Q&A with Chris Downer of XL Innovate

The Council also caught up with Chris Downer of XL Innovate.

The Council also caught up with Chris Downer of XL Innovate this week. Downer is a principal at XL Innovate who focuses on insurtech investments in North America, Europe and Asia. He is responsible for due diligence and deal sourcing. Downer also pens a daily email (signup required) highlighting the latest insurtech developments.

Plug and Play’s First Annual Broker Age Event Gathers Brokers and Insurtechs Together

The Council participated in the first-ever Plug and Play Broker Age event in Silicon Valley.

The Council participated in the first-ever Plug and Play Broker Age event in Silicon Valley. Plug and Play, an early-stage accelerator, focuses on technology startups from seed to series B funding rounds.

Business Program Bytes: Efficiency Rules

A panel on how brokers will stay relevant in a world inundated with new technologies.

The Council Dives In

World-wide meetings address insurance industry office inclusion.

You’re walking down the hall at work and pass the boss who makes a crack about your gender, race, religion or heritage. You cringe because you don’t want to make a scene, yet once again you’ve been made to feel like you don’t belong.

The Pharmaceutical Supply Chain

How money and services flow through the system

Lack of consensus about how to approach the complex pharmacy supply chain has prompted debate about the most effective way to lower prescription drug costs. Focusing on the inner workings of the entire supply chain may broaden how costs and solutions are discussed. 

Reinventing Beantown

Boston is under construction, with new business, restaurants and hotels adding to the city’s historic architecture.

In 2010, Boston’s late mayor Thomas Menino launched a plan to turn a stretch of dilapidated piers and underutilized warehouses and parking lots in South Boston into an “innovation district.” 

What Motivates Hate?

It takes courage to face what you don’t know.

Herman and Philip Roth

Lasting Lessons in Last Things

Many a celebrity has had a parent in insurance, but few are more famous than Herman Roth, father of the late Philip Roth. The younger Roth was one of America’s greatest novelists. (Portnoy’s Complaint, Goodbye, Columbus and 15 more). 

We Don’t Know

Diversity specialist Vernā Myers asks us to admit that we have no idea and start there.

For many years, Vernā Myers has consulted and lectured on diversity and inclusion in the workplace. She recently sat down with founding editor Rick Pullen and editor in chief Sandy Laycox to talk about her views and experiences. Shortly after our interview, she was hired as vice president for inclusion strategy at Netflix. —Editor


When Vernā Myers landed her first job as a lawyer, in Boston in 1985, she was the first black person the firm had ever hired.

When you make a mistake with a workplace comment, Myers says, don’t qualify the apology.

Myers believes we can’t make progress without first acknowledging our biases.


Read the Sidebars

What Motivates Hate?

Dark Angel

San Francisco wants insurers to cut ties with coal, oil and tar sands industries. Prudent plan or gross overreach?

The insurance industry appears to be becoming a political tool for politicians and advocates of popular causes.


San Francisco has become the first American city to urge insurers to divest from the fossil-fuel industry.

Insurance leaders contend that using the industry to achieve political aims sets a dangerous precedent.

If the movement is taken to its extreme, could the insurance industry be compelled not to insure or invest in other industries deemed unacceptable?

The Human Quirk

Behavioral economics provides key insights into employee engagement and a successful approach to benefits.

Can the “science of the irrational” help employees make better choices when it comes to benefits? That’s a key question for anyone involved in employee benefits.

The Long View

Most Americans have no plan for long-term care should they need it.

It’s no secret that most Americans do not understand long-term care insurance and have no idea who would pay for the treatment should they ever need it.

Primary Care Benefits


The majority of healthcare spend goes toward a small minority of patients. How can we better serve them?

In 2002, a young primary care doctor in Camden, New Jersey, began working with the city’s police department after witnessing a shooting near his home. Using the department’s data, he found there were “hot spots” in the city that were responsible for a large portion of its crime. 


With healthcare costs rising, brokers and employers want to identify their largest sources of spending.

A Colorado study found the highest-cost patients were those with terminal cancer and those receiving emergency dialysis.

Some experts believe predictive analytics can help determine future high-cost users; others say such projections are more difficult to achieve.


Read the Sidebars

Primary Care Benefits

Frankfurt, Germany

Jochen Köerner, Managing Director at Ecclesia Holding, offers tips to finding local gems in this diverse city.

Incubating Insurance

Q&A with Jean Vernor, Head of Incubator, New Strategic Markets, Munich Reinsurance America

Silent Cyber

The industry is raising the volume on hidden cyber risks.

Money Well Spent

Q&A with Shane Wolverton, SVP of corporate development for Quantros

Quantros is a healthcare analytics and risk management consultancy. Wolverton discusses why brokers should understand healthcare quality and how doing so may change their relationship with clients for the better.

Marty Hughes

Executive Chairman of the Board of Directors, HUB International, Chicago

Listening for Cues

Learn from what others are saying and doing.

As this year’s Insurance Leadership Forum event wound down at the Broadmoor, I had the pleasure of watching a one-hour interview with President George W. Bush. I found his message to be one of optimism and strength…mixed in with a significant amount of humor. 

Stand Up and Be Counted

Politics and D&I are not easy topics, but they shouldn’t be difficult to talk about.

The most important message I have this month is to vote. I’m so serious about it that I propose for all of us do our part and close our offices until 10:00 a.m. on November 6 so 100 percent of our employees can get to the polls without worrying about being late for work.

All Abroad!

Here’s a playbook for the first conversation when helping clients expand overseas.

As full-service brokers, we take pride in the fact that we’re ready for anything our clients need. But global expansion is growing ever more complicated with increasing regulatory issues, cross-cultural differences and privacy concerns, to name just a few. 

Creating Career Pathways

The Campbell Group revamped its hiring process and team structure to make a clear path for success from entry to retirement.

It’s no secret that the age demographic in the insurance industry has changed. When I started with the Campbell Group in 2013, the average tenure of the support staff was well over 15 years. 

IDD and the Pursuit of Clients’ Happiness

Now in force, the new EU directive will require better coordination among brokers and carriers.

The Insurance Distribution Directive (IDD) came into force on October 1, changing the operational and compliance framework for brokers based in the European Union. 

Benefits Data Bullseye

Healthcare and employee benefits data are gold for cyber criminals.

The HITECH Act requires covered entities to report breaches of unsecured protected health information affecting 500 or more individuals to the U.S. Health and Human Services Office for Civil Rights. 

NAIC 2018: State Ahead

The NAIC’s newest strategic plan is all about technology and innovation.

The state insurance regulators and their trade association, the National Association of Insurance Commissioners, have never been accused of being on the cutting edge.

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


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.


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. 


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.


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.


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.


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. 


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. 


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.


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. 


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

Do you see any notable shifts or surprises over the last 18 months regarding commercial insurtech investment trends?

What has surprised us is how little activity commercial insurtech has seen, relative to personal lines. Our analysis, based on CB Insights data, shows that over $1 billion has been invested in companies that are addressing commercial insurance since 2015, which equates to roughly 10 percent of total insurtech investment. What does that mean? Regardless of how you slice it, commercial insurtechs have been woefully under-financed relative to insurtechs addressing personal lines, distribution, and other areas. As a result, commercial insurtech is heavily under-penetrated relative to the broader insurtech movement. Even existing commercial ventures have been concentrated in more obvious areas like distribution and auto. In fact, since 2015, those two categories account for over half of commercial insurtech funding to date. Very few startups are looking at more complex areas. This has to—and will—change.

XL Innovate portfolio companies—Cape Analytics, Pillar Technologies and Windward—all share the capability of transforming real-time data into risk management insight on properties, construction sites and maritime operations respectively.  Do you see brokers as a channel to deploy these tools in addition to insurers?

Absolutely. Brokers cannot be satisfied with the status quo and will need to continue to integrate new technologies into their offerings in order to add value to the end client. Brokers can leverage this wave of technology to differentiate themselves in the market and prove they have their finger on the pulse of insurtech. For the broker, the customer is the centerpiece and insurtech is a vehicle in which to ensure that centerpiece remains a client.

Embroker, a digital commercial broker, is obviously of keen interest to Council members. Three years into the company, what aspects of Embroker and their value proposition to customers has XL Innovate, as an investor, most excited?

Where do I start? We think Embroker has a huge lead in dealing with larger, more complex customers and larger more complex insurance products—something competitors in the market don’t have experience with. Embroker also recently launched a customized digital insurance product through their new digital Startup Program. Their new program, which includes D&O, EPLI and fiduciary liability insurance, allows customers to buy complex coverages directly online, without paying brokerage commissions and policy fees or dealing with archaic manual underwriting processes. What took startups at least three weeks, takes 60 seconds with Embroker. That’s pretty cool.

Plug and Play is currently working with over 10,000 startups across 14 different industries, with a keen focus on the insurance sector. The company is known for their unique investment approach, one that relies on a constructed “ecosystem” of insurance industry incumbents and established corporations to provide startups with guidance and insight while giving incumbents/traditional players an inside look at which insurtechs are truly proving value in their space.

Check out our interview with Plug and Play’s Ali Safavi, global head of insurtech.

