will be attending the event?

The big brokers will definitely send a lot of people, but we’re also working with associations and carriers to bring other people. I imagine it won’t be too many people—we want a focus on dialogue.

When you’re looking at potential investments, what is your decision strategy?

Our model is built on seeing which startups get traction with our ecosystem. We outsource a lot of our due diligence to the partners we have, on the broker side or the carrier side. There are also a few key things that we focus on—for me, the team involved is number one.

When you’re looking at the team, are you looking at whether they have both tech-focused expertise and insurance expertise? Do you take that into consideration?

We see a lot of startups that are headed by entrepreneurs but bring in people with extensive experience in the industry as someone VP-level that can fill the knowledge gap. As long as someone is passionate about doing something and is willing to put in the hours, a lot of problems could be solved. Having the tech in-house is very important, though, because it’s not something to outsource if you’re a tech startup.

The best combination would be balance: someone that’s business-savvy, someone that has knowledge of tech, someone that has knowledge of insurance. But sometimes you don’t have all the pieces.

If you could offer the mid-market broker one piece of advice on how to become more involved in the insurtech industry and how to incentivize innovation from within, what would it be?

Based on our experience working with brokers, innovation from within is about changing the process as it is today, but a lot of the times brokers would like to serve their clients better. Engagement with the insurtech industry with an open mind and being willing to commit time to it is really what drives the excitement that itself drives a culture change. Everything else follows from that.

Can you give any examples of any companies in the broker space you have an eye on?

We recently made an investment in Broker Buddha. They’ve proved their value by partnering with some of the big names in the space, and they’re slowly providing more and more value to the space. And then you have companies like New Front Insurance or ABE—I like their model a lot. It’s a very smart model, but very disruptive for the bigger firms. Companies like Indio and Bold Penguin have also made their mark.

A lot of the other technologies that clients are interested in is client technology, which means enterprise tech. It could be HR, or IT—a lot of the benefits brokers are interested in HR tech, which has nothing to do with insurtech.

How has/will IT change the basis of competition in the insurance industry?

We look at the emergence of Fintech within financial services as a good indicator as to how insurtech companies will impact the insurance ecosystem. While in both instances many startups initially tried to disrupt incumbents, partnerships ultimately created many of the most successful companies.

We believe as a whole, the relationships between all parties within the industry are integral and here to stay. That being said, the introduction of cutting edge technologies does put pressure on existing participants. This will eventually force innovation that improves the overall customer experience. There are many processes within insurance that can be advanced through the implementation of new technologies.  Improving the purchase and servicing of policies, streamlining communication and creating new insurance products are areas we believe technology will have the greatest impact on.

Coming from an insurance background, where did TowerIQ first see opportunity in the broker space? What did you choose this segment and what aspects of the commercial insurance value chain does TowerIQ target directly?

While this may be a bit biased since one of my co-founders is a former broker, we have long been believers that brokers and agents provide unsung value within the industry. We picked up on inefficiencies such as redundant data entry and outdated forms of communication that we believe can be greatly improved.

At TowerIQ we focus on improving all commercial insurance from small business to large enterprise, whether that be the application to binding process or certificates of insurance. We prioritize giving the insured a modern and more knowledgeable experience while buying coverage or requesting services. On the backend of our technology, we standardize all forms of insurance data so that it can be easily ingested by carriers. This creates greater efficiency within a brokerage or agency, improves client retention and most importantly allows employees to get out from under paperwork and data entry to better serve their clients.

Can you talk a little more about your product, and how TowerIQ aims to enable the broker? Opposed to disrupting commercial insurance.

We are partnering with brokers and agencies with the goal of modernizing the insurance buying process, rather than completely disrupting the system. Since every broker's workflow is slightly different we are building a flexible platform that allows any size brokerage to start eliminating overly complex or outdated spreadsheets, PDFs and survey forms.

By digitizing many of these processes we are able to provide our partners with more analytics and insights into how their people and books of business are performing. This allows brokerages and agencies to become more targeted in their prospecting and hiring processes.

Can you speak to the value of partnerships in the insurtech space? What is TowerIQ’s current investment/partnership strategy and where does it find the most value, capital or strategic partnerships? Are there any brokerages that you are currently collaborating with?

This is a great question and one that we spent a lot of time discussing. We are huge advocates of partnerships because we believe the existing relationships within the ecosystem are what created such a long period of sustained success. Our goal has always been to be a neutral communication layer within the insurance industry. We were fortunate enough to raise capital from some of the top fintech and insurtech investors in the country, but avoided raising from any industry participants. We believe that this unequivocally allows us to remain a trusted agnostic software solution.

At the end of the day we want to improve the experience of the insured, brokers and carriers through more efficient use of data and communication. We are partnering with everyone from carriers, brokers, AMS systems and third-party data providers to make this a reality.  

What is the most important thing that you are working on right this moment and how are you making that happen?

At the moment we are taking a two-pronged approach in anticipation of our enterprise launch in January. On one hand, we are working hard to nail the user experience, whether that is the broker, client or carrier. Design and usability are of the utmost importance and we are tapping into our partners to get constant feedback on how this can be improved and what features make their lives easier.

The second focus is on data standardization it's extremely important that we keep data clean, accurate and easily ingestible. We are tackling this with a fantastic technology team that is implementing a variety of machine learning technologies at the core of our product.

RiskGenius uses artificial intelligence to allow brokers to better understand policy language and create more efficient underwriting workflows. Can you provide a brief case study on how RiskGenius’ technology aided the broker and ultimately created a better end experience for the client?

I was reviewing an example this morning. Imagine you have an insurance policy from Carrier A and a proposal (or quote) from the same carrier. Often times (too often) there are discrepancies between what was quoted, what gets negotiated and what ends up in the final policy (most carriers have this issue). With our GeniusCheck software, I was able to identify that a form that was included in the proposal never made it to the bound policy. Identifying these types of errors can reduce errors and omissions exposure.

What is RiskGenius’ current strategy around forging partnerships with brokers? How important is raising capital vs. establishing broker relationships?

We are focused on partnering with brokers that want to bring automation to back-office operations. We have some amazing financial partners (like QBE Ventures) that have supported our mission to organize the world's insurance policy information. We like to partner with brokers that are willing to work with us to find problems and solve them with machine learning technology. I believe the commercial insurance market, particularly on the broker side, has been vastly underserved by technology firms. It's time that changed. 

What is the most important thing that you are working on right this moment and how are you making that happen?

At the moment, I am thinking a lot about how we standardize insurance data. When we first launched RiskGenius, we focused on categorizing insurance clauses (e.g. Exclusion - War). Now we are about to introduce a new Insurance Naming Taxonomy for labeling clauses; I think it's groundbreaking and is a game changer for simplifying insurance language. We are also undertaking a similar categorization process for numerical values, like Limits, Deductibles, and Premiums. Once this categorization is in place, we will be able to automatically compare quotes across carriers.

According to Scott Ham of McKinsey & Company, small business is said to be over a 40 billion dollar market, and still remains underinsured, suggesting a wealth of untapped opportunities for brokers and insurers.

Ilya Bodner, founder and CEO of Bold Penguin, said that his firm was taking a more broker-focused approach by providing an online marketplace so brokers can spend time on what really matters: serving as the trusted advisor to their client. On the other hand…

…James Hobson of Attune, Guy Goldstein of Next Insurance, and Ted Devine of Insureon said their efforts focused on going direct-to-consumer and disintermediating the small business segment. Goldstein in particular had a particularly “disruptive” outlook: he believed agents, especially in the small business space, are the most ripe for disruption and may not even exist in the next 5 to 10 years.

However, one thing they could agree on was that in the end, the most important thing in small commercial is smoothing out the customer experience and removing the friction in distribution. And with the exception of Goldstein, all panelists believed that brokers are here to stay, even if the “agent of the future” will take a different form. Bodner even pushed back on the idea that agents may become obsolete in the future, declaring that though the agent of the future might work through different models or under a different definition, agents will always play a role as the trusted advisor, and there will always be areas of insurance “that are too complex to fit on a 4 inch screen,” especially as you move upstream.

The key question—and there is no clear answer—was whether these new and innovative solutions in the small business segment will be able to move upstream to underwrite, price and sell larger risks. Ham’s view was that the winner in this space will ultimately be the incumbents as they move from learning from innovative models, to building their own and partnering with innovative solutions.

Highlighted at the panel was the fact that insurtech is not one solution or one segment, and there is opportunity in both the small and large risk segments. And the reason innovation is hard, said Drzik, because the insurance industry is so complex, and tying new innovations into legacy systems poses a number of challenges—not to mention the fact that outside players often do not understand the regulatory aspect of selling (re)insurance. However, Drzik emphasized that making the transition to digital would allow for streamlined communication and connectivity; and that transition would be easier, added Hendrick, if startups, carriers, and brokers all worked together to help achieve it, thus bringing the discussion back around to the ongoing theme at ITC of “collaboration over disruption.”

Drzik and Hendrick were then asked if they thought any areas of innovation suffered from the curse of too much hype. Both agreed that the one area that stood out in this case was blockchain: AXA XL is working on a blockchain cargo product, Hendrick said, but it’s hard to use blockchain across all industry segments. While blockchain may be overhyped from a “timing” perspective, explained Drzik,technologies includingblockchain,AI, telematics and machine learning can all have an effect on the industry. Nonetheless,  blockchain is likely a“longer term bet” in contrast to AI, which could have an immediate impact in the next year.

Nevertheless, “no matter how much tech we have and how we evolve, we will always be in a people business,” Hendrick said. “We will be investing in and focusing on talent for a long, long time.”

According to her, one of the key ways the insurance industry can attract millennial talent is by engaging them; people with extensive experience in the insurance industry, wise though they may be, she said, have a tendency to give advice, rather than ask for it. But by seeking the insight and opinions of the younger generations—all of whom have grown up steeped in technology, which can spur innovation—the insurance industry can begin to make itself into a more open, welcoming, and attractive sector for young professionals.

Beale also emphasized the importance of the human element in insurance: “When I arrived at Lloyd’s, I realized I wanted to keep the uniqueness of the trusted human relationships. The trust has to be there. Technology will be at the heart of everything but the human element will still play a critical role.” Like many others at ITC, Beale believed that though insurtech will certainly transform the way brokers do business, it would be very difficult to replace them wholesale, due to their extensive, specialized knowledge. She offered an anecdote to highlight that, telling the audience about how she had invited a group of insurtech professionals to Lloyd’s early in her career and asked them to “disrupt us.” “They came for an evening,” she said, “and then we never saw them again. Insurance is just too complex, too daunting.”

But Beale acknowledged that insurance is in need of modernization. And one of the ways that the insurance industry can tackle that, according to Beale, is through collaboration and compassion. “The problem with our sector is we don't often think about the people that we’re serving,” Beale said. “Somehow we have created a monster and it’s time to turn it on its head for our customers and think about providing some certainty of protection.”

Because in the end, what would the insurance industry want for their customers? “Well,” chuckled Beale, “if they could enjoy buying insurance, that would be a start, wouldn’t it?”

What does SMA look to achieve at ITC this year?

Every year we send more people, and this year we have a booth as well.  Our strategy is twofold – gauge the pace change happening in our industry and expand our insurer network.  There is a lot of hype and noise, but under it all – there are successes and stories of lessons learned.  Between the conversations at our booth and formal meetings and dinners, we hope to gather new insights and validation on what is hot, what is not, and the speed of the momentum on innovation, transformation and insurtech.

What are the most important shifts you see in the investment strategies of the commercial p/c insurers this year?

The three major shifts in commercial around first the clarity of strategies, plans and investments on small commercial with overlaying of digital transformation investments.  Insurers are leveraging many emerging technologies like artificial intelligence, new customer experience technologies, and new data sources and advanced analytics to expand self service capabilities, and helping agents/brokers with servicing. And the third is expanding risk management services to the middle market, and deepening the agent/carrier relationships as well. 

The annual SMA Summit: Transformation in Action just took place on September 17 in Boston. What were your big surprise takeaways?

Our 7th annual summit was a reflection of the transformation that is occurring in insurance.  Seven years ago, we were defining big data, social media, cloud, and innovation. This year, insurers presented and shared stories on their maturing innovation initiatives, changing business models, and transforming the customer experience.  Artificial Intelligence and digital platforms were the two common technology highlights, and the SMA partners shared insights on the new era of computing.  The big surprise is the acceleration of change in just one year.

From a broker perspective, how has the conversation around insurance innovation changed since the conference began 3 years ago?

Arguably, innovation wasn’t much of a conversation 3 years ago.  With the rise of insurtech, we are not only talking about it but strategizing about it.  We now have a market to access to help us address opportunities and solve business problems in ways we never could in the past.

What is M3’s current strategy around insurtech and how do you plan to leverage this year’s InsureTech Connect conference?

Our strategy is to focus on three areas: customer experience, effectiveness, and advisor-enabled solutions.  It’s not accidental that all three areas have a direct and positive effect on our customer.  Each time we attend this conference we focus on solving business problems, first, in these three areas, and seek technology providers that solve them.  By first understanding the pain points, it gives us a great lens into the real needs along with a set of criteria by which to assess a fit.  All this together allows us to have very targeted conversations that translate into great progress.

What is M3’s story around technology? What is the key message your organization is communicating to business partners and clients?

Our message is simple.  Insurance shouldn’t be hard, and we are actively involved in making this a reality. We are working to implement broker-enabling solutions. Our focus is how we can lead the change on behalf of our customers.  We see this movement as a positive and play an active role in reimagining an improved client experience.

How has and will IT change the basis of competition in the insurance industry?

While we all have access to the same set of technology, there will be differences in what we do and how we do it.  This will result in deeper differences between our competitors.  The legacy operational systems of IT are table stakes, and the current and future role of IT is to be innovation advisors to the agency.

As actor Russell Crowe says of Sydney, Australia, “There’s an ease that I have living in Australia. The best things about Sydney are free: the sunshine’s free, and the harbor’s free, and the beach is free.”

Crowe definitely has the pulse of Sydney. Yes, Sydney is a global city. International banks and multinational corporations have based their regional headquarters here, establishing the city as a financial hub in Asia Pacific. You could plunk down celebrated Sydney restaurants like Firedoor, Momofuku Seiōbo and Ester in culinary capitals like New York City, and they’d be right at home. On any given day, you can see world-class opera, ballet, classical music and theater at the iconic Sydney Opera House.

With more than 70 harbor and ocean beaches in the metropolitan area, Sydney feels like a big beach town. If you’re planning a trip to Sydney for business or fun, carve out time to explore the beaches, preferably by foot. From Palm Beach in the north to Cronulla and the Royal National Park in the south, Sydney’s Pacific coastline boasts some of the most beautiful trails you’ll find anywhere. One of the most impressive is the Bondi to Coogee walk on the east coast. Shy of four miles, it can be completed in two hours, but there are plenty of reasons to linger along the way.

Begin at the Bondi Icebergs Club, where you can swim laps in the ocean pool or have a cocktail and seafood at the Icebergs Dining Room and Bar on the second floor. It has a bird’s-eye view of the swimmers and a nothing-but-blue-water view of the ocean. Stop to see the aboriginal rock carvings of a shark and whale as you follow the paved path to Mackenzies Point (an ideal whale-watching spot from June to November). Round the headland to reach Tamarama, known locally as “Glamarama” because of the well-to-do locals who frequent the beach. It was once an amusement park with exhibits of sharks, seals and one penguin; today, you can explore its rock pools and watch serious surfers.

The next stop is Bronte, another upmarket Sydney neighborhood. Here, you can swim in Bogey Hole, a naturally sheltered rock pool best accessed between high and low tides. There’s a row of very good restaurants behind the park, where you can pick up fish and chips to eat by the beach, grab a flat white to go, sit down for brunch, which the Aussies do very well, or enjoy a glass of wine at an outdoor café.

The scenery is quite dramatic as you continue onto a boardwalk, where the next landmark is the historic Waverly Cemetery, the final resting place of famous Australians like poet Henry Lawson. The boardwalk ends at Clovelly, where you can play a game of lawn bowls at the Clovelly Bowling and Recreation Club before the steep climb over to Gordons Bay, a remote cove of fishing boats accessible only by foot or water.

The walk around the next headland brings you to Coogee. Offshore, Wedding Cake Island protects the beach from ocean swells, making it the calmest surf along the walk. Reward yourself with a piece of wood-fired pizza or an ice cream at one of the cafés along the promenade.

In Wild Oats, a new widow is supposed to get a $50,000 life insurance check. The company writes it for $5 million instead. Thus begins the adventure for Shirley MacLaine and Jessica Lange, who play a geriatric Thelma and Louise.

Oh, they do call the Beneficial Insurance Company to report the mistake but only to get tangled in a long and frustrating taped telephone web where no actual humans are ever available to talk. So they take the money and run to the Canary Islands, where they meet a charming elderly con man (Billy Connolly) who preys on wealthy widows. 

When Beneficial discovers the error, they send their oldest, palest, weakest, most ineffective employee (Howard Hesseman) to get the money back. He lands in the Canaries, and hilarity ensues as the ladies struggle to keep the cash away from both the insurance man and the con man.

The happy ending belies the backstage struggles. The film was five years in the planning, and the production began $500,000 in debt. Gran Canaria made the lowest bid for the resort scenes. Filming would pause now and then because the production ran out of money for simple daily expenses, like taxis. The actors and crew deferred their salaries.

MacLaine called it “amateur hour” in a book she penned about the experience, titled Above the Line: My Wild Oats Adventure.

The book may have made a profit. The movie did not. First aired on Lifetime, it spent two weeks in limited theaters and then went off to DVD and streaming land. The budget was estimated at some $10 million, and the total worldwide gross came up to $242,312. But Shirley MacLaine, at least, was able to turn Oats into some bacon.

For many of us, beach trips and barbecues define our summers. But for thousands of young adults, summer is also internship season. Every year, companies around the country offer summer positions to college students who are looking to gain experience in a potential future career. Companies benefit from finding rising talent and engaging them in their business, which can lead to full-time employment once they graduate. But getting these interns in the door isn’t always easy, especially for an industry that is so often misunderstood.

Companies such as Google, J.P. Morgan and Nike have the advantage of a name-brand reputation and other vast resources to recruit highly qualified interns. Many college-age students don’t understand the insurance brokerage industry, which often leads them to overlook the opportunities that a brokerage provides. Because of this, recruiting summer interns at brokerage firms often comes down to relying on personal connections or sifting through piles of résumés. These aren’t always the best ways of finding top-notch interns, so taking a new approach to recruiting is vital.

“There’s not a lot of people in college who are going to say, ‘I’m going to study insurance’ or ‘I’m going be an insurance agent,’” says Noah Exlerben, a student at Michigan State who interned with Sterling Insurance Group’s sales department over the summer.

Ironically, once students are exposed to all the industry has to offer, many of them can envision insurance as a potential career. This summer, in a survey of nearly 100 interns at brokerages across the country, 92% answered “yes” or “possibly” when asked if they could see themselves having a career in the insurance industry or a full-time job at the firm of their internship.

In One Ear, Out the Other

The experience of an internship can be instrumental in shaping graduates’ opinion of the industry. About 75% of interns in our survey said their view of the brokerage industry had changed since starting their internship. But how do you shape that view before those internship decisions are made?

“I think there’s a disconnect between the younger generation and the insurance industry,” says Evan Barclay, a student at the University of Toledo and an accounting intern at Hylant this summer. The brokerage industry, he says, “gets written off as this old-fashioned, boring or unnecessary service, which obviously it’s not.”

I think there’s a disconnect between the younger generation and the insurance industry.

Evan Barclay, University of Toledo, Hylant intern

To Barclay, counteracting this perception requires different ways to explain the business of insurance. He suggests going so far as to change and simplify terminology within the industry, and he says trying to show a younger side of brokerage will help gain the attention of more young people. “Hearing about policies and claims,” he says, “goes in one ear and out the other.”

Changing common perceptions is not an easy task, but embracing trends in technology and media can help to make that message clear.

“When it comes to social media, I don’t see anything about insurance,” says Kyle Andrew Campbell, a student at the University of Virginia who worked as a sales intern at Marsh and McLennan this past summer. “When I turn on the TV, I’ll see an insurance commercial. But if I’m watching a YouTube video, or on Twitter, or on Facebook or Instagram, I don’t see any social media outlets or advertisements concerning insurance. A social media effort to show exactly what the insurance industry is about would be very beneficial.”

Campbell also says focusing on the tangible benefits the insurance industry provides would greatly improve the common perception of the industry. “When it comes to changing that mindset that insurance is a necessary evil,” he says, “it could be something like an informative advertisement that explains that insurance is the reason we can sleep at night. It’s the reason that we don’t have to worry when we go to the doctor’s office. When we drive our cars, if we get hit, yes, it stinks. But we have someone watching our back who is going to help us through this. I think that’s the one part as individuals or as an industry that we don’t stress enough.”

Sales or Nothing

Brokerages are big, dynamic organizations with myriad opportunities that could appeal to a wide range of interests, but that variety isn’t always apparent.

“I think one of the biggest misconceptions about insurance is that it’s sales or nothing,” says Kaylin Renfro, a student at California State University, Chico, and one of InterWest’s summer interns who worked mainly in the sales department.

Interns are looking to gain experience in a field that can become a career. As our research demonstrates, marketing the variety of opportunities within brokerage firms could show students there’s much more to a brokerage than strictly sales and account management. Offering internship opportunities in human resources, marketing and IT, for example, could greatly increase the intern recruiting pool.

When I turn on the TV, I’ll see an insurance commercial. But if I’m watching a YouTube video, or on Twitter, or on Facebook or Instagram, I don’t see any social media outlets or advertisements concerning insurance.

Kyle Andrew Campbell, University of Virginia, Marsh and McLennan intern

Allowing interns to rotate through different departments can also increase their interest in the firm through exposure to different aspects of the industry. Even if they don’t find every department interesting, a rotation will likely help them identify their strongest interests.

“If you have an internship that’s going to expose you to everything, you might not enjoy all of it,” Renfro says. “I did not particularly love workers comp, but I’m thankful that I was exposed to it, and being exposed to all of it really showed me the area where I caught on a little quicker. For me, that was employee benefits. I kind of just understood it faster than the other areas, and it also gave me a direction about the area that I was going to be happy in.”

And for those who are considering the sales path, there’s still opportunity to shift perceptions of what this career is all about. “I think building a book is super exciting,” Exlerben says. “Being able to look back 20 years down the line and say, ‘Hey, I did that. I have all of these relationships, and I’ve successfully maintained all of this business.’ That’s what excites me.”

As Exlerben shows, even known careers can be seen in different ways. He was drawn to the interpersonal aspect of the sales role. Highlighting that aspect of the job could spark new interest among interns considering this path.

Back to School

Figuring out exactly where to market to potential interns can be just as difficult as figuring out what to market to them. Many college students find internships through personal connections, but recruiting interns through these connections can sometimes be limiting. To access a broader base of students, it may be worth meeting them on their turf.

“If you’re trying to increase the workforce for the insurance brokerage industry, you’re going to need to really heavily recruit on campus,” Barclay says. “That’s what everyone else is doing, and there’s some real competition there.

Every other industry is pushing on college campuses by having tables, connecting with students and creating events, and that’s how they’re getting their pool of interns and their eventual pool of full-time offers.”

Being able to look back 20 years down the line and say, ‘Hey, I did that. I have all of these relationships, and I’ve successfully maintained all of this business.

Noah Exlerben, Michigan State, Sterling Insurance Group intern

Participating in job fairs, setting up informational tables in the student center and hosting events on campus are some of the best ways to reach potential interns in an environment they’re comfortable in. About 36% of interns surveyed indicated they prefer to search for internships at university job fairs, while 39% said they usually use personal connections. About the same percentage of college students look for jobs through their school as those who look through personal connections, so colleges provide a huge pool of potential talent.

Recruiting at schools also allows firms to better target what kind of interns they would like to fill the position. A firm looking for a marketing intern can actively recruit at a school known for its stellar marketing program. This approach enables firms to fill more specialized intern roles and thus attract to the brokerage industry interns with a variety of skills. The companies that get the best interns often are the ones that distinguish their campus recruiting strategy from the rest of the crowd.

“At my college, they do a mock interview process,” says Lauren Czeshinski, a student at Loras College who has interned with Cottingham & Butler for two summers. As a first-year student, she participated “just for the heck of it.”

Among the companies taking part in the mock interview process was Cottingham & Butler. “At the end of it, my team wound up winning,” Czeshinski says, “and the feedback I got from them was, ‘Hey, we don’t usually hire freshmen, but we’d love to hear back from you in the future.’”

So Czeshinski kept in touch with the Cottingham & Butler recruiter. “And when it came time to interview and apply,” she says, “I ended up applying, and I started my sophomore summer.”

Czeshinski wound up sticking with Cottingham & Butler for an entire year, as their office was close to her school and she had time to work during the academic year. Last summer she returned for her second full-time summer internship with the company. Not only did this strategy help Cottingham & Butler stand out alongside other major companies recruiting on campus, it also helped establish close relationships with potential interns and develop their interest in the industry.

There are so many positive aspects of the insurance brokerage industry that can be used to attract qualified interns. Increasing recruiting efforts will help bring in young talent, and it’s not inconceivable that last summer’s intern could be next summer’s top young producer.

Cella is a junior at Tulane University. scella@tulane.edu

Johnson is a junior at Temple University. jmone426@gmail.com

Schoonhoven is a senior at California Baptist University. tess.schoonhoven@gmail.com

Stiller is a senior at Elon University. rstiller@elon.edu
 

“Each farmer has a little bit different structure as far as their debt loads,” explains James Korin, president of NAU Country, which offers crop insurance through QBE. “Whether they own it outright, whether they are buying new land or need equipment, everybody needs a little bit different coverage to get their operating loans from the bank.

“It’s a complicated program, but that’s what makes it successful because there is a choice for everybody. There’s not one policy that every farmer must fit into. There’s more than 100 different crops and literally hundreds of different options on coverage they can take.”

The ability to effectively serve such a diverse group requires deep expertise in the industry itself, and as the third largest crop insurer in the country, QBE takes this quite seriously.

“In our crop business the team lives and breathes the American farmer, and, in most cases, our people are farmers themselves or grew up on a farm,” says Russell Johnston, CEO of QBE North America.

Korin echoes the sentiment. “We’ve got close to 800 employees working in our crop unit. They’re either part-time farmers, farmers themselves or people who grew up on a farm and are looking to stay in agriculture,” he says. “The crop program is unique. It requires knowledge of crops when you’re going out to talk to the farmers. That even includes our programmers, where we design and develop all our computer systems. We get a lot of those folks out of either ag colleges or right off the farm, and they come in and do the programming. They understand the crops and the cycle. That’s important because, if you’re trying to build a system that works for the American farmer, you have to know what you’re building.”

Broker Specialization

QBE’s approach to farming is indicative of its overall strategy of limiting partnerships to agents and brokers it knows are compatible with its focus. This strategy allows QBE to get to know its brokers on a deeper level and gives its partners access to products and services that are distinctive and exclusive.

QBE North America, part of QBE Insurance Group, is an integrated specialist insurer offering specialty, property and casualty, crop and reinsurance products.

“We set out to create a company that would offer integrated specialized solutions for a limited and preferred network of brokers. That approach allows us to build the strongest partnerships with our brokers and customers so we can better understand their needs,” says Johnston. “At the end of the day, if we are doing our jobs, our brokers and customers won’t feel like they are dealing with an insurance company. They will feel like they are dealing with an extension of their company.”

QBE North America is sharpening its focus on industry solutions, and the brokers it chooses to work with emphasize specialization as well.

“We see our partners making tangible investments to shift from generalization to specialization,” says Mark Cantin, president of QBE North America’s field operations. “They are looking for carriers that can match the specialization on their side, and at the same time, they’re looking to do more with carriers that are willing to customize products to help them grow organically.

“What that goal leads to is brokers’ needing to rationalize their book of business and conduct more business with fewer carriers. They want carrier partners who are going to provide them with bespoke solutions rather than simply quoting product.”

QBE North America believes that shifting from generalization to specialization can help brokers better serve their clients—farmers being a case in point.

Data Farm

Moving forward, QBE is innovating and investing in technology that will drill down even further into the specifics of farmers’ needs. “There clearly has been an explosion of data,” Korin says. “We’re using that data just as farmers are using it in their planting and harvesting equipment. Five to 10 years ago, the geospatial industry was just taking off. Our innovation in mapping goes back to the time Google maps was just taking off. Up until that time, farmers needed to use the old legal description—township, range and section—in order to complete their yearly acreage report. The process was very complicated, especially if fields were split in between multiple crops.”

Now, new mapping technology allows NAU Country to put each farmer’s information into a visual map so farmers can identify precisely which fields to insure based on actual planting data. “If you are a farmer with multiple fields, you can easily make mistakes regarding township, range descriptions, what you are reporting,” Korin says. “There is a lot of 600-acre farms that are split—half corn and half soybeans, for example. To legally describe a split farm was not only tough; it was inaccurate. Using these geospatial tools, we can now know exactly what has been planted down to the tenth of an acre.”

NAU Country is using field insights to help with risk management. “We’re taking all this weather data, soil temperatures, soil moistures, soil conditions, and we’re putting it into a model to help our farmers determine when they should be planting, when they should be harvesting or spraying chemicals,” Korin says. Adjusters also use drones to survey damaged fields much more efficiently, helping to service claims more quickly.

“We are making great progress on our journey to provide distinctive value to the market through applied expertise, an experience of excellence and our global strength,” Johnston says. “I want us to be known for these values. And the idea behind that is simple. It’s not just having expertise or offering an experience of excellence. It is leveraging those core values in a way that our brokers and customers will feel it. That is how we will be successful.” 

Although wearable sensors such as Modjoul’s SmartBelt and Triax’s Spot-r have not been proven to improve workplace safety, there is evidence other types of wearables have had a major impact in another injury-prone sector—mining.

Fred Smith, head of U.S. mining and metals at Willis Towers Watson in Knoxville, Tennessee, says two examples of effective wearable tech are smart caps, which monitor operator fatigue, and proximity detection devices, which warn workers about the presence of heavy mobile equipment operating in underground mines.

“You have all kinds of mobile equipment operating underground and employees walking around this equipment,” Smith says. “It is dark and sometimes wet, and people sometimes get to where they are not supposed to be, so there are more injuries because a machine can move and crush them or back up and hit them. Proximity detection has been around for a decade or more but continues to advance and get better. Now you actually have equipment manufacturers selling equipment that is ready to go with integrated proximity detection.”

In the underground mines, workers wear a transmitter that communicates with mobile equipment in the vicinity. If the employee gets too close to the equipment, the sensor provides an increasingly urgent series of alerts to warn the employee of danger. If the situation is extremely unsafe, the detector will shut the machine down.

“You still read about people getting hit by a major piece of equipment, but I don’t think I have seen a case in the recent past that resulted in an injury if proximity detection was in place,” Smith says. “There was a case where an employee was struck and, when he was asked why, he said he had taken the transmitter off.”

The smart caps are relatively new wearable devices that have the potential of reducing accidents involving heavy equipment due to fatigue. Smith says the majority of human-error accidents in both underground and surface mining involve fatigue.

“They were treating the symptoms but not the root causes of the injuries,” Martinez says. “I decided there was a better way.”

Martinez left AIG in 2016 and headed to Clemson, South Carolina, to find that better way. Today as founder and CEO of Modjoul, he’s a pioneer in the field of wearable technology. His company is marketing a “smart belt” that can track everything from workplace falls, lifts and strains to the actions of forklift drivers or environmental conditions that pose safety threats.

Wearable technology encompasses a wide range of devices, clothing items, sensors, monitors and other equipment that can identify problem areas; collect environmental data; provide information on the location, physical condition and actions of individual workers; and sound alerts about dangerous developments or accidents. And that’s just a partial list.

A few years back, wearable technology was all the rage and was being widely characterized as a game changer in the world of workplace safety and workers compensation insurance. But it has not taken off as quickly as anticipated, prompting some skeptics to question whether wearable technology will be the transformative force in workplace safety that was once hoped.

“It is a lot of sizzle and not a lot of steak,” says Mark Walls, vice president of communications and strategic analysis at Safety National, which provides specialty insurance and reinsurance. “In my opinion, that is because the technology is just not there yet to make it make sense. A lot of what you hear is what it could be used for, but I don’t see its use being that widespread.”

“It hasn’t moved as quickly as I thought it would have three or four years ago when it was a hot topic,” agrees Thomas Ryan, senior principal in Willis Towers Watson’s national practice. “It seems as if some of the employers who have an interest realized that a lot of vendors didn’t have readily available tools and devices. They were still in the development stage—prototypes, basically—so there was a concern about being able to market and distribute quality devices to meet the needs.”

Christopher Hernandez, who works in risk engineering for Chubb, says several factors have led to the slow adoption of wearables. “Middle-market companies are facing numerous business challenges with financial pressures limiting the use of capital,” Hernandez says. “Commercial wearable products are not as mature as their consumer counterparts, and because of this, the technology is not widely understood and the benefits are largely unknown. Lastly, adoption of wearables can be cost prohibitive, considering price per unit and monthly or annual fees for access to the data and analytics.”

Pilot Potential

Nevertheless, despite the slow liftoff, most risk management experts are convinced that wearable technology will eventually have a significant impact on workers compensation and other commercial lines.

“Sometimes you hear about a technology that is promising, and two or three years will pass while it is trying to catch its toehold,” says James Lynch, chief actuary for the Insurance Information Institute. “It is rare that a revolution takes place overnight.”

Jim Smith, of Gallagher, concedes that wearables have not yet gained traction in the workplace, but he says they’re gaining in popularity. A regional leader for Gallagher’s risk control and safety services, Smith sees “great potential” for wearables to limit or minimize lifting injuries and to protect lone workers in isolated places, such as a water treatment plant.

“Wearable technology is critical if you look at some of the positions we have today. It used to be that some of these places had two or three people, but now there may be only one, and that lone worker is out there with only limited communication. These sensors can track them and make sure they’re OK,” he says.

Hernandez says Chubb recently partnered with The Ohio State University’s National Center for the Middle Market and found that 40% of the middle-market manufacturers surveyed either use or plan to use wearables to monitor employee movement and location. Also, 63% said they either already use the technology to measure environmental conditions or plan to use it in the next five years.

Wayne Maynard, a product director in Liberty Mutual’s risk control division, says he has been approached by a number of startup vendors anxious to get into the wearable space and is working with several to help improve the accuracy of sensors that collect work-related information.

“It seems like every day there is a new one,” Maynard says. “With over 500 vendors out there hyping their technology as the magic bullet, employers are faced with a plethora of options. Employers need to approach the issue of wearables as part of a broader program. They need to work with their insurer to see why they are having accidents, what they can do to prevent them, including wearables, evaluate the range of wearable options and see what likely will have an impact on their safety process.”

Maynard says employers considering wearables also need to be aware that there is a lack of scientific studies showing that either a certain type of device or wearables in general have actually had an impact on workplace safety.

“There is a place for wearables, for sure,” Maynard says. “This technology will continue to evolve and most definitely will benefit workplace safety, but it is early. The algorithms need work. Now a lot of work is in pilot, and there is no research whatsoever that this technology is preventative. If you have a vendor that knocks on your door and says this will prevent 80% of your back claims, just know they have no evidence to back this up. That is not to say companies can’t have great successes with their product. And going forward, I expect there will be good studies on the preventative capability of the products.”

Early-Stage Success

Some of the greatest interest in wearable startups is coming from the construction and manufacturing sectors and material-moving organizations, such as warehouses, that want to make their workplace safer.

The algorithms need work. Now a lot of work is in pilot, and there is no research whatsoever that this technology is preventative. If you have a vendor that knocks on your door and says this will prevent 80% of your back claims, just know they have no evidence to back this up. That is not to say companies can’t have great successes with their product. And going forward, I expect there will be good studies on the preventative capability of the products.

Wayne Maynard, product director, Liberty Mutual

According to the Bureau of Labor Statistics, there were 5,190 fatal occupational injuries in 2016, a 7% increase over 2015. Fatal work injuries from falls, slips or trips continued an upward trend that began in 2011.

A recent study by Nationwide Mutual found that more than 30% of the workers compensation claims in the construction industry come from falls from elevated surfaces. And according to The Construction Chart Book, published in February by the Center for Construction Research and Training, 3.6% of employer compensation costs in the construction industry was spent on workers compensation, 71% higher than the spending percentage for the entire sector of goods-producing industries.

These numbers are compelling and likely driving some employers to action. “Some clients are looking at workers comp losses and exposures and where they might introduce a wearable to pilot and reengineer to reduce workers comp claims,” Willis’s Ryan says. “The employers I have spoken to are in exploratory mode. There are a few that have engaged in pilots, but the vast majority of employers we are talking to are still trying to understand the pros and cons of wearables in the workplace.”

Gilbane Building Company, a large construction firm headquartered in Providence, Rhode Island, was an early user of wearable technology and sings its praises. Don Naber, senior vice president and director of risk management, says the company has been using the Spot-r line of wearable and sensor devices developed by Triax Technologies of Norwalk, Connecticut, for about 18 months.

“What drew us to it immediately was that, in the event of a fall at whatever level, this particular technology sends a notification to whomever we designate on our site as the person managing the first response to any type of fall,” Naber says. “This was unique in terms of other products. Also, we appreciated the vision of Triax in emergency evacuation capabilities, and we are beginning to deploy sensors to monitor what is happening on site from a temperature, moisture and dust standpoint. Those are all critical elements, not just in terms of safety of people on site. They also impact work in progress.”

Currently, Gilbane is using the Spot-r devices on eight projects and is looking to implement them at four more construction sites. Eventually, Naber says, the company hopes “to expand this across as much of our portfolio as we can and make it more a norm than an exception.”

Pete Schermerhorn, president and chief operating officer of Triax, said Gilbane and a number of other large general contractors across the country are using Spot-r and have been alerted to several falls, enabling them to get medical personnel to the scene of the accident quickly. In addition, management has received some push-button alerts from workers wearing the sensors who are concerned about a possible safety issue.

“We’re definitely seeing an enhanced safety culture on these sites,” Schermerhorn says. “In terms of a reduction in claims, we haven’t been in the market long enough to amass that data, but certainly that is where this is going.