With over 150 registrants, Broker Age saw a very mixed bag of attendees, including 25 attendees from brokerages, 11 of whom are Council members. The majority of attendees were from the insurtech community—over 50 attendees came on behalf of 30 insurtech companies. Outside the conventional insurtech and incumbent space were VC and consulting firms and NAIC representatives.

At Broker Age, Brent Rineck, CIO of ABD Insurance and Financial Services, Aon’s managing director of treaty reinsurance Chris Gallo, Joshua Rockoff from insurtech firm Omni:us, and Kevin Morreale, chief sales & marketing officer of American Modern Insurance Group participated in a panel on how brokers will stay relevant in a world inundated with new technologies.

One of the biggest themes that came out at the panel was how technology introduces efficiencies and adds value for the client. Rineck, for example, delved into the history of the ABD team, whose success—it’s only 6 years old yet one of the top 50 brokers in the U.S.—he ascribed to the fact they built their architecture from the ground up to streamline processes that were historically quite time consuming and improve the customer experience.

Rockoff, too, leaned into the theme of efficiency, describing how his company can transform unstructured data into structured data: “Instead of spending 30+ days getting the info in our back office systems, we can do it in a matter of minutes, allowing brokers to spend more time focusing on customers.”

However, most brokers, the panelists agreed, don’t want to change because there is no incentive. “Human beings are the killer app,” according to Gallo, especially in the large commercial space. “Aon can use tech and solutions to improve product for the consumer, but the human team will be there for the large transaction.” So if brokers still need that face-to-face contact, technology will play the support role.

Because, Rockoff said, “the purpose of technology is to give brokers tools so they don’t have to change. Technology allows brokers to become more efficient without having to completely rehaul the way they do business.” And efficiency is all the more important nowadays, when the idea that “time is money” is so pervasive. The role of the broker will not become irrelevant, but they can become irrelevant in terms of competition if they cannot add a competitive advantage by adopting enabling technologies.

You have just experienced a microaggression and you question whether you handled it properly. After all, was your boss trying to make an innocent joke and out of ignorance used hurtful words and expressions, or was it intentional? Should you have confronted your boss or just let it lie?

Everyone has experienced this type of microaggression at one time or another. Some minorities, especially, have experience it quite frequently. And almost everyone is guilty of expressing this behavior at one time or another—whether intentional or not.   

That is why the insurance industry has launched “Dive In, The Festival for Diversity & Inclusion in Insurance,” in an effort to improve diversity in the workplace. The insurance industry is notorious for its lack of diversity, and executives want to change and create a better working environment for everyone. They also fear business will suffer if they do nothing, and if they do diversify, it will open new business opportunities all across the industry.

The Council sponsored a meeting in its Washington, D.C., headquarters on Sept. 25 for industry professionals. Speaking at The Council’s event were Jeffrey Smith, of Jennifer Brown Consulting, and Jacquline Morales, of Legal & General America. The Council event was one of more than 50 events in 27 countries. The first event was held in 2015 in London and the sessions since then appear to be having an effect. This year a survey of insurance professionals in London found 52% responded favorably to the diversity and inclusion culture. That was up from 21% just last year.
Explaining how microaggressions should be handled. Smith and Morales admitted how difficult the issue is to deal with and how uncomfortable it makes employees. Yet not dealing with it, they agreed, was not the answer.

Microaggressions, they explained, may be small in nature but have a big impact on work, mood and even an employee’s health, especially if they have been bombarded by a lot of microaggressions in the office during their careers.

“Your identity is being attacked,” Smith said.

Dealing with microaggressions from other employees can lead to “covering,” where employees actually change their behavior to deal with the onslaught. This can result in minorities barely acknowledging each other in large office gatherings that include many of their white male colleagues. Shockingly, 53% of employees said their bosses expected them to do this. As a result, employers struggled to get 50% of their workforce to be committed to their organization.

To deal with this, Smith suggested employees learn inclusion behaviors to make others in the office feel welcomed, valued, respected and heard. When another employee makes them feel uncomfortable because of their aggressive behavior, the worker should confront the aggressor without blaming them. Instead, Smith said, they should explain how their hurtful language made them feel.

Morales said employees should not let themselves become victims of microassaults, where an employee says something inappropriate and then says they were just kidding. The insults are either based on ignorance and innocence, or deep-seated prejudices, she said. Either way, you need to address it.

She suggested the employee ask their colleague to repeat the hurtful words they just said. That puts them on the spot and may force them to become more aware.

She said if you are a perpetrator of microaggression, own up to it immediately and apologize so you can move on. If you are a bystander and witness it, speak up. “Silence,” she explained, “is an endorsement.” 

They also touched on restrictive company cultures and hiring. Hiring someone who “fits the culture,” Smith said, “is a cop out.” He explained it’s a lazy boss’s way of not having to deal with diversity and inclusion. Many bosses, he said, tend to hire someone just like themselves, and consciously or unconsciously limits diversity in their office. Numerous studies, he said, have shown the more diversity and inclusion there is in an organization, the better it does.

Now known as the Seaport District, it’s the fastest-growing neighborhood in the city. GE, PwC and Reebok set up shop here. Luxury condominiums are the priciest in town. New boutique hotels like The Envoy Hotel are opening, and established destinations, such as the luxurious Boston Harbor Hotel, have undergone renovations. New restaurants, including the modern seafood eatery Lola 42, have garnered good reviews, and the party never stops at waterfront watering holes such as Legal Harborside and Lookout Rooftop.

With cranes towering over the entire scene, there’s more of everything to come. So if you’re attending a conference at the Boston Convention and Exhibition Center or Seaport World Trade Center, both located here, you’ll have plenty of new places to stay, eat, drink and shop over the years to come.

Yet despite the harbor setting, with all of the shiny new skyscrapers and contemporary architecture, it doesn’t feel a lot like Boston, one of America’s most historic cities. If you want to soak up history when you walk down the street, stay at a place near Boston Common, the beginning of the Freedom Trail or close to the Federal-style row houses lining the narrow streets of Beacon Hill. Even in Boston’s oldest neighborhoods, hotels have been reinventing themselves, and new restaurants are popping up. The classic-meets-modern mash-up is giving buttoned-up Boston a new vibe.

The Ritz-Carlton Boston Common, one of the city’s most luxurious hotels, and Nine Zero, one of the first design-forward hotels, have undergone multimillion-dollar renovations. Both redesigns reflect a modern colonial design aesthetic, using traditional materials—wood, metals and leather—in contemporary interpretations of the furnishings and décor.

While Boston’s dining scene hasn’t received the acclaim of cities like New York and San Francisco, there are restaurants here that can compete anywhere. In 1998, self-taught chef Barbara Lynch raised Boston’s culinary profile when Bon Appetit named her first restaurant, No. 9 Park in Beacon Hill, one of the “Top 25 New Restaurants in America.” Twenty years later, Lynch has compiled eight restaurants in her BL Gruppo hospitality empire, as well as Stir, a demonstration kitchen and cookbook store, and three James Beard awards. Many of Boston’s rising-star chefs and hospitality industry professionals have honed their skills under her guidance. One, Colin Lynch (no relation), opened his coastal Italian eatery, Bar Mezzana, in the South End in 2016. It has become one of the hottest restaurants in town.

Will we ever see equality of the races in the United States?
We can end it if each person decides they are going to do something about it, including teach their kids. Some of us are teaching our kids, but some of us are not. And even worse, some of us are teaching our kids to hate and to bully.

In this difficult political season, which I hope was just a season, our behavior, no matter what side you’re on, is problematic for the young people. They are seeing something that they should not be emulating.

Do you think that’s going to cause a shift in politics and public discourse?
I hope. I’ve seen so much hope in the younger generation. I also know that the younger generation was in Charlottesville with the tiki lamps. We keep asking, “Why hasn’t this changed?” I don’t think parents and schools are doing enough to educate people and to teach the truth about structural racism.

Debby Irving, in her book Waking Up White, does an incredible job as a white person talking about what she realized about what whiteness means and what she was taught growing up. And she has some really great resources on her website, too. And then there’s A People’s History of the United States by Howard Zinn.

I think education has to go deeper. What do we do with our children? They’re getting backlash from other children. A woman told me her two sons, who are in their late teens, asked her, “Why do we have to pay for what other men did?” and “Why do girls get more than we get? It’s not our fault.”

You’re going to have to break down patriarchy for them. It’s not going to be enough to treat people nice. We need the architects of new systems. If you don’t understand the way the system works and you can’t make the connections, you really can’t be an innovator in this space. We need kids to be innovators.

Wealthy people also have to learn to do that. Like when your kid goes, “We live in the best neighborhood,” you’ve got to be able to say, “Yes, I wish everybody got to live a life of dignity the way we do.”

So when they say, “I don’t like that person. They’re brown,” you have to say, “Do you know where that comes from?”

We haven’t wanted to have those conversations because we’ve been deeply in denial. We have to get out of denial. We’ve got to learn language. We’ve got to read. We’ve got to watch, and then we’ve got to be able to translate it to our kids.

Equality really talks about sameness. Equity talks about giving people an opportunity—not just the opportunity but positioning them, taking into consideration what more it will take for that person to get the same opportunity that someone else does.

Do you think money always triumphs?
You know what always triumphs? Rationalizations. People have their own best interests in mind, and they have not realized we are all connected, that none of us are going to make it unless all of us do. People actually think they can build a high enough fence, they can move far enough away, or they can displace people from neighborhoods because they have the power to do so and that will keep them safe and secure.

This is about the “isms” versus prejudice. Prejudice goes back and forth between you and me. But the “ism” is about power. So if you give the advantage to the same groups of people over and over again, they cement that advantage into power, into opportunity, and consequently, they are positioned to make the decisions that benefit themselves and everyone else.

What else are you working on?
I’m really focused on four things right now. I am focused on consciousness, which is people getting a better idea of what actually is true.

I’m thinking about curiosity. Culturally curious is also a different way of being in the world than culturally judgmental.

I am really looking at courage. It takes courage to face what you don’t know. Like it takes courage to trust somebody.

The last piece is compassion. It’s kind of the highest form of love. And I feel like we need compassion towards ourselves as individuals. There are reasons why we don’t know what we don’t know and ways that we are complicit and ways that we don’t want to think.

We also have to be compassionate to others, which means that we’ve got to let people apologize to us. We’ve got to care deeply about somebody up in North Dakota who we’ve never met. Or on the borders, who are fleeing persecution. Like we also have to be compassionate towards people who are so discouraged that they don’t mind hurling epithets at other people. What motivates people to be haters?

Isn’t it weird to have compassion for haters? I heard someone say, compassion is the ability to love those, to understand those, who don’t understand. I mean that’s the true test.

Roth wrote about being Jewish, midlife crises, alienation and general disillusionment. Nobody ever accused him of frivolity.

On the other hand, his father Herman Roth was lively and endearing, with a celebrated gift for remembering and recounting colorful anecdotes about Newark, New Jersey, where he lived all his life. Herman was a first-generation immigrant who left school at 13 to work in a Newark factory. For most of his life, he was employed by Metropolitan Life; he started out as a door-to-door insurance agent and retired as a district manager in 1964. It was a creditable climb for a man who often felt passed over because of his religion. His son Philip once described him as a cross between Captain Ahab and Willy Loman.

Any modicum of fame Herman gained was from the 1991 memoir Patrimony, which Philip wrote while watching his father die from a brain tumor, a struggle that ended in 1989. He follows the timeline of his father’s impending death with curiosity, anxiety and love. Patrimony won Philip Roth the National Book Critics Circle Award in 1991.

Philip Roth learned much and wrote often about death, but in Patrimony he learns a lesson about insurance as well. He writes of fearfully approaching his father with a living will to read and sign, terrified of further depressing a man so close to the end of his life.

“How could I have forgotten that I was dealing with somebody who’d spent a lifetime talking to people about the thing they least wanted to think about?” he wrote. “He used to tell me: ‘Life insurance is the hardest thing in the world to sell. You know why? Because the only way the customer can win is if he dies.’”

Who is Vernā Myers?
I grew up in Baltimore, which is significant in the sense that I was gone for 32 years and I made a conscious decision to move back home. I went up to high school here and then left to go to college in New York. Then I went to law school in Boston. I got married, had a baby and was practicing as a lawyer.

I ultimately started working on diversity and inclusion. I was first an executive director of an organization that dealt with diversity in the legal field, and then I worked for the attorney general of Massachusetts as his deputy chief of staff.

Finally, I went out on my own and created my own consulting business, mostly for legal professionals. It guided them on how to create more diverse and inclusive workplaces.

Was working on diversity and inclusion a conscious decision or a job?
I graduated in 1985 from Harvard Law School. I went to my law firm, and I was the only black person they had ever hired.

Pretty typical?
In Boston, I was actually pretty shocked by it. I had no idea I would be breaking the color line in 1985. It seemed strange to me. Nevertheless, as law firms go it was a fine experience. But, little by little, I started to think that it wasn’t the best environment for me.

How long have you been consulting?
Twenty years.

It must be working.
Well, that’s a good question. I have enjoyed what I’m doing. I never knew it would become something this essential to business. I was always a little worried it could be a flash in the pan. But it just keeps evolving into something that is really important and not just an issue.

Have you seen a change in the last two years since Trump was elected?
That’s a good question. We just put out a white paper about five rules for meeting inclusively in a politically tough time. I’m in companies usually—almost always—where the leaders have said, “Come make us better.” So they are acknowledging there’s some strife, there’s discord, and maybe people are saying things.

One of the most difficult things is to get people not to say bad things about Trump in the workplace. In some workplaces, if you support Trump you’re like persona non grata. And that’s not fair.

It’s not OK to insist a person have a certain political leaning. People should be able to believe whatever they believe. What you say and do in the workplace is a different story. As a leader, you have to demand—if you say you’re into inclusion and diversity—that diverse voices be heard but that they be delivered in respectful ways. Bias is not tolerated.

This is important if people are going to figure out how to work well together. The workplace is kind of the last place where diversity has an opportunity to flourish. One thing that really works well for people with differences is to have a common goal, to work on something together.

In many cases, people leave work and they go to their silos, to neighborhoods where they are well represented. Many people do not live, and have never lived, in any kind of integrated neighborhood. Still, in the United States, there are very few. So the workplace becomes a place where we have an opportunity to teach people, for people to become aware, to get closer and face their discomfort instead of getting uncomfortable.

So how do you create that kind of environment where we don’t all agree but we agree to be kind and respectful and inclusive? Where we agree to let go of assumptions and biases and stereotypes against people? It’s a hard balance, but it’s something leaders have to figure out how to do.

We all basically think of ourselves as good, moral people, but you talk about taking that next step to recognize what we are missing.
I’d like to see us go deeper. But to go deeper you have to have more skills. Because if you try to go deep and you don’t know how to talk and if you don’t have awareness about other people’s backgrounds, you can blow it up. The only way I think people go from being, like, “nicey-nicey” to authentic is for you to take risks.

You’ve got to decide that everybody’s culture is valid, even though you may not agree with everything. Your culture is not superior. That’s a hard thing for people to do.

But it has to be mutual. People have to learn basic cultural competency skills. You’ve got to decide that everybody’s culture is valid, even though you may not agree with everything. Your culture is not superior. That’s a hard thing for people to do. Once you do it, you talk differently, you’re more curious, you ask questions.

Notice your own biases. That’s an important skill, to be able to see your own cultural lens. There are certain kinds of skills and competencies that enable us to be more authentic, but people have to want to do it and it has to be mutual and it has to be modeled. It’s just not easy.

An example?
I used to take the train into Boston, and there was a fellow passenger who was blind. Every day he was on the platform, and no one says anything to him. Never says anything. Because they think he can’t see them. So you just go on acting as if he doesn’t exist.

My blind friend said people talk to his dog but they don’t talk to him. Because people know dogs but they don’t know blind people. Can you imagine how discounting that is? You’re like “Hey, doggie, doggie,” and then there’s a person, a human, with the dog, but you only talk to the dog.

We’re scared of what we don’t understand or know.
We don’t know. We are going to make mistakes, constantly. Stop expecting and pretending to know. Even with race, there are reasons why we don’t know stuff. It’s not because we’re bad. It’s because—and I’m not a conspiracy theorist—but people of power have decided whose story to tell and how to tell it.

So let’s not talk about it. Let’s not talk about the GI Bill. Let’s not talk about American Indians. Let’s not let people know that we basically made Chinese people work for free to build railroads.

I was in Montgomery, Alabama, where my friend has created the Legacy Museum. It’s amazing. It’s very sad and also amazing what he’s doing. But I did not know as much about the domestic slave trade. I knew about Triangular Trade that brought slaves to the U.S. But I didn’t know about the domestic slave trade in the U.S., where our country decides, after the international slave trade is abolished, to continue to trade slaves within the U.S.

So we couldn’t get more slaves, anymore, but we sold them up and down the East Coast and the West. We made them build railroads so they could be transported. We pulled a bunch of free black people from the North and sold them.

So a lot of times the conclusions that people put together about race and about culture and about black people, about Hispanics, is devoid of a lot of facts. And so we pretend to know. We pretend to be cool with stuff. But if we really knew, we would be devastated. And that’s why there’s this whole movement. People are just starting to see what is real about our country.

I got to college and went to the bookstore, and there were like three rows of novels and science and political theory written by black people I didn’t even know existed.

I didn’t even know about the Harlem Renaissance. I didn’t know anything. So it’s not just white people who don’t know. Black people don’t know. And it influences their sense of self.

So stop pretending to know. If you pretend to know, then you don’t get curious and you don’t ever know and then you’re just trying to hide your ignorance all the time. And then there is the idea of apology. So when you make a mistake, learn to apologize. Don’t hide behind your intent.

The other really huge thing is that—and this is happening a lot in the workplace—people make mistakes, they say the wrong thing. They say something like, “For a mother, you’re doing an incredible job.” Or they say, “You should be really happy to get this promotion. You must have been really surprised.” And they’ll say that to a black person who has been working their tail off and thinks of [himself] as very deserving.