“When you look at data in the insurance industry, there are falls from the same level that tend to come with frequency—tripping and falling over material on site because of housekeeping issues—or you have falls from heights,” Naber says. “You don’t have a lot of frequency with falls from heights, but they tend to be more severe in terms of overall injury. This was an opportunity for us to really identify what was going on around the fall and be able to get to the location where the fall happens so, if a person needs medical attention, we have the opportunity to get them all the services they need in a very quick fashion.”

In addition to location, the sensor lets the company know who fell, which subcontractor that individual works for, and which other workers were in the general vicinity of the incident. And Naber says the fall alert has provided another, unexpected benefit—the ability for both the workers and the company to change behavior.

“At one of the projects where we first used it, we were finding a lot of falls. We would go to the person involved, and that person would say, ‘I didn’t fall,’” Naber recalls. “When we looked at the data, we found these alerts were falls from two or three feet, when people actually were not falling but jumping down rather than using appropriate exits we had made available or jumping down from the back of a pickup truck rather than stepping down.

“When you jump down from two or three feet, you are putting yourself at risk of hurting your knees or spraining your ankle. So we talked to people and asked why they were jumping down, and the answer was, ‘You didn’t have a ladder for me to use,’ or, ‘The exit stairs were too far away to use in getting materials down.’ So this gives us the opportunity to better manage around the project site and help change behaviors on these sites to avoid repetitive-type injuries.”

Spot-r devices also provide an alert when the construction site needs to be evacuated in an emergency.

“We tested that evacuation piece a number of times,” Naber says, “and we found when we evacuate the site without the emergency notification product, it takes roughly five or six minutes longer than when we use the product. Plus, now we know if John Smith is off the project, because we know from the clip where he is or if he is still somewhere in the project area. In an emergency situation, we would know where to send emergency responders based on where the clip says he is.”

Naber says it is still too early to see an overall impact on the company’s safety record. “But based on the behavior change that we have seen on a couple of projects because of this, we firmly believe that, in time, we will see a reduction in terms of our overall loss experience as well as loss from a questionable claim or fraud situation,” Naber says.

Another company, Eby-Brown in Naperville, Illinois, is just beginning a trial of Modjoul’s SmartBelt in hopes it will help cut down on muscular and skeletal injuries. Eby-Brown is a distribution company that stores, supplies and distributes virtually every product found in convenience stores except for alcohol and gas. The company has warehouses in eight states and employs about 2,500 people.

“Our warehouses are not an ergonomically friendly environment,” says Paul Brandel, the company’s risk and claims manager. “Some people are 6’5” and some are 5’2”, but the racks don’t change size, so there is a lot of twisting, reaching and bending to load trucks so the drivers can distribute the products.

“Most of our injuries are sprains and strains from pushing and reaching. So we are looking for wearables to show us those motions; then, we will bring in a physical therapy company to see how we could do it better. Our goal is to cut down on workers comp costs.”

Modjoul is the first wearable product Brandel is testing. He also plans to test four other wearable products, some of which clip on to a belt and others that clip on to a shirt pocket or shirt.

“This is new to me in our space, and I don’t know what the right one is right now,” Brandel says. “It is something I have been thinking about for a while. I looked at some high-tech suits that help with posture, but they are too bulky for us. The wearables would be friendlier to the worker. You definitely need buy-in from employees. You want them to wear it and forget about it.”

When we looked at the data, we found these alerts were falls from two or three feet, when people actually were not falling but jumping down rather than using appropriate exits we had made available or jumping down from the back of a pickup truck rather than stepping down.

Don Naber, SVP and director of risk management, Gilbane Building Company

Martinez says the SmartBelt can measure worker location and motion as well as environmental factors such as ambient temperature and humidity outside and around the worker. The belt vibrates if a worker bends more than 60 degrees, and it also tracks walking, standing, twisting, squatting, and outdoor and indoor driving.

Using statistics from some sensor devices placed in automobiles, Modjoul’s Martinez projects the SmartBelt can reduce workplace injuries by 30% to 40%, though he acknowledges there’s no concrete evidence to support those numbers.

Brandel is not troubled by a lack of hard data for that projection. “Whenever I meet with any provider in my business, they all have their claims,” he says. “They all have their sales pitch. I will take their claim as what they said it will do and then see our own data. I will pilot it myself and see if it works for me.”

Brandel’s biggest concern is finding the right device before making a big investment in wearable technology. “Wearable technology is definitely the right move for the industry,” he says, “and it is very exciting. I have shown some colleagues what we are doing, and they are all waiting to see my data and possibly try it out if it works well. Risk management is not a revenue generating department, so I try to do everything I can with our safety manager to cut costs by having fewer claims.”

Martinez also thinks the time is right for wearables.

“We are really on the cusp of the pioneer curve,” he says. “We’ve gone from zero to 21 customers in four months, so it is happening.”

The Trust Issue

Naber says his company has overcome resistance from employees and subcontractors skeptical about wearing the sensors by assuring workers the monitoring starts and stops at the job site.

“I think with any type of technology, the biggest pushback is ‘Big Brother is watching and you can track where we are,’” Naber says. “What we have impressed upon our subcontractors and unions where we are using this product is that, once you leave the job site, this product can’t track you. It is not a GPS.”

Schermerhorn says the Spot-r sensor is small—“literally the size of an old pager.” On some sites, workers receive the sensor at the beginning of the job and take it home at the end of the shift. On other sites, they return the sensors at the end of each workday. Either way—and this has proven critical to worker buy-in—the employee is monitored only when on the job site.

“The trust element is one of the biggest challenges,” Safety National’s Conference Chronicles reported following a 2016 industry discussion on wearables. “You need to gain employee trust in why you are using the wearable technology and how it benefits them. You need to be clear who has access to the information and what it will be used for. There is a cultural change associated with this, and there will be a long learning curve to make this change.”

Another potential issue involves the use of information gathered by the wearable sensors for purposes other than the stated intent.

“You don’t want to appear to be doing this to make everybody safe when in reality you are using it as a time and attendance tracker,” says Miki Kolton, an attorney with Greenberg Traurig in Washington, D.C. “Then your credibility is shot.”

If workplace sensors are used to monitor time and attendance and an employee is fired as a result, Kolton says, the employer could be subject to a wrongful termination claim.

A blog on ethical issues involving wearables on the website of the National Institute of Occupational Safety and Health poses a series of questions that any employee-monitoring program should address: “What are the goals of the monitoring program? How will the results be communicated? How will the data be used? Will informed consent be sought?”

“I think the potential is unlimited if we use it properly,” Gallagher’s Jim Smith says. “From the workers’ perspective, we don’t want to watch them 24/7. So privacy protection is one reason you need to be sure it is used for the right things for the right reasons.”

Fred Smith, head of U.S. mining and metals at Willis Towers Watson in Knoxville, Tennessee, says he isn’t aware of any resistance to wearables from the union representing miners. (See sidebar: “A Light in the Tunnel.”) But the technology also may be too new to have captured much union attention. The AFL-CIO did not respond to several phone calls and emails seeking information on union concerns over wearables in the workplace, and a spokesman for the International Brotherhood of Teamsters said the union was not aware of wearables being an issue for any of its members. But that could change fast if companies seek to monitor their employees after they leave the job site.

For example, airline pilots do not wear any sort of monitoring devices now, but they are subject to frequent blood tests and physicals to ensure they are healthy and not drinking alcohol before they fly a plane. Similarly, a wearable device might alert a trucking company if a driver was overtired or had been indulging in performance-impairing substances such as alcohol, marijuana or other drugs. But would that be considered an invasion of privacy?

Monitoring workplace activity has historically been permitted by the courts, but the courts and regulators have stopped short of setting legally permissible limits to that monitoring. Issues of privacy on what can be reported to whom may also arise as issues that need guidance or that spur court actions. In addition, if the information being gathered falls into the area of health data or other sensitive areas, there is the issue of data security to consider—no small feat in the current cyber environment.

“There is a lot of personal data floating out there and, with that, a lot of risk,” Walls, of Safety National, says. “Cyber security being what it is, whenever you’ve got something capturing somebody’s data, security is an issue. Who else can get that data, and what are they going to do with it?”

We’ve had over 5,000 deaths in 2016, and we are spending $59.6 billion a year in workers compensation medical costs, expenses and wage replacement. That is just unacceptable. We’ve got to do a better job.

Jim Smith, regional leader, Gallagher

If wearable technology does become a significant force in improving workplace safety, its impact on workers compensation costs will probably not be felt in overall workers comp premiums for at least three years, says Lynch, the I.I.I.’s chief actuary. But an individual company’s rates may go down if their safety initiatives—whether wearables or not—result in fewer accidents and claims and a better experience history with their insurer.

“With workers comp,” Lynch says, “the rates a company pays are very heavily based on the experience rate. You probably need a couple of years of experience for the workers comp policies to be impacted. If your experience improves, your rate would go down, but the full impact would take three to five years.”

Martinez says the impact of wearables on safety and workers comp rates could be felt sooner for large companies that self-insure. “Insurance companies are going to be slower to react because they need years of data to react to a trend,” he says, “but a risk manager for a large company and captive will be able to react faster.”

Jim Smith is less concerned about wearables’ impact on workers comp premiums than he is about the potential reduction in workplace injuries and deaths.

“We’ve had over 5,000 deaths in 2016, and we are spending $59.6 billion a year in workers compensation medical costs, expenses and wage replacement. That is just unacceptable,” Smith says. “We’ve got to do a better job.”

Arvidson is a contributing writer. cheryl@carvidson.com

“We had guns in the trunk. It’s what everyone did.”

That’s unthinkable today, of course—just as it was inconceivable a few decades ago, when Marshall was still in school, that the insurance industry would ever offer something called “active shooter” coverage for school districts across the United States.

The policies emerged a few years ago as insurers and educators realized that most general liability policies either didn’t cover or weren’t sufficient to address the enormous costs associated with a mass shooting.

The availability of the policies drew widespread attention from school administrators after a Valentine’s Day shooting at Marjory Stoneman Douglas High School in Parkland, Florida, left 17 dead and 17 injured.

“We had a tenfold increase in the number of inquiries, submissions and quotes,” says Marshall. In May, after the second major school shooting of the year—at a high school in Santa Fe, Texas—the company provided more than 300 quotes to agents and prospective clients.

The scope of active-shooter policies varies, but many offer medical payments or death benefits to victims along with an array of crisis management services such as grief counseling and media consulting for the schools. One element of the coverage is drawing particular notice: highly detailed security assessments designed to reduce the chances of a shooting spree.

Robert Hartwig, former head of the Insurance Information Institute, says those assessments are consistent with the industry’s centuries-old mission of not just protecting people and institutions against financial losses after a crisis but helping them reduce or avoid the losses before they occur.

“Increasingly, what businesses want from their insurer is not just basic, pure insurance protection. What they want is some help with risk management,” says Hartwig, now director of the Center for Risk and Uncertainty Management at the University of South Carolina.

Business Community Backlash

In recent months, the insurance industry has been drawn into the national debate over what can be done to reduce the frequency and severity of school shootings.

Within days of the Parkland shooting, a well-organized group of student survivors joined gun control advocates to push business leaders, including insurers and bankers, to reevaluate their relationships with gun owners, dealers and manufacturers.

Among those prominent in the campaign was New York Governor Andrew Cuomo, who suggested the insurance and financial industries’ relationship with the National Rifle Association and similar organizations “sends the wrong message to their clients and their communities, who often look to them for guidance and support.”

Maria Vullo, New York’s financial services superintendent, sent a letter to insurers and bankers reminding them of the business community’s history of taking leadership positions “in areas such as the environment, caring for the sick, and civil rights in fulfilling their corporate social responsibility.”

Gun safety, Vullo said, is another issue that warrants guidance from the business community. “Our insurers are key players in maintaining and improving public health and safety in the communities they serve,” Vullo wrote. “They are also in the business of managing risks, including their own reputational risks, by making risk management decisions on a regular basis regarding if and how they will do business with certain sectors or entities.”

Vullo’s department fined Lockton Affinity $7 million for selling “Carry Guard” liability insurance to NRA members and fined a subsidiary of Chubb Group Holdings $1.5 million for underwriting similar coverage. Vullo said the policies “unlawfully provided liability insurance to gun owners for certain acts of intentional wrongdoing and improperly provided insurance coverage for criminal defense.”

This summer, the NRA filed suit against New York, saying the state’s actions are endangering the group’s survival. The organization said it lost its own insurance coverage, including media liability coverage, from an unnamed carrier and has been unable to replace it. The suit alleges the state’s actions also could “deprive the NRA of basic bank-depository services…and other financial services essential to the NRA’s corporate existence.”

The NRA has lost numerous business relationships since Parkland. Chubb and Lockton severed their ties, and other companies, including MetLife and several airlines and rental car firms, ended discount programs for NRA members. Dick’s Sporting Goods announced it would stop selling assault-style rifles and joined Walmart in ending sales to customers younger than 21.

Meanwhile, Citigroup announced it would no longer do business with companies that sell firearms to people under 21, and Bank of America said it would stop lending to companies that manufacturer military-style weapons. Gun control advocates pushed for credit card companies to join PayPal, Apple Pay, Square and Stripe in prohibiting the use of their services for any gun transaction.

Homeowners insurance policies also have drawn scrutiny, with advocates of gun control calling for insurers to treat firearms as an “attractive nuisance” liability risk similar to a swimming pool or a large dog. The rationale is that carving out possession of firearms as a separate risk would prompt homeowners to take additional steps to reduce the likelihood that their weapons are used in mass shootings.

Hartwig says he doubts homeowners policies will ever be restructured to reflect the presence of a gun in the house. From a regulator’s perspective, the data don’t support an extra charge, he says.

“If the claims experience does not warrant that firearms be treated separately and distinctly, the question is why would the insurer do that. The insurer cannot charge a premium unless that premium is a reflection of actual risk,” he says. “As a practical matter, what is being proposed that insurers do? Would insurers be required to continuously and constantly monitor millions and millions of policy owners to ensure that 24/7/365 their guns are locked up?”

Rather than restructure all policies, Hartwig says, carriers are more likely to address the issue on a claim-by-claim basis, responding to any court decisions holding a gun owner liable for a weapon used in a mass shooting. A typical homeowners policy carries a maximum liability limit of $100,000. “An insurer may determine that in an instance like this it is simply easier to pay the policy limits,” he says.

The insurance industry’s primary focus in the gun safety debate remains, at least for now, on the active shooter policies.

Duty of Care

This issue crosses every single line of insurance when you talk about casualty, even property. There is no part of insurance that is immune to this situation.

Harry Rhulen, co-founder, Firestorm

Like Hartwig, brokers and agents see the coverage as a concrete way for the industry to make a difference in improving safety in America’s classrooms.

“We think we should always be looking at how we as an industry can provide solutions that are preemptive and supportive rather than just dealing with the aftermath and the impact of something happening,” says Alistair Fox, deputy CEO of JLT Specialty Credit, Political and Security Risks Division.

Given the number of shootings in the United States, Fox says, there’s “a duty of care” for insurers to help schools minimize the risk. His firm’s coverage evolved from terrorism policies it provides in Europe and the United States.

Hartwig says the policies similarly evolved to focus on prevention after the 9/11 attacks in the United States. “Very quickly the market recognized that, while insurance coverage was necessary, it’s best when the insurance product is coupled with a service that would help lower the likelihood of a terrorist attack occurring or potentially at least lowering its severity,” he says.

Chris Parker, an underwriter who leads Beazley’s political violence, terrorism and kidnap and ransom team, says his company has talked to prospective clients in school systems with varying levels of preparedness. They share one thing in common, though—“a desire to have responsible consultants involved in this and getting their wisdom and experience.”

Harry Rhulen, former CEO of Frontier Insurance Group, is co-founder of Firestorm, a crisis- and risk-management firm that works with a half-dozen major carriers to assess and improve security for its school clients. He believes insurers can play a decisive role in reducing school violence.

“There are lots of ways for the insurance industry to get involved,” he says. “It’s about thinking proactively and holistically about the risk management process as opposed to just looking at it from an indemnification standpoint. That’s a big change in the thought process.”

The industry has a large stake in resolving the issue, from a social leadership as well as a business standpoint, Rhulen says. “This issue crosses every single line of insurance when you talk about casualty, even property,” he says. “There is no part of insurance that is immune to this situation.”

Marshall believes the policies spur school systems to work harder on security. “That which we pay for, we pay attention to,” he says.

Although still relatively rare, shootings are now becoming a routine exposure for agents to discuss with school officials at renewal time, according to Nate Walker, a senior vice president at Special Markets Insurance Consultants (SMIC), an AmWINS Group company.

SMIC has insured schools since 1985 and began offering active shooter coverage in 2014. “Historically, we’ve covered students and athletes—sports, events, all of the stuff that is deemed fun,” he says. “We never thought we’d be involved in something like this.”

Sadly, the policies advertise themselves whenever another school is attacked. “After every event, the phones ring,” Walker says.

First Look vs. Last Stand

The moment, outside a high school in Santa Fe, Texas, was unexpected but, sadly, unsurprising. A TV reporter, conducting an all-too-familiar round of interviews with survivors of a mass shooting, asked 17-year-old Paige Curry if there was ever a point during the chaos that she told herself, “This isn’t real. This would not happen at my school.”

No, Curry said quietly, her eyes averted from the camera. “It’s been happening everywhere,” she said. “I’ve always kind of felt like it eventually was going to happen here too.”

Her comments, replayed repeatedly on cable news and social media this spring, caught the attention of many Americans, including Firestorm’s Rhulen.

“If I could bottle what she said and feed it to every school board in the country, I would,” he says.

The Santa Fe shooting was the 16th of the year at a U.S. school during school hours, according to an analysis by The Washington Post. Since the assault at Columbine High School in Colorado in 1999, there have been an average of 10 shootings a year at U.S. primary and secondary schools, killing at least 141 students, educators and others and injuring 287 more. Since Columbine, the analysis found, more than 215,000 students in U.S. schools have been exposed to gun violence. The figures do not include shootings at colleges and universities.

Rhulen, whose company responded to the Virginia Tech shooting in 2007, says too many school officials are in “disaster denial.”

“The biggest problem we have with schools and with school administrators is they don’t believe it’s going to happen to them,” he says. “None of them are running around with their hair on fire thinking, ‘I’m next.’ And if you don’t have that sense of urgency, your school very well could be next.”

Rhulen says schools typically focus on hardening their facilities—securing doors, setting up cameras to monitor entry points and hallways, adding school resource officers. “All of those things are necessary,” he says, “but they are all ‘last stand’ technology. They’re designed to limit the number of casualties. They are in no way prevention oriented.”

Insurers work with consulting firms like Firestorm or with local law enforcement agencies to establish what Rhulen calls “first look” technology, such as programs to monitor social media and anonymous reporting systems for students, faculty and others who see signs of trouble.

“Social media is one thing we have introduced,” Marshall says. “We think that is going to be very effective because 30% of all perpetrators in a school shooting leave some sort of social media trail. By studying that, we’re able to come up with solutions that we hope will stop and prevent shootings and save lives.”

Beazley’s Parker says behavioral threat assessments help schools develop a clear process for responding to signs of trouble. “If you notice changes in people’s behavior, what do you do about it? If you overhear someone saying,

‘I’m going to go kill so-and-so over a bad exam result,’ what do you do about anonymously reporting that?’ Once it is reported, who monitors those reports? Who acts on them?”

Social media is one thing we have introduced. We think that is going to be very effective because 30% of all perpetrators in a school shooting leave some sort of social media trail. By studying that, we’re able to come up with solutions that we hope will stop and prevent shootings and save lives.

Paul Marshall, managing director of active shooter/workplace violence insurance programs, McGowan Companies

Rhulen’s company has published a free guide for school districts (sharetheformula.com) to help them strengthen their prevention and security. He encourages educators and parents to use it as a starting point for discussions about a school district’s readiness. Church Mutual Insurance and others also offer guidance at their websites, as well as online training programs.

“Most behaviors of concern in the beginning are very subtle,” Rhulen says. “It’s not like Johnny wakes up this morning and says, ‘Oh, I think I’m going to bring a gun to school today and shoot up my classmates.’ That’s not how it happens.”

Shifts in behavior are typically incremental, Rhulen says, and attacks typically involve months of planning. A student experiencing bullying at school or trouble at home may lose interest in schoolwork, with grades gradually declining.

The student may become more withdrawn. He may be seen looking at websites that are violent or involve guns. Those are things that teachers, staff and students need to be trained to look out for, Rhulen says.

“One of the first things we see after any of these events is the Facebook page of the perpetrator, and they are generally holding a weapon,” says JLT’s Fox. “There are consistencies in the background of the individuals who do these things and patterns in their behavior ahead of acting.”

Schools can put those lessons to work, he says. “There are always anomalies; however, there are always common patterns to these events. Understanding this may increase our ability to identify a problem before it actually manifests into a violent event.”

Rhulen says it’s essential for schools to ease the reporting process at schools and encourage participation. “No one wants to be a tattletale, and no teacher or staff member wants to report a fairly innocuous change in behavior that they might chalk up to just normal teenage angst,” he says.

Under Firestorm’s systems, school officials, mental health counselors and others regularly monitor reports and intervene when necessary.

Hartwig cautions against creating watch lists that violate privacy and unfairly mark a student for the rest of his school career. “It’s a risk management issue, but it is fraught with legal land mines,” he says. “It’s likely that, from district to district and state to state, the approach to this will vary tremendously.”

“It’s tricky, isn’t it?” Fox says. But he and others say it can be done successfully. “After an event, you’d be heavily criticized if you had a concern and you had not acted on it. It needs very, very careful handling.”

Arming Teachers

After the Parkland shooting, President Trump promoted the idea of arming “gun-adept” teachers to help defend against attacks. The insurance industry’s reaction to the proposal has been mixed.

EMC Insurance is the largest insurer of schools in Kansas, one of more than a dozen states that allows school personnel to carry guns under certain conditions. In a letter to its agents, EMC said it wouldn’t insure schools that arm teachers, calling it a “heightened liability risk.”

Parker agrees that the presence of firearms could affect the cost or even the appetite for insuring the risk. “When we ask questions about security, it’s focusing on how we keep a gun out of the workplace or out of the school,” he says. “If the gun is already there, it is a different proposition as far as the risk is concerned.” That said, Beazley doesn’t have a position on arming teachers and wouldn’t rule out insuring a school that allows concealed weapons.

Church Mutual Insurance is also staying out of the debate. “We’ll let public policy go where it goes on that one, and we will be prepared to insure teachers whether armed or unarmed,” says Ed Hancock, the company’s chief underwriting officer.

Tory Brownyard is president of the Brownyard Group, a program administrator that specializes in providing insurance to the security industry. His company has turned down coverage for schools planning to arm teachers. “Unless the teacher is a retired police officer or former law enforcement, we would have a hard time accepting a risk with armed teachers,” he says. “We just don’t feel there is the adequate training there.”

However, Brownyard says his opinion has changed over the many years he has given interviews since the shooting at Columbine.

“In the past, I would say putting a firearm in a school is unwarranted, that these shootings are rare occasions and by putting a firearm in a school every day in the hands of a security guard, you’re really increasing the chances of something very bad happening,” he says. “Now, as the father of two school-age children, I do feel better with a security guard at a school with a firearm, assuming the security guard is properly trained and vetted.”

Marshall says McGowan currently does insure schools that have teachers who have been trained to carry guns as employee resource officers and also provides coverage to churches, car dealerships and other places that have an armed individuals on site. He has no problem with seeing that expand. “It’s not unique to education,” he says.

Marshall doesn’t believe arming teachers will increase the risk of a shooting, as some critics of the idea contend. “I don’t think there’s any data that’s proving that out,” he says. “There’s no actuarial data. It’s more of a political, knee-jerk reaction on their part. In our opinion—of course, we’re the underwriter, so we get to have an opinion on this—we think a properly trained resource officer will make the school a safer school.”

Rhulen thinks it’s unwise to put teachers in that role. “It’s absolutely a horrible idea,” he says, pointing to a New York City Police Department study of situations where its officers fired guns. About 80% of the shots failed to hit their intended target.

“And that’s with a trained police officer,” he says. “Think about it in terms of Mr. Smith, who’s not a trained police officer—this is a guy who went to school to try to help people, to try to educate our youth—and now he’s going to get into an armed firefight with a student who has a mental illness? The whole thought process around it makes no sense.”

Hartwig says the idea is likely to be handled differently in each state. “I would expect the insurers would go through a vetting process for this,” he says. “Who? How many? How well trained are they? What is their experience? What are the criteria for the use of a weapon? How is the weapon stored during the day? And many other questions that would affect the willingness or likelihood of an insurer to offer such a policy and what it might cost.”

The Parkland Effect

After every major school shooting since Columbine, there is a renewal of the debate over what America should do to address the violence. Then there’s another shooting.

One of the first things we see after any of these events is the Facebook page of the perpetrator, and they are generally holding a weapon.

Alistair Fox, deputy CEO, JLT Specialty Credit, Political and Security Risks Division

Brokers and agents who sell active shooter coverage sense there’s something different about the public’s reaction to the assault in Parkland.

“Normally, in two weeks people forget about it. They have the attitude that it’s not going to happen to me; it’s going to happen to someone else,” Beazley’s Parker says. This time, though, it appears the focus has remained, he says.

“More people are taking notice. More people want something done about it.”

Rhulen hopes that’s the case but isn’t so sure it will last. He says his firm’s research shows the media’s focus on shootings has shortened in recent years. “What you see is it’s about 22 to 23 days from the time of a shooting to the time it drops out of the media,” he says.

Parkland was an exception and stayed in the news much longer, Rhulen says, but the coverage of the next major shooting—in Santa Fe, Texas—faded more quickly than the typical 22 to 23 days.

Given the increase in calls to insurers about active shooter policies, it is clear school officials are thinking about their own vulnerabilities more. “We have more clients wanting clarity over coverage from their GL carriers,” says Parker, who encourages clients to get those answers in writing.

Although still relatively new, many of the policies have added new features as schools and carriers reevaluate how coverage can fit potential needs. “As we’re going along, more and more schools are asking, ‘Can we do this? Can we do that?’” Parker says.

At Beazley, Parker says, he expects coverage to expand to cover things like construction of memorials for victims and replacement of lost tuition fees for private schools affected by violence.

As a result of security assessments, Brownyard expects more schools to add school resource officers, metal detectors and security systems. “Unfortunately, it’s becoming an expense that’s going to be necessary to protect the children,” he says.

Marshall concurs. “Society, I think, is going to change and allow this,” he says. “Kids will say, ‘Yeah, I’ve got to walk through a metal detector in the morning to go to school. I just do.’”

Premiums also have undergone changes since the policies were introduced, with costs falling as more competitors join the field, similar to the dynamic seen in terrorism and cyber-security coverage.

At McGowan, Marshall says premiums can be priced at about 50 cents to $1.50 per student, depending on the level and type of coverage. “Our minimum premium is $1,200 for a small charter school for a $1 million policy,” he says.

Walker says budget-conscious school districts often have a misconception that coverage will be expensive and are surprised they can afford it. A recent quote for $1 million of coverage for a private school in the Orlando suburbs with about 350 students amounted to $1,500 a year, he says.

Unlike many companies, Church Mutual provides coverage for “catastrophic violence response” as part of its GL policy. Hancock said it was added at no extra charge after Columbine. It pays $50,000 per victim and $300,000 per violent incident.

Hancock thinks other companies will begin offering a basic level of coverage in their GL policies. “I think and I hope you will see the industry provide more insurance products that respond regardless of fault, whether it’s medical payments or catastrophic violence response coverage,” he says. “There is a need to compensate both the innocent victims and bystanders in these shootings and provide a more effective response to let the school districts get on with their lives.”

As the policies continue to evolve, Hartwig says, insurers need to introduce the topic with their clients. “This is where a broker, an agent, demonstrates value,” he says. “Sometimes they have to have a conversation that the client may not want to have because they don’t even want to think about something like this. But the client in many cases would probably be relieved if the agent or broker broaches the topic and has a solution at hand that is reasonably priced and can explain how it complements their existing coverage.”

The status quo probably isn’t a wise choice for schools that don’t have some sort of coverage, Hartwig says. After a crisis, a school district can face millions of dollars in expenses. “If there is a shooting on your premises, you are almost certainly going to be on the receiving end of lawsuits, whether you’re a school, a religious institution, a retail establishment or an employer,” he says.

Marshall encourages agents to talk to local media about the coverage available to let local officials and parents know there is expertise available through insurers. School officials will welcome the discussion, he says. “Each of the clients we talk to as an insurer feels better off than before they spoke to us,” he says. “That doesn’t always happen to us in insurance, right?”

Hartwig says brokers and agents need to educate themselves on available products and ensure they can access a market in which the products are available. Then they need to have that uncomfortable discussion with a client.

“Tragically,” he says, “the agent or broker need only point to a recent newspaper.”

Lease is a contributing writer. daryl.lease@gmail.com

Natural disasters across the United States caused $337 billion in estimated damage in 2017, but less than half that amount, about $144 billion, was insured. The remainder was borne by Uncle Sam. Can insurance companies and reinsurers help fill this gap to reduce the financial burden on taxpayers? The answer seems unclear.

But let’s assume municipalities enact building codes and zoning regulations that reflect realistic climate change threats and regulators approve homeowners insurance rates based on insurers’ actuarially derived premiums. In that scenario, would the industry have the will to risk more capital on something as uncertain as the potential impact of climate change?

“Climate change affects trillions of dollars of property at once, assuming there were multiple simultaneous events producing losses,” says John Seo, co-founder and managing principal of Fermat Capital Management, an investment management company specializing in structuring catastrophe bonds. “The challenge is the ability of the insurance and reinsurance markets to absorb the resulting losses, which would amass into the hundreds of billions of dollars.”

Seo cites the example of a major property catastrophe happening in a coastal metropolis. “The equivalent amount of capital required would be the equivalent of 10 million cars colliding at once, which is extremely unlikely and would be considered uninsurable under current insurance frameworks,” Seo says. “The traditional industry will not risk this amount of capital on a single event.”

Even if it had that kind of money, the industry wouldn’t bet it all on one gargantuan risk. “The total amount of capital for a major property catastrophe that all the insurers and reinsurers in the world can take on in a single location like Miami or Tokyo is $30 billion to $45 billion,” Seo says. “We know this estimate from their public filings. Maybe they can take on a few billion more, but nowhere near $60 billion, much less a couple hundred billion dollars.”

Nevertheless, more risk-bearing capital is available from the capital markets to narrow the gap between economic damage costs and insured losses from the capital markets. “Our expectation is that a significant amount of the payouts made by federal, state and local governments in the aftermath of a natural disaster can be borne by insurance-linked securities,” Seo says.

He’s referring to catastrophe bonds, which have been around for more than three decades but have matured rapidly in the intervening years. In 2017, the cat bond market endured its largest losses to date from Hurricanes Harvey, Irma and Maria. Yet in the first quarter of 2018 the market snapped back to tally a record $4.24 billion in new catastrophe bonds issued across 17 separate transactions.

Generally, investors in cat bonds include pension funds and hedge funds looking to diversify their investment portfolios with a new asset class that does not correlate with the risks of other investments. Sponsors range from insurers and reinsurers to large multinational corporations and governments seeking to spread the risk of loss from natural disasters.

Cat bonds function much like reinsurance contracts structured over several years. When the sponsor’s property damage losses exceed a specified financial indemnity trigger like $3 million, the bond activates to absorb a layer of risk up to a stated limit. Other catastrophe bond losses are pegged to parametric triggers like hurricane wind intensity.

Seo is confident that insurance-linked securities can complement traditional insurance and reinsurance in picking up more of Mother Nature’s tab. “The capital markets have more than $100 trillion in play, giving it the potential to be effectively the largest and most efficient insurer in world history,” he says. “I can also see governments and state agencies acting more like private market insurers, while shifting the financial burden away from taxpayers.” Rather than dig into government treasuries to bail out affected businesses and homeowners, the bond would trigger to make the needed payouts.

Seo is not alone in this prognostication. “There is a role for capital market capacity to step in through the issuance of insurance-linked securities or other kinds of structures like ours,” says Will Dove, CEO and chairman of Extraordinary Re, a new reinsurer about to unveil a trading platform run by Nasdaq, on which investors will trade assets tied to insurance liabilities.

Like cat bonds, the unique platform presents investors with the opportunity to diversify their portfolios outside traditional stocks and fixed-income assets—albeit with a couple twists. Other property and casualty risks besides property catastrophe exposures can be invested in and traded like liquid securities, such as aviation, marine, workers compensation, terrorism and even life and health insurance risks. An investor can sell an interest in one risk and buy an interest in another.

Another novel startup is Jumpstart, launched in June, which has created a parametric-triggered renters insurance policy absorbing earthquake risks in California. “Nine out of 10 people in California don’t buy earthquake insurance, and half of them are renters,” says founder and CEO Kate Stillwell. “We’re offering a one-size-fits-all insurance policy for $20 per month on average to absorb up to $10,000 of losses, completely reinsured.”

Stillwell notes the insurance doesn’t just pick up the cost of damaged or destroyed personal contents like furniture and laptops. Other compensable losses include an inability to get to work because streets are closed. The parametric trigger is based on U.S. Geological Survey reports measuring peak ground velocity, a fancy way of saying ground shaking. If the earth moves 30 centimeters per second and more, the insurance kicks in.

Let’s hope it doesn’t.

How bad has the weather been in recent times? Really bad and really costly. Natural disasters caused $337 billion in damage across the United States in 2017, the second costliest year on record for such activity. According to the National Oceanic and Atmospheric Administration, 16 natural disasters last year caused more than an estimated $1 billion in damage each. A sampling of Mother Nature’s wrath:

  • Hurricane Harvey, a Category 4 storm, produced an unprecedented volume of rainfall, estimated at nearly 60 inches. Flooding in the greater Houston area exceeded all other known U.S. flooding events. Harvey also produced the highest storm surge level in the Houston area since 1961. Nearly 200,000 homes and business structures were damaged or destroyed.
  • Hurricanes Irma and Maria, both Category 5 storms. Irma’s 185 mph winds lasted for 37 hours, the second longest duration on record. Maria’s 175 mph winds devastated Puerto Rico, which was woefully unprepared for a hurricane of such magnitude. Maria ranks as the second deadliest hurricane in U.S. history, consuming more lives than were lost in Hurricane Katrina in 2005. It was the first Category 5 hurricane to strike Puerto Rico.
  • In October 2017, northern California’s wildfires burned at least 245,00 acres as high winds raged across eight counties. The fires incinerated 8,900 buildings, claimed 44 lives and caused $9.4 billion in damage. Two months later, the Thomas fire in southern California burned more than 282,000 acres, causing $2.1 billion in damage.
  • This summer in California the Mendocino Complex fire consumed more than 400,000 acres, the Carr fire burned nearly 230,000 acres and the Ferguson fire burned more than 97,000 acres. Total economic damages are still being tallied.

The blaze was started by an arsonist, and all 3,000 residents of Idyllwild were evacuated.

For five nail-biting days, we waited, fearing mostly for our neighbors’ primary homes and their pets left stranded when the roads to the town were closed. A friend in the California Highway Patrol snapped a picture of a giant plume of smoke from our front fence line. It was a half-mile away. Winds blew westerly, not a good sign.

And then our prayers were answered. The ground and aerial firefighters who arrived by the hundreds to battle the blaze finally got it under control. Although the fire consumed more than 13,000 acres, the town and all but a half-dozen homes were spared. Other municipalities throughout California have not been so fortunate. The largest wildfire in state history burned for more than a month and encompassed more than 400,000 acres.

The costs of such natural disasters are borne by all of us—in our taxes and our insurance premiums. That cost was made clear in 2017. A study by the Swiss Re Institute found the economic damage caused by natural disasters last year totaled $337 billion, the second highest on record—of which $144 billion was insured, the highest on record. Three hurricanes that year—Harvey, Irma and Maria—ranked among the five worst hurricanes in history, in terms of financial costs. Insured losses from all wildfires in the world totaled $14 billion in 2017, the highest ever in a single year. In the United States alone, more than 9.8 million acres burned in 2017, costing $18 billion—triple the annual wildfire season record. Among these wildfires was the Thomas fire, California’s worst fire in history at the time in terms of acreage burned.

For businesses, natural disasters represent a serious risk management issue. Many surveys of large and midsize companies rank natural catastrophes among their top three risks. For small companies, such disasters are an even greater threat.

In the years ahead, diverse structures in regions vulnerable to natural disasters are bound to experience substantial property damage and destruction. Large companies will endure significant supply-chain disruptions, delays in business operations and reduced revenues. Many smaller businesses will fail.

What is being done to prepare for this dystopian possibility? The paradoxical answer is: quite a bit but not enough.

For example, in ZIP codes designated by the Federal Emergency Management Agency as susceptible to natural catastrophes, 40% of small companies experienced natural-disaster related losses that curtailed business operations.

Only 17% of them had business interruption insurance, according to a 2017 study by the Federal Reserve.

Leaving aside potential causes, more than 97% of climate scientists in peer-reviewed studies in notable scientific journals concur that the planet is warming. And more than 80% of climate scientists in studies conducted by groups supported by the oil and gas industry affirm that climate change is happening.

“The evidence is unequivocal that the planet is warming, with literally thousands of studies using all sorts of evidence to draw what are pretty rock-solid conclusions,” says Richard Black, director of the Energy and Climate Intelligence Unit, a U.K.-based nonprofit that publishes on energy and climate change issues.

What does this mean for natural disasters? It depends. Among the scientific community, some potential effects are generally agreed upon, while others have less consensus.

Hurricane Flooding

As the planet warms, ocean levels rise for two reasons: thermal expansion (water expands as it warms) and the flowing of melting land-based ice like glaciers into seas. “We can measure sea levels year by year and have seen gradual increases that may accelerate in the future,” said Robert Muir-Wood, chief research officer at catastrophe risk modeling firm RMS.