Or they’ll say things like, to an Asian American, “Your English is really good.” But that person grew up in Jersey. It’s like, “Why do you think every Asian person is foreign? They’ve been here for a long time.”

So when someone replies, “That’s offensive,” they say, “Well, that’s not what I intended.” Which is legit, but it takes away an apology. Or they say, “Sorry, that’s not what I meant. You took that wrong. You’re overly sensitive.” That takes away from the apology.

In many cases, people leave work, and they go to their silos, to neighborhoods where they are well represented. Many people do not live, and have never lived, in any kind of integrated neighborhood.

You have to be more interested in the impact of what you’re saying than your intent. Mistakes are OK, because if people are constantly like, “I don’t want to make a mistake,” it really means they don’t interact. Because you can’t hear what’s wrong. You don’t know what you’re missing. You can’t see how people are doing things differently.

Go somewhere and make yourself a minority. Stay engaged. Start the dance of engagement. You purposely create friendships. You purposely go to different parts of town. You purposely read books about other groups. You engage.

There is a story about an Asian kid working at a law firm who came into a cafeteria, and one of the partners says to him, “OK, you need to stop right now what you’re eating and you need to go. You need to do this, and you need to do that.” The kid is like, “I have no idea who this is or what he’s telling me to do.” So he doesn’t say anything. He tries to figure out who the guy thinks he’s talking to. When he does figure out the guy who the partner thought he was talking to, he calls him and says, “Look, man, I don’t know what’s up, but there’s something happening on your matter and you better figure it out.”

That guy then calls the partner and says, “Look, no big deal, but I think you thought you were talking to me in the cafeteria. Can you tell me what I need to do?” The partner is mortified. After the deal, the partner never works with that guy again.

That’s the disengagement that happens because people are so mortified that they’re human and they made a mistake. Instead, you should be like, “OK, man, you know what? My bad. Can we go to lunch? I owe you this.”

Basically you’ve been working with a person who you haven’t been paying attention to. Now you really need to dig in instead of pulling back.

Basically, he doubled down instead of making things better.
Yes. I call that adding insult to injury. Many organizations I’m involved in, the power brokers at the top are white, male and straight. If they decide they are so uncomfortable because of some mistake they made, they ruin your opportunities. So you must find somebody else to work with or you’ve got to tiptoe around this person because they’re tiptoeing around you. It doesn’t work well.

Diversity and inclusion are good from a moral sense. From a business sense, how do you make that case?
It’s interesting, because for me the business case, or rationale, is multifaceted. I don’t care which reason is most compelling to you. There are so many. You’ve just got to find one. For example, we feel fairly certain from every study that groupthink cannot be broken up by people who think the same.

The whole concept of competitive edge is based a lot on a company’s ability to come up with a different product, a new way of doing things, some kind of innovation, a different framework, or whatever. That requires diversity of thought. Diversity of thought is very closely linked to diversity in life experience.

It’s how you solve problems. So you might have a super technical problem, but you can get a janitor who knows nothing about the field who understands something about how plumbing works who can help solve a technical problem.

Businesses have found when they started doing open-source stuff—trying to solve certain problems—some of the people who came up with the best solutions weren’t in the field. So you’re applying a different approach to solving problems.

Team effectiveness is another argument for inclusion. If you’re going to have diversity, you’re not going to have effectiveness unless you’ve got the inclusion part. Because if you put a bunch of people together and they’re different but they don’t know how to really work across differences, it’s not going to work.

So once you decide you want diversity, then you’ve got to go for inclusion. A lot of our companies have clients that are steadily changing. So if you’re going to come up with a product, how are you going to relate well to a diverse, larger-society customer base? How are you going to do that if you don’t have people within your system who think like or have a similar experience to those who you’re trying to serve?

There are now enough companies that have made enough mistakes and now recognize they need other people informing them on a lot of their decisions. It’s not necessarily about that kind of book intelligence. It’s about the ability to see things differently.

So who is going to make a difference in our business? We don’t understand what’s changed. You are especially vulnerable if your business fails to have inroads, doesn’t have networks and doesn’t have the right language.

You have to believe you’ve been missing something. But it’s hard to believe you’re missing something when you’re doing well.

Does it really matter for people to have someone who looks like them sell them insurance?
Some clients would like to have someone who thinks like them. When you’re girlfriends with the person you’re doing business with, it can’t hurt. I started to realize that’s why men don’t want us to change things. Because it’s not just that they are doing business with each other; they become friends and they trust each other. Their kids go to the same schools, and they hang out and they do whatever. It makes doing business and working so much more fun.

Our business is based on trust.
If your social and business professional circles are really small, then you actually think there’s only one option of the kind of person who you would trust. But if you have a much broader base, you would see that isn’t limited to race or gender. It’s just a different possibility for a relationship.

But it is also true that I feel like in some situations—like insurance, banking and medicine—people of color are suspicious, and they have good reasons to be suspicious. There are all these studies now on how doctors treat black people differently than they do white people—and not as good. There are ways in which black people have been taken for granted and taken advantage of when it comes to insurance.

So, in many cases, having someone who has a similar background as you gives that person the benefit of the doubt. But they also may tell you things that make you feel more comfortable. They understand your life in a particular way. It’s a certain kind of way people get to relate. If you’re in the trust business, I think it’s important.

The problem is we’ve advantaged one group. You’re limiting your talent base, but you have to believe that. This is the hardest part, I think, for super successful companies. You have to believe you’ve been missing something. But it’s hard to believe you’re missing something when you’re doing well.

Our industry has a lot of success. How do you get people who are using their own networks, working with people just like them, that they’re comfortable with, to look beyond? How can they be compelled to recognize they are missing something?
They have to see the writing on the wall. That majority will turn into a minority. That’s just the truth. The world has shifted. So how well are they going to be able to do down the line?

Maybe it takes a situation that doesn’t work well for you to notice. There was a case where a guy had been selling insurance to a family forever. The husband died. He thought he’d keep the client. The wife said no: “For 25 years you’ve never even looked at me in these conversations. You’ve never listened to me. I will be getting a new agent.”

That’s the kind of stuff where people start to realize. They made assumptions that they’ll always have this opportunity. More interracial families are happening every day. So now you start telling jokes to a man and he has black children. Or you start saying something, and he’s gay or he has a transgender daughter. That’s going to be a problem.

Those kinds of things make people realize they must make change. But, quite frankly, you must get there on your own in your own life experiences. Leaders have to decide it’s important to the company.

The insurance industry struggles to attract young people—even white young people.
On the recruitment side of things, I think, one is that we’re often looking for ourselves. Which is to say we think we’re looking for excellence, but what we’re really doing is hiring according to preference. So it’s who we prefer to work with, who we think is a fit, who we think—and usually fits—are people who are like us.

Fits our company culture.
Yes. Now, if your company culture has been monocultural for a very long time, it is unlikely that you will see yourself in someone who looks different. If you do, that person will come in and be successful.

You’ve got to get in the door first. Which means that I’m always telling people, “Look at your criteria. Make sure it’s not you and your gut that you’ve identified as the competencies a person should have.”

Then don’t over-hire. Don’t find somebody with an MBA if all you need is a BA. This happens a lot if you’re an outsider or come from a different racial background. They ask, “Are they really smart enough?” So your new hire will have an MBA…yet you just hired a white person who has only a BA.

We need standards, but we need to be suspicious of what you call standards. For example, if someone doesn’t have on the right clothes, can’t you just tell them? Instead, you’re going to be like: if you fit here, you would know you don’t have on the right clothes.

Isn’t that a boss’s insecurities? “I don’t know you well enough, and I don’t know your culture well enough.”
You can make mistakes in this regard. However, if you see a person with promise and potential, we usually give them the hard stuff as well as the praise. If that’s what you do with everybody, don’t not do it with someone who’s different. You may need to do more to make sure that person understands you’re not acting out of bias. You may need to make sure that that person gets what they need. Really offer support and feedback.

A lot of people just don’t know the workplace. They’ve been excluded for a really long time.

When we start talking about privilege, lots of people just get freaked out. They think I’m saying they didn’t work hard. Like, yeah, you worked hard. But those ladies who are at the bus stop at 6 a.m. and are working three jobs—they’re working hard, too.

So it’s a problem that perpetuates itself for lack of diversity?
It’s hard to get started if you don’t have diversity. People have lots of potential. They may not come in the perfect package right now. And certainly if you want to really work on diversity and inclusion, you’re going to have to see through the packaging and help make some adjustments. Because, quite frankly, all of us had people to help us make some adjustments.

What about those who can’t make the connections because of their privilege?
That has blown my mind, to see really intelligent people not be able to make those connections. I don’t know if it feels too destabilizing. When we start talking about privilege, lots of people just get freaked out. They think I’m saying they didn’t work hard. Like yeah, you worked hard. But those ladies who are at the bus stop at 6 a.m. and are working three jobs—they’re working hard too. And you have to ask yourself, how well were you positioned to take advantage of your hard work? It’s not whether you worked hard. It’s about no matter how hard my father worked, up until 1957 he was not allowed to be a firefighter. It didn’t matter how brave he was.