There are arrows that go from climate change to things like food security, geopolitical stability and economic growth, all of which create risk management implications for companies

Howard Kunreuther, co-director, Center for Risk Management and Decision Processes, Wharton School

When hurricanes form, they create an additional abnormal rise in sea level—called a storm surge. The greater the rise in sea levels, the higher the risk of extreme flooding along coastal areas, given the expanded volume of water.

“There’s no doubt that hurricanes will inflict heavier damage due to rising sea levels caused by climate change,” says Michael Oppenheimer, a climate scientist and professor of geosciences at Princeton University. “That’s a no-brainer. The flooding will be greater and will extend more inland from coastlines.” That said, 90% of Harvey’s insured property losses derived from inland flooding and not hurricane wind intensity.

Climate change also is a factor in higher precipitation events, such as the 60 inches of rain that engulfed the greater Houston area during Hurricane Harvey. “As temperatures rise to warm oceans, water evaporates [faster] and produces more moisture content,” Oppenheimer explains. “On that, we climate scientists can agree.”

Muir-Wood shares this opinion. “There’s pretty good evidence to suggest we will have more intense rainfall resulting in extreme flooding events like we saw with Harvey,” he says.

Another factor in hurricane flooding is duration of the storm. Hurricane Harvey lasted 16 days—from August 17 through September 2. According to the journal Nature, climate change affects what scientists call “translation speed”—the speed at which a hurricane travels forward. This speed is slowing, indicating that storms may linger longer in a particular geographic area, increasing the risk of flooding.

“There’s a theory that shows a warming planet stalls atmospheric circulation patterns like trade winds and the jet stream, stalling storms in one place for longer periods,” Oppenheimer says. “But there is no scientific consensus yet that this is explicitly caused by climate change.”

The changing climate might also explain why scientists expect more Category 4 (130 mph to 156 mph winds) and Category 5 (157 mph or higher) hurricanes. That’s because hotter oceans provide more energy, fueling wind intensity.

“We may even need to create a new Category 6 to take into account more intense winds,” Oppenheimer says. “But most scientists are not willing yet to say that the observed change in wind intensity is due explicitly to climate change. Again, we’re not at a point yet to nail this down.”

If there is a silver lining in these dark clouds it is this: more frequent hurricanes generally are not anticipated, with some climate experts predicting a potential decrease in the overall number of future hurricanes, based on models involving warming temperatures. According to the National Oceanic and Atmospheric Administration’s Geophysical Fluid Dynamics Laboratory, three or four small hurricanes might merge into a single large hurricane, although the organization acknowledges uncertainty on this subject.

Droughts and Wildfires

Last year was the second-worst year on record for wildfires in the past 60 years, with 10 million acres burned, exceeded only by 2015, when about 10.1 million acres went up in flames. This year is well on track to break the record. (See sidebar: A Terrible Tally.)

Prior to the 1970s, wildfires in the United States received little attention from the government and the public, as they were generally smaller and sporadic and occurred in mountain regions with scant habitation. Then all hell broke loose. According to the Union of Concerned Scientists, between 1986 and 2003, wildfires burned more than six times the land area, occurred nearly four times as often and lasted almost five times as long as wildfires reported between 1970 and 1986.

More recent statistics indicate that wildfire seasons were 84 days longer on average from 2003 to 2012 than they were from 1973 to 1982. Large wildfires also are taking more time to contain, burning an average of more than 50 days between 2003 and 2012, compared to six days between 1973 and 1982.

Is climate change the cause of all this misery? “It’s a complicated peril, with a lot of actors in play,” Muir-Wood says. “You must take into account the previous history of drought and extreme heat waves.”

He’s referring to the fact that our world has seen weather like this before. Ancient Egypt was lost to one of history’s most withering droughts, and the United States’ most protracted drought occurred during the Dust Bowl years from the 1930s to the 1950s.

However, we do know that the increase in air temperatures due to climate change does cause drier conditions, such as decreased soil moisture and increased evaporation of water from lakes, rivers and other bodies of water—all of which can exacerbate drought conditions.

There is no single set of people other than the actuaries at insurers and reinsurers who are better at understanding these risks and calculating their frequency and severity.

Richard Black, director, Energy and Climate Intelligence Unit

“Another factor is natural weather occurrences like El Niño events that cause year-by-year variability in drought potential,” Oppenheimer says. “What we do know is that future conditions will be progressively more favorable to these kinds of fires in many areas. The reasons are complicated, but the science is getting close to nailing it down.”

The Human Factor

While climate change can be blamed in part for the recent scourge of natural disasters, human folly contributes to much of the economic impact. First, too many people (myself included) continue to live in coastal areas and mountain towns, regardless of the known dangers. Second, those of us living in these regions downplay the risks and do little to reduce their impact.

“Despite all we have learned about the impact of hurricanes, wildfires and other natural disasters and how to protect ourselves and our businesses from their impact, we’ve actually done very little to reduce the material losses from these events,” says Howard Kunreuther, a professor of decision sciences and public policy and co-director of the Center for Risk Management and Decision Processes at the University of Pennsylvania’s Wharton School.

In his book (written with Robert Meyer) The Ostrich Paradox, Kunreuther contrasts human behavior negatively with the behavior of an ostrich presumed to bury its head in the sand when danger approaches. “The reality is that ostriches stick only their beaks in the sand, but their eyes see everything around them,” Kunreuther says. “People have their entire heads in the sand. The uncertainty associated with future sea level rise and the nature of hurricanes often leads us to hope for the best rather than fear the worst.”

He attributes this reaction to myopia, amnesia, optimism and inertia, which combine to make us always expect the best, even when bad things are blatantly obvious. “People have a tendency to think when they move to coastal areas in a hurricane-prone region that the worst won’t happen to them, despite all evidence to the contrary,” Kunreuther says.

Muir-Wood expressed a similar sentiment. “In most cases, the risks of a hurricane or wildfire are greater than how people perceive them,” he says.

Given all we know, scientifically and economically, about natural catastrophes, the related costs continue to rise, in large part because of our collective tendency to downplay their significance. “Following a wildfire or a hurricane that interferes with people’s lives, little if anything is done to prepare for the possibility of it occurring again,” Kunreuther says. “The thinking is that we will be spared next time around. We have very short memories when bad stuff happens.”

By doing little if anything to reduce the potential impact of a natural disaster, when the next one arrives the aggregate damage losses are higher than they otherwise could have been. A study by insurer FM Global affirms this connection. The multinational property insurer/property loss prevention specialist company evaluated its losses from Hurricanes Irma and Maria, comparing the data of clients that had taken loss prevention actions based on its recommendations with those that hadn’t taken these actions.

“We were surprised to learn that the companies that took these actions experienced losses five times lower than those that didn’t,” says Katherine Klosowski, FM Global’s vice president of special projects. “We had expected a difference but not that magnitude.”

This is good news, indicating that losses can be contained. Such losses run a gamut wider than just property damage to homes and buildings. “There are arrows that go from climate change to things like food security, geopolitical stability and economic growth, all of which create risk management implications for companies,” Kunreuther says.

In fact, according to one study, as much as 95% of fresh produce is perceived to be at risk because of climate change. Livestock health is also at risk, as warming temperatures cause heat stress and increased demands for water that may not be as readily accessible.

“More needs to be done to assess these risk interdependencies,” Kunreuther says. “And insurers are in a prime position to undertake these assessments.”

Fortunately, there are many smart ideas circulating on how homeowners and businesses can reduce their risks of property damage, including water runoff systems like dikes to contain flooding, spraying homes with fire retardant prior to a wildfire and hurricane-resistant doors and windows. For more information, check out FEMA’s online hurricane preparedness and wildlife planning toolkits.

Government Action

Fewer people die worldwide from hurricanes and wildfires than in the past. But on the property and business interruption side of things, the record stinks.

Michael Oppenheimer, professor of geosciences, Princeton University.

When people fail to take actions to limit their exposure to property damage, governments generally don’t intervene on their behalf. “We’ve seen a perpetuation of poor public policy decisions, in which people and businesses are allowed to locate anywhere they want in structures that are inappropriate given the climate risks,” says Will Dove, CEO and chairman of new reinsurer Extraordinary Re. “This guarantees that catastrophe claims frequency and severity will only get worse.”

“We need the political will of the federal government to say that it will no longer encourage risky zoning and land-use rulemaking on the part of local governments, since it is local government that authorizes permits for construction activities in climate-vulnerable areas. Local building codes must reflect the actual risks, which are well understood.”

Princeton’s Oppenheimer also took local municipalities to task for not upgrading their building codes. “They need to get them up to modern standards that reflect reality and then enforce them stringently,” he says. “And the federal government flood insurance program must follow through with rates that are sound but also sensitive to the investments that people make to protect their property.”

If this were the case, more homeowners might buy flood insurance. Only two in 10 homeowners had either private or federally provided flood insurance to absorb losses from Hurricane Harvey, according to an estimate by the Consumer Federation of America. “People without insurance expect the government to bail them out, which is often the case,” Dove says. “In effect, the government bailout takes away the financial responsibility from the individuals affected. When this occurs, the taxpayer ends up footing part of the bill.”

Part of the problem is the National Flood Insurance Program, which is deeply in debt and nearly insolvent, in part due to repetitive claims for property damage by the same homeowners. “NFIP is in need of reforms,” Dove says.

“FEMA flood maps are outdated and don’t reflect current reality. There are no incentives to rebuild structures to accommodate the actual risks, resulting in repetitive loss properties. Coverage limits are stripped down in many cases, with no business interruption insurance for small businesses out of commission for longer than a month.”

Congress is now studying common-sense reforms to NFIP, like improved flood mapping and the identification of properties filing repetitive damage claims. But even with such enhancements, unless flood insurance is mandatory in vulnerable regions, not everyone will buy the insurance. Kunreuther proposed the idea of offering all homeowners and businesses financial incentives, like lower premiums and affordable loans, for structural improvements they undertake to reduce storm-related damage risks.

“A reason why people don’t invest in mitigation measures is because they perceive the cost as too high relative to the benefit,” he explains. “But if the government offers them long-term loans at affordable rates, there’s a better chance they’ll see value in making needed improvements. And if their insurance carrier simultaneously reduces its premiums for taking out the loan, the incentive for the business or the individual is even greater.”

Private Market

It’s not just a government problem, though, and there is a lot the private insurance market and other businesses can do to help encourage mitigation. And the private insurance market is growing for flood. Several reinsurers like Swiss Re are partnering with primary carriers to offer the coverage. Altogether, carriers wrote more than $623 million in business in 2017, a 51.2% increase in premiums over the previous year. Nevertheless, this is a pittance compared to the NFIP’s $3.5 billion in 2017 premiums.

As far as encouraging mitigation goes, Oppenheimer has some ideas. “Frankly, the U.S. insurance industry could do a lot more to fulfill its social responsibility by making sure people properly manage the risks to their properties,” he says. “A rate structure that gives people credit for building and maintaining resilient homes and premium rebates when someone does something good to make the property more resistant to damage are big steps in the right direction.”

Lenders also can do their part. “Banks can require businesses and homeowners in vulnerable areas to buy flood insurance as a condition of loans and mortgages,” Dove, of Extraordinary Re, says. “Many lenders already do this if the region is in a one-in-100-year flood zone. But the flood maps that define many areas are very dated and have not been updated to reflect current climate conditions. Certainly, no one expected that Hurricane Harvey could produce 60 inches of rain in a matter of days. Some regions that were not perceived as a one-in-100-year flood zones in the past may very well fall into this category now.”

Insurance brokers also can help tip the scales. “Too many policyholders are confused about what is and isn’t covered when a natural disaster strikes and are surprised when something they thought was covered wasn’t,” says atmospheric scientist Marla Schwartz, from reinsurer Swiss Re.

An example is mudslide damage and destruction. A few months after the Thomas fire was finally contained, heavy rainfall in the affected region resulted in massive and deadly mudslides that destroyed multiple homes. Although property insurance policyholders did not have mudslide insurance, which is unavailable in California, the state’s insurance commissioner instructed insurers to honor claims for mudslide damage, commenting that the fire was the “proximate cause.”

The decision was contentious, but Schwartz says, “It’s a good sign that regulators are up to date on links between fires and mudslides. But it would be better for insurers to recognize this link in their policies and reflect the risks accordingly in their premiums.”

Taking the Lead

Some believe the global property and casualty insurance industry can play a more influential role in understanding, managing and insuring future natural disasters. “There is no single set of people other than the actuaries at insurers and reinsurers who are better at understanding these risks and calculating their frequency and severity,” Black, of the Energy and Climate Intelligence Unit, says. “Companies like Swiss Re and Munich Re are just brilliant at this for obvious reasons—they’re bearing a good part of the cost. They and others should have louder voices in informing the public and policymakers of what is really going on and what needs to be done as a result.”

An unambiguous “voice” may well be needed. Every time the United States suffers a shocking disaster like Hurricane Katrina, Superstorm Sandy or the California wildfires, the inevitable hue and cry that follows eventually subsides—until the next big disaster arrives.

“The challenge in the future will not be lack of risk-bearing capital to absorb catastrophic losses,” Muir-Wood says, “but whether insurers are allowed to charge for the underlying cost of risk based on their technical arguments.” If they can’t charge for the actual cost of risk, he says, insurers might need to pull back coverage or pull out of markets entirely.

“Certainly, the world is not helped by a U.S. administration that doesn’t accept climate change as a reality, making the chances of support for infrastructure and building adaptions at the federal level currently nonexistent,” Black says.

“But insurers and reinsurers accept reality. They can be expected to tell it like it is.”

Oppenheimer contends time is of the essence. “Human beings have done a pretty good job saving more lives from natural disasters,” he says. “Fewer people die worldwide from hurricanes and wildfires than in the past. But on the property and business interruption side of things, the record stinks.”

Banham is a Pulitzer Prize-nominated financial journalist and author. russ@russbanham.com.

Our industry has always recognized the need to continually create value for customers. As the needs and risks of individuals and businesses have changed over time, we have continued to evolve and provide innovative solutions focused on protecting their reputations and assets.

The drivers of more recent transformation include alternative reinsurance capital, low interest rates, advancements in technology and analytics, continued consolidation, the growing emergence of managing general agents and the vital quest to attract and retain the best talent so we can solve the industry’s need to fill nearly 400,000 positions by 2020—our “workforce gap.”

Astute leaders agree the pace of change will continue to accelerate and offer great opportunity for the innovators.

Talent Drives Opportunities

Our industry’s strength is its people; they are the key to unlocking opportunities. In the coming years, the most innovative agents, brokers, carriers and service firms will thrive as they focus on profitable growth through expansion and efficiency.

Expansion requires expertise and access to new sectors and specializations. We must also think differently about the usual questions we ask ourselves. How are customer needs and buying habits changing? What risks are emerging—what is the next “cyber liability”? What markets are growing? What external influences will affect risk: economic, regulatory, legislative?

Clearly, untapped markets test our ability to generate innovative answers and solutions, but we cannot enter them blindly. Success in this type of innovation demands diversity of thought, experiences and backgrounds. New markets often require investment in local talent, market intelligence and distribution channels and may require tailored products, which alter the traditional approach to underwriting and pricing.

For example, a significant market for consideration would be catastrophe-prone exposures that have not traditionally been covered by insurance-based solutions. The fact that almost 60% of 2017 catastrophe losses were not covered is a significant indicator of how our industry can add greater value and find purpose for capital.

We cannot develop these new markets and products without skilled people who can create and deliver innovative solutions that handle our customers’ complex risk challenges and who understand successful companies must be committed to long-term returns on investment.

How do we find them? We must rethink the following: hiring practices; sourcing talent from other industries; proactive college recruiting; and implementing (or expanding) intern programs and internal training in the underwriting, risk control, claim and actuarial disciplines. It also demands partnership, collaboration, continuous learning, self-awareness and market awareness. We must capitalize on our spirit of innovation and embrace advancing technology and analytics, as the industry still has a way to go to overcome the image of being behind the times. Finally, we must market our evolving story much more progressively.

Tech Partners

A commitment to profitability is essential, and creating greater efficiency is required for all players to survive in the decades ahead. For years, agents, brokers and carriers have been keenly focused on understanding and addressing expense. In terms of the premium dollar, the expense charge is high and unsustainable over time. The industry has made good strides, but much more is required from all parties in driving down the expense ratio, including underwriting expense, loss adjustment expense and overhead. Distribution and carriers need to develop an operating model that carries less expense, offers the same or better returns on equity, and provides solution-oriented products and support for their customers.

Innovative technology companies, previously considered to be disrupters, have become strong, strategic allies in this endeavor. Sophisticated analytics have become crucial to further refining the underwriting, pricing and claims processes. In addition, efficiency driven by advanced technology and analytics indirectly frees up people to focus on increased profit and growth.

Innovative technology and analytics will lessen the impact of natural catastrophes on individuals and businesses. Improvements in prediction, safety and relief are already resulting from significant advancements in artificial intelligence, machine learning algorithms, satellite imagery, drones and earthquake vibrating barriers. The improvements are creating opportunity, which will drive our industry to develop the next generation of creative insurance solutions.

Worman is executive vice president and chief underwriting officer at CNA.
 

You are on the board of Peninsula Family Service, a Bay Area nonprofit that serves vulnerable populations. What is it about PFS that appeals to you? I
t’s the opportunity to serve the neediest in our own community, where households making $117,000 qualify to live in low-income housing projects. The breadth of PFS is very appealing. We operate nine child-development centers in San Mateo County. We run financial empowerment programs, including financial workshops and credit- and asset-building tools. And we provide older adult services, including senior peer counseling and transition care services.

You’ve had an entrepreneurial streak throughout your business career. What was your ambition when forming the new ABD?
To build a values-based firm with a world-class culture and a fierce commitment to long-term independent ownership. When I told my friends in the investment community that my vision was to build a firm whose core differentiator is culture, they looked at me cross-eyed. Today, we have 280 stakeholders and continue to invest with the next generation in mind. “Forward Looking” is one of our five core values.

Why were you so committed to independent ownership?
When you have non-employee owners, you have two core purposes—drive shareholder value and drive client value—and sometimes those purposes are at odds with each other. When you’re closely held, it is easier to invest for the long term and to put people before profits.

You went to college at UCLA but moved back to the Bay Area after graduating. How come?
I wanted to be close to family. This is where my roots are and where I wanted to start my career. L.A.’s fine. It’s got warm beaches and Hollywood, but we’ve got culture up here in NorCal!

You and your wife are avid hikers. What are your favorite spots in the Bay Area?
We have the coastal mountains with tons of trails. We love the Marin Headlands. We also do a lot of hiking at Lake Tahoe. We did some amazing hiking several years ago at Lake Louise, up near Banff, Canada.

Your official company bio says you enjoy “good Vitis vinifera with friends.” What’s your favorite California wine these days?
One of my all-time favorites is Ridge, specifically Monte Bello, their estate reserve Cabernet. It’s interesting because Ridge is from the Santa Cruz Mountains appellation, which is not as well known as Napa or Sonoma. But wine connoisseurs know that Ridge Monte Bello is considered a California “first growth.”

Who has been your most influential mentor?
Definitely my father, Fred. His enthusiasm toward the business is incredible. He received so much pleasure and satisfaction from building a respected company that did exceptional client work and that employed and supported so many colleagues and their families. I would be remiss if I didn’t also mention Bruce Basso. Bruce and my father were partners. When I was putting the new company together, I leaned heavily on Bruce for his wisdom and guidance. He is extremely generous with his time and gracious, wanting nothing more than to see me and my partners succeed.

Is there a leader in the business world whom you’ve most admired?
Marvin Bower, the late co-founder of McKinsey & Co. He invented management consulting and had a very progressive view on what it means to be a leader.

If you had five minutes with Donald Trump, what would you tell him?
That’s a little above my pay grade. It’s too easy to say something negative, and it’s not popular to say something positive, especially being from California.

What three words best describe ABD?
Work, love, play. That’s ABD’s ethos. We work hard. We play hard. We celebrate the things and people we love.

How would your co-workers describe your management style?
Definitely not micromanaging. I’d say encouraging, empowering, leading by example.

If you could change one thing about the insurance industry, what would it be?
The industry would embrace change and innovate more quickly.

Last question: What gives you your leader’s edge?
I don’t think I have many insurance brokerage peers that started and built an insurance software business. The BenefitPoint experience taught me a lot about building and running a company, including mistakes not to repeat. It gave me a close-up look at hundreds of insurance brokerages and their operations. I learned the importance of operational best practices and the value of a world-class operating team.

 

The de Grosz File
Favorite vacation spot: Lake Tahoe

Favorite movie: Shawshank Redemption

Favorite actor: “I watched a documentary on Robin Williams that reinforced what an amazing talent he was.”

Favorite book: “I just finished Season of the Witch: Enchantment, Terror, and Deliverance in the City of Love, by David Talbot. I wouldn’t say it’s my favorite book, but it’s a favorite. It’s about the cultural transformation of San Francisco in the ’60s, ’70s and ’80s. It really is an eye-opening book that highlights the intersection of culture and politics and brings clarity to who and what and why San Francisco is what it is today.”

Wheels: Audi A6. (“It’s a 2009, and I’ll probably drive it until it dies. I’m not a car guy.”)

Tell us about DIG.
DIG is a next-generation technology company that enables insurers, banks and brokerages to roll out new digital tools and innovative products at record speed. Our solutions include tools to sell commercial insurance products, either directly online or via partners such as banks. The sales tools can include risk analysis, comparison and transaction tools. Our customer relationship management tool can support the interaction with commercial clients. For agencies, we develop customer portals—web and mobile apps, transaction and comparison tools, CRM solutions and [application programming interface] platforms—to connect to back-end systems of insurers and brokerages.

How did you venture into insurtech. 
I really am very passionate about insurance. I was driven by the fact that I want to change insurance. The first part of my career I worked with corporates on the insurance side. I was leading business development in Asia and Europe for GE Insurance, and then I was leading global M&A and strategic equity investing for Swiss Re. I started my career as an insurance broker because I had to earn some money to finance my university education.

Digital Insurance Group is now my third private-equity backed technology company. Before I started this journey, we launched a private equity firm called LeapFrog. We founded the world’s first microinsurance fund, backed by Bill Clinton in 2007. We raised $130 million for the first fund and now over $1 billion to invest in insurance companies and brokerages in the emerging markets with a profit-with-a-purpose lens.

Before setting up DIG, I was the managing director and executive board member of Germany’s second-largest online price-comparison business, Verivox. We successfully sold the company to Germany’s largest media company.

Then, I was working with the investors of Knip, and we were kind of brainstorming and thinking, “What can we do with Knip to really scale the business model?” In the spring of last year, we founded the Digital Insurance Group. We merged two businesses together to create it—Knip on the one side, which was Europe’s first digital brokerage, and Komparu, a software and service company focused on insurance and brokers. And we’ve come a long way since.

Established companies don’t see us as a threat anymore; they want to collaborate. Just recently we have signed a multiyear collaboration agreement with Zurich Insurance, and we also work with other insurers and support banks with bancassurance products. There are a lot of lessons learned that we apply in our current business.

What was the rationale behind the merger of Knip and Komparu to form DIG?
First, we had a vision. We thought insurance was too complicated. We wanted to make insurance easy and accessible for everybody, for the right price at the right time. We knew that with our combined experience and joined tech knowledge we could help big incumbents roll out truly digital and easy-to-use solutions to improve their customers’ insurance experience.

The two businesses were highly synergistic. We used the technology of both companies to build a new tech stack. Knip was really disrupting the market. It was Europe’s first digital broker and had a fantastic mobile app. It had developed its own CRM system, not using Salesforce like others do. It was very strong in terms of customer engagement, using a recommendation engine to really interact with the customer, giving advice and doing upsell and cross-sell.

Komparu started seven years back in the Netherlands and set up the largest car insurance comparison portal. And then it used that technology to develop a software-as-a-service model, selling comparison tools and other technologies to brokerages, insurers and distributors. Komparu was very strong on the web side and the portal but also, more importantly, on leveraging its API knowledge and how to integrate into insurers’ systems.

The core of the price comparison business was being able to integrate into back-end systems of insurers, being able to get data and push data back. Komparu also had a couple of hundred customers on the B2B and the software-as-a-service side. We combined that knowledge and expertise, and we built a new tech stack, the DIG core platform.

How does DIG help insurers and brokers?
We use our data-driven insurance platform to enable our B2B partners—insurers, banks and brokers, but also other companies like platforms, retailers, employers—to roll out new digital propositions fast. For the insurers, the biggest issue today is that they know they have to offer digital tools but they have a very complex IT architecture. Launching new products, launching a mobile app or customer portal, offering new on-demand insurance products takes an enormous amount of time. With our solution, we’re able to sit on top of the existing systems of the insurer and deliver easy-to-implement, quick and short-time-to-market solutions. That’s very powerful. We also work with brokerages.

We’ve developed an insurance portal that Aon is selling to its corporate clients, which uses this as an employee benefits portal. The Aon platform allows its corporate clients to offer health insurance comparison, advice and real-time purchase to their employees. For insurers, we also develop tools that are being used for their agency force, and we work with larger brokerages to help them with their digital tools. For banks, we are working on cutting-edge digital bancassurance solutions that can be easily integrated into their banking apps or portals.

When you say DIG is data-driven, how are you working with data? 
DIG’s data-driven platform enables insurers and brokerages to collect any external data, such as contextual data (geolocation), behavioral data, for example driving behavior, or any other external data from any sensor or external database. The data and events can be used to enrich the customer’s profile and trigger actions such as notifications to clients to change the cover.

Why do established companies need help from insurtechs? 
It’s an enormous opportunity at the moment. Every insurer has been talking about, “We need to digitize; we need to transform our business,” but the reality is that many of them haven’t done a lot. Why? Because of their complex IT architecture. All the insurers have the same problems. They all have legacy systems, and they need to find better and smarter ways to launch new propositions. That’s why we are so excited about our future.

We currently have projects in multiple countries in Europe and projects in Latin America. We also have prospects in Asia. At the end of the day, the need from the end customer’s perspective is the same no matter if the person sits in America or in Europe. The customer wants to have transparency. He wants to have advice. He wants to be able—in an omni-channel way—to interact with you as an insurer or broker.

How important is speed to market?
It’s absolutely crucial. If you look at the tech companies, at the platforms, they all want to own the customer and a greater share of wallet. Many of them are going to go into insurance. If you look at the banks—it’s a big trend in Europe—you have these challenger banks. They are growing very fast. In the U.K., you have Monzo, Starling, Revolut. And in Germany, N26. They’ve been able to acquire around a million customers in a very short period of time, and they all actively offer insurance to their clients. They offer it in a smart and obviously digital way.

And you have others. Google was active in the insurance comparison business in Europe. It did mortgage and car insurance comparison. It stopped that activity, but it will come back. It’s only a matter of time. You look at Amazon.

Amazon in the U.K. has rolled out insurance products and is hiring people. All the tech companies, all the platforms will fight for clients.

Many insurers have not woken up yet. It’s really a crucial time in history because, if you look at some of the big insurers, you see that their customer numbers are going down. You see the revenue is stagnating. They all need to make sure they can retain their existing customer base. They need to get access to new customer segments. They need to get new sales. In order to do that, they need digital tools. In order to reach the millennials, you have to go where they are. They will not be at home waiting for the insurance agent to knock on the door and sit at the kitchen table. You’ve got to go to where the need is and make sure you’re at the point of sale.

From a venture capital perspective, what separates the startups that will thrive from those that won’t? 
That is a tough question. To be honest, I would say it’s like big insurers. At the end, not the biggest or fastest will win, but you will win if you’re most adaptable to change. You see that many insurtechs have pivoted and have changed their business model. Many insurtechs started with a B2C proposition and then woke up to learn that there are customer acquisition costs which can be pretty high, unless you’re maybe a Lemonade or other niche players who are able to find some viral growth because the product is so amazing. It’s quite tough in the insurance world to create a product that the users love. Nobody wakes up in the morning and wants to have insurance. Building an insurance product with viral growth is more difficult than in fashion or any other space. Being able to change and adapt your business model is really key. That’s the route that we’ve been taking—how we can partner up with insurers. Very often it’s a win-win situation.

The easiest claims are the ones that don’t happen. Internet-connected sensors weighing just a few ounces are already providing heavyweight savings for property owners and their insurers by preventing claims in the first place. As sensors improve and more businesses use them to monitor temperature, water, humidity, power outages and other conditions, loss prevention will play a growing role for insurers, agents and brokers.

“You’re going to have access to real-time information, which you don’t have in a lot of places today,” says Jack Volinski, senior vice president for Hartford Steam Boiler, which began shipping its new-generation sensors this summer.

“That real-time information will allow you to react much more quickly and really move from an organization that’s paying claims after an event happens to an organization that’s preventing claims. We’ll see more and more of that as the technology becomes more common.”

Among other things, internet-connected sensors detect when water freezes in a pipe or leaks from a supply line and whether refrigerators or freezers are maintaining the proper temperature. That’s providing savings for a wide range of businesses and organizations from churches to dentist offices and restaurants.

HSB’s new sensors provide improved range and connectivity through a low-power, wide-area network technology known as LoRaWAN (long-range wide-area network). The LoRa technology can provide connections over several miles, compared with several dozen feet for Wi-Fi and less for Bluetooth. LoRa is being used in “smart city” applications to manage such things as lighting and parking. That longer range simplifies installation, as business owners may need only a single gateway to gather data from the individual sensors placed throughout a building.

Insurtech startups play a key role in HSB’s sensor program. The company partners with Mnubo, a data analytics and artificial intelligence firm, and Augury, which uses sensors that monitor the sounds and vibrations machines make to determine whether they are performing properly. That technology helps identify machines such as pumps and motors that need to be repaired before they fail.

Going forward, sensors are likely to provide value beyond just preventing losses.

“The easy view of it is to see it as loss control, but it does offer other opportunities as well,” Volinski says. In addition to alerting property owners about potential losses, sensors can provide energy efficiency by determining whether a building is being over-heated or over-cooled. “The sensors, in addition to loss control, can also create operational efficiencies for the customers.”

For agents and brokers, the growing use of sensors offers opportunities.

“The first one is it’s going to allow the agent and the broker probably to offer a more differentiated range of products to the customer than ever before,” Volinski says. Smaller brokers can act as a backstop for their customers to make sure that they act on alerts. “I’m moving closer to my customer’s business, and I can be there as a resource in case there’s an alert and I notice that they’re not acting on the alert.”


 

What’s to love
Lafayette is one of the largest metropolitan areas in south Louisiana and is steeped in culture, replete with history dating back to the late 18th century. Highlights of our sophisticated arts and culinary scene include the Acadiana Symphony Orchestra & Conservatory of Music and Acadiana Center for the Arts as well as homegrown live music and significant restaurants. I love the people, who are genuinely nice and down-to-earth. As the heart of Acadiana (Cajun Country) our residents truly enjoy “joie de vivre,” living life to the fullest.

Industrious
People in Lafayette are also inherently industrious. Louisiana is profoundly rich in petroleum and natural gas, which has generated many successful business enterprises. Our strong business community also includes companies in the healthcare, retail, manufacturing, IT, construction and transportation industries. 

Cajun eats
We’re known for our traditional and delicious Cajun food. Two local delicacies you must try are boiled crawfish, which are in season in the spring, and boudin, a sausage made from pork rice dressing. You’ll find both in restaurants throughout the city.

Favorite restaurants
My favorite new restaurant is Central Pizza & Bar. I love their wood fired pizzas and appetizers. The atmosphere is casual, yet elegant. My favorite restaurant of all time is Pamplona Tapas Bar. It’s an inviting place and the cocktails are outstanding. Bacon-wrapped dates, duck fat fries, pork belly, Morcilla-quail egg and hangar steak are all great tapas choices. If you still have room, order the Paella Valenciana.

Best historic restaurant
Café Vermilionville is a charming and elegant restaurant and bar located in a late 18th century home. The building has served many uses over the centuries—a private home and inn as well as a hospital during the American Civil War. The food, cocktails and service are fantastic. 

Cocktails
I take clients to Ruffino’s on the River, which overlooks Bayou Vermilion (the Vermilion River), for cocktails. It has a business-friendly atmosphere and a great bar scene and service.

Stay
The DoubleTree by Hilton is probably the best all around “true” full service hotel in Lafayette. For a boutique hotel, I recommend the Carriage House Hotel in River Ranch. The area has many fine restaurants, spas and shops. 

Live music
Lafayette is home to many nationally and internationally-renowned musicians, who perform everything from traditional Cajun music to Zydeco, swamp pop, blues and rock on a regular basis, and there are many good places to hear them. But you can’t miss with the Blue Moon Saloon. This iconic club is one of America’s top venues for roots music and has hosted some of the best musician of all kinds from near and far. The laid back, rustic atmosphere is a cool setting and makes for a special evening.

Festive
Lafayette hosts the Festival International de Louisiane, a five-day, free festival held every April on the streets of downtown. It’s the largest international music and arts festival in the United States and draws crowds of 300,000 people and artists from more than 20 countries. There are also interesting workshops, exhibits, and a variety of performance arts. Don’t miss it!

Acadiana
If you want to learn about Acadiana, you should visit the Vermilionville Historic Village, a living history museum and folklife park that promotes the culture of the Acadian, Native American, and Creole people. Avery Island, where they make Tabasco sauce, is also an interesting peek into our culture and it’s just 30 minutes away.

Party
New Orleans may be better known, but Lafayette has one of the largest Mardi-Gras celebrations in the world. The festivities go on for days with parades, balls, presentations, parties and cook outs.

Outdoors
Lafayette’s surrounding woods and waters have some of the most abundant game and fish species in the country. It is a paradise for hunting and fishing.

Coming soon
One of the most exciting new developments in Lafayette is Moncus Park, a 100+ acre community-park that is currently under construction in the center of the city.  

Each time we prove ourselves right with a colleague or client, we make them wrong. The continuous blows we deliver to their egos are a surefire way to destroy relationships.

According to Marshall Goldsmith, best-selling author and coach to Fortune 500 executive superstars, “Needing to win too much is the number one challenge for successful people.” At work, an “I win, you lose” mindset typically manifests as the need to be right, and it triggers a host of negative behaviors that range from obnoxious to demoralizing, including:

Telling the world how smart we are. We do this in a million subtle and not so subtle ways. Let’s say a direct report goes out of her way to give you a heads-up on a trend in the third-quarter new business numbers before your afternoon sales meeting. Instead of expressing appreciation for keeping you informed, you say, “Yes, I noticed that when I reviewed the report last week.” This is about your need to remind the world how smart you are. What your colleague hears is, “Why are you bothering me with that? I’m already five steps ahead of you.” Next time, she won’t be so quick to share. Being smart turns people on; telling them how smart we are turns them off.

Passing judgment. Do you find yourself needing to weigh in and rate every idea? You might tell yourself that you are supporting your colleagues, but what you’re really doing is positioning yourself as the chief arbiter of what is good and bad, right and wrong. You hold yourself out as being superior to your colleagues.

Adding too much value. Even when someone’s work is sound, are you compelled to make it better? We tell ourselves it’s an admirable trait, but left unchecked it can be destructive. Consider this example: John, vice president of a national brokerage firm, asked his division heads to develop a plan for increasing the policy-count per client. The cross-disciplinary team worked on it for weeks and was enthused about their strategy. John was impressed too, but he couldn’t resist the urge to put his stamp on the plan. By the time John was finished adding value, the project no longer belonged to the team. Their sense of ownership, and their enthusiasm, were gone.

Killing others’ ideas. When you listen to others’ suggestions or potential solutions, do you find yourself saying things like ‘‘Yes, but …” or “We tried that”? No matter how gentle your tone is or how nice you sound on the surface, the message the other person hears is, “You’re wrong.” Nothing productive can come out of this kind of remark. It only stifles conversation and makes people reluctant to contribute.

Interrupting. Do you grow impatient listening to others and find yourself interjecting? Perhaps you think you know where the person is going and can get there faster or that he is missing the point and you need to get the conversation back on track. Whatever the intention, when you interrupt, you tell people that what they’re saying is not as important as what you have to say. They feel disrespected, and you miss out on the opportunity to learn from others.

Behind the Need to Win

We have a deep-seated need to win at whatever we do and perhaps an even stronger need to avoid losing, or at least appearing to lose. Thank your ego for that. Ego is the source of much conflict and discord because it pushes us in the direction of making others wrong. Ego loves to divide us between winners and losers. When we win, our ego feels strong, safe and secure. But when we lose, it’s a significant blow to the ego that can leave us feeling fearful, insecure, deficient or small.

The more ego-driven people are, the more they need to win and be viewed by others as winners. In contrast, leaders with healthy egos, who have the self-awareness and control to keep their egos in check, don’t need to win to validate their intelligence and value.

In a hypercompetitive industry like insurance, the drive to win is vital to success. The power lies in discerning between when winning matters and when the higher value lies in letting it go. Next time you find yourself needing to win, stop, take a breath and ask:

  • Why am I fighting so hard to make this point? Is this about my desire to help or about proving how smart I am?
  • Is this discussion worth my time and effort? Given my goals, can I use my energy more wisely?
  • What’s more important, winning the point or my relationship with this person?
  • Would conceding my point help to build rapport or contribute to the individual’s development?

Early in a career, you need to win and be right. But as you move up the ladder, it becomes more important to lead and give others the space to win and be right. That takes a high level of self-awareness, a clear understanding of how your behavior impacts others and a hefty dose of self-control.

Paterson is executive coach and president of CIM. kpaterson@cim-co.com

The way we live, work and function seems to change almost daily. And technology is a big driver in the way our clients operate, forcing brokers to look at risk in different ways. As we move forward, inching ever closer to machine learning, AI and automation in virtually every risk scenario, there will be even more need for and value placed on expertise, service and solutions.

To keep pace with this evolution, it is critical for commercial insurance brokerages to invest proactively in their leadership and talent development. As the gig economy expands and the war for skilled talent escalates, our industry must find new and creative ways to recruit for strategic advantage by filling our pipelines with specialized skills in all levels of our organizations.

The challenge for us is overcoming our industry’s longstanding struggle with brand awareness and reputation. This challenge is nothing new, yet it remains a significant problem (check out the article penned by our summer interns on INTERNal Perspective). Our interns surveyed and interviewed their industry intern peers (perhaps some of your own!) and the results confirm what we’ve started to uncover in recent years: the experience of an internship is instrumental in shaping students’ opinions of brokerage, and we must take new approaches to recruiting and marketing to millennials.