Or to get an education.
Or to be a lawyer. I mean women couldn’t even go to Harvard Law School until 1953. It didn’t matter what an incredible jurist they would make. Women weren’t even allowed to vote until the last century. My father couldn’t get a job that your father could get. This stuff is all iterative. Consequently, my father, who was discriminated against getting many good-paying jobs, today struggles financially at 92. That means my generation must help him. That puts my generation at a disadvantage.

So when people ask why black people can’t get it together, remember this: in Baltimore, free men who were working on the docks and making great money used it to buy a house and to take care of their kids. So we’re working on the same docks, but my money is going to buy my relatives out of slavery. These are not the same worlds. We are not on the same platforms.

How do you answer the argument that slavery was 150 years ago? By now blacks should be equal, or they should be able to stand on their own two feet? I hear those arguments all the time.
Go back as recent as 1950 and the ’60s. Let’s just go to Jim Crow. In Isabel Wilkerson’s book The Warmth of Other Suns, she explains why six million black people moved out of the South over a period of years to escape discrimination. People say blacks are not immigrants, but they are.

They were looking for more opportunity and looking for safety, because they were being lynched. And those are either our fathers or our grandfathers, right?

Black teachers made something like $10 a month. White teachers made 10 times that. All you’ve got to do is add up the decades of that money, which is why there is still just a huge financial gap.

People don’t know that, when you came back from the war as a black doctor, you still could not practice medicine in the South. You had to go all the way to California. That’s why there are some wealthier black folks on the West Coast. Most black people grew up in the South. So that is where the oppression remained.

How do you make up for hundreds of years of not having opportunity?

How do you deal with that on a personal level?
I feel like I am the beneficiary. As a beneficiary, I can’t afford to be mad.

Why can’t you be mad?
I can be mad as a feeling but not as a way of being or in the way of just carrying myself in life. There are some people who I don’t begrudge if they’re pissed. They’re at bottom. I’m not at bottom. I managed through a lot of people’s sacrifice to be here. So I need to put all my energy into making it better for others.

I don’t want to take on—no one can take on—all this injustice internally. Sometimes I’m just like bewildered. Sometimes I’m not. But those are emotions I give myself a very short time to dwell in. There’s just too much work to do.

What about people who say, “I didn’t own slaves. It’s not my fault.”
No, it’s not your fault. This is not about who’s at fault. The question is how comfortable are you living in a world with such deep inequity? Today. Right now. In this space. That’s all I want to know.

It might be helpful for you to go back and think about the ways you’ve been positioned. I just need you to have some compassion. They just don’t know exactly what they should do. That’s my audience. My audience is not people who want to keep their eyes closed and want to keep themselves safe and cordoned into their way of seeing the world. They want to understand. So you’ve finally hired the diverse workforce. Now you don’t know what to do with it.

Walk a CEO through this. What’s next?
Most CEOs are asking me: “Is there something wrong with our culture that we have people come but they’re not having a good time?” Your culture reflects. There are aspects of your culture that’s very good, but it reflects a very singular, narrow kind of monocultural way of being.

There are lots of cultural differences that people bring. Even people right now who pretend that they’re having a good time in your company—they might actually benefit from you thinking about how to make that culture much more inclusive.

It’s about no matter how hard my father worked, up until 1957 he was not allowed to be a firefighter. It didn’t matter how brave he was.

What that means is people are coming into the environment, they feel welcomed, they feel like they belong. They’re expected to be good. They’re respected in how people use language and in the policies and the practices, like what holidays you’re celebrating or what food you serve.

I was just talking to a client about where they choose to have business outings, on what dates, whether they’re accessible for disability, is it a part of town that people feel safe in? Certain people do, other people don’t.

Is your system set up so the only people who get heard are those who are boisterous and aggressive? Or do you have the kind of skill to conduct a meeting where you actually are hearing from people with different personality types?

Or maybe you’re dealing with a person who’s from a deferential culture. Maybe they’re not going to interrupt, because they’re showing deference to you.

Are you the type who insists if someone has a conflict they come directly to you? There are other types of communication styles that are indirect, or there are less emotional styles or more emotional styles. This is the work of creating an environment where people of different backgrounds can thrive. It means you have to pay attention to the ways in which the institution that’s been working well for you is not necessarily going to work as well for others.

And it’s about mutual adaptation. What I have noticed is the people who are new to the workplace or who are underrepresented in it or are historically excluded, they know a lot more about adapting. So they know how to tolerate difference. But the group that is in the majority, that haven’t had to make adjustments, are not very skilled.

You’ve described whites as having this rugged individualism trait whereas blacks are more team oriented. The big thing now is changing office environments to promote teamwork. It seems like that would fit right in with inclusion.
The real question is what’s in the water? Is it still the individual who comes up with the brilliant idea on their own? Are they still more valued? If I want to go down the hall and ask someone what they think before making a decision, is that going to be used against me?

Cultures can change the structure. You can change how pretty the offices are, but the embedded value is still individualism. Many people, no matter what culture they ultimately come from, have learned the trick of individualism. They have been convinced that’s the only way to get ahead. Now people are talking about soft leadership or emotional intelligence. That goes to the idea of how you involve people in your conversations and decision making. It’s a very powerful skill. But again, it’s about how much it’s valued. And is it going to be valued the same if it comes from a majority person or a minority person?

You’ve cited victims of Hurricane Katrina in New Orleans. A photo in the newspaper of blacks finding food noted they were looting. A similar photo of whites noted how smart they were to find food.
We don’t even know we do that. We see people on the street and we see them in a predicament and we make a whole story up about them, depending on what they look like.

Teamwork and countless meetings can take a lot more time to accomplish something. Talk about that.
I was reading the book Essentialism. It’s really interesting. The author is an essentialist, which means he only spends time doing things that he thinks are productive. For example, he says something like, “This is not going to be a good meeting for me. I’m only going to stay for 20 minutes because I have better things to do.” He believes if the workplace allowed people to be responsible and professional and do only what is best for them, we would have more productive workplaces.

I’m such a non-essentialist, this book was such a challenge for me. At first I thought he’s awfully selfish. But by the time I got to the end, I realized what he was saying.

He’s trying to be productive.
Not only that. He believes he has a calling to do something no one else but he can do. He believes this is true about everyone else as well. He says too many of us are wasting our time trying to make people happy and we’re not getting to the core aspect of who we are and what we were meant to do and to give to the organization.

He has some really good techniques. He was talking about, if you’re trying to solve a problem, most people are going to attack the biggest part of the problem. He says no, solve the smallest pieces of the problem that you can. Go for the thing you can fix first. Never occurred to me, but it makes sense.

I talk about introversion and extroversion a lot. I talk about different communication skills. I talk about deference. I talk about conflict management. All the things that I know are influenced by culture.

Culture’s a big idea. It’s not just about ethnic background. It’s about your values, your personality, what you think is beautiful, what you grew up understanding and ways you have changed who you are based on that.

Helping people to see themselves as cultural beings is a lot of my work. If you think you’re just normal, you don’t understand a lot of your decisions and judgments. Your social circle is based on your culture.

People say, “I love culture. I wish I had one.”

You have a culture, and it’s shaping everything you do. If I can get people to see that, then they start getting more suspicious, more conscious and more curious. And if they can do that, they let new ideas in. And that makes their world shift.

You just have to know where you are. You’ve got to be willing to be wrong. You’ve got to be willing to examine your background. You have to be willing to say you’re sorry. As long as you do that, you can build some really powerful, authentic relationships.

As a boss, how do you relate to a person who is different from you?
This person may feel isolated. So you ask yourself, “How do I get to know this person as an individual? How do I build a relationship with this person?” You bring no assumptions but also are clear you are open and interested in hearing anything about what difference might mean for this individual.

Don’t say, “Hey, you’re black. Is it different?” Instead, say things like, “Hey, I grew up this way and blah blah blah, and I really think this, and I really like this. What are you interested in?” The relationship is important because you’re trading information. You share who you are, and you’re asking them to share, just like any other relationship. And you start to build trust.

The second thing is, you start to make sure that it’s clear to that person that you’re invested in them. You’re going to make a mistake at some point, but the fact you’ve shown your commitment, the willingness to listen, that will smooth out your mistake.

So then one day you’re out late at night, and you say something like, “Well, black people really seem like this.” The person looks at you. You notice they’ve got a different face. You’re like, “What? Did I just step in it?” They’ll say something, and, depending on your response, you’ll be giving them a cue you’re either up for the difference or you’re not.

You just have to know where you are. You’ve got to be willing to be wrong. You’ve got to be willing to examine your background. You have to be willing to say you’re sorry. As long as you do that, you can build some really powerful, authentic relationships. And it won’t be with everyone and you cannot make everyone happy and you cannot make decades of injustice go away.

First there was pressure from New York Gov. Andrew Cuomo and Maria Vullo, New York’s financial services superintendent, on the industry to dump the National Rifle Association as a client—even fining brokerage Lockton Affinity and insurer Chubb for selling and underwriting an NRA insurance policy.

Now, insurers are being asked to take sides on the climate change debate. It began with an epiphany, the realization that all fossil fuel companies shared a common feature—they bought property and casualty insurance. What if their insurers could be pressured to no longer underwrite the companies’ risk exposures or invest in their securities? The answer was obvious—the companies would flounder. 