Successful internship programs serve both the goals of the students and the needs of the participating firms. Students are exposed to the business with real office and job-specific experience, gain new professional contacts, explore company cultures, and in some cases, earn course credit towards their degree. Firms get short-term temporary help and a chance to observe and evaluate for long-term capital planning, the ability to expand their sources for recruiting new talent, and the opportunity to shape the course of study for future generations.

For these reasons, we restructured The Council Foundation three years ago to focus on collaborating directly with the internship programs of our member firms. During this time, the Foundation has invested $1 million in scholarships for standout industry interns who were nominated by the brokerage firms at which they worked. Our mission is to help build the brokerage workforce of the future, and the results and feedback we have received about this program are increasingly positive.

We know that the next generation is looking for challenging and creative work. They want good-paying jobs, work-life balance and the opportunity to make a difference in their community. Our industry offers all of these things, and the Foundation’s scholarship program allows young people to gain real-world experience working for a brokerage…while helping them manage their sky-high student debt.

The scholarship program is yours to use. If we need to market in new ways, promoting a chance at earning a $5,000 scholarship is not a bad way to start. Talk to others who participate in the program and ask them what it’s like to notify their top interns that they are receiving a substantial award towards their college tuition. The stories are heartwarming and the competition is stronger each year. And if your firm does not yet have an established internship program, reach out to us. We have a toolkit to help jumpstart your efforts.

The current risk landscape is evolving and not slowing down. Customers and clients have high expectations and demand more of your time. We need employees with diverse backgrounds, diverse experiences and fresh perspectives. We need graduates who can specialize in data and analytics, technology, sales, problem solving, relationships and all other aspects of our industry. As the role of the broker changes, so too, should the way we recruit and develop talent. Implementing a structured internship program is one investment you will not regret.
 

According to a recent Reuters article, researchers at the University of Toronto contacted 120 U.S. hospitals in 2011 and then again in 2016 seeking price information on hip replacement surgery. The number that could provide price information dropped from 48% to 21%, and those that couldn’t provide any information rose from 14% to 44%. How is this happening with all the price transparency efforts?
GALVIN: If you are insured, insurers often won’t tell you what the rate is, because the carriers consider the negotiated discount proprietary information. Providers say they have complied with transparency legislation because costs are buried eight layers deep somewhere on their website. And this works because the consumer is not involved in the cost of healthcare. They have been so isolated for so long from what’s billed and what’s paid that it has become a broken market. The consumer got into the mode where you pay a co-pay and you don’t care that at one place you pay it and the underlying cost to the plan, paid for by employer, might be a $50 actual expense but at a different place it might have been $500 for the same thing.

Is the system contributing to the lack of transparency in any way?
GALVIN: It used to be that brokers were compensated as a percent of premiums and they kind of liked the fact that they were going up because it was an automatic raise. They would come in and say, ‘Sorry employer, your premiums are going up this year 25%,’ which was not unusual. The employer would say it couldn’t handle that, so they would lower the premium but do it by imposing a deductible or bigger co-pay. The insurance carriers have pushed these things that create optics for the patient where they still never become engaged in knowing what stuff costs.

We are keeping people blind by creating co-pays or doing things like paying for every employee’s flu shots. You don’t pay anything as the patient, but those shots may have cost the plan $200. And you didn’t realize that the shot isn’t free. Instead, they could have come into the office under contract and given everyone a shot, and instead of costing $200, they would have only been $20 apiece.

You are a proponent of price transparency coupled with high-deductible health plans. How do those have the potential to change the system?
GALVIN: High-deductible health plans get rid of the fuzzy optics and expose what things really cost. Initially patients do what they always do: they do what the doctor says, and the first bill comes in and they see the real numbers they have to pay and they freak out.

But if, instead of going to the ER, you went to one of these urgent care centers, it might have cost $200 instead of $3,000. So now people are becoming educated, but they are becoming educated by getting hit over the head with a stick when they see that bill.

How would price transparency change the system if it were working properly?
GALVIN: If you shop ahead, you usually can get between 50% and 90% lower costs. We’ve done some research in Maine, New Hampshire and Massachusetts.

For the state of Maine, we looked at top-100 procedures to see how much people who went for care in Maine with commercial insurance paid last year. We discovered they paid $302 million. We then asked this question: if they had shopped and gone to the lowest-cost place that still had the highest-quality metric according to our data, how much could they have saved?

What we found is they could have saved 43%, or $131 million, on those top-100 procedures. In Massachusetts, they paid $1.5 billion for those procedures and could have saved 40%, or $578 million. In New Hampshire they did a little better; the costs were $578 million, and they could have saved $202 million, just over 39%.

We’re seeing 18% to 27% savings for the bulk of our customers. The differences are often driven by two key factors. First is whether or not the plan design has a financial alignment that drives shopping. The best is where the premium or claims cost savings are shared with the employee in the form of an employer-funded HSA. Of course, that must be paired with a high-deductible health plan, which eliminates the structures that obscure the actual costs from the employee (like co-pays). Second is employer leadership buy-in. When we see the company CEO engaged, we can often see near-perfect engagement from employees.

How was your organization able to get pricing information with such little transparency in the market?
GALVIN: I got the state to give us a version of the database that was a commercial-use version. It turns out there are about 15 states that have these databases, all modeled after the initial one in New Hampshire. We managed to get it from Maine, Massachusetts, Connecticut, Arkansas, Colorado and Utah. Many of these states have succumbed to our analytics team’s explanation of why it is the public interest to get access to the data.

As we’ve been in the marketplace, we have worked with third-party administrators that are releasing claims files for their communities under HIPAA. Under the terms of use, users give us permission to get explanations of benefits sitting in the portal, and we grab the last 12 to 15 months and de-identify it and those bits of data we combine in our database. We now have 3.3 billion claims in our database. We’ve been in New England and launched our national database in August.

How did you get involved in this industry?
GALVIN: I’m a serial tech entrepreneur. I was the first employee in companies I started and had to set up the benefits plans. What I saw was the crazy increase in the cost of these insurance plans and the percentage of the company’s budget that was being consumed by healthcare insurance.

I had been educated on these things called high-deductible health plans and health savings accounts by my physician, who was fed up with being told how to run his practice by insurers. When I started my fourth company, I decided to set up a zero out-of-pocket exposure plan. I got a high-deductible plan—$5,000 or $10,000—with a small premium deduction, and I fully funded their HSAs with the premium savings. That meant they had $5,000 in their account to keep if they didn’t spend it. If they ran out of money they were given to pay bills, they could bring their bills to HR, and they would cut them a check up to the $10,000 where insurance kicked in.

People loved it. It turned everyone instantaneously into caring healthcare consumers. Suddenly they wanted to know costs ahead of time. The company saved 32% on this generous zero-deductible plan. We surveyed the employees, and they had on average saved 75% of the money they had in their HSAs. The next year, premiums dropped by 7%.

This was when I got involved in legislation for price transparency. I discovered the state of New Hampshire had to submit every claim they paid to the insurance department quarterly, so they had this massive database. I decided to create price transparency. At the time, an app called Gas Buddy let you do a search at current location to find out gas prices nearby. We decided to create a healthcare version of Gas Buddy on mobile phones.

Why haven’t price transparency tools or healthcare “shopping” worked well so far?
GALVIN: If you Google this, all of the articles out there say these tools don’t work. And the reality is that, historically, they haven’t worked well.

The reason for that is most of the shopping has been done in a very abnormal way. You go to the doctor, and they send you for a procedure or test. They send the order out, and you are scheduled to go Thursday at 3 p.m. to another doctor or for a test. The shopping platforms in the past have said, “Call us after that, and we’ll help you find a lower-cost place and give you a financial incentive.” They still don’t show you prices, but they have experts who will tell you what to do.

That’s not a natural shopping experience. I love TVs, so how do I find a new one? I Google it or go on Amazon and get a nice clean list of the cost and what the descriptions are. There isn’t a lot of price discrepancy, because people can get that information so readily and are able to shop ahead of time. But most people won’t turn around and change their doctor’s orders; that’s not the way they shop.

How does MyMedicalShopper differ from other price transparency tools, and how do you think it can change how we choose and pay for services?
GALVIN: If you were to grab our mobile app, you pull this thing out while you are with your doctor. Say he wants to send you for a bone density study. You start typing in bone density, and it pops up and tells you everyone locally who does it, how much it’s going to cost you, your insurance discount calculated in, how much will come out of your pocket and what will be paid by the employer and the insurer. And you can say, “Doc, can you send me to this cheaper one over here?”

That’s where the opportunity is. You can make it a natural shopping experience and make it in a platform so they can bring it to their own doctors. It’s easy access at their fingertips, and that makes all of the difference.

Employers and individuals paying for their own insurance are looking for new solutions. This new round of price transparency tools brings the consumer back in. When you eliminate all of the broken optics, they can sit down with their doctor and figure out what works best for them.

What should brokers and consumers look for if they are considering using a price transparency tool?
GALVIN: You have to eliminate the thing where you can’t work with your doctor. Before you leave their office and they have made an appointment for you somewhere else, they need to able to navigate it simply and quickly, and it has to launch on their mobile device.

It has to be as intuitive as Google and give you similar information: where do I go and what am I going to pay. It’s also important to have the quality score. People misunderstand and think the highest price thing is the highest quality, and that isn’t true in healthcare. In study after study, there is no relationship between cost and quality in healthcare. It doesn’t work like other industries.

Don’t complain about the cost of care or inability to provide care for everyone if you are going to continue to be a bad consumer. My worst nightmare is when I go to an employer and they say they have a zero-deductible plan and don’t want to change it.

They could be building a retirement account and get zero out-of-pocket exposure and have a quarter of a million dollars sitting in their retirement account. The result on society in general is that healthcare costs will become a more perfected marketplace where productivity is rewarded like in other markets.
 

The idea was the Netflix team would run Blockbuster’s online brand and Blockbuster would promote Netflix in its stores.

At the time, Blockbuster was on top, and its CEO basically laughed Netflix out of the room. Videos online? Promote Netflix in the stores? No way. Blockbuster didn’t need Netflix (or so it thought).

In 1989, a new Blockbuster store opened up every 17 hours. Fast-forward to July 16, 2018, and there is only one Blockbuster storefront left in the country, in Bend, Oregon. By 2010, Blockbuster was bankrupt, and by 2014, Netflix was a $28 billion company and about 10 times the size of what Blockbuster was worth.

Are you running your business like a Netflix or a Blockbuster?

Consider this as you read my letter to the owner of the future.

Dear Agency/Brokerage Owner –

It’s 2023 and five years since we first met to talk about perpetuation and business strategy. You’ve been working on growing your business. You chose not just to enjoy the modest lift you were gaining from a growing economy and exposure base. Instead, you decided to focus on infrastructure, developing people, recruiting talent and adopting technology so you can consistently try to achieve the double-digit organic growth we talked about.

You took an important step by putting long-term plans in place so you could control the choice to sell or remain independent. As you probably remember from our initial discussions, many firms don’t get to choose how they’ll exit, even if they think the decision will be up to them. Before, you were running a lifestyle business and essentially using your profits to fund a comfortable living. While there’s nothing wrong with reward for success, you realized that this model is no way to create long-term growth and profitability. So you’ve made some changes.

You stopped hiring in the moment. Rather than scrambling to hire the next person after you lost a producer or service colleague, you’ve got someone in-house who is dedicated to recruiting, brand management in the market, the interview process, hiring, onboarding, training and development. You never stop recruiting and finding top talent, realizing that you have to grow a bench of leaders and develop these people—offering them not just jobs but also career paths. After all, we are in the people business. Your most valuable assets are your colleagues and their ability to develop relationships. Your continuous recruiting and development efforts are paying off now.

You stopped thinking of technology as a threat and instead adopted systems that are enhancing your business model. You know technology is important to clients and it’s critical for running a modern, efficient, profitable business. At the same time, you’re considering how technology could change your business focus. More and more, transactional policies are going the way of insurtech. You’ve thought about how a reduction in this business, as it transitions out of your firm, will impact your business, and you are making adjustments. Again, it’s all about being proactive, not reactive.

You knew the merger and acquisition market could settle down, and you decided to grow your business aggressively rather than sell five years ago. Because you have been focused on talent, technology, infrastructure and culture, you’re seeing the rewards of your hard work. If you had kept going with the same old flat growth, you would be in an entirely different position today and possibly kicking yourself for not selling when the market was raging and valuations were at their highest point.

Now, you are in the driver’s seat. You’re competing in the market, attracting top talent and growing so you can choose in the future whether to perpetuate or sell. Congratulations on all your success.

Best,

Phil Trem

MarshBerry

P.S. Remember Blockbuster? You did it the Netflix way.

I want to share a conversation I had with a group of owners who were considering selling their firm. One owner was not so sure, and he was the youngest partner. He didn’t want to end up working for someone else. What would that be like? “Wouldn’t I be better off growing this business 10% each year for the next five to 10 years?”

“Sure,” I told him. “But when is the last time you grew by 10%?”

He paused. “Never.”

“So, what makes you think that you can start growing at that rate right now, immediately, when you’ve never done it before?”

That said, with a strategic plan and commitment to grow organically, it’s absolutely possible to grow by double digits each year. With the talent, technology, infrastructure and culture in place, you can make it happen. But it takes work. And growth takes time. You must be thinking long-term and be proactive. Finally, tune in to opportunities and consider your brokerage in the future. Don’t be Blockbuster. Be Netflix.

Market Update

Through August this year, there have been 320 deals announced, down from the 376 announced deals through August last year; however, deals are announced retroactively, and overall deal pace does not appear to be slowing.

Top buyers in the marketplace through August are BroadStreet Partners and AssuredPartners, both with 20 announcements. Not far behind are Alera Group and Hub International, with 19 and 18 announcements respectively. Not all deal activity is publicly disclosed, so it’s likely these buyers and others on the top buyer list have completed far more deals than are reflected in the announcements.

Private-equity backed independent agencies/brokerages continue to drive activity in the marketplace, representing almost 55% of deal activity year to date through August, similar to the 57% of all deal announcements these buyers accounted for in 2017. Target agencies are most often property-casualty firms (52% of announcements this year), with the remainder fairly evenly split between employee benefits firms and multi-line agencies. Texas and California remain the most active states in 2018, with 37 and 33 year-to-date deal announcements, respectively.

Trem is EVP of MarshBerry. phil.trem@marshberry.com

Securities offered through MarshBerry Capital, member FINRA and SIPC. Send M&A announcements to M&A@marshberry.com.

Everyone was afraid of what could happen to company data or operations in the hands of a third-party provider. Today, however, these vendors seem like a safe haven compared to the risks and costs associated with running an in-house data center and cyber-security program.

Attacks no longer require someone to click on a link or open an attachment. In the past year, large global companies have been hit by malware that exploited out-of-support equipment and unpatched software and crippled operations for weeks. Maersk, Merck and Federal Express were three of the most visible companies hit. Maersk’s chairman, Jim Hagemann Snabe, told World Economic Forum leaders that the company had to reinstall its “entire infrastructure,” consisting of 4,000 servers, 45,000 workstations and 2,500 applications. Business interruption losses at the companies ranged from $300 million to $670 million each.

In this environment, companies that have been scrimping on IT budgets and stalling on replacing legacy apps are now in the bull’s-eye. Why? Because hardware companies continually patch vulnerabilities and update their products and they eventually stop supporting older equipment. Even though the older servers may still run just fine, their known vulnerabilities can be exploited by criminals. Out-of-support software can be just as bad. CFOs know how expensive it can be to move to a new enterprise application, and business units are famous for refusing to give up favored legacy apps. These apps usually run on older versions of operating systems. Thus, companies end up with Windows XP or other out-of-support operating platforms that enable these legacy apps to be operational, but they bring risk to the organization in the process. The WannaCry malware that infected 230,000 computers in more than 150 countries exploited unpatched Windows systems, many of which were out-of-support.

Maintaining a cyber-security program requires a team of personnel with appropriate education, certifications and experience. Some companies have pinched pennies on security staff, and others simply cannot find suitable candidates to hire in this tight job market. Security architects and network engineers play an important in-house role in designing the system architecture and determining configuration settings and security controls that help protect the system and data. Without an adequately staffed team of IT and security personnel, critical activities either do not get completed on time or they are not performed at all. This includes patching of software, particularly non-Windows software, because these patches have to be specially applied outside of the regular Windows “push patch” cycle. Since patches fix vulnerabilities, every instance of unpatched software creates an opportunity for exploitation.

Security programs also require a suite of security tools, which often demand training and expertise to deploy and use them. When security tools are installed but the staff does not know how to use them, the license fees are wasted, and the ability to identify risks or attacks decreases. Logging, incident response, and backup and recovery are also commonly given less than full attention when resources are thin. The consequences can be particularly painful when an attack hits. Without logs, in many instances it is difficult to conduct an adequate forensic investigation. Tested backup and recovery plans are critical, particularly in attacks of ransomware that encrypt a company’s data or malware that zeroes out servers and computers.

Farm It Out

Handing off an organization’s hardware, software, network and staffing issues to a vendor is an increasingly attractive option. Major vendors today have sophisticated system architectures, hardware that is within vendor support, strong controls, a full security program, and highly experienced IT and security personnel. In addition, they generally have excellent physical security, good surveillance and monitoring systems, more-than-adequate HVAC systems, back-up generators and resilience in connectivity. Many cloud providers also offer a suite of services and tools to assist with incident response, logging, backup and recovery on the client side.

The trust a company places in a vendor hinges on the vendor’s reputation for protecting the client’s systems and data. Therefore, these service organizations devote considerable attention to securing their network, applications, data, people and processes. Most vendors have an annual security audit performed in line with standards from the American Institute of CPAs, which produces what is known as a SOC-2 report. According to the AICPA, “These reports are intended to meet the needs of a broad range of users that need detailed information and assurance about the controls at a service organization relevant to security, availability and processing integrity of the systems the service organization uses to process users’ data and the confidentiality and privacy of the information processed by these systems.”

Companies do not have to farm out all operations to vendors, however, as they may choose to keep their data centers and outsource just the security activities. Many companies that have their own data centers are looking to managed-security service providers to take on some of the load of the security program. These providers are capable of taking over most of the activities of an enterprise cyber-security program, enabling companies that choose to keep their IT operations to have robust security capabilities performed and maintained by a third party. These services are particularly attractive to small and midsize companies that use technology extensively and need to protect their data and systems but find it financially prohibitive to develop and maintain a strong enterprise security program.

Cloud offerings, such as Microsoft’s Office 365 and Azure environments, are enabling companies to free themselves from maintaining a data center. Software as a service (SaaS) and outsourced enterprise application providers are freeing organizations from patching and application maintenance.

Antares Capital—one of my clients—is an example of an organization that chose to move in a futuristic direction (in this case, after it was spun off by GE). Instead of taking legacy apps and aging equipment with it, its chief information officer, Mary Cecola, chose to stand up entirely new IT operations by leveraging the Microsoft Azure and Office 365 environments and utilizing enterprise applications that are SaaS or vendor hosted.

The organization now has all thin clients (monitors and keyboards without hard drives or memory) and a few closets with routers. All other infrastructure and equipment are owned by Microsoft and are in the Azure environment. Antares is able to properly manage operations with a smaller IT and security staff. The security team has established a security operations center that monitors system activity and interfaces with the vendors.

“We are sharing risk with our vendors, saving financial resources and better managing the risk of attack,” Cecola notes. “We hired excellent personnel with expertise in cloud and vendor environments and IT and security management and are now able to devote resources to the specific IT and security needs of the business while leaving a lot of the nitty-gritty technical activities and issues to the vendors. We developed an incident response plan and recovery strategy that dovetails with our vendors and leverages their capabilities. While my peers still struggle with many of the issues of in-house shops, going with the Azure cloud and SaaS providers was probably the best decision of my career.”

Agents and brokers will serve their clients well if they help them examine the risks associated with their IT operations and discuss risk-transfer options, including the use of third-party providers.

Westby is CEO of Global Cyber Risk. westby@globalcyberrisk.com

The United Kingdom will cease to be a member of the EU two years from that date unless the final withdrawal agreement extends that deadline (an extension to Dec. 31, 2020, is under discussion). The EU will then have 27 members. The immediate implications of Brexit for (re)insurance carriers have been largely explained and commented on, but the implications for insurance intermediaries, including brokers, have attracted less attention.

For U.K. (re)insurers specifically, Brexit means exclusion from the future EU-27 market, loss of EU “passport rights” and, consequently, pressure to reallocate capital to newly set-up structures, whether branches or subsidiaries, within the EU-27 market.

While this new environment will be more complicated for (re)insurance carriers, it will also challenge the 5,700-odd intermediaries who have passported from the European Economic Area (the EU-27 plus Iceland, Liechtenstein and Norway) into the U.K. (“U.K. inwards”) and for the approximately 2,700 insurance intermediaries passporting from the U.K. into the EEA (“U.K. outwards”). First, EU-27 intermediaries will lose their ability to place global programs, including EU-located risks, with U.K. specialist (re)insurers, since the latter will become third-country insurers from an EU-27 standpoint. Likewise, in the absence of a local, U.K. license, they will themselves become non-authorized from a U.K. standpoint. The same is true for U.K. outwards brokers who were reaching out to EU-27 customers in order to broker risks situated in the EU-27 market with the U.K. specialty commercial insurance sector.     

For EU-27 intermediaries operating on a freedom of services or branch basis in the U.K. market, their U.K. inwards EU passport will end next March. For U.K. intermediaries operating on a freedom of services or branch basis in EU-27 markets, their U.K. outwards EU passport will also end next March: the U.K. will become a third country vis-à-vis the EU-27. In each case, the broker faces a stark choice: absent any national rule that allows the broker access to the market, the broker might have to withdraw from the market or upgrade services or branch operations—for example, by transferring a branch operation into a duly incorporated and authorized subsidiary. Industry sources warn that time is short for applications for authorization—it’s already estimated that the issuance of an authorization is likely to require six to nine months to process.

In contrast with (re)insurance carriers, U.K. intermediaries relocating to an EU-27 jurisdiction should not find the rules as stringent. For example, authorization requirements are simpler than those applicable to (re)insurers; local presence and corporate substance may also be more flexible, enabling the subsidiary to call upon the resources and expertise of the U.K. parent organization.

The last option for U.K. intermediaries could be to continue operating from their U.K. base. But in the absence of EU harmonized rules, and subject to commitments that member states might have undertaken within the framework of the WTO General Agreement on Trade in Services, any promotional or servicing activity that they carry out would likely bring them within the scope of a regulated mediation activity subject to prior authorization in an EU-27 member state. U.K. intermediaries might well conclude that they have to transfer their EU-27 customers to EU-27 licensed intermediaries. EU intermediaries that continue to operate from an EU-27 base might reach the same conclusion in relation to their U.K. customers.

Under EU (re)insurance rules, loss of EU-27 authorization might also affect the ability of U.K. outwards firms to perform their obligations with regard to contracts concluded before exit day in terms of servicing the contract that they helped to place, including claims handling. From the EU perspective, enduring regulatory uncertainty could discourage EU-27 intermediaries from recommending renewing contracts with U.K. (re)insurers.

It is important to note that the Insurance Distribution Directive (IDD) will apply by autumn 2018: its registration, training, professional and conduct-of-business requirements must not be underestimated; the IDD’s implementation in EU-27 countries might make compliance challenging for all intermediaries operating within the EU and U.K. For example, customers who are disgruntled over claims issues could question whether, as required under the IDD, the intermediary has acted professionally and in the customer’s best interests.

Meantime, the European Insurance and Occupational Pensions Authority, the EU-level supervisor, is increasingly vocal. It has called on national authorities to require insurers to properly address all risks to their solvency in light of Brexit. EIOPA will be closely monitoring the risks, taking into account their nature, scale and complexity. The regulator has reminded authorities to require insurance carriers and intermediaries to take appropriate contingency measures to ensure the continuity of services for cross-border insurance contracts. Customers should be made aware in a timely manner of the implications of these measures, both for existing contracts and for new contracts concluded before the withdrawal date. EIOPA also calls for enhanced cooperation and continuous dialogue between the authorities.

Intermediaries that have not yet taken action are caught between the devil and the deep blue sea—a fast-approaching exit day and the tantalizing possibility of a transition until Dec. 31, 2020. Meanwhile, the European Council’s March 2018 guidelines for negotiating with the U.K. contemplate a modest free trade agreement in services (including (re)insurance) to allow “… market access to provide services under host state rules, including as regards right of establishment for providers, to an extent consistent with the fact that the UK will become a third country …”

On the U.K. side, the government has proposed “a new economic and regulatory arrangement” for financial services based on the “principle of autonomy for each party over decisions regarding access to its market” and therefore limited to an enhanced equivalence framework. The U.K. proposes a reciprocal recognition of equivalence under all existing third-country regimes that would take effect at the end of an implementation period. The future arrangement contemplates equivalence of “outcomes” achieved by the U.K. and EU regimes and will depend on extensive supervisory cooperation and regulatory dialogue, as well as predictable, transparent and robust processes. The U.K. expressly recognizes that “this arrangement cannot replicate the EU’s passporting regime” (or even guarantee any access). Industry reactions have so far been mixed: the Association of British Insurers calls the government proposal the “worst possible scenario,” while the International Underwriting Association has been more welcoming, in particular for reinsurance and large-scale wholesale risks for marine and aviation business. The London Insurance and International Brokers Association is “disappointed” and, in particular, fears for contract continuity.

In any event, certain conclusions are already evident: the U.K. and EU-27 will not explore the mutual market access based on mutual regulatory recognition that the London market sought; the U.K. proposals will further complicate an already tortuous legislative process in the EU; and, for agents and brokers, the IDD is an inadequate regulatory text in any event, since it makes no provision for equivalence of regimes (whether enhanced or not).

Sinder is The Council’s chief legal officer and Steptoe & Johnson partner. ssinder@steptoe.com

Woolfson is a partner in and former chair of Steptoe’s Brussels office. pwoolfson@steptoe.com

Soussan is a partner in Steptoe’s Brussels office. gsoussan@steptoe.com

Rick Pullen: You’re facing retirement. That’s scary for a lot of people.
Steve DeCarlo: People ask what are you going to do? I don’t know. I want to sit down and think about some things. I want to do a lot, like go to Antarctica or Australia.

Part of it is, for me, a transition to allow the team to take the ball. I’m not bashful, and I tend to, you know, try to walk into rooms and be quiet—which is not a skill I obviously have. People look at me. They’re like, OK, he’s got to start talking soon. And I’m like, “Stop looking at me. I don’t want to talk, but you’re forcing me to talk.” And so I hope part of retirement will be: stop looking at me.

Skip Cooper is stepping down as president at the same time. My joke has been I’ll become executive chairman, which none of us at AmWINS knows what that means. I’m told “executive” means I get paid. “Chairman” means I don’t have to do any work, which is exciting.

Skip is vice chairman. So both of us are going to help the business. You know, be available, work on projects, work on things that we have passion about. Skip on products. Me on process. But we’re letting the new team—we’re letting the team that’s ready—Scott Purviance, James Drinkwater and Ben Sloop—run the firm. They say yes or no. I’m no longer the CEO.

Scott has been with me 17 years. As I say, I’m tired of my stories. I can’t imagine what it feels like for him. When he can say them by heart—it’s painful to watch.
If you’re trying to become 150-year firm, I don’t get 150 years as CEO. I’ve had a good 17 or 18. Scott’ll have 12 or 15. Then the next CEO and the next and the next. And that’s how you get to be 150 years old. If I tried to go for 40 years, the people behind me would have to leave. And we’ve seen that in many insurance companies—where people have built great executive teams, but they leave to become bosses at other firms and do very well.

So I think of transition as the right thing for the business.

Why do you think so many companies don’t do what you’re doing?
You really want the truth? You’ve got to be careful with the truth. Look, insurance executives, as they retire, want to play golf and on the company’s dime. And I just never wanted to be that guy. I’ve watched a lot of people who just didn’t go home. And I kept thinking, “Why don’t you?” It’s the team that needs to take the firm forward. And for me, personally, it’s my wife and my kids and time to do things that I want to do.

Are they married to their job?
They’re married to relationships. I mean, you see the social aspect of the business. People love their relationships. You’re so invested in them. We always say insurance is a relationship business. I think the social aspect of the industry has lent itself to the difficulty people feel with transitioning to Phase Three of their life. And I think it’s a problem.

Do you see this in other industries or is it just prevalent in insurance because of the social aspect?
It’s hard for me to say. One of my young bucks said to me, “Steve, everybody on Wall Street leaves at 60.” I was like, “Oh, well, that’s not insurance. Everybody here leaves a lot later than that.”

I think in mature firms, there’s a sense that people move on. I think in entrepreneurial firms, the entrepreneur stays a long time. I think AmWINS is an entrepreneurial firm. I don’t think it’s organized to be—as we refer to it—a kingdom. It’s not mine.

But you built it.
And others. I mean, it wasn’t by myself. We have more than 600 employee shareholders now. I would think Marty Hughes [Hub International] would say the same thing. It wasn’t him. It was a team. I think the team, you know, there’s always a team aspect to anything, right? You’re a player. You’re a player-coach. You’re a coach. Sometimes you need to stop coaching and admit that’s the journey you’re on.

I’d like to think I set down some markers, early. No corporate planes, just 5% corporate overhead. Now the marker is, you don’t get to hang out. You have to turn it over to the next generation. So that’s a marker that puts pressure on people after I’m gone.

The first of anything is typically watched. I’ve been the first in this firm. But, of course, I’ve learned from quite a few people. You know, my mentor, the guy that trained me, retired at 55. I watched that. He’s still alive and kicking and enjoys life. But he didn’t have to stay in the business to prove his self-worth.

You’re setting the precedent.
To me it’s, like, literally, we have sayings: free soda, free water, free coffee. It’s going to be hard for the next guy to stop that, right? It’s hard for an executive to come in and go, “We don’t believe in free soda, anymore.” You know, you’re going to look like a jackass, right?

As I’ve said to Scott, “I won’t do this transition well, but you’ll do it better. Because you’ll be able to watch where I make mistakes. You know, one of the great things about building AmWINS is—and I tell this to the new hires and acquisition prospects coming in—don’t apologize for the mistakes we made. We didn’t know. We made a lot of mistakes. But also don’t apologize for making changes. Because the firm I started with had $20 million in revenue. You guys are starting with $1 billion of revenue.

Don’t look back and go, Oh, we’ve always done it that way. We always did it that way because we were tiny. One of my challenges years ago was I had to worry about making payroll. Today, they have to worry about what to do with a billion in cash over the next five years. Those are different strategies.

What is your sense of satisfaction of building this firm?
I don’t think in terms of satisfaction. I don’t think it’s built. I think the foundation is solid. I think we dug a good hole and then we probably built a good foundation. I think there’s satisfaction in safe jobs. I think there’s satisfaction in knowing people can count on us to provide not only their salary, their bonuses, their benefits, but hopefully for their children. I think there’s pride in that.

We just started a foundation for employees’ children. I never thought AmWINS would start a foundation where we’re going to help support the employees’ children in their college endeavors. I just didn’t see that as what we would end up doing. It wasn’t a dream in the early years. But it evolved as we grew the company.

With the tight labor market, do you see the need for different benefits like that? To attract talent?
I don’t know that the labor market has changed my point of view on that. I’ve always had that view.

Has it always been tough to get really great, skilled people?
No, no.

Or keep them?
I’ve never found that a challenge. I mean, to some degree people self-select in terms of their motivation. I can’t honestly say I can go in the inner being of a human and make them motivated. People that are motivated have an opportunity, I think, in insurance, because it’s so broad, to take that motivation places.

But going back to your question about the job market. I’ve always thought that, when the employee came to work for us, if they left us, we failed them. I’ve never felt there was always a stress about hiring. There was always a stress about providing the best tools or the best training or the best environment.

When I was part of Royal Specialty Underwriting (RSUI) in Atlanta, it was shocking when people left. I mean, in the 10 years I was there, if three people left I thought it was unbelievably bad. I’ve come to accept it a little better at AmWINS because we have 4,500 employees. The number-one thing you offer is culture. That took 20 years to learn. You don’t learn that as a 20-year-old. At that age, you think you got it figured out.

My favorite saying is: You don’t know anything until you’re 35, and then you have 30 more years to work. It tends to slow 28-year-olds down a little bit. I think the pressure to provide not only quality benefits but training—the environment, the culture, the tools—is so important.

How did you discover insurance?
My wife is actually an insurance grad. Her dad was in the insurance industry. My dad was a guidance director at our high school. I get out of college…

Studied?
Accounting. I’d like to say finance, but that would be a lie. I went to East Tennessee State University, because my mother and father went there, trying to think I could become a golfer. Found out day one that I couldn’t, because I met a guy that ended up being a pro golfer. And then I graduated, went back to New Jersey and saw an ad in the paper—The Star Ledger—a famous New Jersey newspaper. It said, “Internal Auditor.”

I called up, and the man said the job was filled. I went, “Oh, that’s disappointing.” And he said, “What was your last name, again?” And I said DeCarlo. “Are you from South Plainfield [New Jersey]?” he asked. And I said, “Yes, I am.” He says, “Is your father Mike DeCarlo, the guidance director?” And I go, “Yes, sir, he is.” He goes, “Well, I went to South Plainfield High School. We’ve got room for you.”

Luck. That was luck.

I got a job offer from Crum & Forster in 1980. The first question I asked was: did anyone go to college for this? And they were like, “No.” I was like, “Awesome.” Because that was just how fast you could learn it and grasp the concepts. For the next four years, I was flying around on corporate planes, meeting some great people.

In your twenties?
In my twenties.

So this is kind of a big deal.
You’re telling me! I’m getting on Charlie Fox, which is what they called C&F’s plane, because its tail sign was CF something. I got to meet some guys that I’ve known in the industry a long, long time. We worked together on the audit staff.

Basically, I got to go around asking questions. My father said, “What do you do for a living?” I said, “Well, Monday through Thursday I ask a guy, ‘Why do you do what you do? How do you do what you do? Should you do what you do?’ And, you know, he’s got 30 years’ experience and I’ve got 30 weeks’. And on Friday we sit in a meeting room and I tell him what he’s doing wrong. And that’s what an auditor does.”

I learned that data and ultimately information mattered. That was how you kept score. And then, of course, we would get to go to dinner with different entrepreneurs, and, boy, they could tell stories. And I learned if you could tell stories, maybe you could get ahead in insurance. And so I took my gift of BS and my pedigree for numbers and kind of combined the two.

You got hooked from the beginning?
I got hooked from the beginning. First, the job allowed me to travel. And then I was lucky enough that, after four years of traveling the country learning, I got a chance to go into E&S in Atlanta.

I went to work for a man that was their CFO and he was a little more old school than rambunctious Steve. And then they brought in a guy named Steve Smith, in the summer of ’84, and he became my mentor. He had been at Crum & Forster for years, knew what a whippersnapper looked like and knew how to tell me to be quiet and shut up and do your job. He really let me blossom in the years I worked for him.

What was your job?
I ended up being a CFO. He said to me, “We’re going out and investigating all of these things I’m now responsible for. I want you to organize and tell me how you want to do them. And if the guys in New Jersey buy what you say, I’ll make you CFO.”

Steve Smith and I flew around the U.S., worked on this strategy. I wrote it up, presented it to the team in New Jersey and they said that makes a lot of sense. Go do it.

I found out years later the New Jersey team was really busy that day and, when Steve and I visited, they just wanted us to go back to Atlanta. And so by saying, “Yeah, that sounds really good,” they were placating us. It made my career.

Steve made me the CFO. He was doing so well they offered him more responsibility. But they made the mistake of saying he had to relocate to New Jersey. He decided to move on. I followed him.

We started RSUI, which today is a significant E&S insurance company. Steve Smith and Jim Dixon started the firm, and I was their first hire. I had spent four years in New Jersey and four years in Atlanta at Crum & Forster. When I resigned, they all thought I was crazy. But I trusted Steve and Jim.

My dad said, “Are you sure you want to quit this job?” I told him I can always get a job as an accountant, but I’m not sure I might get an opportunity to go start a firm with two guys.

So off we went. It was the first time I got to start a firm.

Are you CFO at this new firm?
Yeah. They hired me to be CFO. Because there was only three of us, so they said, “OK, you run HR, you run technology, you run finance and go build all the back-office stuff.”

I referred to myself as “stuff guy.” You know, they did sales and underwriting, and I did stuff. If stuff meant, you know, ordering orange juice for the breakfast, I ordered orange juice for the breakfast. We were entrepreneurs. We started RSUI in the summer of ’88 with the help of Royal Insurance, and it was a really big success and did very, very well. Then we sold it five or six years later to Royal. Then I became an employee at Royal.

Would it be fair to say it’s the first time you had money?
That was the first time I had money. That was the Aha! moment. Yeah. Equity matters. So, I owned part of the firm. Obviously not the majority, as Steve and Jim owned the majority. And they should. They started the business.

Did it change how you looked at your future?
When we sold the business quickly, after five years, I was like, “What do you mean, we’re selling? I don’t want to sell. I’m in my early thirties. I don’t want to sell.” But I also realized a lot of money was made in those five or six years and Steve and Jim wanted to protect it. They wanted to diversify. It was my first lesson in why entrepreneurs sometimes sell businesses because they have to de-risk themselves.

I think that’s what you see today. You see a lot of people love being entrepreneurial, but they can get harmed if they lose an account. They can get harmed if they lose an employee. So I think people de-risk. Steve and Jim, I think, decided it made sense to de-risk. But as soon as we were no longer owners, I felt like I was an employee. It wasn’t like Royal was treating us bad, but it was different.

Royal gave us a five-year non-compete, non-solicit. And I stayed three years and then moved to Charlotte for the last two. I thought it was in the best interest of my family in the sense that Atlanta was so big. And then ultimately, when I left Royal after those two years to join this firm, it was because I had some money in the bank and I could take the risk.

So what Steve Smith did for me in my 20s and 30s allowed me to take the ultimate risk to get to AmWINS.

AmWINS started in ’98 as a dot com. I started in December 2000. They had a two-year head start on me. They had already spent all $25 million of the private equity guys’ money. We were losing $800,000 a month. We were in no man’s land.

They bought six or seven companies and were basically a dot com. They were going to disintermediate retailers.

How big was the firm back then?
We were $20 million, and we were losing $10 million a year. I joined in December 2000 and resigned in February of 2001. So they said, “What would you do to fix it?”

So I re-upped and went to work for them in New York. The chairman was still in his big office. I had a lawyer, I had a CFO and I was the CEO, and the office was tiny with a lot of technology guys running around. There was a guy named Hawk, and I was like, “Does he have a last name?” They were like, “No. Just Hawk.” I said, “So, like Madonna? Like Sting? Hawk?” We paid him like $550 an hour, so I guess he was a rock star.

I went in, and they asked what office would I like? I said, I’ll just take this cubicle because I’m going to be travelling back and forth from Charlotte. I don’t need an office. When I finally laid off 40 people in the office, I asked the last guy leaving: when did you figure out I wasn’t going to move to New York? He said, I don’t know, three months ago. I said, well, Day 1, when I took a cubicle, that was probably a pretty good hint that I wasn’t moving.

It wasn’t like they had done anything wrong. It was just a bad strategy.

I emailed some of the owners who sold us their firms and asked how would you describe the firm? One guy wrote back: Going up a down escalator. Another wrote: Throw it all away and start again. I will buy my firm back.

What was wrong?
They were trying to disintermediate something they never worked in. How do you eliminate something you don’t understand?

The bottom line was the companies they bought made profits. It was the 40 people in the home office that were draining off all of those profits. That’s all the home office did. It’s one of the reasons today we’re only allowed to spend 5% of revenue in our Charlotte headquarters.

It’s why I used to drive to Greensboro to fly to New York. Because we had no money—none. My most famous trip was when I drove to Greensboro in a rental car, flew back to Charlotte where I transferred to a Dallas flight to drive to Shreveport, Louisiana. I couldn’t afford to fly there direct. And I try to make sure all the employees know that story.

How did you turn it around?
I told a board meeting in late August of ’01, “We’re not losing $800,000 a month anymore.”

Then board member Scott Flamm says, “Steve, anybody can cut costs. Can you build the business?”

He was right. Anybody can cut costs. I had no idea. So I hired Scott Purviance, now our new CEO, who has great finance skills. And I hired Angela Higbea, who is our controller. Still with us. We had to see if we could build something. We had no idea what.

But I grew up in E&S wholesaling. Not as a wholesaler, but they were my clients. And I thought really hard about what I could do in distribution. All the firms that we bought before me were wholesale-type firms: benefits and MGAs. No E&S brokers.

After 9/11, the world was obviously about to change drastically. But we don’t understand it. We have no money. None. The private equity guys aren’t going to give us any more money. Nobody will give us a loan. I flew to Geneva, Switzerland, to raise money, and the guy didn’t show up for lunch. That was a long trip.

I arrive at the Geneva Airport. I wait in this long line at the train station. Finally pay my money. I wait for the train. Awesome. I find out Geneva is 12 minutes away. I waited an hour and a half for that damn train. I took the train, and here I am walking my suitcase to my hotel and the guy never showed up for lunch!

I went all around the United States trying to raise money. We had nothing. We were struggling.

Then the people side of the business started to take over. I got a call from a guy in L.A. named Joe DeBriyn. One day he called and said, “I want to introduce you to Ernie Telford at MTS—Matukas, Telford and Sullivan.” I had never met Ernie, but I knew two of his partners.

He says, “Ernie’s trying to do what you’re trying to do, and I think you guys should merge.” So we met in New York for dinner. Ernie had his firm, MTS. He had started a wholesale broker in New York, called New Century Global. Now he was in L.A., New York, and his partners were brokers. Ernie was going into the big leagues, and Joe thought we should put our firms together.

You still weren’t AmWINS at the time.
I’m afraid to even tell you what it was called. It’s so embarrassing. It was called America Financial Services. It wasn’t called AmWINS. AmWINS, I made up on the fly. I came up with American Wholesale Insurance Group, or AWIG. I was like, AWIG? I got to come up with a dot com. AWIG.com. That sucks. So I was like, how about AmWINS, Am – American. W – Wholesale. Ins – Insurance. AmWINS. It was like Verizon, a completely made-up word.

I knew nobody had the name. I didn’t have to trademark it. I could get it on Google or GoDaddy, and people started calling us AmWINS. So we changed the name officially to AmWINS in ’06.

Now private equity is not going to give us any money, and we get a call from GE Capital. GE says, “Do you mind if we come to Charlotte,” and we just started laughing. We were like, “You’re coming to see us?”

He came to see us and wanted to loan us some money. And we’re like, “What? Are you crazy?” He goes, “No, I think the distribution game is interesting.” So he gave us our first loan.

Now we’re in debt. We’ve got $30 million in debt, so we started buying people we knew. People that for whatever reason trusted me enough they took my cash. We started to move into property-casualty. We got a firm in New York, a firm in Dallas. We actually bought five firms altogether.

So you were a $40 million firm when you started buying other firms, and now you’ve got $30 million to build with?
Right. We bought Seaboard Underwriters. We bought Woodus K. Humphrey— all these are million-dollar purchases.

What’s your strategy? Why pick one company over another?
I didn’t have a lot of choices. Remember, these are my friends calling. Seaboard was a friend. Woodus Humphrey was a friend.

Later, I called up Woodus. I said, “Woodus, what do you think about that million dollars of cash in your bank account?” He goes, “Oh, Steve, I don’t care about that. But I like my million in stock.”

“Why is that, Woodus?” I asked.

“Now I own everything you’re doing.”

That taught me about diversification.

Another friend had broken away and started his own business and came to me for advice on accounting systems. Tom Spinner asked, “Can you help us buy an accounting package?” So I got to talking to him.

Long story, but I end up buying a firm in New Jersey called PRS, Property Risk Services, and Tom was very well known. And now people are like, “What’s going on? Where did DeCarlo get $30 million?”

And then Eliot Spitzer. I should send him flowers when I retire. [DeCarlo retired in May. He did not send flowers.] Eliot shows up to investigate retailers, and they sell their wholesalers. So we ended up buying Willis’s Stewart Smith.

Joe Plumeri [of Willis] said, “You can buy it for $100 million,” and then he asked the famous question, “Do you have $100 million?” I was like, “Yeah, we’ll get back you.” Because we didn’t have $100 million. The private equity guy wasn’t going to give us any more money, so we had to borrow.

We went to New York and did a presentation. We explained wholesale broking to them, explained why we’re needed in the marketplace. Told them they should lend us $100 million, and they did. I literally got in a cab, and I said to Scott, “Can you believe these guys just loaned us $100 million?”

They look pretty smart now.
They do—now. So there it was. We were now really in debt because now we owe $130 million.

We now have 13 offices. Everybody is like, “Oh, my gosh, what’s going on?” The word in the industry was, “Oh, yeah, that DeCarlo, he’s deep in debt.”

I kept trying to explain to the laymen. You own a house? You get a mortgage? Did they vet you to make sure you could pay back the mortgage? That’s what they do on Wall Street. They gave me $130 million. They believed I could pay it back.

Suddenly, you’re attractive.
Then I get a call from Brian Golson. He says he went to high school in Charlotte. Graduated from UNC. Went to Harvard, and now he’s a private-equity guy.

It turns out he tried to buy Stewart Smith from Willis, but he didn’t really understand the industry. And after I bought it, he said, “I’ll go buy DeCarlo.”

Eventually Brian bought us in September of ’05. Now, we’re in the bigger leagues. Private equity group No. 1 put in that $25 million, got out $100 million. So they went away. Brian came in and really helped the business. Made us smarter, made us more aggressive, gave us the ability to raise money better. He stays with us until 2012. Really helps the business. In the first nine years, we were at $273 million of revenue. Over the next nine years, we’ve done seven hundred and whatever it takes to get to $1 billion annually.

The reason other wholesalers struggled in the end was they were run by Sales Guy. Sales Guy has no respect for finance. It’s all about Finance Guy raising capital and buying firms.

In 2012, Brian had his seven-year itch. He left, and we brought in New Mountain Capital. We were valued at $1.3 billion.

When we got New Mountain, we started to have a lot of success, and we purchased some good firms, partnered with some good firms. And, frankly, we then said, “Well, let’s go have cups of coffee with the next generation. Let’s get ready for 2019.” We began that process, and we met a Canadian pension fund. They came on board in 2015 buying out half of New Mountain’s interest and providing our employee shareholders with a liquidity opportunity that provided them close to $300 million.

Then in ’16 we brought in a firm called Dragoneer. And they partnered with us, to buy out New Mountain’s remaining stake. The ownership today is 38% employees, 33% Dragoneer and 29% Canadian pensioners.

Today the firm is $1 billion of revenue. When we started aggregating these guys, no wholesaler had ever had more than $100 million. Simple math: the firm is valued at $3.3 billion.

Where do you rank, today, as far as size among wholesalers?
OK, I try not to say it. We’re the biggest.

According to Thom Rickert, vice president for Trident Public Risk Solutions, there is a lot more to take into account when providing coverage for flying cars than, say, ground autonomous vehicles—another up-and-coming auto innovation (see our previous article on insuring autonomous autos). “I think cars flying will present more significant hazards than autonomous vehicles, but I do believe the industry will find solutions to both,” Rickert says. “A vehicle hits another vehicle, it causes a chain reaction. A flying vehicle could crash into an apartment building. So that’s that difference. I see it as current aviation insurance recognizing these differences in when [and] how it will take off and how it currently integrates with the current air traffic.”

Although flying cars have yet to cause any deaths, insurers and policymakers may want to look to the May 16, 1977, New York City helicopter accident that killed five people as potentially similar in some ways. As a commercial helicopter proceeded to land on the city’s Pan Am Building, the aircraft’s landing gear broke, turning the vehicle upside down and instantly killing four passengers, with wings and parts spiraling out from the top of the building down into neighboring buildings and New York’s streets, killing a pedestrian. After the accident, public opinion of commuter helicopter travel tanked, as urban helicopter airline companies such as New York Airways shut down in the following years.

Forty years later, the perception and technology behind flying aircraft have changed. More planes, helicopters and now drones fill our skies than ever before. And two companies are currently making large strides in the American aviation car market: Uber, which promises an air taxi service as early as 2020, and a Google founder’s company, Kitty Hawk, which has already begun taking pre-orders for its model of the Flyer.

“At Kitty Hawk, we are building aircraft to be just as accessible and to have just as much utility as today’s cars,” a company spokesperson said. “Just as horseless carriages were once new, flying cars are new to the world, so there will continue to be comparisons to familiar vehicles and household machines.”

How will flying cars be used? According to the company, commuting is just one of many uses it sees for its product. Kitty Hawk sees its Flyer as merely a multipurpose vehicle for companies to apply to their industry. “The possibilities for Flyer are truly endless and up to our imaginations,” the company said. “Commercial partners are in discussions to operate fleets of Flyers to bring people to remote environments, natural landmarks, as well as offer Flyer rides in amusement parks and entertainment zones.”

While this may seem like a recipe for crowded, confused skyways, there are efforts under way to ensure a safe and controlled environment. Recently NASA and Uber technologies signed an agreement to work together and develop the safety and logistics that go into creating a realistic flying car environment.

Under the agreement, “Uber will share its plans for implementing an urban aviation rideshare network. NASA will use the latest in airspace management computer modeling and simulation to assess the impacts of small aircraft—from delivery drones to passenger aircraft with vertical take-off and landing capability—in crowded environments.”

When it comes to liability, Rickert sees manufacturers and operators, rather than passengers, fitting the bill for coverage. “The manufacturers just like any product are going to have to have certain standards that they meet and certain liability,” Rickert said. “The aspect of aviation could also result in more of a concept of strict liability, because it may be considered an inherently dangerous product. The way that it could be seen in any liability situation is that the passenger couldn’t assume any liability, because the liability relies strictly on the manufacturer because of the nature of the product.

“And, frankly, when you talk about damage, these vehicles are going to cost in the millions of dollars. The technology is so much more advanced. Just like aircraft hull insurance with very large values, the same will be for these types.”

As flying cars continue to be developed, the insurance industry will eventually be called upon to accommodate the demand for these sci-fi vehicles of tomorrow. An entire new sector of insurance will be created to cover George Jetson, his boy Elroy, daughter Judy, and of course Jane his wife.

Mindfulness

That said, we seem to have lagged in some respects in fully participating in the current big-data revolution. New government-created health data collection and aggregation platforms may, however, give us the data resources to explore new opportunities, such as developing tools to help drive plan participants toward more effective and efficient healthcare providers.

CMS DATA
At the federal level, the Centers for Medicare & Medicaid Services (CMS)— the largest single payer of healthcare services in the country—has created a publicly accessible Medicare claims database. Who may access what varies by the nature of the requestor and the intended use.

For example, to access data containing beneficiaries’ protected health information (PHI) (which can be used to individually identify them), a requester must plan to use such data for “research purposes,” sign a data use agreement, and be reviewed/ approved by CMS’s Privacy Board. The standard data-use agreement clarifies that, to qualify as “research,” CMS must determine that the use will result in “generalized knowledge” that will “provide assistance to CMS in monitoring, managing and improving the Medicare and Medicaid programs or the services provided to beneficiaries[.]”

However, CMS’s public-use files— which do not contain any data that can be used to identify the beneficiary—may provide our best opportunities for access because these data are readily available to the public for any purpose. The data sets are fairly robust and include information on, among other things:

  • Physicians and other suppliers (utilization, payment, submitted charges, place of service)
  • Inpatient and outpatient services (utilization, payment, hospital-specific charges)
  • Medicare Part D prescribers (number of prescriptions dispensed, total drug costs).

There are, however, practical limitations of the public-use files. First, they are by definition limited to Medicare participants and covered claims (CMS has embarked on a data collection/sharing initiative for Medicare Advantage plans, and access is, at least initially, restricted to researchers).

Second, none of the data are risk-adjusted to account for differences in underlying severity of disease of patient populations.

And third, the public-use files do not contain any information on quality of care (readmissions/follow-up visits/etc.). CMS has separately begun publishing quality of care ratings for group practices on its Physician Compare portal and intends to add ratings for individual physicians and other healthcare professionals in the future.

STATE ALL-PAYER CLAIMS DATABASES
All-payer claims databases (APCDs) are state-sponsored, large-scale endeavors that systematically collect and require the submission of medical claims, pharmacy claims and dental claims, as well as additional information about provider and patient demographics from public (e.g., Medicare and Medicaid) and private payers. They are currently being implemented or operated in 19 states: Arkansas, Colorado, Connecticut, Delaware, Florida, Hawaii, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont, Virginia, Washington and West Virginia (a 20th—Tennessee—apparently has abandoned its efforts to operate an APCD, at least for now).

APCDs generally were created as a tool to measure healthcare costs, quality and utilization and to support public transparency of that information. The Virginia APCD, for example, was created expressly “to facilitate data-driven, evidence-based improvements in access, quality, and cost of health care and to promote and improve the public health through the understanding of health care expenditure patterns and operation and performance of the health care system.”

APCD operation—e.g., what data are collected, the availability of such data, and who has oversight authority over the program—varies by state.

Some states—e.g., Colorado and Washington—publicize reports and data sources for public consumption via a consumer-facing website. This allows people to assess differences in pricing for common procedures, to check costs, and to effectively evaluate quality performance throughout the state. Other states—e.g., Maryland and Oregon— require interested parties to formally request access via application and/or to sign a data use agreement with the data management authority (which can be a state agency or an external nonprofit) to gain access to a specific data set.

As with the CMS data, limitations also exist in the state system. Notably, over half of states have not yet adopted a health data aggregation system. And some of those states that have begun collecting data have very restrictive access rules. Hawaii and Minnesota, for instance, currently will release their data to government entities only.

We have developed a comprehensive survey that outlines the current state of play for all of the state APCDs (what data are collected, who may gain access, etc.) at ciab.com/healthdata. It may be helpful as you begin to assess whether these might be valuable tools for you. In the healthcare space, we really are at the inception of the big-data revolution. But data sources are out there. And recognition of the importance of such data—for businesses and patients alike—to encourage informed, value-driven purchasing and care decisions is growing.

The new tools that are being created are like first drafts. Together, we will have the opportunity to build upon and perfect them by identifying ways current data collection efforts can be enriched and standardized to maximize usefulness in our space. “We” can only do that, though, to the extent you are engaged—both with the new tools and in sharing your experiences and views of those new tools with us. Let’s get that conversation started.

Sinder is The Council’s chief legal officer and Steptoe & Johnson partner. ssinder@steptoe.com

Gold is an associate in Steptoe’s GAPP group. cgold@steptoe.com

Jensen is a senior associate in Steptoe’s GAPP Group. kjensen@steptoe.com

You joined Zurich in 1991 as an entry-level technical writer. What did that job entail?
I was responsible for updating phone-booksize manuals with step-by-step processes for people to follow to enter information into the green screen terminals.

Did you harbor secret aspirations to become CEO?
No! I was reflecting back on this recently. My very first performance review I said maybe someday I could become a manager. That was as much as I could foresee as a newer employee.

So what’s the lesson here?
No matter what you’re asked to do, do it in the best possible way every single time and learn something from that. And then the next time, apply what you learned, and you’ll keep getting better. Always be on the lookout for opportunities. You can find them, and sometimes you can make them.

I read that as a little girl you wanted to be an Egypt archaeologist. Where did that come from?
The King Tut exhibit was a big thing in that age. I imagined being on a dig and reconstructing what life would have been like. I was really fascinated by it for a number of years.

Do you see any connection with your current job?
The first things that come to my mind are the elements of problem solving and creation that I think both of them have. Putting pieces together and figuring out how something worked, how things were used to help people. Those puzzles are really interesting to me. In insurance, it’s about how we help put the pieces together to solve a problem or deliver a solution.

What would you tell other women pursuing upper-management positions?
The first thing I would say is, “Do it,” no question. Whether you are driven by data and analytics, technology, problem solving, relationships— those are all aspects of our industry. Women often have those capabilities, the skills to problem solve and coach teams. I’d like to see more diversity in general, and I’m working to encourage more of it.

You’ve described yourself as an “off-the chart introvert.” How does such a person become CEO of a Forbes 100 company?
On the Myers Briggs test, I get the highest score you can get in introversion. My energies come from within. The way that I try to maximize it, in a world that can sometimes be more extrovert-friendly, is to listen more than I talk and to be smart about picking my spots to get that energy out in ways that hopefully have the most impact.

You’ve been in the industry for 27 years. What has kept you in insurance?
Two things. I have been able to basically change careers multiple times within one company in one industry. As I’ve gotten to understand the industry more, and started to understand the impact that insurance has on people, on businesses, I key in on the relationships you can have with people. It’s a very big industry, but it can feel like a small community. At the end of the day, those relationships are what really keep me here.

How would your colleagues describe your management style?
They would say I listen well. They would say I ask a lot of questions. While I might be quiet, it shouldn’t be mistaken for not willing to be bold. If you could change one thing about the insurance industry, what would it be? This is an industry that is poised for cutting-edge thinking around data and analytics and technology. If I could change one thing, it would be helping to rebrand the image of what this industry is about and attracting different kinds of people than maybe we have historically done.

What gives you your leader’s edge?
I think being a good listener differentiates me. It gives me an edge and an advantage. The more I can listen, the more I can understand. Then I can go at the opportunities and the problems and engage with the right people to get those solved.

With many Caribbean islands and hotels still a work in progress after last year’s devastating hurricane season, your favorite might not be ready in time for your escape from the winter blues. If you are already contemplating where to go for some fun in the sun come January, put Aruba on your radar. South of the hurricane belt, the island averages only 20 inches of rain per year, temperatures stay in the mid-80s and there is a constant breeze.

Yes, Aruba has a reputation for mass market tourism. All-inclusive resorts line Palm Beach. Cruise ships stop here. But being a port of call means the shopping is fabulous. In the colorful 18th-century Dutch-style buildings in Oranjestad, you’ll find any designer brand you desire—Cartier, Gucci and Longchamps. There are also some great local stores, like the Cigar Emporium, where you can pick up some Cubans, and the Aruba Aloe Store, renowned for its Aruba Aloe Special Care lotion, one of the many pure aloe products that are made on the island.

But what you might not expect is the adventures you can have. Aruba is essentially two islands in one. Sugar-sand beaches flank the southern and western coasts. Because of the trade winds, wind and kite surfing are watersport staples. You can go diving at The Antilla, a 400-foot German freighter shipwreck, charter a sailboat or join one of the catamaran cruises to snorkel nearby reefs. The northern coast, where Arikok National Park covers almost 20% of the island, is a dramatic landscape of surf-beaten cliffs, rock formations and natural pools. Veering off into this desert, accessible only by four-wheel-drive vehicles, is such a stunning departure that you feel like you could be on an African safari minus the exotic animals, unless you count the wild goats roaming among the cacti.

Some new developments have raised Aruba’s profile over the last several years. The Ritz-Carlton Aruba opened on the less crowded end of Palm Beach five years ago, providing the first real luxury option for people who would normally vacation at one of their other Caribbean resorts. More recently, Sports Illustrated photographed its 2018 swimsuit edition here, its crew staying at the Hilton Aruba Caribbean Resort & Casino, which was renovated in 2016, and shooting at locations throughout the island, including Arikok National Park. The Hilton originally opened in 1959 as the Aruba Caribbean Hotel and was designed by the famous hotel architect Morris Lapidus. Set on 15 acres of white sand and lush tropical gardens, the concept of the renovation was to blend Lapidus’s mid-century style with a contemporary beachfront flair. It delivers.

Fun fact
In the first half of the 16th century, Antwerp was the richest city in Europe and the center of the global economy, accounting for 40% of world trade. It was a cosmopolitan city inhabited by merchants and traders from Portugal, Spain, Italy, England and Germany. Even the English government borrowed money from financiers in Antwerp between 1544 and 1574.

What’s to love 
Antwerp’s Central Station, Antwerpen-Centraal, the world’s most beautiful rail station, makes Antwerp a central location. It’s a one-hour train ride from Amsterdam, two hours from Paris and three hours from London. The railway station features four separate levels of trains and a public bar with gold leaf and mirrors.

Dining scene 
Antwerp has a world-class dining scene with just short of 100 restaurants mentioned in the 2018 Michelin Guide. In the summer, the city has a lot of pop-up bars and restaurants along the River Scheldt, including some of the center city’s best restaurants, such as Radis Noir.

Favorite new restaurant 
My favorite new restaurant is Restaurant K, a Japanese bistro with a Mediterranean twist. What I especially like about it is that this restaurant is located in the residential complex of Axel Vervoordt, Kanaal, where I live.

Very favorite restaurant 
My very favorite restaurant is the Michelin-star ’t Zilte. It occupies the ninth floor of the Museum aan de Stroom (MAS) and has a 360-degrere view of all the landmarks of Antwerp. I celebrated my 50th birthday with friends and family in their private dining room.

Best Belgian beer 
In Antwerp’s city brewery, De Koninck, you can walk through the active brewery and partake in a delicious beer tasting afterwards.

Stay 
I would recommend Hotel Matelote, a boutique hotel with nine rooms in the old city center. Occupying a renovated 16th-century brick house on a tiny lane steps from the medieval Grote Markt, the intimate Matelote has nine individually designed rooms with Belgian contemporary art.

Don’t miss 
Do pay a visit to the newest museum in Antwerp, DIVA Museum. It is the home of diamonds in the diamond capital of the world.

Millennials are often called digital natives, and that’s clearly true in business, as Nationwide found in a survey of 1,000 owners of small and midsize businesses regarding their use of building sensors, wearables, drones and vehicle telematics.

“Technology continues to play a bigger role overall in the actual business owner’s daily operation,” says Tony Fenton, vice president of Nationwide’s commercial lines product and underwriting. He adds that this role will grow as millennials continue to create and grow businesses.

“Each one of these technologies plays a different role in operational efficiency and a safer work environment,” Fenton says. “The reason that they’re valuable is that they create economic value for the business.… Ultimately we’ll see more and more technology enable businesses to be more efficient and effective.”

Tell  us  about  InsurEco  System.
PHIL:   We’ve  created  a  system  that   connects  insurance  companies  with   independent  agents  and  provides  all   the  different  products  that  agents  are   seeking—everything  from  personal  lines  to   commercial  lines.  

DEREK:   We’re  an  aggregator  of   insurance  agencies,  we’re  an  aggregator   of  insurance  products,  and  we’re  an   aggregator  of  insurance  technology.  We’re   no  longer  a  platform.  We’re  no  longer   a  software  company.  We’re  truly  this   environment—this  ecosystem—in  which   commerce  exists.

PHIL:   Our  entry  into  the  system  comes   from  the  technology  piece  we  built  called   the  InsureBio.  It’s  an  app  and  a  tool  the   insurance  agent  can  use  to  create  the   insurance  profile  of  the  customer.  The   insured  creates  a  profile  that  answers  all   the  questions  that  are  needed  to  purchase   the  type  of  insurance  they’re  acquiring.   That  information  is  connected  to  an  agent   that’s  in  our  ecosystem,  whether  it’s  their   current  trusted  agent  that  they  do  business   with  or  they’re  just  looking  to  find  an   agent  to  access  the  products  that  are  in  the   insurance  marketplace.  And   if  their  current  agent  isn’t   already  part  of  the  ecosystem,   we  bring  them  on  and  give   them  permission  to  access  the   information  that  their  insured   has  given  them  access  to.  

DEREK:   We’re  getting   the  data  from  the  insured   and  passing  it  into  our   intelligence  appetite  engine.   The  carrier  comes  into   our  system,  they  program   what  their  appetite  is,  and   we  match  that  up.  We’re   that  last  mile  between  your   management  system  and   your  actual  sale. 

How  does  blockchain  come  in?
DEREK:   If  you  look  at  any  public   blockchain  system,  it’s  about  recording   value  and  putting  the  truth  back  into   the  participants’  hands.  In  insurance,   data  is  that  asset.  Blockchain  technology   enables  us  to  create  a  true,  immutable   ledger  of  exactly  what’s  going  on;  who’s   got  permission  to  what  data  points  and   who  has  access;  who  is  the  carrier  on  the   contract.  Our  main  objective  is  to  enable   the  broker/agent  distribution  channel  to   communicate  easily  with  reinsurers  and   carriers  regarding  production  and  quoting   in  real-time.  

How  will  this  ecosystem   help  agents?
DEREK:   We  focus  on  how   insurance  agents  can  market   their  products  better,  how  they   can  know  clients'  appetites   better.  We  coach  them  on  how   to  do  appetite-based  marketing   so  they  build  [for  example]  a   microsite  for  a  plumber  that’s   in  Texas  because  we  know   through  the  analytics  in  our   system  that  they  sell  a  lot   of  them  and  those  are  good   money  propositions  for  them.   We  coach  them  to  try  to  get   down  those  roads. 

How  do  blockchain  and  your   technology  help  people  control  data?
DEREK:   One,  knowing  is  half  the   battle.  You  have  to  know  where  your   data  is  going.  We’ve  proposed  to   the  regulatory  bodies  that,  just  like   insurance  agents  get  licensed,  insurtechs   should  be  licensed.  The  second  side  of   it  is  giving  customers  the  mechanism   to  be  able  to  say  no.  We’ve  created  that   in  a  smart  contract  where  the  insured   says,  “I’m  going  to  share  these  data   points  with  my  broker  of  record  for  this   amount  of  time,”  and  they  can  revoke   that.  We’re  just  trying  to  create  the   new  path  for  essentially  changing  the   mindset  of  the  insured  to  not  go  to  the   Google  machine  and  get  into  that  lead   gen  tax.  Don’t  go  that  way.  Just  go  raise   your  hand  and  say  I  need  insurance  or   say  that  you  got  married.  From  that  life   event,  we  know  you  need  insurance,   and  we’ll  connect  you  to  your  agent.   Your  agent  will  configure  data  points   that  he  needs  based  on  you  getting   married  or  having  a  baby.  We’ll  funnel   that  through  and  ask  permission  for   every  data  pull,  and  you’ll  have  the   ability  to  say  no.  You’ll  know  where  all   your  data  is  going,  what’s  being  used   on  it,  and  then  you’ll  have  the  ability   to  request  it.  That’s  the  two-headed approach we take. 
 

Where is blockchain going in insurance?
PHIL: We are trying to help customers create an insurance profile, similar to a credit report, that stays with us. Keeping accurate risk data will help clean up the industry.

If an opportunity comes to you [as a broker] and you’re not the right fit, let’s just say a captive agent at State Farm is a better solution for them, it will connect them to the right carrier that actually wants that risk. That should be the value that an insurance agent wants. They’re not trying to take a customer away from someone’s who’s doing a good job; they’re just trying to pick up business when the person isn’t being serviced properly. That will also clean up the marketplace.
 

DEREK: The consumer is losing trust in the insurance economy. That’s why they’re going to all of this other, the peer-to-peer, because what’s happened in the health industry has made everybody think it’s a scam and it’s not right.

How did InsurEco System evolve?
DEREK: We were born as a submission management tool for a wholesaler with premium finance baked right in. We moved into building custom raters for carriers and risk retention groups. Dealing with smaller outfits we could work on the workflows which were inefficient and focus on maximizing output while keeping overhead low. Once we started moving down that road, we realized the real magic— the thing nobody wanted to do—was deal with servicing and payments for smaller priced accounts.

We took contractors general liability, and we took small trucking owner operators, and we focused on creating a real end-to-end environment to where the quote was brought to the system from the retail agent. We ran it through our rating algorithm. We delivered the policy through our policy issuance system. We gave the insured a mobile app, called the policySpot. We created a selfservice certificate option, and it allowed agents to deliver policies and ID cards.

About the end of last year, our R&D department developed policyBlockchain, and we started seeing the value that came from being a third-party entity for everyone to report their transactions to. No one was providing the big picture. That was the turning point for us, when we said, “We could just wrap this whole thing and just make it visible to everybody and just be good, honest custodians of the data, follow all the regulations.” 

What’s ahead?
DEREK: Short term we are working with about 10 different insurtech innovators from property data to cyber security. We are having some great successes with a joint project with Maxxsure, where we’re creating a cyber scoring and security platform. We’ve partnered with a wholesaler who has a commercial product for trucking, and we’ve built a complete blockchain solution for reporting production, cargo and claims. There are a lot of neat ways we’re going to start dipping into other industries closely related to insurance and supply chain.
 

PHIL: We’ve added on a partnership with a company that has imaging, and we’re working on this proof of concept that, if you take a picture of an item of value, it will produce an insurance quote kind of real-time and connect them to our agents, who can actually offer that product.
 

DEREK: We’re also working with an AI company that has a proprietary algorithm to detect and predict customer engagement, and we’re putting a scoring in that to allow us to tell agents and brokers how engaged the actual consumer is within the process. That’s going to be really key.

The two, in the 1999 movie Entrapment, were not exactly hot. In fact, readers of the movie magazine Film voted their love scene the second worst of all time, right after Sharon Stone and Joe Pesci in Casino.

But the rest of the scenes are packed with Bond-style action and Bond-girl duplicity. It’s one long series of treacherous escapes and nearly clever banter, great acrobatics and special effects, which no doubt contributed to its $300 million gross. The reviews were middling, but that never stopped the American public from buying a ticket for a great chase scene.

It’s a familiar insurance movie plot: Mac’s a wealthy thief who steals just for the intellectual challenge, and Virginia is a good-looking young insurance investigator who is posing as an art thief. Or vice versa. Or both. Anyway, Virginia opens the movie working on a crime she herself committed. As part of the job, she chases down the infamous Mac but only to partner with him on a few other larcenous adventures and learn his secrets.

Exquisite OCD planning goes into every heist, with glamorous settings from Mac’s Scottish castle to Kuala Lumpur. Eventually, proximity breeds sexual tension, but it’s hard to believe that the then 30-year-old Zeta-Jones is actually coming on to the 69-year-old Connery. He handles it well.

Though passion and chemistry are both lacking in Entrapment, it is considered Connery’s last romantic role. So far, anyway. He’s only 88, and he’s still looking good.

Their goal was to identify high-risk patients, which would enable providers to offer less-costly treatment up front and avoid high-risk, costly care downstream.

How did this partnership come together?
It was a multi-disciplinary collaboration between UCLA mathematics, the David Geffen School of Medicine and the neuroscience institute. Anthem was kind enough to let the inflammatory bowel disease clinic access some of their claims data for patients going through that system. And we decided to use it to try to predict big medical outcomes like hospitalization or the use of biologic treatments that cost tens of thousands per year.

What is the cost of IBD treatment?
IBD treatment annual expenditures are estimated at $12,000 for Crohn’s disease and $8,700 for ulcerative colitis. Hospitalizations and treatment with drugs called biologics account for the highest portion of these costs. For instance, one hospitalization can be more than $10,000, and biologics are usually more than $20,000 per person annually.

How did you use the data?
It was a combination of statistics and advanced math tools and different characteristics of patients. We developed a model that predicted if people would go to the hospital in the next year and if they would benefit from using biologics.

It’s one thing to say you can predict something that is a fun fact. But it’s not useful until you can predict something so well that it actually saves money. Even if it was good for patient care, it has to work within the healthcare economic system we have. You have to prove it can make a difference.

What were the results of the study?
We were able to predict hospitalizations with positive predictive values of 17% and the use of biologics by 11%, a 200% improvement over chance. And when we narrowed it down to four subpopulations—like one group that all had a recent history of small intestine endoscopy and just started budesonide—the predictive value of hospitalizations increased to 20%.

We were surprised that some of these features went together as predictors, because it’s not a human thing to zoom out and look at clusters. We think in terms of narrative and stories, and when you get down to fine and granular aspects, that’s something for machines, not humans.

We use this kind of data on Amazon to predict what people want to buy or Google Maps to predict where someone will go. But it’s not used in medicine. Using data has made such a big impact overall, I have to believe we are leaving something on the table by not using it in this space. We can look at more cases than any doctor can look at in an entire lifetime.

That’s the advantage of using a big-data approach to predictions. This model, used with an interventional treatment plan for high-risk members, could improve outcomes and reduce insurance costs.

What do you think it could mean for medical care and costs?
What if machine learning predicted when we were at risk and you could go to the doctor to help prevent it? That’s not happening much at all right now. Docs aren’t trained to discern symptoms that make you sick, just treat you when you are. A machine can diagnose someone’s entire medical history in nanoseconds.

We could create interventions where insurers pay for an office visit if it turned out you are at risk: like it was predicted to be highly likely someone would go to the hospital in the next year. Insurers would foot the bill preemptively to prevent that visit from materializing in the first place. Even if an intervention is only 10% effective—meaning it would reduce the risk of hospitalizations only 10% of time—it is still the right call for insurers because hospitals are so incredibly expensive. If you are going to be predicting who is likely to have an adverse medical outcome, you have to predict it so well that it is going to save an insurer money.

Were any of the results of the study surprising to you?
One thing that predicted someone wouldn’t go to the hospital was if they had been to the doctor in the past year. That gave them a 20% reduction in risk. This shows it is a good assumption that offering some sort of intervention might be effective.

And if an insurer foots the bill for someone showing up to the doctor, it lets the patient know the insurance company isn’t trying to get away with whatever they can just to save money. But telling them they are at risk for something and paying for a visit is a wonderful way to have a powerful bond with their insured.

Can this work with other medical conditions?
While we did this with IBD, we have no reason to think it doesn’t generalize to most, if not all, medical issues. There was no specific biology to it; we just used values of what was spent on care. There are patterns with care that are consistent. This zooms out and takes a big view of things happening and predicts where a disease course is likely headed.

If you zoomed out and looked at the first 30 years of someone’s life, you might be able to predict what they will be doing in the next year. That’s what machines are good at right now.

What are some of the challenges with predictive modeling?
Electronic medical records don’t encompass health data like a Fitbit and doctors’ personal interpretation of data or image files. If you have an MRI at one place, you have to go there and burn it onto a CD to look at it somewhere else.

It’s not necessarily effective now, because data isn’t centralized between hospitals and laboratories and doctors. We thought a good option was to use insurance claims data—that’s services they actually paid for. But you don’t actually get results; it just says, they got an X-ray or are on medications or had this many office visits. We had a nice set of well organized data.

Another difficulty with machine learning is it is sort of looking at things retrospectively. You can’t diagnose what factor is causing something to occur. This type of work we are doing is sort of on the forefront. There’s not even a good model for it.

You can just make a prediction and say someone scores above average on their number of endoscopies, so they may have to look at another type of solution. We can go to the doctor and say, “This person is likely to go to the hospital, and they are not showing any symptoms. Now
figure it out.” Maybe they haven’t tried as many medications, so it may be time to shift. Our job is to offer up some predictive model and leave it to the doctors to possibly avert that hospitalization. In the model, doctors start to do preventive medicine.

How far out are we from using this technology regularly?
We are at least five years out from it being implemented on a larger scale. That’s mostly because of red tape, wariness of the dollars it takes and the structure needed to set up care pathways of predicting and then training doctors on what to do about predictive medicine. I think it’s going to require a paradigm shift in medical education because everything is retrospective. They have to be taught how to retrospectively identify disease. But there are health benefits, and the monetary benefits are there, and they outweigh the red tape that’s in the way.

What will providers need to know about predictive modeling?
There’s not even a framework for doing this. We are having to develop it right now to train doctors to be predictive given no current symptom changes in a patient.

It’s important to have both doctors and scientists working together on the modeling. When we ran the numbers, we found some things that we thought were really predictive, and the doctors said they wouldn’t be. And we would go back and build the model again. You need multi-disciplinary teams working on this.

Where do insurers fit into the picture?
Like most things that get done that are new, we have to make sure we are doing something that is mutually beneficial. And we are kind of arguing that insurance companies are an unexpected ally here. A lot of the time, insurers get a bad rap because it’s in their business interest not to share information.

But if this does make a difference in the bottom line, they can become an unexpected ally with the potential of overcoming the limitations of the current American healthcare system. They can give us data, and we can look it over, and then the system can do something about it.