It was a brilliant concept, one that its originator—The Sunshine Project—has since set in motion. In July, the San Francisco Board of Supervisors became the first municipal body in the United States to call upon insurers to stop insuring and investing in the coal, oil and tar sands industries. The board also urged the city and county of San Francisco to screen insurers’ underwriting of and investments in these industries and to formally cut ties with those carriers that did not comply with its wishes. 

“Cities have nothing to gain from collaborating with insurance companies that prioritize dirty energy companies over communities,” said Aaron Peskin, a San Francisco supervisor, in announcing the decision.

The decision was a major early victory for The Sunrise Project, the Australia-based organization that devised the idea of using the insurance industry as a battering ram to clear the world of harmful emissions produced by oil, coal and other fossil fuel businesses. “Pretty much any business in the world, if they don’t have insurance, they can’t operate,” says Ross Hammond, Sunrise Project’s senior campaign advisor in the United States.

For people fretting that humanity is at the brink of extinction from global warming, the modus operandi of The Sunshine Project is a stroke of pure genius, and it has arrived just in time. For insurance leaders, even those who support a transition away from fossil fuels, there is concern that using the industry as a blunt instrument to achieve political aims sets a potentially dangerous precedent. “It is not the role of insurance to steer politics,” says Jochen Körner, the executive managing director of specialist insurance brokerage Ecclesia Group, headquartered in Germany.

Nevertheless, Körner concedes he is conflicted on the subject. “On the one hand, I endorse the aims of the San Francisco resolution because we brokers and insurers can be enablers [of The Sunshine Project’s goals] by shutting down the support system for fossil fuel companies,” he says. “This can be a quicker way to ban coal and tar sands than through politics.”

On the other hand, Körner adds, “If insurers are the means to a political end, where does it stop? Who decides what is right and what is wrong?”

Körner is not alone. “The burning of fossil fuels is a concerning issue, but requiring property and liability insurers to abandon a multibillion-dollar business like the energy industry and to limit the diversification of their investment portfolios is bad public policy,” says Robert Hartwig, a professor of finance and co-director of the Risk and Uncertainty Management Center at the University of South Carolina.

In Hartwig’s view, if the Sunshine Project’s approach were taken to its extreme, the insurance industry could be compelled not to insure or invest in other industries deemed socially unacceptable. “There are people opposed to logging companies, pharmaceutical companies, tobacco companies, businesses that make pesticides and herbicides, airlines that produce high emissions, and cars that do the same,” Hartwig says. “Do we ban insurers from insuring or investing in these companies, too?”

Governing Issues

It’s possible, of course. According to the Environmental Protection Agency, the U.S. transportation sector produces more greenhouse gas emissions than the burning of fossil fuels for utilities. If insurers can be politically compelled to forsake the energy industry, automakers and airlines may be next.

Hammond has a different opinion. “Scaling a social movement that results in a healthier planet is a very good thing,” he said. “Insurance companies are investing in and insuring the very industries which are making climate change worse. If insurance companies want to protect us from catastrophic risk, they must break ties with the fossil fuel industry.”

In other words, insurers and reinsurers that continue to underwrite and invest in fossil fuel companies are directly contributing to a future in which they will experience more severe property catastrophe losses. Dump them, and losses will eventually moderate.

Cities have nothing to gain from collaborating with insurance companies that prioritize dirty energy companies over communities.

Aaron Peskin, supervisor, city of San Francisco

That might be a pretty enticing argument if the decision were left up to individual insurers. For years, organizations like the American Sustainable Business Council have advocated that companies voluntarily divest from fossil fuels and invest instead in low-carbon alternatives. The Business Council’s DirectInvest campaign asks companies to sign a pledge to this effect and lists the names of the top 200 oil, gas and coal companies.

But that decision belongs to the companies themselves. In San Francisco, government is calling the shots.

The Sunrise Project sees nothing wrong with this scenario. “Insurance companies are supposed to protect us from catastrophic risks,” the organization states. “Yet when it comes to the largest threat to humanity—climate change—many insurers are fueling a dangerous future through their investments in and underwriting of fossil fuels.”

In their corner is California’s insurance commissioner, Dave Jones, who wants insurers to voluntarily divest from thermal coal investments. Jones’s position is that these investments will experience a precipitous decline in value as the world shifts to renewable sources of energy. Jones has directed that the state insurance department maintain a searchable database of insurers that have invested in oil, gas and coal companies. This is all part of his Climate Risk Carbon Initiative, which was designed to provide the public with information on potential financial risks caused by climate change that California insurance companies face as a result of their exposure to investments in fossil fuel.

Not surprisingly, the initiative was met with virulent opposition in coal- and oil-producing states such as Oklahoma and Kentucky. In June 2017, nearly a dozen state attorneys general threatened to sue Jones for violating the Commerce Clause of the U.S. Constitution, arguing that by targeting energy companies, employment in their states will suffer. (One in four Oklahomans works in the energy industry.) “This initiative is misguided as a matter of policy, questionable as a matter of law, and inconsistent with the principle of comity among the United States,” the group maintains, promising legal action unless Jones relents.

Jones subsequently replied in a statement that he was “undeterred.” In May 2018, as the litigation threats from the 12 state attorneys general hovered above the department, Jones launched the nation’s first-ever stress test of climate-change risks on insurer investments in fossil fuels. Initial findings indicate that insurers in the state have more than $500 billion in fossil fuel related securities issued by power and energy companies, including $10.5 billion invested in thermal coal enterprises.

The California Insurance Department did not reply to requests for an interview with Jones. Leader’s Edge also reached out to the National Association of Insurance Commissioners, the organization representing state insurance departments, for its perspective on the subject. Spokesperson Erin Yang replied, “Unfortunately, it is not an insurance regulatory issue that the NAIC has taken up.”

Hartwig calls this position untenable. “Regulators are required to ensure the financial solvency of insurance companies,” he said. “The industry is one of the largest institutional investors on the planet. By limiting their ability to invest in the energy industry, this reduces the diversification of their investment portfolios. A less diverse portfolio is a risker one. … Ultimately, this will lead to higher insurance rates for people and businesses.”

Although Jones has called for insurers to voluntarily divest from coal and other fossil fuel companies—he’s issued no such mandate—industry groups like the Property Casualty Insurers Association of America (PCI) likened Jones’s position to calls for a boycott. “Politicians have every right to express their desires and set their own policy,” says David Kodama, a PCI assistant vice president. “It’s our role to inform them about the potential ramifications of their decisions.”

Like other insurance industry participants and watchers, Kodama believes the ramifications of San Francisco’s efforts could be precarious. “Our concern is that the Board of Supervisors’ decision will become a template to push a social agenda against companies in businesses that groups of people dislike,” he explained. “It could be used as the model to fight against companies that make certain chemicals, tobacco and e-cigarettes. I could see it used against marijuana businesses, abortion clinics, casinos and adult entertainment enterprises. All of these businesses buy insurance.”

He also disapproves of limiting insurer investments. “The inference is that insurers should invest in green companies providing sustainable and renewable energy instead of oil and coal companies,” Kodama says.

“But what if these investments are less secure and more speculative in nature? That would jeopardize the stability of insurers’ investment returns, to the detriment of their policyholders.”

Hartwig agrees. “Some environmental advocates believe the future will involve the massive storage of energy in industrial batteries, but the environmental consequences of these activities are becoming clearer,” he says. “Could this result in insurer prohibitions from investing in companies that make electric cars? What about other zero carbon energy technologies like hydroelectric dams that impact fish and wildlife or wind turbines that kill birds? Once you go off in this direction, there is no end in sight.”

His point is obvious: under such a scenario, insurers would be required to restrict their investments solely to politically correct companies. Körner provides another unsettling scenario. “If insurers and reinsurers don’t assume coal mining and coal plant risks, the government may need to provide insurance,” he says. “However, no government is equipped to underwrite coal-related risks. If losses exceed premiums, taxpayers will be on the hook. … The government is never a good risk-taker.”

One need look no further than the federal government’s National Flood Insurance Program for an example of how not to underwrite U.S. flooding risks; the program has been in the red since Hurricane Katrina struck the Gulf Coast in 2005.

If insurers are the means to a political end, where does it stop? Who decides what is right and what is wrong?

Jochen Körner, executive managing director, Ecclesia Group

Taking the Pledge

Despite these concerns over government overreach, many of the world’s largest European insurers and reinsurers are doing what The Sunshine Project, Commissioner Jones and the San Francisco Board of Supervisors have urged. Swiss Re, Zurich, Allianz, Aviva and Axa have decided to no longer underwrite and to divest from coal companies, according to a recent report by an organization called Unfriend Coal. In August 2018, Munich Re joined them. Altogether, the insurers have divested about $23 billion from coal companies.

“Climate change generates enormous economic and social risks,” says Oliver Bäte, CEO of Allianz. “It is already harming millions of people today. As a leading insurer and investor, we want to promote the transition to a climate-friendly economy.”