Anything else to know about predictive medicine?
There is so much power in machine learning, and you don’t need to look much farther than Google and Facebook. I’m highly confident this type of work can, and will, provide value to the system.

With this study, the general science takes much longer because it is the first time anyone has done it. It took a year and a half to get the data and clean it up. It comes in a messy format, and you have to go through and understand what everything means. You are just taking a bunch of data and building a model to see if it is cost effective.

This study establishes a general framework where we built a model from the biggest set of data that we have—from insurers. And you have to run through an economic analysis to make sure it is cost effective for the insurer; otherwise, it won’t happen. There’s always a trade-off for how much we are willing to pay to save people’s lives. Even if you have nationalized healthcare, there is a limit to how much they will spend.

How did you get interested in mindfulness to help your business?
I started Kevin Davis Insurance Services in April 2000 as part of the Sullivan Group. I met Jerry Sullivan and Hank Haldeman and put together a D&O program for community associations. I went from zero policies to 30,000 in a 10-year period. It was incredibly successful. But around 2010, Liberty International came into the market and just cut our rates. For the first time, we’re facing competition. We’re no longer the hunter. Now, we’re the hunted.

Two things happened. We were losing money, so I had to lay off people. When you have to make these kinds of decisions, you second-guess yourself. And when you second-guess yourself, the decision gets harder and harder and harder.

And then, on top of that, I had two children about to go to very expensive colleges.

You live in the land of mindfulness.
My wife and I, together, took classes because the stress at work and at home was affecting our relationship. I was disengaged, distracted and very unhappy. Everything was just as bad as it could be. I was stressed. I was stressing her out. So I said let’s try this thing together.

After six weeks, everything changed. Things began to finally make sense. That’s how important this stuff is. I was calmer. I was less reactive, and things started to get better for me.

So your issues were all stress-related?
Yes.

But this goes beyond that?
Yes. The thing I needed was my creativity. I’d lost mine. When you’re stressed, you react to everything. Everything is react, react, react. When you’re not stressed, you pull back and you’re receptive to things, and you’re receptive to what’s happening around you, and all of a sudden you’ll be creative. That was reflected in our business. Within three years, we were doing pretty well again to the point where we were profitable and things were as good as they possibly could be in the organization.

Tell us about the substance of the classes.
The class is based off of Jon Kabat-Zinn, the guy who founded the Stress Reduction Clinic at the University of Massachusetts Medical School and made mindfulness mainstream. He was a professor there at a time when other doctors said they couldn’t help a lot of people there with severe anxiety and pain issues.

He created an eight-week mindfulness stress-reduction program. As a result, the patients’ pain was lessened, or they were better able to cope with their condition. Physical pain, emotional pain—it’s all the same thing. The program teaches you how to deal with all types of pain.

How?
Number one is meditation. We are constantly reacting. Our brains operate this way. Our brain operates to do one thing: solve problems. That’s all our brain does. It’s our mechanism for us to get things done.

What your brain does is go into the past and says, “OK, I should have finished the project faster, earlier. I should have done this. I should have done that.” You worry about everything in the past. That creates depression. Or your brain explores the future, which creates anxiety. So once the project is done and you go back to your room, your brain doesn’t shut down; it just keeps going. It has to solve a problem. It just has to constantly solve a problem.

What mindfulness does—it doesn’t shut your brain off—it lowers it to the point where you’re seeing things. You’re aware. The perfect example: you’ve watched The Wizard of Oz, right? Everything is in black and white and then all of a sudden things are in color—rich and vibrant.

Mindfulness is awareness. It is the ability to be aware. The definition of mindfulness is being present. Just understanding and being present, which opens the mind to curiosity. The key is being willing to be with what is. And that’s the really important thing. Food tastes better. I take my time when I eat. I take my time when I’m listening. Everything is just incredible because of the amount of awareness you have.

How do you do that? How do you physically make yourself?
There’s informal and formal mindfulness practice. The formal is meditation.

Sit in your chair, and just like if a string is pulled, you pull it straight up. So you sit up. Close your eyes. Now, breathe in and out. Every time you notice when you breathe in and breathe out, you’re being present. By breathing, the in and out becomes an anchor to the present moment because when we breathe, it’s neutral, meaning we have no opinion about the breath at all. It’s just there. You’ll notice your mind will start to wander. You’ll hear noises, but just pay attention to your breath as you breathe in and you exhale. And when you hear a noise, that means you’re present.

As a writer and editor, my imagination is what I work with. My mind wanders. So you’re saying you always must work to bring it back?
Bring it back. Most people believe meditation is emptying your mind. That’s not real. You can’t. Your mind is always wanting to solve problems and looking for one to solve. What you don’t want to do is just be active all the time. You want to lower it to the point where you’re more receptive. The stress levels in our lives are so high we’re constantly reacting to everything that goes on. We’re not receptive. We’re reacting.

You’re in the moment right now. What does that mean to you right now?
The difference is right now I’m taking in everything that’s going on and I’m not judging anything. There’s zero judgment, and that’s the key. People judge, blame and criticize. That’s what we do. Once you’re able to put those three things away, then all of a sudden, whatever you’re giving me I’m aware of. Whatever we’re talking about, I’m aware of it. And all of a sudden I can react to you based on the information, not my preconceived ideas.

You cannot do anything if you’re not focused and you’re not present. Nothing happens when our minds are wandering. And the perfect example is when we go shopping. Whenever you go food shopping, you’re mindful about what you’re buying. You come back with exactly what you want. If you’re not mindful, you come back with a whole bagful of stuff you didn’t want.

The first thing I had to do was learn to become aware. So now all of a sudden, because of the awareness, I’m mindful.

After six weeks, everything changed. Things began to finally make sense. That’s how important this stuff is.

How did you incorporate this into your workplace?
I held an introduction into mindfulness class in the office for 30 minutes on Mondays and Wednesdays at 9 a.m. for six weeks. And I told the staff it’s not mandatory but it could help limit stress.

We had two classes of about 15 people. Once I got them in there, I realized there were group dynamics issues I had to deal with. Employees [sitting] next to supervisors was one. I realized it’s going to be hard to get them to open up and ask questions because of who they sat next to. And I didn’t realize opening up was very difficult to do because I’m the boss.

What I had to do was open up myself and be vulnerable. I told them about my 88-year-old parents and my sister who is taking care of them. My sister is the youngest. She has five brothers. She’s carrying all the weight. I live in California. They live in New Jersey. So that causes some interesting sibling dynamics.

I’m telling my class that I got angry at my sister because she said I wasn’t helping out enough. What happened is you realize that, by being mindful, you’re not really angry at her. You’re feeling guilty because you want to do more, but you’re afraid. It’s the fear that’s coming into play. By being mindful, you deal with the fear and not the anger. That’s the difference.

If you’re mindful and you’re afraid, you realize that you’re fearful about four things: shame, guilt, embarrassment and humiliation. Those four things matter. Nothing else matters. And they keep coming up over and over again.

Those are all very similar words.
Yeah, but they’re different. I bought a new car, OK, and I’m the boss. If I felt guilty buying a new car, the guilt would come from buying a car I can’t afford. My wife said, “You’ve got to be kidding. You can’t afford a car.” I feel guilty about that. But shame is what I felt. Shame comes into play because I’m the boss and I was able to buy a new car when other employees couldn't.

But mindfulness tells me that other people’s happiness and unhappiness depends on their actions, not your wishes for them. And that’s one of the things that we have to keep in mind all the time.

A mindfulness tool to use here is R-A-I-N. And that’s how you handle your negative emotions—like I was angry at my sister. “R” recognizes that emotion. So I’m angry right now. Then the “A” is accepting. Do you accept the anger? I couldn’t accept the anger. That’s when I found out it wasn’t anger. It was guilt, or shame. I recognize I want to help my parents more and I can’t. So now I was accepting the guilt part of it. “I” is investigate. This is, when we do a meditation, what I call body scanning. Instead of just breathing in and out, start with your face. Soften the face. Soften the jaws. Soften the mouth. All of a sudden the tension is often off your shoulders. It’s often in your chest. Then all of a sudden, at the end of the body scan you’re no longer upset. Whatever you felt beftore is kind of gone. So you are identifying it, you are investigating it.

Finally, “N” is not to identify with it. We end up identifying with that emotion. Am I an angry person? Or am I angry about the situation? I’m not an angry person. But what happens is we become the angry person and then all of a sudden we spend the rest of our day being angry. The key is to not identify with the emotion but separate it out.

Anger is our favorite emotion. There’s no better emotion out there than anger. It makes us feel good. It justifies our actions. It’s a survival mechanism to make us feel we’re right. Our minds are designed to keep us safe, nothing is more important for our survival than having the ability to use our minds to keep us safe. And whenever you feel agitated or stressed, all of a sudden we’re focused, and we can’t do anything else but deal with that situation. Anger comes out, and everything comes out. Now, we can’t do anything else.

What can your average businessperson expect if they decide to try this?
First, you have to be open to it. You can’t walk in and say, “OK, this is going to be a waste of my time.” What happens is most people feel uneasy about the process and decide not to do it. But if they decide to be open, they will see a change within six weeks.

How do you bring this into the office and convince people this is a good thing for business?
The problem today is there’s too much stress, too many distractions in business. You must eliminate your distractions if you want to become more aware and not always reacting. The key in business is you want to be receptive, versus reacting. The more receptive you are, the more productive you can be. Instead, everybody reacts to everything else and then we’re in that fight/flight mechanism. You’re in that survival mode, as opposed to taking a step back and realizing we probably can do business together if we just listen. That’s how you get things done. Mindful listening is one of the keys.

How does mindful listening help you engage in business?
What it means is I’m giving my full attention. My mind will wander, no matter what you say. There’s no way I can listen to everything you’re saying. The difference is that, when my mind starts to wander, I know it’s wandering. I feel my feet on the ground. I’m present again. Once I’m present, my attention is back.

Has this helped your business?
For me personally, this has been great in terms of the way I react to people. So there’s a calmness when I walk inside. I don’t overreact. They know when I’m in the office there’s a calmness. The office environment is a lot better.

How do you incorporate this into a business?
Mindfulness allows my staff to be more open. They learn about mindful speaking and listening. For example, a question we discuss is what brings you joy. I ask everybody in the room. It’s amazing when you answer that question; everybody feels better about everything. It brings everybody up to a point where most people feel just a little better than before.

Have you institutionalized this in your business? Do you have regular classes?
I haven’t yet. It’s hard. It’s harder to do it with my staff because they can’t express themselves as much as we could in a private class. It’s hard for my workers to share, but I hold classes quarterly and the group feels more and more comfortable each time.

With each other or with the boss?
It’s probably easier to do with me because I’ve made myself vulnerable. By me saying this is what happened to me, then it’s easier to connect with me. But now if you’re sitting next to your supervisor or your manager, it curbs what you can say.

Have you noticed anything surprising about your staff who have the most client interaction?
They’re more engaged. They’re a little bit happier at work. This understanding of awareness is important.

What about the bottom line? Have you been able to see anything yet?
You can’t measure it. This is an individual thing where managers say, “I can be a better manager if I take up mindfulness. I can approach problems better. I can solve problems better. I can be more creative.”

Each employee has to understand they are important to the operation to ensure, no matter who they are, they are connected. Connectivity is what we really want from our employees. When I first started it in the office, the idea was to make people more engaged in the workplace. So how do you get them engaged?

If you have more engaged employees, then you have people who are more enthusiastic on the phone and when you talk to that client on the phone, they are more receptive. You want receptivity, versus reactivity. You want employees who are fully engaged and who know their future is based on engagement.

The definition of mindfulness is being present. Just understanding and being present, which opens the mind to curiosity. The key is being willing to be with what is.

This could help employee retention.
Exactly.

If I’m a business owner wondering how can I do this, how do I get started?
Google mindfulness. Start there. It’s becoming a mainstream.

Also, consider a silent retreat. I’ve done one. You go away for a week and shut everything out. All of a sudden, no cell phones, computers or emails. Nothing like that. The first thing that happens? You will sleep. You can’t imagine how sleep-deprived we all are. You have no distractions, nothing. You come out with a whole different frame of mind for a little while. And then it kind of goes back to routine.

It was easy for me to accept mindfulness because deep down inside I was a guy that believed something was missing in my life and the qualities of mindfulness were already in my makeup. It was like life made sense to me for the first time. It went from a black and white world to everything in color.

The problem today is there’s too much stress, too many distractions in business. You must eliminate your distractions if you want to become more aware and not always reacting. The key in business is you want to be receptive, versus reacting. The more receptive you are, the more productive you can be.

“A lot of times, when people know, they’ll treat you differently,” says Doran, now a sales executive at Horton’s Risk Advisory Solutions. “They’ll want to help you out.”

Come face-to-face with a veteran, and a mere “Thank you for your service” doesn’t seem to cut it. There’s often a desire to do more, to offer special treatment or a leg up. But in doing so, even the most well intentioned gesture can cause an unintended result. Take job placement, for example. Companies may want to hire veterans because they believe it’s the right thing to do, but that’s not necessarily what will attract vets—or encourage them to stay.

“Somebody needs to make a business case and not just start a feel-good effort,” says Patrick O’Leary, another U.S. marine who is now veterans affairs manager for UPS, a company renowned for its successful efforts at recruiting and retaining vets. “This is not about being philanthropic but because it will help you be more competitive. You have to be in that mindset. It has to be, ‘Let’s hire veterans because they’re going to be great employees.’”

This combat plan, however, requires more than just changing your mindset. It’s the creation of not just a job but also a welcoming and supportive environment, one that is built around celebrating and fostering veterans’ inherent skills and understanding the true challenges they face when transitioning to civilian life.

Even the Best-Laid Plans

Speak to anyone about hiring veterans, and the reactions can be split. Some will advocate for giving back to those who have sacrificed so much. Others might worry about potentially violent or reactive behavior resulting from post-traumatic stress disorder or, if the veteran went into the service young, a lack of maturity and life skills. But there’s another part of the equation: a basic lack of understanding about the transition from military to civilian culture. Those who haven’t served often find there are lessons to be learned.

Jim Pender would be quick to agree. Back in 2012, Pender co-founded Disabled Veterans Insurance Careers (DVIC). The idea was to educate, train and secure meaningful employment for physically disabled veterans. These veterans would cross-sell personal lines insurance products on behalf of independent agencies, with a goal of making 80 calls and landing at least two appointments each day.

“Our initial assumption was that veterans would be ideally suited for the insurance business because they are mission driven and tech savvy,” Pender says. Veterans were accustomed to giving and taking orders, he and co-founder Gary Trippe reasoned, and used to working on teams. Pender didn’t have military experience himself, but both he and Trippe had disabled family members, as well as a sincere desire to help.

At the time, the men were principals with Florida-based independent insurance agency BB&T-Oswald Trippe and Co., and they wanted to share the success and sense of purpose they’d found in insurance with returning veterans. Other industry leaders joined the effort, with support from Marsh and McLennan Companies, Bankers Insurance, Chubb, Knapp Consultants, The Council, Liberty Mutual, United Way, and a host of others.

“But I think we got ahead of ourselves,” Pender says. “There were things about the transition from military to civilian life that we just didn’t understand.”

Those who work with veterans have found, for example, that there can be a loss of camaraderie post-service. There also can be a loss of mission focus, structure, oversight and clear opportunities for job advancement. Veterans might use different speech than their co-workers, defaulting to military terms and acronyms unrecognizable to civilians. They might find themselves overwhelmed by the number of decisions they now must make on their own and have difficulty finding basic services, such as healthcare, once provided by the military. They might have trouble relating to others who have not experienced the level of stress that service brings. They might encounter a competitive workplace that’s at odds with the more collaborative environment they knew in the military. And they might face cultural gaps that developed while they were deployed.

Shad Steadman, past chairman of The Council and current vice chairman of MMA-Mid Atlantic at Rutherfoord, said he was happy to be involved with DVIC as a strategic board member; the overall effort was enthusiastically received, he says, “almost to a person.” In retrospect, however, the focus might have been too narrow. Not everyone—military background or not—has an interest in or an aptitude for the type of sales that particular job required. The experience did, however, generate a lot of “interesting conversations around things veterans might need,” Steadman says. There’s always the possibility that strategic meetings in the future could explore different ways of bringing the insurance industry and veterans together in a more holistic, helpful way.

All told, DVIC, which has since closed its doors, helped place 18 veterans in insurance careers. One of those 18 was Doran, who discovered a love and appreciation for an industry he might not otherwise have considered.

“When I see those 18 people succeeding, my blood rushes,” Pender says. “I’m thrilled by that. I know what a great industry this is.”

Somebody needs to make a business case, and not just start a feel-good effort.

Jim Pender, co-founder, Disabled Veterans Insurance Careers

As for Doran, he continues to be grateful for the doors DVIC opened—and for the classroom training. “It was invaluable, and I still use it every day,” he says. “The biggest surprise for me, though, was that I always thought I wanted to work in an office. When I first came out of the military, I had a job in sales, and I hated it. I missed the camaraderie, the buddies I was with, the chance to be outside.”

After his time as a DVIC account manager, Doran became an account manager with Hub International’s private client group. He joined Horton Group in 2016 and believes he’s “finally found the perfect fit.”

“It’s the best job I’ve ever had,” he says. It doesn’t hurt that his supervisor is also a veteran.

Leveraging Talent

In recent years, times have changed for transitioning service members—and for their families. Eric Eversole, vice president at the U.S. Chamber of Commerce and president of Hiring Our Heroes, says that, when the program first began in 2011, “we were really facing a national crisis in veteran unemployment. Post-9/11, it reached 11%. We had a lot of service members coming home from warfronts and finding a tough economic environment.”

Within the first three years, Hiring Our Heroes held nearly 800 hiring events, working with a broad coalition of public and private partners, with tremendous results. Today, veteran unemployment is below 4%. But different challenges have emerged. In recent years, studies have shown that half of veterans leave their first civilian job after service within 12 months—typically looking for new challenges, more money or a better offer.

To help combat these issues, Hiring Our Heroes is putting more of an emphasis on finding veterans the right job—rather than just any job to make ends meet.

Hiring Our Heroes now holds hiring events on military bases, helping service members plan ahead up to a year before leaving the service. There’s also greater outreach to military spouses, who still face an unemployment rate of 16%. A report on this topic by Hiring Our Heroes, released in June 2017, found that, while less than 20% of employed spouses have seasonal or temporary jobs, 82% would prefer something permanent. According to the study, one in four employed spouses is working multiple jobs and roughly 70% don’t believe their education or past work experience is being fully utilized in their current job. Respondents said companies don’t want to hire active-duty military spouses because of the likelihood they’ll move. The spouses often can’t find flexible work schedules or affordable childcare, the study found, and they may have challenges explaining time gaps on their résumés. In addition, these spouses may be unable to transfer professional licenses; they may have fewer connections and social networks than others; and they may be unable to find meaningful jobs near military bases.

“What we’ve started to do is take a step back and understand where these men and women come from,” Eversole says. “Nearly 90% of service members come from blue-collar backgrounds. These are families making less than $70,000 a year. Nearly two thirds will be first-generation college students. It’s not that they’re not ambitious or don’t want a job. The reality is that they don’t know what they don’t know about economic opportunity and the careers available in this country. If businesses want to be successful in recruiting service members or spouses, they have to help underscore not only the types of careers available but also the long-term opportunities in their business and their industry.”

Some in insurance have been able to do just that. Marsh and McLennan has so strengthened its efforts to reach veterans and their families that it has become a key influencer in the veteran talent space at the national level. In 2017, the global professional services firm was named the No. 1 Military Friendly Employer in the U.S. by Victory Media; for 2018, it remained among the top three, along with IBM and Boeing.

James Tongate, program manager of Military and Veterans Affairs at Marsh and McLennan—he’s also a combat veteran and chief master sergeant with the Kentucky Air National Guard—says success has come through a holistic approach using the entire employment lifecycle. That encompasses acquisition, onboarding, engagement, development and redeployment. There’s an appreciation that veterans bring skills in areas like team building and resiliency, he says, “and our company is poised to leverage that talent and ease their transition.” Tongate contends it’s never enough just to check a box by hiring veterans—companies must do the necessary work to keep them fully engaged.

Marsh and McLennan currently has just over 600 self-identified veterans among more than 23,000 U.S. employees. Tongate believes there are others who, like Doran, would rather be recognized more for their skills than their military experience. Marsh and McLennan is global, with more than 65,000 employees in 130 countries, and its efforts to reach veterans apply to those from all nations, backgrounds, political beliefs and military organizations. “A veteran is a veteran,” he says. “And veterans bring a greater level of talent than the typical civilian.”

Eversole agrees. “I learned every bit as much about leadership and thought processes in basic training and officer school as I did in law school,” he says. “The military teaches a certain way of thinking from day one. It’s not as book-intensive as law school, but the thought processes and group dynamics, from a learning perspective, are really incredible. The concept of ‘team over me’ is ingrained from the start. So is mission accomplishment, a focus on analyzing and solving problems in what can be stressful environments.”

Company Culture

Helping veterans want to stay in their jobs, then, requires an effort to understand their mindset. Organizations like Marsh and McLennan and UPS make it happen by fostering a welcoming culture among non-veteran employees.

Our initial assumption was that veterans would be ideally suited for the insurance business because they are mission driven and tech savvy. There were things about the transition from military to civilian life that we just didn’t understand.

In 2013, in conjunction with the Obama administration’s “Joining Forces” initiative, UPS made a commitment to hire 50,000 veterans and log 50,000 volunteer hours within the following five years. The company met its hiring goal two years early and has now surpassed more than 250,000 volunteer hours. Veterans account for nearly 7% of the UPS workforce, about the same percentage of veterans as in the U.S. population.

Sure, it’s another industry. But for those in insurance who believe military experience can provide transferrable skills and potentially companywide benefits, there is a proper position for attack.

UPS’s many-pronged approach to creating the right environment includes, for example, the opportunity for managers to take part in Boss Lifts, a program of the Employer Support of the Guard and Reserve (ESGR). It allows those who have never served to visit military bases for a day.

“And when those managers come back, it’s great to see how excited they are,” O’Leary says. “They’ll say, ‘Those people are so impressive.’ I say, ‘Welcome to the party. We’ve been waiting for you.’”

The UPS program includes outreach to key veterans groups with direct connections to the Departments of Defense, Labor, and Veterans Affairs, in addition to veterans service organizations. And it goes beyond employment to include engagement, recognition and reputation. Engagement includes a host of opportunities for employees to get involved with military and veterans activities through the Neighbor-to-Neighbor (N2N) program. Employment recognition means increasing acknowledgement of those who are serving or have served. Reputation is about presenting the company as one that values the training, skills and life experiences of those who serve.

Other UPS programs provide managerial job shadowing, opportunities for non-veteran volunteers to build wheelchair ramps for wounded veterans, partnerships that supply professional-level tools for veterans becoming mechanics, and affinity groups for members of the military.

“But the military affinity groups don’t just want to meet,” O’Leary says. “They want to go plant some trees. Or march in a parade. Or volunteer at a VA hospital. Veterans, by their nature, want to engage, to stand up and to jump onto the field.”

It’s important to remember, O’Leary says, that since 1973, members of the military have joined by choice, willingly putting themselves in danger, making sacrifices for the greater good. “Not everybody has that inside of them,” he says. “But veterans do. We’re joiners. We’re fixers. We want to be engaged rather than just walk by. Those are the qualities you want in an employee.”

Veterans can’t be “repaid” for what they’ve done for the country, O’Leary adds. “But we should take every opportunity to show our appreciation and honor their service. Hiring a veteran into a good job with a great company is an excellent way to demonstrate that we appreciate their service to America.”

The Rumors

Despite the positive progress and the promise of engaged, well-trained and disciplined employees, those who work with veterans say they still hear the murmurs and concerns of potential danger. PTSD and traumatic brain injury are very real.

“The reality is—and this is the first thing I tell most companies—anyone in your business can be subject to PTSD,” Eversole says. “You have to get past the stereotypes of what you see on TV, become educated and then, from a business perspective, if you do find that any employee has PTSD, look at finding ways to help them get healthy and be a productive part of the team.”

Eversole’s father became a quadriplegic after completing his military service. And like anyone who was fully able before, he needed an adjustment period to get used to the new normal. Veterans—disabled or not—may simply need the same.

For his part, Doran finds his status as a disabled veteran a bit “weird,” especially since he’s very active, playing sports five or six days a week. According to the Department of Veterans Affairs, Doran is considered “30%” disabled. While in the military, he had surgery on a shoulder (accounting for 20% of the categorization) and on a knee (the remaining 10%).

It’s true that for veterans—as with anyone else—not all injuries can easily be seen.

If businesses want to be successful in recruiting service members or spouses, they have to help underscore not only the types of careers available, but also the long-term opportunities in their business and their industry.

Eric Eversole, vice president, U.S. Chamber of Commerce, and president, Hiring Our Heroes

And not all veterans—despite media reports, misconceptions and discomfort with the unknown—are the same.

“It seems like we’re all painted with the same brush,” Doran says. “‘Oh, you’re military. You’ll be like this.’ Everyone has their own preconceived notions.”

But he contends veterans don’t want special treatment. “We just want to be one of the group,” he says. “That’s how Horton has made me feel, that I’m a part of the team.”

Soltes is a contributing writer. fionasoltes@aol.com
 

The Export-Import Bank of the United States (Ex-Im), the official export credit agency of the United States, offers export-only insurance policies that carry the full faith and credit of the U.S. government.

The Ex-Im Bank’s insurance programs require that transactions meet certain criteria to be eligible for Ex-Im coverage.

  • More than 50% of the product’s total cost must be U.S. content.
  • The shipment must be to a buyer located outside the United States.
  • The payment obligation must be with a foreign-based buyer.
  • The export product cannot be sold to a military or quasi-military buyer.

Like most export credit agencies, the Ex-Im Bank tends to provide coverage in difficult markets where the private insurance market is unwilling or unable to do so. The Ex-Im Bank has seen some controversy over the years, including lacking conservative Republican support and enough board members for a quorum needed to finance larger deals in recent years. But in June, the Trump administration nominated a new head, Kimberly

Reed, who, if confirmed, may breathe new life into the bank.

That said, one of Ex-Im’s important initiatives is to support small business exporters. And the benefits flowing to those small businesses that use the bank are evident in many sectors of the U.S. economy. Consider the story of Collection 2000 Corp., a longtime Ex-Im customer, as told by the bank.

[Collection 2000] used Multi-Buyer Export Credit Insurance to send dozens of shipments to foreign buyers. This insurance policy allowed them to sell to customers in many different countries, mitigating the risk of nonpayment, while equipping them to provide their customers open account terms. Then it happened. Collection 2000 shipped more than $100,000 worth of products to a longtime customer in Trinidad and Tobago. Up until that point, the buyer had always been diligent about paying on time. As with previous orders, the buyer was given 60-day credit terms. However, the invoice due date came and went, and the payment never arrived. Collection 2000 made several attempts to contact the buyer to collect the outstanding debt to no avail. The buyer kept saying it would wire the funds the next day but never transferred the payment as promised. In a last-ditch effort to collect the payment, Collection 2000 commissioned a law firm to follow up with the buyer one last time. With the invoice four months past due, Collection 2000 filed a claim with EXIM. Through EXIM’s policy, Collection 2000’s invoiced amount was covered at 95 percent against buyer default, with no deductible. After carefully assessing the situation and reviewing the supporting documents, EXIM approved and paid Collection 2000’s claim in June 2014, less than a month after filing.


 

This case study includes excerpts from a World Bank brief on the Multilateral Investment Guarantee Agency, also authored by Gordon Feller. —Editor

As with cross-border investments in many business sectors, there are non-commercial risks associated with manufacturing projects, especially in emerging economies. Despite the best intentions and thorough planning, unforeseen events can disrupt a project.

Newly stabilized governments could still be sitting on shaky political ground. Unclear or incomplete laws—on property ownership, for example—can obscure the profit-making picture. Investors may be worried about potential government takeover of land or assets. Restrictions on revenue repatriation could complicate a project’s finances even more, exacerbating imbalances between foreign-denominated debt and locally denominated revenues. Lastly, threats such as revolution or terrorism add an additional layer of uncertainty, potentially derailing even the most promising of investments. Combined, such political risks contribute to high costs of capital. Some lenders might not be willing to lend at all in the absence of political risk insurance policies.

Consider one example in which the World Bank’s key insurance agency, the Washington, D.C.–based Multilateral Investment Guarantee Agency (MIGA), provided much-needed coverage. Corona Group, a leading sanitary wares manufacturer in the Americas, acquired a majority-stake in Incesa Nicaragua, along with the rights to registered trademarks in the region. Founded in 1957, Incesa produces, imports and distributes a broad portfolio of sanitary ware, showers, faucets, furniture and accessories marketed under two brands: American Standard and Incesa Standard. The agency provided a guarantee of $11 million, covering Corona Group’s equity investment in Incesa as well as the trademark license, while covering the project against the risks of transfer restriction, expropriation and war and civil disturbance. This was the first time MIGA covered a trademark license as a non-equity direct investment. The project involved the transfer of a set of technologies to improve production processes, increase the plant’s competitiveness and introduce product innovations in the market. It will benefit from continuous managerial, technical, logistical and marketing support from the Corona Group.

MIGA derives its strength from its standing as a member of the World Bank Group and its structure as an international organization with shareholders including most countries of the world. The agency provides political risk insurance guarantees to private sector investors and lenders. Since its inception in 1988, MIGA has issued more than $28 billion in political risk insurance for projects in a wide variety of sectors covering all regions of the world.

The agency’s guarantees are designed to mitigate the non-commercial risks associated with manufacturing projects in emerging markets, thereby lowering the cost of capital. They can also reassure lenders their investments are protected. The agency helps equity owners engaged in costly investments in countries often seen (for good reason) as high risk.

But with cross-border investment comes a new set of risks. Just ask Evan Chuck.

A partner with the St. Louis–based law firm of Bryan Cave Leighton Paisner, Chuck says it’s vital to analyze the real-world situation facing U.S. companies. Chuck, Bryan Cave’s chief legal representative and

Shanghai office liaison, emphasizes the firm’s experience in dealing with export insurance, particularly in the context of U.S. buyers of Chinese goods. “Increasingly,” he says, “Chinese exporters use their export insurance as a sword against U.S. and foreign buyers. Particularly in pay disputes, Chinese exporters frequently threaten that they will file a claim with their Chinese insurance provider to make them whole for the amount they were expecting. This also can have the effect of putting the non-Chinese buyer on a blacklist, effectively shutting them out of the Chinese market. This puts enormous pressure on the non-Chinese buyer to negotiate a settlement with the Chinese party.”

Chuck also points out that typical commercial policies trying to cover risk in China may have “real-life” deficiencies in that the quasi-governmental nature of some bodies in China may make it difficult to determine whether “expropriation” has occurred (usually excluded from ordinary commercial insurance). “In recent years,” he says, “there have been disputes over coverage when, in China, a factory is abandoned by a foreign landlord, resulting in labor unrest that requires the intervention of the Chinese social stability agency. That agency may seize assets and try to organize their sell-off to pay liabilities. Whether such situations are covered has been the source of complex insurance negotiations and litigation.”

While regulatory uncertainty and different trade practices may plague investors in China, financial and other crises across the globe underscore the persistent risk of international trade.

In May 2017, the government of Laos revoked concessions for 15 mining operations after investors failed to implement their projects as agreed. Defaulting on government obligations is one of five recent investor experiences in cross-border transactions. The others are the repossession of privatized assets; the revocation of concessions given by previous governments; the inability to convert or transfer local or foreign currency due to government action or inaction; and contract frustration due to inadequate legal and regulatory frameworks.

Companies that pursue international trade opportunities and/or international investments can derive real benefits from both trade credit insurance (TCI) and political risk insurance (PRI). Both are not only easy to secure but are also affordable. In fact, many consider them to be vital tools for companies engaged in international trade.

“We have noticed an upturn in demand for a combination of TCI and PRI insurance products,” says Michael Sullo, commercial-lines damage insurance broker and trade credit specialist at BFL CANADA. “Where there is instability, there is concern. Where there is concern, there tends to be caution. With increasing political uncertainty on the horizon and disruptions between Canada and the U.S., it is no surprise that businesses are seeking shelter from potential payment issues, which could be triggered by political events.”

Trade Credit Insurance

In 2008 and 2009, the industry paid out claims to insured policyholders totaling more than €9 billion (US$10.4 billion). Many of them would not have survived without their TCI compensation.

TCI is a proven product whose history in supporting trade dates back over 100 years. TCI insures manufacturers, traders and providers of services against the risk that their buyer does not pay (after bankruptcy or insolvency) or pays very late.

Suppliers who deliver goods and/or services on credit have to manage this credit risk to ensure that payment is received on time. Outstanding receivables are usually the largest or second-largest item on a trading company’s balance sheet. Bad debt losses affect liquidity and profits. Even worse, they might cause a company’s ultimate financial ruin. By insuring these receivables against non-payment or late payments, the company ensures its cash flow and its profit.

The value of TCI was demonstrated during the recent global financial crisis. This period saw insured manufacturers and traders reimbursed for their losses on defaulting buyers. In 2008 and 2009, the industry paid out claims to insured policyholders totaling more than €9 billion (US$10.4 billion). Many of them would not have survived without their TCI compensation.

Many of the most active insurers that cover the market today were established between 1925 and 1946. TCI has had wide market acceptance in the United States for more than 25 years and in Western Europe for more than 50 years. There are two primary sources of trade credit insurance: private sector insurance companies and the federal government.

The three largest and oldest private insurers—Euler Hermes, Coface and Atradius—are based in Europe, where the trade credit insurance market developed much earlier and more rapidly. Given the size of most European countries, combined with their political and legal systems, companies there were forced to develop their export business to fuel sales growth much sooner than their U.S. counterparts.

TCI developed because of the special challenges facing exporters. The list is a long one, but here are the six biggest challenges:

  • The buyer and seller don’t know each other
  • Different languages, customs, laws and regulations
  • The cost and terms of bank finance
  • The buyer wants time to pay
  • The seller wants immediate payment
  • The transfer/payment is done in a foreign currency.

In today’s marketplace, companies sell to international buyers and face competition from suppliers across the globe. A company must offer competitive terms to vie for business against foreign players. Banks lend more capital against insured receivables and usually do so with better financing terms since they can transfer the payment risk to the insurance company. This type of insurance also offers release for intercompany credit facilities.

“An important factor, which is also a huge benefit to exporters, is the bankability of the TCI product,” Sullo says. “Lenders will typically exclude export receivables from the borrowing base, which is a limiting factor for companies requiring additional working capital in order to fuel export growth. By insuring these export receivables, lenders can include this asset up to 90% in the borrowing base. This is a huge opportunity for exporters to take full advantage of this underleveraged asset.”

The TCI market has evolved and expanded, and there are now several private insurance players offering many alternatives to companies. Every credit insurer has three primary missions: prevent and control the inability of customers to meet their financial obligations; indemnify up to 90%; and recover unpaid invoices. A good TCI policy pays a percentage of the outstanding debt, usually ranging from 75% to 95% of the invoiced amount. But the payout may be higher or lower, depending upon the type of cover that was purchased.

Any company is eligible for TCI coverage. The companies that benefit the most from TCI include firms with limited fixed assets, those that require more efficient debtor management, those experiencing rapid growth and those that offer longer payment terms to their customers.

An important factor, which is also a huge benefit to exporters, is the bankability of the TCI product.

Michael Sullo, commercial-lines damage insurance broker and trade credit specialist, BFL CANADA

In the absence of TCI, many transactions need to be consummated on a prepaid or cash basis or they might not happen at all. This is why TCI is such an essential credit management tool. And this is why it’s used to control risks, improve payment behavior, obtain vital buyer information, and monitor exposures. “In most cases, without a combination of TCI/PRI in place, exporters would typically transact via L/Cs [letters of credit], upfront payment or very restrictive terms of sales, giving them less of a competitive edge in foreign markets,” Sullo says.

In fact, many consider a company’s executives to be legally obligated to use TCI. It’s also one key factor the major rating agencies consider when they assess companies. The agencies view measures taken to mitigate credit risk in a very positive light.

Political Risk Insurance

When the TCI market began to grow following World War I and the Great Depression, the private market was not willing to cover political risk. In order to fill this need, many countries formed export credit agencies (ECAs). “Most of the countries in the world have their own ECAs to cover political risk—what the private market was not able or willing to cover,” says Xavier Monsaingeon, director of Platus, a TCI- and PRI-focused subsidiary of Verspieren Group. “It became a tool for the countries to support the exports of their nationals.

“In the ’70s, the private market started to reconsider political risk insurance.... Today, the market has hugely grown up, and there are now probably between 50 and 60 players who have now become involved in private PRI in competition with credit export agencies all over the world.”

Monsaingeon says the private market has the size and financial strength to compete and collaborate with the other market players. “When we syndicate the risk among various players we can find capacity for up to $1 billion U.S.,” he says, “so it means that they are capable of providing significant things.” Monsaingeon says this is also why the export credit agencies, the Multilateral Investment Guarantee Agency and the African Trade Insurance Agency not only compete but cooperate with the private market. “Insurers like to share the risks,” Monsaingeon says.

PRI covers those events, actions or omissions of a government that are outside the control of the parties to a commercial transaction. PRI coverage excludes force majeure events, currency depreciation or devaluation, events in the control of a party in the commercial transaction or lawful actions of a government. Trade and investment activities covered by PRI include equity and quasi-equity, shareholder loans and loan guarantees, and commercial loans, among others.

PRI enhances a project’s financial viability by transferring political risks from the control of the parties associated with the project to a third party, which is better able to bear the risks through specialized knowledge and portfolio diversification. Further, the third party possesses the expertise needed to share the risks through the use of reinsurance. PRI reduces the degree of risk, and the cost of capital is lowered. This is achieved by lengthening the term of the borrowing, reducing the capital charge (and thus the loan margin) and potentially the amount of debt provided.

Mike O’Malley, the senior vice president of public policy at the American Insurance Association, says more companies and investors should consider political risk insurance to protect their overseas investments. “Because this specialty product can and should be tailored to fit a client’s unique exposures, AIA has been actively encouraging the states to exempt this line of business from policy form and rate filings,” O’Malley says. “Our hope is that, through such commercial lines modernization efforts, the market for political risk insurance will expand as more contractors, importers and exporters, financial institutions and investors routinely request quotes for this important coverage.”

Sullo adds that products like TCI and PRI play a vital role in global trade and in promoting export growth. “If we look at Canadian companies who export their goods abroad, a combination of TCI/PRI can help gain insight on potential export markets, prospective clients, potential long-term investment partners and can also allow for more favorable terms of sale to foreign buyers.”

Insurers like to share the risks.

Xavier Monsaingeon, director, Platus

Growth in Africa

To see insurance-fueled growth at work, turn to Africa, home of one of the fastest-growing economies in the world. The World Bank’s leading project created a financial facility that pools the capital contributed by African governments through their subscription in the share capital of the Africa Trade Insurance Agency (ATI). These funds enable ATI to underwrite insurance policies to cover short-term to medium-term political risk as well as three other conditions: comprehensive credit insurance for private-sector buyers; the non-honoring of sovereign obligations (covering loans against losses resulting from a government’s failure to make a payment under a guarantee); and trade cover for sub-sovereign obligors, wherein a local or state-level government entity is the obligated party (as bond issuer, borrower, debtor, insurer, etc.) to repay a debt.

In addition, the financing issued by ATI can be used to fund eligible investments and share repurchases and to make insurance facility-related payments.

According to its founding document, ATI was established at the initiative of the Common Market for Eastern and Southern Africa (COMESA) to “[f]acilitate private sector-led trade flows, investment and ‘productive activities’ through the provision of insurance, coinsurance and reinsurance, financial instruments and related services.” COMESA, headquartered in Zambia, was created as an organization of sovereign states that agreed to cooperate in developing their natural and human resources for the good of all their people and to promote sustainable economic development. In this context, the main focus of COMESA has been on the formation of a large economic and trading unit to overcome trade barriers faced by individual states.

The rationale behind the founding of ATI was straightforward: the relatively small volumes of trade and investment in many ATI member states do not merit the establishment of national insurers. ATI helps reduce the cost associated with doing business in Africa by offering five types of solutions:

  • Cost-effective use of underwriting capital
  • Reduced overhead costs
  • Regional integration through international cooperation and risk sharing
  • Enhanced possibilities for risk diversification by creating a regional risk portfolio (reducing the impact of an individual country’s volatilities and sector dependencies)
  •  Encouraging private sector insurers to assume risk in Africa.

ATI is owned by the African governments that signed the charter and subscribed to the share capital. (Although ATI is open to all member states of the African Union, not all of them have joined.) ATI is supported by the World Bank and partners with Lloyd’s of London and other major private insurance companies and with private and public credit insurers.

ATI’s multilateral status—as well as the strong support it enjoys from the World Bank—creates a very powerful deterrent for any country to leave ATI in the lurch for a loss. In other words, there’s an underlying country obligation to make ATI whole for any political risk losses the government might cause. Governments worry that, by creating an incident that would require insurance to be paid, the international organizations behind ATI would, in turn, hesitate or even cease doing business in that country—a bad outcome for an economy hungry for capital. Plus, having invested directly in ATI’s capital means member states enhance ATI’s ability to resolve disputes without loss.

As shareholders of ATI, member states also have a vested interest in maintaining the investment environment and ensuring that disputes are resolved. Multilateral insurers such as ATI act as neutral parties between the investor and the host government to ensure that investments stay on track.

Growing Global

When a company ventures into international markets or sets out to grow within those markets, one factor that can help differentiate success from failure gets little attention: it’s the courage to make an honest assessment of risk factors, which means analyzing the costs of mitigation and then implementing active risk management strategies.

“As brokers, it is important for us to discuss these solutions in a proactive way with clients,” Sullo says. “In this context, it definitely creates opportunities for serious dialogue about these insurance products and the value they can bring. These insurance products are definitely weapons to wield with a potential trade war looming and should be a part of every exporter’s credit management arsenal.”

The company that ignores these kinds of tools will only have itself to blame when competitors move into those markets, grab customers and reduce their risks. When 95% of the world’s purchasing power lies outside the United States, smart business leaders must look outward to see what it takes to grow globally.

“I remember 10 years ago, people were thinking classical war was over—with weapons and the shells coming from one side to the other—but unfortunately, it still exists,” Monsaingeon says. “Countries such as Libya, for example, were considered very stable thanks to a very strong dictator, and the dictator disappeared in two weeks’ time. On the other hand, there are countries where everyone says, ‘This country will explode next week.’ As a broker, I just have to try to get the widest possible coverage because we don’t know what will happen.”

Feller is a contributing writer. gordon.feller@gmail.com

They are also the first generation to have access to technological innovations like the internet during their formative years.

But that doesn’t mean technology is more important to them than relationships. While studying Nationwide’s fourth annual Business Owner Survey of more than 1,000 business owners, I noted that millennial business owners say they are more likely (almost 70%) to have a relationship with an insurance agent, compared to 63% of all business owners. They also say they are more likely to look to an agent for guidance on everything from retirement and banking to cyber security and disaster planning. The list of topics for which business owners say they are relying on agents for advice includes:

  • Insurance
  • Retirement
  • Employee benefits
  • Safety/loss control
  • Business interruption (disaster planning)
  • Cyber security
  • Succession planning.

“Many millennials grew up during the recession of 2008,” says Michael Pesch, U.S. CEO of Brokerage Services at Gallagher. “This raised tremendous awareness around planning for the future and having the right advice to be personally financially stable. People of all generations still need great advice, and it becomes even more important when you are talking about intangible products and services like insurance and financial planning.”

I couldn’t agree more. The Nationwide study shows that business owners—especially millennials—want your guidance on these topics. In fact, according to our survey, more than a third of business owners say that an existing professional or personal relationship is an important characteristic when selecting an agent.

At the same time, technological innovations still matter for business owners. According to our survey, almost one third of business owners now rely on connected technologies to support workplace safety. Millennials are leading the charge, as 71% of them use connected technologies for safety efforts in their workplaces. That’s more than double the average rate across all business owners (32%).

But our survey also found that almost one third of business owners are specifically looking to agents for guidance with their safety/loss control plans. In fact, the survey revealed some alarming statistics about those companies’ overall safety efforts:

  • 51% do not employ a dedicated safety professional.
  • 38% do not offer formal safety training.
  • 51% do not have a contingency or succession plan in place.

What does that mean for you as an agent or broker? It shows that, because of your relationships with business owners, you have a remarkable opportunity to educate them on the protections they need to account for—issues like safety, loss control and so much more.

We’ve thought about this at Nationwide, and we have begun building a new set of tools that align with how you and your clients do business. In early 2016, we launched a venture fund to invest in startups that are evolving the insurance and financial planning process. So far we have invested more than $100 million in startups like blooom, Nexar, Sure, Matic and Betterview.

We have built an innovation lab where we experiment with new business products and processes that help your clients meet their insurance and financial needs in novel and digital ways and protect their digital assets, especially in the evolving area of mobility. We’re doing this because we know that this is what you need and what your clients need. Because at the end of the day, relationships will always matter.

Gary Douglas is president of Nationwide National Partners. gary.douglas@nationwide.com

This is just everyday life in our modern business world. New processes, technologies, regulations, industry fluctuations, customer demands, political changes and cultural shifts require companies to adapt their business model to adjust to the change. To respond to this turmoil, we need flexible leadership at all levels of an organization, from the CEO to the frontline employees.

What does a flexible leader look like? In this context, flexibility is having the agility and ability to readily respond to changing circumstances and expectations. Flexible leaders change plans as situations change. This results in an ability to remain productive during times of upheaval or transition. They embrace change, are open to new ideas and enjoy working with a wide spectrum of people.

In a B2C article entitled “Flexible Leadership: Learning to Lead and Manage,” Rick Lepsinger tells us that in these fast paced times, to be truly flexible, we must wear two hats: that of the leader and that of the manager. “Huh?” you say. You always thought that managing and leading were mutually exclusive roles that required different skills and values. Well, it turns out that you are half right. According to Lepsinger, while they are distinct roles, they can and should be enacted by the same person. Both roles are necessary for success. Both roles produce vital outcomes for the organization. Managing produces predictability and order, and leadership produces organizational change.

The challenge comes in keeping the two roles in balance. If management is overemphasized, then taking risk may be discouraged and bureaucracy can be created, which may not serve any purpose. When leadership is too strong, without the balance of management, there can be disruption in order and the risk of creating impractical change. Lepsinger tells us “the importance of leading and managing depends in part on the situation.” Management increases in importance as organizations grow in size and complexity. When the external environment is dynamic and uncertain, the need for leadership increases. While one person needs to be able to perform both roles, “few executives are effective at both leading and managing.”

To help with this delicate balancing act, he offers guidelines for integrating the leader and manager roles.

  1. Increase Situational Awareness – Understand the external factors that can hurt or help the effectiveness of your organization and determine what strategies have the best chance for success given your internal processes and resources. To maintain high situational awareness as a leader, you need to obtain accurate, timely information about the organization, its members and the external environment. As the manager, you measure these important key variables and understand how they change over time.
  2. Embrace Systems Thinking – Leaders need to understand how making changes in one area can affect others. Every organization has many interlocking systems, and alterations to one system can have a domino effect on the organization as a whole. Anticipating these effects helps leaders compensate for any impacts. Typically, this type of strategic thinking is associated with top leaders, but it is also an important skill set for managers at all levels within the organization.
  3. Coordinate Leadership Across Levels and Subunits – No one leader has absolute control over the success or failure of a change initiative. To achieve lasting commitment to change, every leader at every level of the organization needs to coordinate efforts to manage the change. To achieve seamless coordination across the organization, managers must have shared values and beliefs that guide their decisions. Top management ensures the organization has a core ideology, but leaders at all levels must support that ideology and use it to guide daily actions.
  4. Lead by Example – Modeling the behavior that is needed for success is one of the most important tasks for any manager or leader. Equally important is avoiding setting a bad example by falling into old habits when you are implementing a change.
  5. Maintain Focus – As new challenges and situations arise, flexible leaders need to avoid letting these things distract their attention and decrease their commitment to meeting their objectives.

In the Strategic Finance article “Keys to Flexible Leadership,” Jeanette Landin tells us, “In some situations, you might have days or weeks to consider courses of action; in others, you may have minutes or perhaps even seconds.” She suggests using the following questions to guide your action:

  • What do my followers need me to do?
  • What are appropriate alternatives?
  • What’s the best course of action for all involved?

To enhance your flexible leadership skills, be open to experiences and seek the learning opportunities that each situation presents. As you become more flexible, you will become more effective. Remember that becoming a flexible leader takes time and patience. The Council’s Leadership Academy has many resources to assist you. Just reach out. We are here to help you navigate the turbulent water!

McDaid is The Council’s SVP of Leadership and Management Resources. elizabeth.mcdaid@ciab.com

In between the finger pointing, name calling and shaming that has become the norm in D.C., the Problem Solvers Caucus has emerged as one of the leading voices of reason on Capitol Hill. 
 
Co-chaired by Congressman Tom Reed, R-N.Y., and Congressman Josh Gottheimer, D-N.J., with a membership of about 48 members of Congress (evenly split among the two parties), the Problem Solvers Caucus lives to take on the tough issues. Bound by a can-do attitude, sense of humor and unending fighting spirit, these members cut through the nonsense and legislate from not fear or ideology, but common sense. 
 
We sat down with the fearless leaders to get a better understanding of the Problem Solvers Caucus, how they work, and what’s next on their agenda. 
 
How did you guys meet? Was it at a Problem Solvers Caucus meeting? Was it Tinder? 
Rep. Gottheimer: The first time we met—remember, it was a panel?—was actually in Manhattan, and someone had basically set us up to talk to each other.
 
So it was like speed dating! 
Rep. Reed: It was speed dating. It comes out of the No Labels type of history. 
 
Gottheimer: They had a panel that they invited us to. Our caucus, the Problem Solvers Caucus, is 24 Democrats and 24 Republicans. There was a version that existed before Tom and I—and others—sat down and decided to reconfigure it and make it less of a place to go have a cup of coffee and spend with time with folks. [We changed] the by-laws and added a level of commitment that we were going to make as a group that, if we got to 75% of us on a particular issue or policy area, we vote together on it as a block to counter the extremism and show that we are really serious about governing and we’re trying to get to yes on some of these issues. 
 
Tom had been involved before me, because I was a new member of Congress at the time, and people kept telling me, “You’re not going to agree in every policy area, but you’re really going to like each other and really hit it off. You have the same approach and mindset to want to get things done. Tom is such a great guy, you’re going to like him.” 
 
We spent some time talking, and we both ran. That was before we reconfigured the organization.
 
Reed: Yes, that was in the fall of 2016. 
 
Gottheimer: Then we actually sat down and both ran for our respective leadership, because it’s a co-chair setup; me on the Democratic side and Tom on the Republican side. We talked about having the same objectives and started from there. 
 
When the Caucus isn’t at 75% agreement, how do you move on? 
Reed: If we can’t get to 75%, we just walk away and remember “it is what it is.” That has actually happened a few times, and then we have gotten back into it. You give it a little bit of time; other events happen. We were working hard on the healthcare package, for example, in the beginning. It got further apart and then crashed in the Senate, which really was a factor to motivate people to get to the 75%. 
 
So we roll up our sleeves. 
 
When Josh talks about coming back to work at 9 o’clock at night or 10 o’clock at night, that’s accurate, very true. I have been over to his place with a group of members until about one or two in the morning. I get coffee, and he gets hot cocoa. We just keep working at it. It’s a level of respect we have. If we can’t get there, we can’t get there. We put it aside and work on other issues, and if we can get back to it, we come back to it. 
 
Why isn’t your membership list publicized? 
Reed: This is something we were very sensitive to. We wanted to give control to the members. You have to remember, what we’re doing to a large degree is, to many, very common-sense with a large energy of support, but to many, it’s a threat, and to many it’s not helpful for their political future.
 
Gottheimer: Because you’re standing up against leadership, against the grain. They don’t love it when you do that. 
 
Reed: What we tell members: “If you want to publicize it, publicize it. If you don’t want to publicize it, we’ll keep it quiet, and it’s your prerogative on how best to use this relationship.” 
 
Gottheimer: I think you’ll see that most members do make it public. Our job is to actually represent the members. You can imagine that, when we’re trying to put an agreement together, the littlest things can push back an agreement, and the whole idea is to keep working until you get there, until you make the announcement. We try not to let the excitement of getting there get in the way of actually coming across the finish line. 
 
How do you determine what you work on? You have worked on healthcare, transportation.
Reed: Generally, it happens organically. A member will bring up an issue with other members at our meetings or say, “This is something I want to get involved with. Can we consider discussing it here?” Then, we’ll break off into a working group. Or, what’s been happening more and more recently—since the brand has gotten out there—the White House reaches out to us, certain stakeholders may reach out to us and say, “Is this something you can potentially discuss and come to some agreement?” We’re becoming known—I like to use the term “test tube”—as the place to see if there is consensus in Congress. 
 
Gottheimer: We’ve dealt with some of the biggest issues of the day that people didn’t think we could find agreement on: healthcare, budget, infrastructure, immigration reform, gun violence… Tom mentioned the White House. Jared Kushner from the White House came to us a couple of weeks ago on prison reform.
 
Reed: Mike Bloomberg has spoken with us. Influential people come. We’ve had a lot of exciting leaders come, and they start a conversation about the issues they’re passionate about, and some of our members catch up with them after the meeting and go from there. 
 
Congressman Reed gets up to head back to a Ways & Means Committee markup. He offers to come back, but Congressman Gottheimer suggests we call him and we can talk on the phone while he walks. Of course, they’re on each other’s speed dial.
 
Healthcare is a big issue for our members, especially employer-sponsored insurance. We’re concerned about prices and transparency. Are you seeing that in your districts? Are your constituents concerned about drug prices, the overall rising costs of healthcare? 
Gottheimer: Honestly, drug pricing is the number one issue people bring up with me all the time. Part of why we wanted to take on this issue—ACA reform—and take a piece and really look at the individual marketplace and say, “Can we help stabilize things and get premiums down for folks?” is because the issue people talk to us about is their premiums, whether they’re in the individual marketplace or have employer-sponsored insurance, because with ESI you have the ripple effect and it’s all connected. Premiums keep going up, and it’s untenable. With the Problem Solvers Caucus, we took on the overall cost of healthcare, which was under attack. We still think the individual marketplace needs to be stabilized. Tom will tell you that we need more experimentation at the state level, from the states having the ability to have more ideas that can be put into play to raising the employer mandate from 50 to 500, which, on my side, was a tough pill to swallow, but it ended up being a part of the agreement we put together. 
 
Reed: Obviously drug prices are something I see in the district and with the work I do on the Congressional Diabetes Caucus (my son is a Type 1 diabetic). I am co-chair with Rep. Diana DeGette [D-Colo.]. Insulin, I think, is a poster child of our efforts to force transparency and ask some hard questions on why insulin prices are going through the roof, and that relates to a lot of drug prices across the country and how those are set. 
 
What do you think about the payment system: fee for service versus value based? 
Gottheimer: I don’t think you’re going to see much movement there in this climate. 
 
Reed: There is whole movement afoot—as you’re well aware—of getting away from a fee for service payment system. That’s what the “Doc Fix” was all about, that’s what value-based reimbursement policies are all about. I think you’re going to see more of that on a regulatory side than—Josh’s point—a legislative vehicle that can get through the 60-vote threshold in the Senate. 
 
Do you think the Centers for Medicare and Medicaid Services will continue to put forth more regulation on various payment systems? 
Reed: I do believe that will be the primary vehicle and there will be opportunities on the House Ways & Means Committee for opportunities on Medicare and others so we can continue to reformat. 
 
Do you think there is any possibility of considering anything in Congress on healthcare, whether it’s fee for service, drug price transparency, etc. through legislation? Or will it just be on the regulatory side? 
Gottheimer: I agree with Tom. With the stabilization of the marketplace, it would be really helpful [to consider and pass legislation], and we were really close and worked all last summer with Senators [Lamar] Alexander [R-Tenn.] and [Patty] Murray [D-Wash.], but it was ultimately stripped out. It was not the result we wanted. Hopefully it could still happen, but I’m not optimistic, and you’re getting toward the “silly season.” 
 
Is the Caucus working with Health and Human Services and CMS and presenting them with ideas? 
Gottheimer: We certainly spoke to them at the time. Again, I think Tom is right that you will see changes happening on the regulatory side. 
 
Bartlett is The Council's director of Government Affairs. blaire.bartlett@ciab.com

Q: Why does there seem to be so many M&A deals recently, and will this pace continue?
A: The industry is averaging 485 announced transactions over the past three years and trending to exceed 500 transactions in 2018. We hit an all-time high in deal activity in 2017 with 557 announced deals. I believe the industry will continue at this brisk pace for at least the near future.

Q: What’s sparking the M&A activity in the first place?
A: Private equity! The world is searching for a place to invest capital. Investors have found the insurance industry is a great place to park their money.

Q: Why does private equity like the space so much?
A: The insurance distribution space has many characteristics that are favorable to private equity investors. It has a low capital expenditure requirement. It is highly fragmented, which is conducive to acquisition. It has high recurring revenues and stable cash flows. And it has proven in recent years to be recession resilient.

Q: Is the money going to dry up?
A: It sure doesn’t look like it. We are seeing more and more money being allocated to the insurance industry by private equity firms, and the new tax cuts in the United States should create more cash flow for the publicly traded buyers to allocate toward acquisitions.

Q: What’s going on with valuations?
A: For now, they appear to still be rising, based on MarshBerry’s proprietary database. In 2017, the average firm sold for a maximum value of 10.37x earnings before interest taxes depreciation and amortization (EBITDA). For the 12 months ending June 30, 2018, the average maximum value of a firm has increased to 10.96x—an increase of 5.7%. In the same time periods, maximum value for platform agencies went from 11.64x in 2017 to 12.12x for the 12 months ending June 30, 2018—an increase of 4.1%. Values will likely hold strong for the near term but are expected to be impacted by tax changes slated for 2022. (Maximum value includes the maximum potential payment based on future performance, “earnout.” A platform agency is typically a larger firm where the buyer is looking to establish a presence in a specific region or niche.)

Q: Who is selling—just a bunch of aging owners?
A: That’s what may people think: that older owners are all selling out. However, many firms are deciding to join an established firm instead of building their own. Many owners are choosing to sell today when they truly have a choice as opposed to selling when their backs are against the wall.

Q: Should I be considering a sale, too? Am I missing something by not playing in the market?
A: Today’s market is a unique one. Actually, it is one of a kind since we have never seen valuations or deal counts like today’s. I am recommending to my clients that, if they would consider a sale in the next three to five years, they owe it themselves to take a look today.

Q: What does it mean for the rest of the independent agency group?
A: It means you have to grow—at all cost. I believe in the independent agency. But complacency isn’t an option.

Q: Should I sell, or should I wait?
A: It depends on what you are willing to do. If you are running a lifestyle business, you should probably sell and take some chips off the table. If you are running your business as if someone else owns it, then double down and grow it. There is truly no better investment (in my personal opinion) than owning an insurance agency. But you shouldn’t just sit around and watch the market pass you by. Control your future and your firm’s value.

Q: What can you tell me now about M&A so I can sleep tonight?
A: The good news is that your value is likely significantly greater today than it was a decade ago. The tough part is that you have to figure out what you are going to do about it.


Market Update

The market’s busy summer continues, with 42 and 37 deals announced in June and July, respectively. The year-to-date total is up to 289 announced transactions, compared to 336 announced transactions for the same time period in 2017. As we continue into the last quarter of the year and the market continues to remain very active, it is shaping up to be a busy second half of 2018 for buyers and sellers.

BroadStreet Partners and AssuredPartners are now tied for the most active buyers at 19 transactions each year to date. Next is Alera Group with 18 announced transactions, and 2017’s most active buyer, Acrisure, is catching up to the pack with 17 announced transactions so far this year.

June and July proved to be exciting months within the insurance brokerage industry, especially in the state of Texas. First, Houston-based Wortham Insurance, 2018’s 33rd-largest brokerage ranked by 2017 brokerage revenue generated by U.S.-based clients, was acquired by Marsh, a wholly owned subsidiary of Marsh & McLennan Companies, on July 31, 2018. The business will now operate as Marsh Wortham, a division of Marsh USA Inc.

Additionally, CLS Partners, an Austin, Texas-based employee benefits agency, was acquired by Alliant Insurance Services. The transaction was announced on July 9, 2018. This transaction greatly increases Alliant’s already strong presence in Texas, where it now has offices in Austin, Dallas, Houston, and Fort Worth.

Trem is EVP of MarshBerry. phil.trem@marshberry.com

Securities offered through MarshBerry Capital, member FINRA and SIPC. Send M&A announcements to M&A@marshberry.com.

Their patience seems to be waning.

Verizon faced a shareholder proposal from the New York State Common Retirement Fund and Trillium Asset Management, which called for linking executive compensation to the company’s success at protecting its networks and assets from cyber attacks. “Executive compensation is already linked to key metrics such as earnings per share, free cash flow and revenue,” said Jonas Kron, Trillium’s senior vice president. “Cyber security and data privacy are equally important, mission-critical concerns.”

The proposal was triggered, in part, by Verizon’s 2017 acknowledgement that all three billion user accounts of its latest acquisition, Yahoo, had been compromised in data breaches a few years before, making it the largest known breach in history. Verizon’s announcement came four months after the company paid $4.48 billion for Yahoo—which reflected a $350 million reduction in price after the breach of 1.5 billion Yahoo users was revealed before the acquisition closed. (Verizon did not know at the time that twice as many user accounts had been breached.) In April 2018, the Securities and Exchange Commission also fined Altaba, the new name for the part of the Yahoo business that wasn’t transferred in the Verizon deal, $35 million for failing to inform investors about the 2014 breach.

Although Verizon reported that the Trillium/NY Common proposal failed on a vote before shareholders in May 2018, the concept has not been lost on other shareholder activists and SEC staff. Indeed, the proposal noted that a parliamentary committee in the United Kingdom had made a similar recommendation.

Patience with cyber breaches might be waning because of a growing awareness that initial reports often don’t reflect the full extent of the breach. Several serious cyber attacks in 2017 were worse than first reported. For example, although losses for Merck and Federal Express’s TNT Express division were first estimated at $300 million each after they were hit by the NotPetya malware, The Wall Street Journal reported in June 2018 that the losses were actually $400 million for Fed Ex and $670 million for Merck. The Equifax breach was also initially underreported, though not by nearly as much; The Washington Post detailed in March 2018 how Equifax repeatedly updated the number of consumer records breached from its initial estimate of 143 million records to 147.9 million.

Blatantly lax internal policies and procedures are other reasons why patience over cyber breaches is running out. Shortly after the latest numbers on the Equifax breach came out, the SEC charged Equifax’s chief information officer with insider trading due to his sale of nearly $1 million of Equifax shares between the time of the breach and its public disclosure. Equifax also reported that four executives, including its chief financial officer, sold shares worth $1.8 million prior to the disclosure, but the company said these execs were unaware of the breach at the time. This announcement caused many cyber-security experts to wonder about the effectiveness of Equifax’s incident response plan, since best practices require executives and board members to be informed.

Nationwide, companies are still struggling to understand how they should govern cyber security. Generally, boards treat cyber security the same as other board issues and assume the business judgment rule will protect them against shareholder lawsuits. Under the rule, directors’ decisions are respected by courts as long as they appear to have been made in good faith, with the care of a reasonable person, and in the belief the decision is in the best interests of the company.

So far, this has been a sound conclusion. In a number of shareholder derivative suits following highly visible breaches, courts relied on the business judgment rule when examining whether management was negligent in managing cyber risks and dismissed cases against Heartland Data Systems, Target, Wyndham, and Home Depot. A similar suit filed against Wendy’s was recently settled. That’s the good news.

Here’s the bad news: a new type of lawsuit makes directors and officers more vulnerable. Kevin LaCroix, author of the well-regarded D&O Diary, noted that, since the 2016 Wendy’s suit, “plaintiffs’ lawyers have not filed any further data breach related shareholder derivative lawsuits…[but] have continued to file data breach related lawsuits…in the form of securities class-action lawsuits.” In the past year, securities class-action suits were filed against Equifax, Yahoo and PayPal. Securities class-action suits regarding breaches generally allege a company made materially false or misleading statements about its cyber-security program in its public filings or omitted material facts about the security of its data, causing the statements to be misleading to investors.

The suit against Yahoo alleges the company made false and/or misleading statements because it failed to disclose that users’ personal information was not encrypted, making it vulnerable to theft, and a data breach involving such information could “foreseeably cause a significant drop in user engagement with Yahoo’s websites and services.” Thus the complaint alleges that “Yahoo’s public statements were materially false and misleading at all relevant times.”

The Equifax and PayPal lawsuits allege that executives and officers failed to maintain adequate security measures to protect systems and data and to detect breaches, resulting in materially false and/or misleading statements to investors, who were injured by a drop in stock price after the breach. Securities class-action suits have not been filed in previous breaches because the share price was not impacted enough to justify such a suit. Equifax’s stock price dropped around 40% following its breach, but PayPal’s dropped only about 6%. LaCroix called the PayPal suit “event-driven litigation,” noting, “Certainly if a stock price drop on the order of magnitude that PayPal experienced is enough to attract a lawsuit, we could expect to see more of these kinds of lawsuits in the months ahead.”

Although there are standards and best practices on cyber governance, they have not received the attention they deserve at the C-suite and board levels, primarily due to reliance on the business judgment rule. (Refresher tip: see my September 2017 article discussing governance standards and best practices.) The securities class-action suits, however, usher in an entire new line of reasoning, backed up by losses shareholders have had to pay for.

Some experts now predict that cyber-governance standards, which outline specific responsibilities for directors and officers, and regulations that mandate board and executive governance of cyber security (such as those promulgated by the New York Department of Financial Services), will raise the bar for oversight of cyber security above the business judgment rule and open the door to D&O liability claims. Their conclusion is worth repeating: this development will effectively place a corporation’s D&O insurance program directly in the crosshairs when corporate management fails to live up to those heightened duties. D&O insurers should be forewarned.

Westby is CEO of Global Cyber Risk. westby@globalcyberrisk.com

That’s the reality of today’s business world, particularly for those of us who lead organizations.

Life is more complex than ever before, both at home and in the office. Humans are addicted to distraction and sit prey to the world around us, which is moving faster than the speed of light. We are both hyperconnected and disconnected. We are experiencing dramatic generational changes up and down the ranks. We are under extreme pressure to be successful at all costs. No wonder our mental clarity is foggy at best.

At the same time, it seems like there has been an explosion of people who are all different from everyone else. Therein lies the catch. People today are more likely to be who they are and how they are. It’s not so much an explosion of differences, rather a movement to being authentic. Being authentic means being mindful and taking the time to reflect on yourself first so you are primed to move ahead—for you, your family and your employees.

The key to all of this is having self-awareness. New York Times best-selling author Daniel Goleman says the “essence of authentic leadership is emotional intelligence.” And the most important step in developing your emotional intelligence is gaining self-awareness. Put simply, take a step back from our hectic 24/7 lifestyles and reflect…on you. The sooner you develop a stronger understanding of yourself, the more authentic you can become as a leader.

Of course, there are risks to being authentic. At the top of the list is how and when to be vulnerable. This brings us to one of the feature topics in this month’s issue: our Q&A on page 50 with Council board member Kevin Davis. Kevin’s story about his journey toward mindfulness is compelling, and he’s brave to share it with all of us. It makes him vulnerable, and that, to me, is very authentic.

Mindfulness is being in the present moment with a calm and open mind. Studies have shown this short and simple science-based mental exercise can make a significant difference in breaking the cycle of anxiety, unhappiness and exhaustion. It is becoming an integral part of companies’ well-being strategies worldwide. Fortune 500 companies including Google, Apple, McKinsey, Intel and Goldman Sachs are teaching mindfulness as an effective tool in improving workplace culture as employees learn to manage their stress and increase their productivity.

In our own industry, Aetna has reported a savings of $2,000 per employee in healthcare costs and a gain of $3,000 per employee in productivity after implementing its mindfulness program in 2011. Aetna says its participants reported a 35% decrease in perceived stress and a 20% improvement in sleep—impressive results for a program implemented simply because CEO Mark Bertolini found personal success with the practice. Here at The Council, we offer 60-minute yoga classes in our office twice a week. We haven’t conducted any formal polling since we started the offering in 2015, but anecdotally, classes are popular both with employees and our interns.

It’s not to say there aren’t challenges. Kevin admits that it’s hard to measure any bottom line changes, and not all employees are comfortable practicing in an open environment. But for a low-cost wellness program that has shown to improve decision-making, communication and engagement and has created a healthier work environment for all, it’s certainly worth considering.

So take a moment to sit quietly and breathe. It’s not about stopping your thinking; it’s about focusing your attention. As a leader, it’s important you create time to gain some self-awareness and be vulnerable. There’s no wrong way to do mindfulness, and there’s no better time to try it than now.

On July 31, the National Flood Insurance Program was approved for short-term renewal for the sixth time. This program is currently the backbone of U.S. flood insurance, making it a critical piece in both policyholders’ and insurers’ financial stability amid flood catastrophes.

However, this renewal lasts through Nov. 30 only, meaning the bill will resurface in just four short months. These temporary band-aids to a long-term problem simply kick the issue to the curb for a while rather than implementing real fixes to an increasingly dangerous financial quagmire caused by flood losses.

The bill did not include any reforms or measures to relieve the more than $25 billion of debt falling on taxpayers but, rather, seems to suggest that number will only rise as the hurricane and flood season pans out. While the renewal prevents a lapse in protection right now, the risk for future gaps is great, creating uncertainty in the housing and insurance markets.

It’s possible a long-term plan for NFIP could promote greater involvement of the private market in flood risk coverage. However, a dismantling of NFIP in favor of a private-market solution is not in the cards.

“Despite increasing support for greater private participation in the flood insurance marketplace, observers agree that NFIP isn’t likely to disappear any time soon,” Mark Hofmann wrote in an October 2017 Leader’s Edge feature on the impact on the surplus lines market of continual short-term renewals of NFIP.

There are currently 5.2 million policies in place under NFIP; therefore, a lapse would be detrimental to the flood insurance market, policyholders and brokers alike; however, the current plan offers no future promise of stability.

Evan Greenberg, chief executive of Chubb, in an Aug. 12, 2018, interview with The Wall Street Journal, discussed the increasing opportunity for and proper place of commercial-market flood insurance. “Our country requires a more comprehensive solution that includes the expertise and capacity of private insurers. The science around flood insurance has improved,” Greenberg said. “We have modeling and geomapping capabilities today that we didn’t have a decade or two ago. The private sector would charge an actuarially sound rate—that’s to everyone’s advantage because it brings stability to the system.”

Congress is being called upon to find a more solid solution for flood insurance. Strengthening and encouraging private market involvement in flood insurance would be among the list of highly sought-after reforms to NFIP.

In a May 2016 Leader’s Edge article tackling this same issue, Joel Kopperud, vice president of government affairs at The Council, said that private insurers can issue flood policies that will open the door to more business opportunities for surplus lines insurers. Additionally, he said the private market can provide more competition, which should result in more accurate flood risk models and better premiums for consumers.

For now, we look to November for possible and passable improvements to the public flood insurance program that capitalize on the strengths and appetite of the private market.

Tough and ambitious, he battered away at financial institutions, corporations and, memorably, the insurance industry. He spent one year as governor of New York, until his 2008 resignation over an alleged $80,000 worth of prostitution bills.

Add to his accomplishments his role as muse for at least three filmed productions on the theme. There is the Alex Gibney documentary called Client 9: The Rise and Fall of Eliot Spitzer, for which the ex-governor cooperated, admitting he created his own downfall.

Most famous was the hit television series “The Good Wife,” starring Julianna Margulies as the wife of a state’s attorney who is jailed for political and sexual scandals. She returns to work as a junior litigator to support the family and struggles with the idea of divorce. The show’s creators say they were inspired by the stories of John Edwards and Eliot Spitzer and the wives who stood by while they apologized. “The Good Wife” and its actors won 28 major awards and scooped up a slew of nominations during its years on the air (2009-2016).

The most graphic of the Spitzer-inspired production is the 2015 feature film Zipper. Patrick Wilson does praiseworthy work as the hotshot lawyer Sam Ellis who is Southern, slick and happily married.

Unfortunately, he possesses a sexual drive that cannot be dispelled by a wife, a serious jogging habit, or 100 pushups. When he’s tapped to run for attorney general, he tries to clean up his act, but the addiction will not bow to reason.

He’s a sympathetic character—one who might inspire just a shred more sympathy from the insurance industry than his real-life inspiration, whose mere mention may still conjure nightmarish visions.

Napa Valley Balloons, Inc.

Experience wine country from a different view with a scenic hot air balloon ride. Napa Valley Balloons offers a 1 hour trip over the hills in a hot air balloon to get a bird’s eye view of the beautiful landscape, wineries and skyline sunrise. The package deal also includes a complementary buffet breakfast and pre-flight snack as well as an in-flight photo to take home as a memory of the experience.

Napa Riverfront

Not much for balloons? Take another approach to seeing the city with the Riverfront walk. Featuring the famous photo opp. with a large wooden chair, string lights over shops and restaurants and a gorgeous view of the water, the Napa riverfront is the perfect place to spend an evening out.

Oxbow Public Market

If breweries, specialty coffee and roadside food is your niche head on over to the Oxbow Public Market where you’ll find shops and restaurants such as the Fieldwork Brewing Co., Kara’s cupcakes and Olive Press – where you can try delicious blends of spices and olive oils. Right next door to the market is Gotts Roadside – the perfect American food spot. Sitting across the market is a quaint pizza shop, Filippi’s Pizza Grotto and just a short walk away is the Napa Riverfront (see previous).

Yountville Bouchon Bakery

If you’ve got a sweet tooth—and a taste for renowned chef Tomas Keller’s work (think French Laundry)—just a short drive from the city of Napa itself is Keller’s Bouchon Bakery in Yountville. Tucked amid a group of high-class restaurants, this hidden gem serves freshly made croissants, muffins, cookies, macarons and dips into the savory side with sandwiches, rolls and bread loafs. The bakery also will cater to events such as meetings and weddings and will take pre-orders online for ease and convenience.

What’s to love
Bogotá is a diverse metropolitan city that has a wide range of gastronomical, cultural and outdoor activities. It’s in the top 10 cities of the world and is known for its urban art scene. It also has festivals such as Estéreo Picnic, which showcases an important lineup of international and national artists.

Dining scene
You can find a vast variety of cuisines, from French, Italian, Mexican, Peruvian and Asian to traditional Colombian food. A hot trend is the invitation-only clandestine dinners and degustation menus. You follow instructions to gather in a particular place, and when you arrive there’s a table set for maybe 20 people and a chef preparing a multi-course meal.

Favorite new restaurant
At the Four Seasons Hotel Bogotá, Harry Sasson, one of the most famous chefs in Colombia, owns NEMO, which fuses classic Colombian and international cuisines. I love the food, the wine selection and the ambience.

Classic eats
Andrés Carne de Res serves excellent Colombian dishes in a very Latin atmosphere. I love the Arepa de Choclo, a traditional starter of corn cakes topped with fresh cheese.

Cocktails
At Apache, on the rooftop of The Click Clack Hotel in the city center, enjoy the great cocktails and beautiful views. Another good option is Gamberro, a Spanish restaurant where you can order tapas with your drinks.

Stay
The Click Clack Hotel is an excellent place for someone who loves design, great food and a convenient place to stay. It’s definitely the best hotel at the moment.

Arty
We have an exciting art movement going on right now. Every two months you can find different art and design fairs like ARTBO, Feria del Millón, Expoartesanías and BURO, to name a few. These fairs gather curious people who enjoy national design and art pieces.

Outdoors
If you are visiting on a Sunday, check out Ciclovía Bogotá, when the city blocks off some main roads so people can cycle safely with their friends, family and dogs. You can exercise and also see and enjoy the beauties of the city.