And the insurer doesn’t see the move as detrimental to its bottom line. “We are convinced that our approach will further improve the risk/return profile of our portfolio in the long term and that we will strengthen our position as a forward-looking investor,” says Günther Thallinger, a member of the board of management of Allianz who is responsible for investments and environmental, social and governance criteria. “As a long-term investor, we want to shape the change to a climate-friendly economy together with our clients. We will thus also strategically develop our investment opportunities in new technologies.

“It is important to limit global warming as quickly as possible. This will only succeed if business and politics pull in the same direction.”

It is not clear if these commitments by the foreign insurers and reinsurers also apply to their business in the United States, Hammond says. However, last summer Swiss Re announced it would no longer provide reinsurance to insurers with more than 30% thermal coal exposure.

No U.S. insurer has made such commitments. “The big gaping hole is the United States,” Hammond says. “Even though the coal industry is pretty much in a terminal decline, there are still plenty of coal-fired plants in the U.S. and plenty of proposals in the Powder River Basin and in Appalachia for more coal mining. Our goal is to get U.S. insurers to do what European insurers have done and are doing.”

Hammond is confident The Sunrise Project will prevail. In July, the group sent a letter to 22 insurers asking them to voluntarily stop underwriting and investing in fossil fuel companies. Among the companies receiving the letter are such large insurers as AIG, Liberty Mutual, Berkshire Hathaway, Chubb, Nationwide and The Travelers Companies. “We need a U.S. company to get out in front of this,” Hammond says. “Axa apparently got a lot of pressure from the French government to do something on climate change, given the Paris Accord. We’d love to see a big company like AIG take the lead on this here.

“This is an extraordinary opportunity for the industry to make a huge difference—a chance to make a mark when nothing positive is going to happen at the federal level,” he says.

At present, Hammond is doing outreach in other U.S. municipalities to consider initiatives similar to the one issued in San Francisco. He also recently visited Silicon Valley to discuss The Sunrise Project’s goals with large technology companies.

“We’re hoping that companies like Google and Facebook that already have done quite a bit on climate change will start a dialogue with their insurers—if they want to keep their business, they’ll need to distance themselves from the fossil fuel industry,” Hammond says. “Changing insurance companies is not a big deal.”

He’s also targeted the cities of New York and Los Angeles as likely to follow San Francisco’s lead in breaking ties with insurers of coal, oil and tar sands companies. “Both cities that have already taken actions on climate change,” he explains. “We want them to put their insurers on notice that these are their expectations going forward.”

Crossing the Line

Certainly, the overarching ambition of The Sunrise Project is clear. It wants coal, tar sands and other fossil fuel companies to fold up their tents for good, by whatever means necessary. Without insurance and insurer investments, the organization figures the companies cannot survive, and it’s probably right.

Some would agree this is a good thing. The question is whether the property and casualty insurance industry should be the means to such an end.  

The industry is one of the largest institutional investors on the planet. By limiting their ability to invest in the energy industry, this reduces the diversification of their investment portfolios. A less diverse portfolio is a risker one.

Robert Hartwig, co-director, Risk and Uncertainty Management Center, University of South Carolina

It’s a Solomon-like determination. As Körner says, “I have nothing against requiring insurers to demonstrate how they are individually reducing their carbon footprint, but to require them all to stop writing the risks of an industry that is doing nothing illegal crosses a line.”

Once a line is crossed, there is no going back.

Russ Banham is a Pulitzer Prize-nominated financial journalist and author who writes frequently for Leader’s Edge. russ@russbanham.com

And because the answer is yes, at least according to some practitioners, everyone involved in the benefits transaction gains from an embrace of the approach.

The “science of the irrational”—properly known as behavioral economics—abandons the assumption from classical economics that people are always rational. This nuanced difference allows behavioral economics to focus on and study the impact of unconscious drivers on people’s decision making.

The good news, says Jordan Birnbaum, vice president and chief behavioral economist at ADP, is that irrational doesn’t mean unpredictable.

“If we’re able to predict the likelihood of irrational decisions, we can create nudges or interventions in ways that will anticipate that irrationality and counter it, helping people make better decisions for themselves,” Birnbaum says. Behavioral economics “puts the ‘would’ ahead of the ‘should,’” he adds, noting that how people should behave is irrelevant to behavioral economists. “All we care about is how they would behave.”

Engaging Behavior

Behavioral economics (or BE) provides key insights into employee engagement, which is critical to a successful approach to benefits. Employee engagement refers to how committed an individual is to the organization’s success, and it can predict a great deal of the worker’s discretionary effort. Organizations whose employees are highly engaged have much better metrics than those whose employees are not.

According to a recent Gallup State of the American Workplace Report, organizations with high levels of employee engagement score much higher on the metrics that matter most: profitably is 21% higher, productivity is 17% higher, customer satisfaction is 10% higher, voluntary turnover is 59% lower, absenteeism is 41% lower, employee safety incidents are 70% lower, and engaged employees demonstrate 61% greater innovation as measured by new ideas provided to customers.

But, asks Birnbaum, in terms of success, “How are organizations doing in driving employee engagement? Terribly.” In fact, the same report found that two thirds of American workers are disengaged.

This is where behavioral economics can play an important role. “Unfortunately, a lot of organizations think about what should drive employee engagement instead of what would,” Birnbaum says. Organizations focusing on the “should” believe that factors such as salaries, vacation time, free lunches and even perceived Silicon Valley perks, such as workplace ping pong tables, would drive employee engagement.

But such items aren’t the key contributors to promoting employee engagement. Gallup has a measure called the Gallop Q12, which over the years has identified the 12 most important predictors of employee engagement. Guess what? Compensation is not there. Neither are perks. Instead, the overwhelming majority of factors driving employee engagement are relationships with bosses and/or colleagues. For benefits brokers, this means there is one important item on the Q12: “My supervisor, or someone at work, seems to care about me as a person.” To the extent that providing benefits can engender feelings of being cared for, benefits brokers play a crucial role in driving employee engagement.

In fact, studies have shown that, as employees engage with their benefits, their general employee engagement goes up. A 2017 survey by Optum and the National Business Group on Health found that, when employees use their benefits, the transactions yield positive returns for organizations in terms of both costs and employee engagement. The survey found that employees who frequently participate in programs are 267% more likely to say their employer makes healthy choices the path of least resistance and that employees who have seven to eight health and well-being program categories are 169% more likely to recommend their employer as a place to work. “Investment in clinical programs, pharmacy benefits and a work environment that supports healthy decisions can significantly drive employee engagement,” the survey found.

“So benefits can play a very meaningful role in terms of driving employee engagement,” Birnbaum says. “But employees have to be taking advantage of these benefits for there to be a positive impact on engagement. Therefore, it makes sense for organizations to spend a bit more time and focus knowing the different ways return on investment will follow.

“How can we start thinking about how we might use BE to understand how best to make that magic happen?” asks Birnbaum. “How can we get our employees to engage with the benefits we provide them so our costs will go down and our employee engagement will go up? What would help and what would hurt?”

To begin with—and it may seem counterintuitive—companies need to avoid choice overload. Too many choices can end up serving as a disincentive to engage, Birnbaum says. Having too many choices requires a lot more cognitive work, which is exhausting. As a result, people can end up avoiding making a choice at all. To get people to sign up for benefits, the process can’t take up too much time or be overwhelmingly complicated.

Is adjusting benefits by generations the answer? “The answer is no but yes,” Birnbaum says. “I say that because I don’t subscribe to the idea that generations have common characteristics across all members.

Where it becomes useful is about life stage. Someone in their 20s and someone in their 50s are likely to have very different priorities, very different needs and very different focuses.”

For example, while everyone should pay attention to retirement savings, people in their 20s might be more focused on flexible work hours. “If we can make the offers more salient to their life cycle, we’re minimizing the amount of choices and time they have to spend on things that aren’t terribly relevant to them,” Birnbaum says.

Psychological Levers

Another technique to consider is the use of cognitive heuristics. Many people know of heuristics as a way of learning, researching or problem-solving based on the empirical testing of things already known, rules of thumb so to speak. Cognitive heuristics describes mental shortcuts people take in order to expend less mental energy—a primary, if unconscious, motivator for people in most situations.

One particular cognitive heuristic is called the “availability heuristic,” which describes the tendency for people to be more influenced by thoughts and images that are more readily available. This is why it’s a good idea to advertise flood insurance right after a flood—the images are fresh in people’s mind, and the idea of buying flood insurance will be more appealing to them than five years after the flood, when the images are less “accessible.”

“Organizations can use this human quirk to make sure to highlight the importance of benefits close to the time that people have to start making choices about them,” Birnbaum says. “Demonstrating how benefits can positively affect people’s lives, and how the organization cares about people, becomes another lever by which you can prime employees to be more inclined to take advantage of those benefits when they cross their desk, and you can drive employee engagement through that process.”

Another technique is to leverage the power of pre-commitment. If people express an interest in taking advantage of benefits before an offer is tendered, Birnbaum says, they are far more likely to follow through.

People have a powerful psychological urge to remain consistent with past positions they have taken.