Don’t miss
Bogotá has many hidden treasures, such as the Gold Museum, which holds the largest pre-Hispanic gold exhibits in the world (55,000 pieces), an underground engineering wonder called the Salt Cathedral of Zipaquirá, and Lake Guatavita, which is known for the legend of El Dorado. If you come to Bogotá, these are places you must visit.

Napa Valley is open for business. While the October 2017 wildfires directly affected the people who live and work in wine country, because the fires burned predominantly in the forested hillsides, the Napa Valley floor between Highway 29 and the Silverado Trail was largely unscathed. According to the Napa Valley Vintners, a nonprofit association, 10 of the more than 400 Napa County wineries suffered significant damage. However, like Signorello Estate, which lost its winery buildings but was spared its 40 acres of vineyards, most were not completely wiped out.

Overall, the Napa Valley wine industry was lucky. Because of a heat wave, vineyards harvested their grape crops early last year, picking nearly 90% of the grapes before the fires started. The first 2017 wines, like Sauvignon Blanc, rosé and other aromatic whites, were released in the spring. And since most wineries store their wines off site, there was not a major loss of inventory. Even Signorello Estate did not lose any wines barreled in 2016 or any of its bottled wines.

The hotels of Napa County were also spared—none were burned. In fact, there are several new and refreshed places to tuck into high-thread-count linens. Vintage House in Yountville emerged from a transformative multimillion-dollar renovation last October. Archer Hotel Napa, a new luxury boutique hotel in downtown, recently opened and will soon be surrounded by First Street Napa, a new complex of upscale shops and restaurants. This month, both the Tuscan-inspired Vista Collina Resort (a destination unto itself with nine onsite tasting rooms and a Food & Wine Center) and Francis House in Calistoga (a luxury inn located in a landmark Second Empire-style building) are slated to make their debuts.

Several new restaurants have also opened. Last spring, chef Charlie Palmer opened Charlie Palmer Steak and Sky & Vine Rooftop Bar at the Archer Hotel Napa. Also downtown, Gran Eléctrica Napa, the second outpost of the Brooklyn-based original, is now dishing up its upscale Mexican cuisine on Main Street. Up north, Calistoga Kitchen has reopened as Lovina after closing for remodeling. The charming, chef-owned restaurant features meat, produce and fruit sourced from local farms, ranches and orchards as well as wines from small producers in Calistoga, which you can enjoy on the patio. 

The upshot: if your jam is Napa Valley wine—Cabernet Sauvignon, Merlot, Pinot Noir, Chardonnay, Sauvignon Blanc, Zinfandel, Cabernet Franc—the best way to show your support for the vineyard owners, winemakers and agricultural workers who collectively produce bliss in a bottle (as well as everyone who works in Napa’s blissful hotels and restaurants) is to book a trip to wine country. You can expect rows and rows of neatly pruned vines as you drive along the Silverado Trail, copious amounts of wine to taste and ship home, sublime dining experiences from a Croque Madame on Bistro Jeanty’s terrace to a picnic-to-go from Napa Valley Olive Oil Company, and plenty of exceptional places to stay.

As technology continues to offer innovative resources and new partnerships, it’s important to remember that the client must remain at the heart of our innovation efforts. If there is an overarching idea that runs across the stories in this issue, it’s that technology is consistently changing the way the industry works, enhancing the opportunities it presents to us all.

On another note, this issue of Leader’s Edge represents a turning point for this magazine as it marks the first for our new editor in chief, Sandy Laycox. You’ll get to know Sandy in her Q&A with founding editor Rick Pullen on page 6, but I wanted to welcome you (and her) to this, her inaugural issue.

When it was time to look for a new editor, we underwent an extensive search. We talked with some very seasoned and talented editors who wanted to build upon what we’ve built here. I share this because I believe it’s instructive to all of us.

Sandy put her hat in the ring to be considered for the position. On paper, she may not have had the same years of experience but she was hungry. She asked to be considered so I challenged her to build a business plan for her magazine. I wanted to see her vision for the future, how she thinks about content delivery and the economics of it all. The process allowed us to make sure she understood the depth and breadth of the job. Her plan was comprehensive and made it clear to me that she understood the job and all the challenges that go along with it. The decision ended up an easy one. Sandy is smart, young and passionate, and filled with ideas. This new position will certainly challenge her to put her own imprint on the magazine while continuing to honor its well-respected, well-establish brand in our industry.

And that is what you’re seeing here for the first time.  

We pride ourselves at The Council on hiring people and then moving them around and giving them opportunities to grow. Interns have become VP’s over time. In my case, a young government affairs guy was handed an association and told to build it. A former chairman said at the time, “He’s young, he’s smart, he’s hungry. If he fails, we fire him. Simple as that.” In this case, Sandy was an easy pick and we know she is going to do great things with the magazine. She has the complete confidence of the leadership team here at The Council and we look forward to continuing to produce a dynamic, fearless magazine reflecting the energy and success of our members and the firms they lead.

One of Sandy’s tasks will be to grow the magazine’s digital footprint, exploring new ways and new channels to deliver content to you and your clients. We know there are opportunities to evolve what we’re doing in print, expand the conversation and give the content a longer lifespan online, and Sandy is focused on doing just that.

As for Rick, well, he isn’t going too far. He’ll continue to write and advise the magazine in several capacities. But with his retirement approaching, I’d like to thank him for his 14 years of service to both The Council and Leader’s Edge. He created a fun and impactful insurance magazine over the years, winning awards and accolades far and wide, and he guided this publication through one of the most wildly chaotic periods in publishing history. Our magazine survived the shift toward digital and a downturn in the economy when many others did not. We have Rick to thank for that. He has done an incredible job building a foundation on which Sandy can grow with energy and creativity in this new generation of publishing.

How did you come to start an insurtech company?
I have one of those very cliché stories. I’m a serial entrepreneur. I started my first business when I was 12 years old. When I was going to college for business and finance, I started a business that became very successful, and I quit school. Years later, friends of mine purchased a small insurance agency—they’re a top-100 agency now—and they convinced me to come on board and run an agency for them. This was the first real job that I had.

A couple years later, I started my own agency, and I looked at the agency management systems that were available. What I wanted didn’t exist, and based on my prior experience of struggling with the systems, I decided to build one for my company. We built the first agency management system on top of [customer relationship management platform] Salesforce. At the time, people looked at Salesforce as just a CRM, and nobody really understood that it’s truly a platform that can be molded into anything.

Our agency was very successful. We turned it into a franchise company and opened up multiple locations. Because we were a franchise, we built the company to be a business in a box, and the technology had to be very scalable and intuitive. A few years later, Salesforce approached me about partnering with them and bringing that agency management system to market. That was about 2012. I had to rebuild the solution to more of a vanilla one that would work for all agency types, not just mine. I released the product in the third quarter of 2013 live on the Salesforce app exchange. At that point, I walked away from the agency business. I said to my partner, “You keep the agency. I’m keeping the technology.” I’ve been focused on that ever since.

What was that business you started at 12 years old?
I sold pet supplies to all my friends. I got a wholesaler license and the whole nine yards. I didn’t make a ton of money, but it was an official, real business. My dad’s a serial entrepreneur as well, and that’s where a lot of that comes from.

What lessons did you learn from running your own agency?
One of the biggest ones that people are still struggling with today is that revenue from commissions is slimming. They’re getting smaller for a number of reasons. Because of that, it’s so important to streamline what we do and to make our people more efficient—less time doing redundant tasks to focus on things that drive additional revenue to the company. So many agencies are so focused on doing just the day-to-day redundant tasks because they’ve done it that way over the last 30 years.

Another one from owning my own shop, and prior to that managing one, is that everybody sells very differently. Just because they sell something doesn’t mean it’s the right way to do it. Being able to analyze data on sales and how these people are doing, you can fine-tune the sales process to help them sell better. In my industry now, technology sales, it’s very driven by data—who’s doing what, what are they doing, what are they saying, what is their conversion ratio and what is the retention, the attrition? In insurance, overall, people aren’t really doing that.

Was it daunting to enter the agency management arena?
It’s been very challenging as a newcomer in this world because of all the barriers to entry. But you know—just pure tenacity—we have overcome. Now it’s a really great place to be. Since I’ve owned this company, we’ve seen four other companies try to build an agency management system in Salesforce and fail. It’s not easy. There are so many things when you talk about getting traction with the carriers, getting certified for download and things like that. I joke sometimes and say, “Looking back, it would have been easier to build some small little app than try to take on this monster.” Here we are now, and I feel that we have definitely overcome that, which is awesome.

Why is operating within Salesforce important?
It depends on the agency and the needs of the customer. For some people, we’ve told them just because it’s a new, shiny toy doesn’t mean you should buy it. Some shouldn’t because they’re fine doing what they’re doing now, but for the ones that really want to transform their organization utilizing technology, there is no better platform. It’s not because we’re part of it; it’s because of their whole partner ecosystem and all of the other apps that connect to it. The world is on Salesforce. Ninety percent of the insurance industry is on Salesforce already in some way or another. It doesn’t mean that they’re using it end to end. All of the big brokers, all of the carriers, they already have Salesforce in some way or another. There’s a reason for that.

What is your target market, and how is that changing?
It’s changed tremendously. In the beginning, I bootstrapped this company. Our customer was anybody that would buy. As time has gone on, we’ve really found that our customer is probably less about size and more about priorities. It’s somebody who is struggling in certain areas of the organization and they need help streamlining and making it better. They have true management that’s going to make sure the organization adopts this solution. They are shops that can really utilize technology to make them more efficient or drive additional bottom line through sales. That’s our customer. It’s all shapes and sizes. Primarily, we’re agencies and brokers, independents. We’re also in Canada. MGAs, MGUs and carriers use our system. Carriers typically use us for their internal agency or distribution management.

What are the challenges that independent agencies face that technology can address?
Single view of a customer is overall challenging. I’m talking about all of the other systems that they have to use today to do business with a customer. Recently, we worked with one of our customers that had 37 core systems to do business. We consolidated that down to four, saving them millions of dollars a year in tech costs but bringing in millions of dollars in new business because they were able to focus elsewhere instead of all this constant swivel-chairing. Most large agencies are in that same boat. It’s not only the carriers; it’s all the systems. It’s the personal lines rating, the CRM, the lead management system, the marketing automation system, the agency management system—all of this stuff is detached, or if it is connected, it’s connected with duct tape and twine.

How is technology going to change the way agents and brokers work?
In my opinion, regardless of whether we solve this or someone else does, everybody is going to look to a single platform, and they’ll want to build on top of it utilizing the tools that are on that platform. They need the stand-alone technology, but they are going to want to build their own secret sauce on top of it. That’s what our customers do today. By giving people these tools, you’re enabling innovation internally.

Does technology replace or augment relationships?
I’ve heard all sides of this. I’ve heard people say relationships are dead. That’s not true. Relationships are very, very real, but technology can help better the relationship with your customer. Think of a simple example: a customer can call me today and my phone will bring up through my CRM who that customer is and what’s going on. As soon as that phone rings, I’m on their account looking at what their favorite things are and what they like to do, but what’s really important is what’s going on—do we have some case outstanding, did someone not answer an email—and I’m already in front of it. Things like that strengthen the relationship.

For the people that don’t want that relationship and don’t care, you need to offer them the technology to communicate the way they want to communicate. Without those tools, you’ve lost them. With technology for the modern age, people aren’t going to wait around for three days to get a quote. They want to call up, and they want it now, and it needs to be served up very quickly, efficiently and professionally. Technology really helps to give you that edge.

The leading insurer for live entertainment is moving to a different beat in the insurtech space. ProSight Specialty Insurance, which launched its online platform with insurance for DJs earlier this year, stresses that it is taking a different approach from a typical startup.

“We wanted to get the traditional part of a true insurance company right first,” says ProSight CEO Joe Beneducci. “Now that we’ve done that, we have the ability to expand into this insurtech environment much more effectively than anybody else because we have a profitable business strategy.”

Since its founding in 2009, ProSight has grown to become the number-one insurer for live entertainment such as touring bands and DJs, but that’s just one of its nine niches. Based in Morristown, New Jersey, the company also provides coverage in construction, consumer services, marine and energy, excess workers compensation and four other areas. ProSight posted gross written premiums of $275 million in the first quarter of 2018 and $819.5 million for all of 2017.

As it starts up its ProSight Direct online platform, the company plans to expand beyond DJs with coverage for personal training, health and wellness beginning this fall.

“There’s enormous growth potential, but we’re going about it differently. We don’t have to expand it excessively to start,” Beneducci says. “We want to ensure we get the profit model right and the service and value model right for the client. If we do that correctly, we can certainly increase the throttle.”

Darryl Siry, ProSight’s chief digital officer, says the company, having established itself as a successful insurance business, is not under pressure to show rapid growth to raise cash in successive funding rounds.

“We’re not worried about raising that next round of financing,” Siry says. “And we’re sitting on a double-digit ROE. It’s not like there’s a countdown. That’s a distinct advantage. This is really a long-term thing. It’s not about who wins in the next year. It’s about who’s going to lead in the insurtech space in the next 10 years.”

ProSight launched its online platform with DJs because live entertainment is a business it knows well, as it already insures 50 of the world’s top 100 DJs.

“We knew the customer, and we knew the space,” Siry says. “And we said, ‘Let’s build the whole technology platform around this target.’”

DJs want a platform optimized for mobile to handle tasks such as obtaining and providing certificates of insurance for venues. The DJ market also sets the stage for the expanded rollouts in the fall in specific niches.

“The goal is to stabilize that technology platform, to learn with real customers on the platform, to ensure that we can manage the risk online effectively before we launch in the fall with a much larger target market of personal fitness and health and wellness,” Siry says.

DJs, personal trainers and yoga instructors are part of the larger gig economy of non-employee businesses that accounts for a large and growing share of the workforce. Intuit estimated that gig economy workers made up 34% of the American workforce in 2017. Siry says the broader spectrum of non-employee businesses represents a $7 billion market opportunity tailored for an online platform.

“It’s an underserved segment of the marketplace,” Siry says. “They prefer to buy insurance online, and they prefer to buy from a company that is not only selling them the insurance but backs it up with service and claims experience. It’s exactly what we’re offering these folks.”
 

Gig Insurance

Start-up Verifly is also taking aim at the gig economy, targeting the more than 60 million Americans expected to be working independently by 2020. The New York-based company has launched on-demand, by-the-job insurance for freelance workers in construction, personal services such as photography, as well as events, entertainment and other areas.

Freelancers often find that clients demand insurance for jobs that may last just a few hours, but insurance is typically sold by the year. The Verifly mobile app enables freelancers to buy “bite-sized” insurance, underwritten by Markel, for single jobs for as little as $5 for one hour and $1 million of business coverage.

“Savvy independent workers view insurance not just in terms of minimizing risk, but as a tool to maximize their income,” says Jay Bregman, co-founder and CEO of Verifly, which launched insurance for commercial drone pilots in 2016. “By radically increasing access to insurance, Verifly is helping to professionalize and institutionalize the future of work.”

Launched in 11 states, Verifly’s app enables freelancers to select coverage from a single hour to a full month and obtain insurance certificates for their clients. Nationwide coverage is expected by 2019.

“The expansion of the gig economy has put the insurance industry on notice — innovate now or risk being disrupted or made irrelevant,” says Scott Whitehead, managing director at Markel Digital.


 

This—coupled with the advent of new technologies and the proliferation of insurtech startups—is propelling a significant shift across the distribution landscape and the entire insurance industry as we know it.

According to a June 2013 report by McKinsey, the evolution of the distribution channel is “both a challenge and opportunity for carriers and agencies,” which must develop new capabilities and shift mindsets to thrive.

At its core, the insurance industry is about relationships, and the organizations that can strategically leverage technology will further grow and enable those relationships. One such relationship that holds significant promise is between agencies and carriers. A strong agency-carrier relationship is mutually beneficial, as this foundation can weather the storm of a variable market and changing consumer needs and helps drive reciprocal success. With agencies and carriers at the heart of the insurance industry, the benefits of successful collaboration extend beyond their relationship to impact the end consumer.

How should these two groups foster collaboration and work together to respond to customers with efficiency? By streamlining content management and workflow visualization and providing historical and real-time data to drive better decision making.

Driving Growth

People are at the heart of the insurance industry, but delivering exceptional customer service can be difficult when also navigating large volumes of work. For agencies and carriers alike, an effective content management and workflow tool helps solve this problem by delivering real-time insights into day-to-day company functions, identifying opportunities to streamline operations and increase productivity. With these tools, agencies and carriers can evaluate:

  •  How are my teams functioning?
  •  Where is our time being spent?
  • Are we meeting service levels?
  •  Do we need to adjust staffing levels?

Workflow visualization also helps answer these questions, with benefits ranging from improving visibility to standardizing processes. Establishing roles and workflow through a visualization tool simplifies employee training, streamlines processes and can help an agency with a number of branches feel united as one organization. One of our longtime customers has many smaller branch locations and was struggling to provide real-time backup when an employee was sick or on vacation. Through workflow visualization tools, the main office was able to jump in and help, aiding smaller branches in eliminating backlogs and demonstrating that the full team, no matter the location, was in it together.

In addition to real-time data, visualization tools can also provide insights into historical data. This enables agencies to have a better understanding of seasonal workloads, improve efficiency, and better allocate resources to and strategically plan alongside carriers for the future.

Above all, content management and workflow tools drive measurable results. Agencies often report productivity increases from issuers due to the accessibility and mobility offered with digital documents. Without a delay in finding documents, agencies can also respond to clients more quickly, offering strengthened customer service and enabling long-lasting relationships.

Leverage a Data and Intelligence Solution to Glean Insights and Remain Competitive

Access to timely, accurate data is a necessity in today’s world. A sophisticated data and intelligence solution provides more than just the numbers, though; it enables both agencies and carriers to make smart, informed decisions by providing insights about customers, the market and the entire insurance distribution channel.

For agencies, these tools can also be used to support carrier relationships through engagement, planning and negotiations. For example, data helps producers and account management team members identify markets and assess and price risk at an accurate level to ensure clients are protected. When working with carriers, agencies have the ability to easily gather and share data in a useful manner, often providing carriers with new insights into their own book of business.

With data, carriers and agencies can also gather market intelligence to elevate their relationships and drive profitability. While they may have their finger on the pulse of one or two markets and their appetite for a certain type of risk, data-driven platforms can provide a high-level understanding of risk in new markets and propel expansion. This enables agencies to plan and grow alongside carriers in targeted areas.

With the insurance distribution model in a state of flux, agencies and carriers can set themselves up for success by leveraging the power of data. Data-driven tools not only enhance this crucial relationship but enable both agencies and carriers to strengthen the most important relationship of all: their customers.

In the era of the empowered customer, it is more imperative than ever that carriers and agencies find ways to better collaborate and deliver the omni-channel experience that customers are looking for in insurance. The combination of content and workflow solutions that streamline processes and data intelligence can help drive both efficiency and an overall improved experience for customers.

Ray is senior vice president for product and strategy at Vertafore. sray@vertafore.com

What was the point of the study?
Berkowitz: We wanted to find out if home delivery of meals would reduce the use of a handful of healthcare services and medical spending. We looked at three different groups: one received medically tailored meals customized to participants’ healthcare needs (diabetes, renal conditions, etc.); the second received healthy, non-tailored food; and the third received no food. Five days of lunches and dinners were delivered each week.

Who took part in the study?
Berkowitz: Nutritionally vulnerable patients of the Massachusetts Commonwealth Care Alliance, a nonprofit community-based health plan. The organization works with adults who are dually eligible for Medicare and Medicaid.

What were the results of the study?
Berkowitz: People taking part in the medically tailored meals program had fewer emergency room visits and inpatient hospital admissions and used less emergency transportation than those in the control group. People in the non-tailored program also had fewer ER visits and less emergency transportation. They didn’t, however, have fewer inpatient admissions.

When you subtract the program costs from the estimated healthcare savings, participants in the tailored meal program saved $220 per month. The non-tailored program reaped savings of $10 per participant per month.

You chose food delivery. Why that particular solution?
Berkowitz: The association between good nutrition and good health is clear. When people are really sick, they may not be able to go out and shop or prepare food for themselves, so food delivery can help solve that problem.

Tishler: In Massachusetts, between one in six and one in eight people are food insecure. That doesn’t necessarily mean they don’t have food, but they aren’t exactly sure where their next meal is coming from. And that will include people in the commercial market, there is no question on that. Particularly for large employers, their low-income workers may have real challenges. Look at people with children. I would be willing to bet a number of their workers’ children are getting subsidized meals at school or in the summer. Given that, it’s really easy to think about this area.

What do commercial payers need to know about “social determinants” of health?
Berkowitz: Adverse social determinants of health, that is, social circumstances that increase the chance of getting sick or that make it more difficult to manage illness, are very common in the United States even among individuals with commercial insurance.

Tishler: About 80% of things we think about that affect people’s health and illness we can’t fix with a visit to the doctor or an antibiotic. It’s much more related to the neighborhood they are living in, what kind of food they are eating, how much education they have had, what language they speak and if they are socially isolated.

There is also data in other studies showing that hospital readmissions markedly decreased when people got meals delivered to them after a hospitalization. People who are much more likely for readmission and increased cost are exactly the people who aren’t going to have a community that is able to bring them food.

It is so compelling to see what seems like a pretty simple solution and see if it can move the metric on things that are causing us to spend so much money on healthcare.

Most of the work in this space has been done with Medicare/Medicaid. Why do you think that’s the case?
Berkowitz: Medicare and Medicaid are set up specifically to care for more vulnerable members of our society, so the populations they care for often have a high prevalence of adverse social determinants.

Social determinants don’t just affect low-income individuals, correct?
Berkowitz: Social determinants are important for everyone—even individuals historically considered to be middle class are finding it harder to afford housing or nutritious food. People often expect the prevalence of food insecurity or housing instability to be lower in middle class samples than it is. It’s hard to know how common it is unless you ask.

What can commercial payers learn from what Medicare/Medicaid are doing in this space?
Berkowitz: I think it’s really important to realize that a lot of what goes into staying healthy, or into managing chronic illness, occurs outside the healthcare system. Working with other sectors, like social services, makes it much easier to help people stay healthy.

What did you learn from this study’s outcomes?
Berkowitz: I was really encouraged to see the association with lower emergency department visits and hospitalizations. These are outcomes that I think patients really care about—not having to go into the hospital.

Tishler: It surprised me that there was such a significant difference between the medically tailored meals and the non-medically tailored ones. I think that surprised all of us. We would like to say that food is food, but this article suggests that there may really be advantages to certain kinds of food. They both made a difference, but the medically tailored meals actually saved more money in monthly medical costs.

I think their average cost was $843 versus about $1,400 for their comparison group. We would all like to see more research that confirms this or begins to answer that not only that happened but why it happened.

Many of our members live on a fairly low income and in relative food deserts [areas with little or no access to healthy foods because of lack of farmers markets and grocery stores]. One of our medically tailored meals was broccoli and red peppers and salmon. And it would be harder for them to put that kind of meal together on a good day and even more if they’ve been ill or in the hospital.

What kind of barriers do you see for employers/brokers to do work in this space?
Berkowitz: I think finding the right partner agency is really important. People need to be dedicated to making nutritious and tasty culturally appropriate food.

Tishler: Barriers are really about seeing food (and other social determinants) as an important thing to improve health and reduce costs. Delivery of food might seem out of scope for a healthcare organization or health plan, but according to our data and others’, it might be a cost-effective way of preventing more expensive care—at least in certain settings.

How could they overcome challenges?
Tishler: I think there are different ways to do this. There are home-delivered meals that make sense for a population like ours. But in another setting, like after someone is hospitalized for myocardial infarction, you could send people heart-healthy meals so they know what to eat or teach them how to make healthy food. For the commercial market where people have a lot of resources, there would be a lot of ways to think about this.

It will require health plans and companies to think more broadly about what health is and what’s worth paying for. It would be a great benefit but would also benefit people’s health. Especially if the company made its choices wisely.

What other opportunities are available in the social determinant space? Are there areas other than food to target?
Tishler: Stable housing can make a huge difference in someone’s use of the healthcare system, costs and quality of life. And we also see that people live longer with stable housing. I’m not saying that every health insurance company or employer should get into the housing business, but when they think about what they want to work on in employee assistance programs, I guarantee there are homeless people in their workforce.

I was seeing patients at a homeless shelter for women, and it’s amazing. You can’t always tell who is homeless and who the staff are. Some of those women were putting themselves together and going to work. So that’s something to think about for companies.

Improving access to exercise is one thing, and that can be done relatively easily. They can subsidize gym memberships or make sure there are places to walk at work or start a walking program for the company at lunchtime.

They can help people find community resources, which are there in all different kinds of communities. And some people like education about what healthy food is. You don’t have to buy it for them, but you can do some demos at work and people can see a great way to use a zucchini.

Anything that helps decrease chronic stress—whether around social stressors or creating workplaces that are welcoming—all of those really do contribute to health. Helping people understand they are valued helps a lot.

What can employers and brokers expect regarding results when targeting social determinants?
Berkowitz: I think the most important thing is to focus on improving health. It may not be easy, as the consequences of adverse social determinants accumulate over the lifetime, but organizations that just get into this trying to make a quick ROI are unlikely to prioritize the right interventions.

What kind of measurement should be used when seeking population health improvements?
Tishler: While metrics having to do with improving cholesterol or blood pressure are impressive, the cost ramifications of those are much longer-term. Generally, I would look at measures having to do with emergency room visits, hospital costs and readmission. It’s much less expensive to feed people than to pay for three nights in the ICU.

Some payers are beginning to use social assessments along with traditional health risk assessments. Are these a good option?
Berkowitz: Incorporating social risk will likely be important, but there are a lot of unanswered questions—how to collect the data, how often, what questions to ask and what to do with it. Getting too far out ahead of the evidence could wind up leading to disappointing results.

Tishler: There are many different measures that people can use to look at social determinants of health. They can be tailored to specific populations or more general, but I definitely encourage organizations to find out more about their populations. I think there will be some obvious things they find, but they may also be surprised at the level of need.

Where did your love of data get its start?
I started my career as an accountant, so I was always dealing with data. I purchased my first personal computer in the ’80s and used technology as it grew and advanced. We were using Lotus123, not Excel. When we were starting Royal Specialty Underwriting, I was able to buy an IBM AS/400 in the summer of ’88. I hired a programmer because I wanted to take what we were doing in Excel spreadsheets and program that data. So he created a way for us to build a database, and I bought green screens for everybody. We put this system on everybody’s desktop, and all of a sudden, we’re designing software.

Just one programmer doing all this?
One guy—Kelly Walls—the guy who sat next to my office. We would sit there and try to figure out how to do binders and quotes, and then we started thinking about documents and policy issuance and coding and accounting and reinsurance. We designed and built. It helped our firm understand its portfolio.

When did it become important that you could see and use the data you’d collected and then maintain it?
I’ve learned building and maintenance are two different words. Building—whoa! Maintenance—hard. But we have to do maintenance. So we were in the wild period. We had nothing to start with, no legacy systems.

No legacy system is an advantage.
A huge advantage. I’m an accountant brain, but I’m in the insurance game.

How long did this take you?
We worked on it every day from ’88 on. We began attracting capital because our data was so good. They’d say, “I’ll give you reinsurance because I can see my portfolio.” I was a young accountant working with spreadsheets, so for me it was just a tool. But it was analytics, it was data, and it’s one of the things that made our business so good.

How much do you know about actual software?
Not much. I know insurance. It’s just data. To me, it’s linear.

Describe a couple of “aha” moments using your data.
The first time we blew people’s minds was with a limits and attachment point profile. It was so basic, but back then, nobody had it. Nobody had the concepts to be able to do it. Ultimately, you could negotiate better reinsurance terms because you had better transparency in your data. That’s the war that’s going on now. So that was educational. That was foundational.

You never shared this outside the company?
No. We didn’t sell the software to anyone. When dot-coms were coming out in ’97, ’98, people were telling me, “Steve, you need to go do this.” And I told them, “I’m an insurance guy. I know what I’m good at.”

Back in the ’80s and ’90s of course, we were using old languages. So we became a dot-net shop and basically committed to Microsoft. That was an early lesson. We made lots of mistakes. There was no cloud, so you had to buy servers and put them everywhere. You had to have server farms. At AmWINS, when we started partnering with firms, they came with technology that needed to be updated. First you had to control their hardware, then you had to convince them to migrate away from their legacy systems. In the early years that was hard, because we were just getting started and building. Ultimately, we didn’t give them a choice.

We said, “You’ve got to throw away your legacy system.”

Today, if you sell an account in Seattle, it dings in my office [in Charlotte], and people are amazed at that. But if you walk into a 7-Eleven and you buy a bag of potato chips, it tells somebody that you bought that bag of potato chips. And guess what? That night they’re going to deliver another bag of potato chips to that store. It’s called a cash register, and it’s not that big of a deal. But in insurance, the reaction is, “Oh my God, you can see what you are binding?” People think it’s a wow, and it’s not a wow.

So what does that say about our industry?
Lots. But the industry continues to have a lot of legacy systems. I’m now trying to figure out how we’re going to use Microsoft’s Cortana audible digital assistance. This is the way we’re going to work. We’re not going to type on a computer, anymore. Right now, I ask questions. “How much is this?” “How much is that?” “Where do I get this?” And our data team gets me what I want. In the future, I’ll ask for information using these new technologies, and our databases should be able to provide it to me verbally.

I built a “valet” phone app because when our brokers go to lunch with a client and they hand the keys to the valet, they say, “I wish I knew how much volume I did with this client.” That’s the only time they thinks about it—instead of running a report, like we used to.

Now, it’s on their phone. They type the client’s name in and up comes their file. They doesn’t have to run a report. In the future, brokers are going to say to their phone, “I’m having lunch with Joe Smith. Give me Joe Smith’s financial biography.” It’s all going to come out of databases. Nobody is going to print off a report anymore.

So you are in the process of tying your database to the digital assistant right now?
Exactly. Just asking it questions. Just like you ask it what the weather is. “Give me AIG’s premium.” That kind of thing.

The thing about data is that it’s just data. I’m a little frustrated that I won’t see that come to fruition as part of my career, but the young people are working on that. AmWINS’ biggest advantage now is the amount of effort we’ve already put into this easy stuff, which leads to the next level of implementation.

Which is more sales.
More sales, exactly. We’re in the small-business arena now. We’ve invested an amazing amount of money in technology and small business. Everybody talks about small business. It’s easy to talk about it. It’s easy to do it the way you have always done it. You’re just not going to do it in big volumes, and then you’re not going to have the analytics.

How do you make small business profitable?
With better process, data and analytics. Today, we partner with an insurance company that built a small team to implement a small-business strategy. They actually trusted our data. So now, instead of them typing it in and me typing it in, they just analyze me. They trust me. That’s a step forward that most people—that the industry—has got to get to.

Who owns the data?
The insured owns the data. Clearly the wholesale brokers, the retail broker and insurance company all use this data to make decisions. What we don’t do is give carrier data to a competitor. So if I work with insurance Company A on a data structure, I can’t give that to insurance Company B. We receive one million submissions a year. That data is valuable.

What’s the value proposition?
Knowledge. The advantage is analytics—the ability to see how to correlate different subjects. I do business with 20,000 retailers and 500 insurance carriers, so I have a view on a lot of business.

What do you share, and what don’t you share?
I don’t share competitive data. I may say I have knowledge that the Florida marketplace pricing is X because I have a broad perspective, and people are interested in that knowledge. They may say, “Well, show me that knowledge.” I will, as long as I hide the source. You have to be careful with data.

Basically, you’re tech savvy. Your ability to collect data gives you business opportunities other people don’t have.
They have them. They don’t see them. Here’s a great example: an insurer gave us the ability to underwrite on their behalf. They started losing business. They couldn’t figure out why. So they asked, “What are you doing? You’re not giving us business.” We told them their price was no longer competitive. Then, we explained that three new carriers had entered the market and they were pricing their products differently. We told them, “You’ve been around 50 years, and you can’t rest on what you think you know.” So they changed their pricing, and now they compete in the marketplace.

Where are your competitors compared to you?
Well, I try not to know what the other competitors are doing, because I have enough to worry about on my own.

But you still hear. C’mon, you’re out there. You know, a lot of them still use packages, and packages are limited by when the guy can get to it. A lot of them don’t see value in data.

Still?
Still. I was at an industry event recently, and they brought in Billy Beane, the Oakland A’s GM who went into analytics about baseball. Michael Lewis wrote a book, Moneyball, and they even made a movie about him. The establishment called him a fool. I sat there thinking, “That’s what they said about me: ‘He’s just an accountant.’” But Billy Beane analyzed the statistics of baseball to look for the hidden gems. I thought to myself, “That’s what we did.”

Everybody in baseball is now following Beane’s example. How about you?
They’re trying to, but they have legacy issues and money issues. It’s expensive. You know, we’ve been doing this a long time. Now, everyone is trying to play catch-up. Catch-up is hard.

Everybody is afraid to share data.
Today, people are in a war to get data. If every insurance company had the exact same data, then it’s the company’s beliefs that change the price, not the data. I think we should share data. I think we should build one database that all insurance companies can share. We’d all have the same information. We’d all pay for it. If we did that, then how we price insurance using the same data would be based on our beliefs, our capital structure and how we buy reinsurance protection.

Do you think that’ll happen someday?
I’ve talked about it enough. AIG believes that they can do small business better than everybody else. Chubb believes they can do small business better than everybody else. I believe both of them. But their confidence is based on their beliefs around risk selection, their capital structure, and their claims-handling ability—actually paying losses.

How difficult is cyber security for a company like yours?
I’ve seen millions of dollars being wired incorrectly because of fraud, so the need for robust cyber-security systems is real. The perception is that all brokers are equal. We’re not. I’m not your mother’s wholesale broker.

You don’t see any drawbacks to sharing data? I mean, as long as you restrict its identity?
Yeah, you have to be careful with that. But, you know, I’m trusted with the insured’s data. They give me their financial information. I have their loss information. I’ve got to be good at what I do. I’ve got to protect it.
 

Four use cases demonstrating the value of exchanging data in a blockchain platform are under way at RiskBlock Alliance, with one (proof of insurance) already completed as a digital application for use by alliance members. This fall, the other three use cases will similarly result in a digital application.

This is just the beginning. Future use cases in sight by the alliance, based on member brainstorming sessions this year, are listed below in no priority order.

  •  Certificates of Insurance
  •  Commercial Trucking Fleet Identification
  •  Surety Bonds
  •  Multiple Payees
  •  Salvage
  •  Real-Time Regulatory Monitoring
  •  Tokenization of Titles, Deeds and Liens
  •  Digital Inspections of Physical Assets
  •  Internet of Things
  •  Agent and Broker Licensing
  •  Policy Cancellation and Non-payment
  •  Fraud Register
  • Commercial Liability
  •  Foreign Sovereign Identification Linked to Insurance
  • Technical Accounting
  •  Use of Existing Data for Smart Contracts
  •  Plugging in Data from Third Parties, e.g. Government Agencies
  •  Marine
  •  Life Insurance Valuation


 

Digital applications for three traditional insurance processes will become available to member carriers of RiskBlock Alliance in the third quarter of 2018—first notice of loss, subrogation and parametric insurance.

As with the first production application on proof of insurance that became available in April, several insurers and brokerages are collaborating in their development. Farmers Insurance, Liberty Mutual and Marsh are among the members of the alliance engaged in developing the first notice of loss application.

Agents and/or carriers typically receive a text, email or phone call from a policyholder indicating who has been in a car accident. The other policyholder does the same thing. This triggers the first notice of loss—the initial report that some sort of loss, theft or damage has occurred, the first step in the claims process.

What occurs next, says Mike Annison, head of global operations for the claims practice at Marsh, is a case study in inefficiency. “Each carrier contacts the other carrier to exchange information related to the accident, resulting in a back-and-forth process that consumes inordinate time and effort,” Annison says.

Since data on each policyholder is already in the blockchain, the two carriers don’t need to formally exchange their data. “Multiple parties eliminate handoffs,” Annison says.

In a commercial lines insurance context, today’s processes for reporting a first notice of loss slow down the flow of information. “An example is a broker that is not notified at the time of a claim because the insured has excess layers of exposure protection across different insurers,” says Matt Lehman, a managing director in the insurance practice of Accenture, a RiskBlock partner. “By sharing information in the blockchain, all parties to an insurance policy are notified simultaneously of the loss.”

With this first step in the claims process now completed, the next one—subrogation, the financial squaring of the net payment of a claim between two insurers—can occur. Marsh is involved in a RiskBlock use case addressing subrogation with Farmers Insurance, Liberty Mutual and other partners.

“With subrogation, carriers are focused on the net settlement of the claims payment, as it may involve some money coming from one insurer and some money coming from the other,” explains Bennett Neale, an enterprise architecture consultant at Farmers Insurance, a RiskBlock Alliance member. “Today, all these details are negotiated between the carriers over the phone and through emails, and a manual check is cut or a wire transfer made to make up the difference. This eats up a lot of time.”

Since the data on the claim are now in the blockchain via the first notice of loss application, much of the information needed to negotiate the ultimate settlement is already there, reducing the interactive interactions between the carriers. “In cases where both parties quickly agree to the settlement, a payment can be made in real-time funds from one carrier to the other on the platform, or an IOU form of payment could be executed,” Neale says. “More protracted cases would proceed on to arbitration, as they do today.”

The third application in development is parametric insurance, in which payment of a claim is tied to a particular weather-related metric. An example is an outdoor concert that has to be canceled because of rain. An insurance policy can be structured to cover the lost ticket income if rainfall exceeds a particular threshold, such as 10 inches of rain.

Another example is crop insurance that hinges on other parametric triggers like rainfall, temperatures or sunshine. Information provided by third-party organizations like the National Weather Service can be made available to alliance members on the Canopy platform. Additionally, data from internet-enabled sensors measuring rainfall, temperature, humidity and other meteorological conditions also can flow to the platform.

“The value of parametric within the blockchain is that it allows a variety of parametric sources to be aggregated into one source of truth for claims purposes,” says Christopher McDaniel, president of RiskBlock Alliance. “Say you have multiple sources providing flood-level information for a given area. By aggregating and creating one source of truth on the blockchain, there is now a single trusted source that multiple claims processes can rely upon.”