Loss aversion also plays an important role in human behavior. Humans are wired to be more motivated to avoid losses than to secure gains, Birnbaum says, pointing out that most research suggests it’s twice as strong. For example, the experience of losing $20 is twice as powerful as gaining $20, even though people are reacting to the same amount of money, albeit in different directions.

“We can talk about what people stand to gain by engaging in benefits or what they stand to lose by not engaging in benefits,” Birnbaum says. The latter is going to be twice as motivating. “You can say, ‘If you sign up for this package, you will achieve a level of wellness that will positively impact your family.’ Or you can say, ‘Not signing up for this package means you will lose the opportunity to achieve a level of wellness to positively impact your family.’”

Another idea is social norming. Birnbaum explains that people become more motivated to engage with benefits when they see other people benefiting from them. Therefore, providing images and examples of the improvements that others are enjoying through the use of benefits can support greater engagement.

“We can also look at incentives that would make people more likely to engage,” he says. This might include providing wearables, like a wristband that counts steps, to encourage employees to walk more.

“There are all these different psychological levers that we can pull to make engaging in benefits more likely,” Birnbaum says. “When you do that, the employees become healthier. For the organization, costs will go down, and employee engagement will go up. There’s good reason for benefits administrators to spend a lot of time thinking about how they can leverage behavioral economics, including how these benefits are offered and how the sign-up processes are structured to maximize the likelihood that employees take advantage of them.

“Hopefully the art and science of behavioral economics brings a new and important strategy set to the table,” he says. “We have to remember that, when it comes to predicting how employees will respond, ‘should’ is irrelevant and ‘would’ is all that matters.”


But there is $3 trillion currently invested in annuities that could be repurposed to better position consumers for their future.

While all factors should be weighed before replacing an existing life insurance or annuity, by using what is known as a 1035 exchange, insurance and financial advisors can take existing qualified annuities and life insurance contracts and exchange them for newer, tax-advantaged policies. The 1035 exchanges were included in the Pension Protection Act (PPA), which was approved by Congress in 2006 and became law in 2010, to help consumers better plan for long-term care. Section 1035 of the IRS code provides tax advantages to qualified policies that are converted to so-called asset-based LTC products.

“Most financial advisors and insurance professionals are generally familiar with 1035 exchanges and how they work, but they may not know that you can use a 1035 exchange to reposition an existing asset for LTC planning,” says Tracey Edgar, OneAmerica vice president of sales for Care Solutions. “That’s really what we’re trying to educate them about.” OneAmerica is a leader in providing asset-based LTC products.

“What we’re trying to do is get advisors to have the right conversations about planning. A lot of times, financial professionals don’t want to have the conversation at all or they just don’t understand how LTC insurance works, so they’ll tell their clients, ‘You’re OK. You have enough money. You can handle this on your own.’ We teach financial advisors about LTC planning as part of their clients’ whole financial picture, to help them understand the leverage it provides and how it protects not only finances but families.”

It’s a potentially lucrative conversation, says Jesse Slome, director of the American Association for Long-Term Care Insurance.

“There’s approximately $60 billion of potential commissions waiting to be earned by insurance and financial advisors,” Slome says. “The 1035 exchange market potential for annuities alone is enormous and continues to be vastly overlooked.”

The PPA allows consumers with qualifying annuities or life insurance policies to pay LTC expenses without tax consequence. Before, consumers had to use taxable gains before they could spend the principal tax-free. With a 1035 exchange, consumers can use their qualified annuity to pay for LTC expenses tax-free.

Brian Ott, certified LTC planning specialist at 525 Advisors, recognizes the potential of a 1035 exchange.

“I’m just blown away when they talk about the number of people who are sitting on annuities,” Ott says. “And the vast majority of annuities never get annuitized. The vast majority of annuities just pass on when the people die. There’s a lot of clients who have annuities and they don’t even know it.

“From the producer point of view, I am absolutely baffled. I tell my case manager we should get ourselves a motorhome and set up in the Safeway parking lot and just write business on annuities because so many people have them.”

Increasing Awareness

The American Association for Long-Term Care Insurance has declared November Long-Term Care Awareness Month to call attention to the need to plan for potential LTC issues. It’s an important concern because recent surveys indicate most Americans are mistaken about who pays for assistance with daily living due to illness or injury for an extended time. A recent survey conducted by Harris Poll on behalf of OneAmerica asked adults how they would pay for assistance with daily living due to illness or injury, either in-home or in a care facility, for an extended time (i.e., longer than 90 days). More than half (55%) said they’d use Medicare or health insurance—even though, in most cases, neither will pay for long-term assistance with daily activities. The same survey found 75% of Americans say they don’t have LTC insurance.

As baby boomers continue to age, the number of Americans with age-related diseases such as Alzheimer’s disease and Parkinson’s disease is increasing at alarming rates, threatening the futures of millions of Americans and their families. A U.S. Department of Health and Human Services report says someone age 65 today has more than a 50% chance of needing some type of LTC services.

“Just the sheer size of the aging population is increasing the prevalence of these conditions,” says Chris Coudret, OneAmerica vice president of strategy for Individual Life and Financial Services. “In the past, people weren’t correctly diagnosed with Alzheimer’s; it was just something that was occurring with old age. As the medical community and everyone became more aware, it’s being diagnosed more. It’s quite prevalent.”

How prevalent? Ruth Drew, director of information and support services at the Alzheimer’s Association, says on average, someone in the United States is diagnosed with Alzheimer’s disease every 65 seconds.

“The reality is that very few people are prepared for the cost of caring for someone living with Alzheimer’s,” Drew says.

A 2016 Alzheimer’s Association survey found that two thirds of people incorrectly believe that Medicare will help pay for nursing home care or are unsure whether Medicare pays for nursing home care. It does not. Medicaid does, but often families have to spend down their assets to qualify.

The Alzheimer’s Association says about 5.7 million Americans are living with Alzheimer’s and that number is expected to increase as the population aged 65 and older increases. By 2050, the association projects, nearly 14 million Americans will be living with the disease unless treatments advance.

Meanwhile, other age-affected diseases are also increasing. According to the Parkinson’s Foundation, nearly one million people will be living with Parkinson’s disease in the United States by 2020. That number is expected to reach 1.2 million by 2030. About 60,000 Americans are diagnosed with Parkinson’s disease each year.

The incidence of Parkinson’s disease increases with age, but an estimated 4% of people with Parkinson’s disease are diagnosed before age 50, according to the Parkinson’s Foundation.

The foundation estimates medications alone cost an average of $2,500 a year and therapeutic surgery can cost up to $100,000 per person.

Given the long duration of Alzheimer’s, the strain on caregivers can last several years and produce serious declines in caregivers’ physical, emotional and financial well-being. According to the Alzheimer’s Association 2018 Facts and Figures Report:

  • In 2017, the lifetime cost of care for a person living with dementia was $341,840, with 70% of this cost borne directly by families through out-of-pocket costs ($95,441) and the value of unpaid care ($143,735).
  • The physical and emotional impact of dementia caregiving is estimated to have resulted in $11.4 billion in healthcare costs for Alzheimer’s and dementia caregivers in 2017.

“Long-term care insurance can be a big help for families, but most do not have it,” Drew says. “The best time to plan for long-term care expenses is before you need it, but unfortunately many families do not have these important discussions until they’re in crisis.”

Edgar says many consumers believe they have enough money to self-insure—that is, pay for any LTC expenses themselves.

“Usually, when a person is using their own money to pay for care, they do so because it is the default plan,” Edgar says. “It’s the plan you get when you have no other plan. Many Americans think they have enough money, but they’re not taking into consideration that they have expenses that continue to exist while they’re needing care. The new expense created by their LTC situation has to come from somewhere.

“Usually, a person will have to start raiding their principal, which was created to provide income to cover the cost of living while in retirement. When they take money from the base principal, it reduces the amount of income the base produces, causing them to need to take even more principal. It’s a downward spiral that most people can’t recover from.”

OneAmerica has entered a strategic relationship with the Alzheimer’s Association to help provide financial advisors information about Alzheimer’s and related services.

“Our relationship is all about increasing awareness with the ultimate goal of ending Alzheimer’s,” Coudret says. “The relationship with the Alzheimer’s Association gives us the opportunity to provide advisors and their clients more information and education. Additionally, we can communicate to them the support that’s available to them and their clients through the Alzheimer’s Association. We would love to help our representatives get involved on a local level to join the fight to end Alzheimer’s.”

Connecting patients with primary care is a fairly easy, low-cost lift for employers that can have many benefits. In addition to giving them access to regular and preventive care, connecting patients with primary care can help them avoid hospital readmissions. Those patients who spend the most on healthcare are typically those most likely to be in and out of hospitals, according to an April 2013 Agency for Healthcare Research & Quality report. The readmission rate for people with congestive heart failure was almost 25%, schizophrenia was 22%, and renal failure was 21%. Primary care doctors can help patients transition out of the hospital more successfully and avoid readmissions.

The Camden Coalition of Healthcare Providers created a hospital transition program called the 7-Day Pledge to mitigate this issue. The coalition reached out to local primary care providers to get them to agree to keep some appointments open, regardless of how busy their schedules get, so they can see Medicaid recipients within seven days of a hospital release. By doing this, the coalition is able to provide follow-up support for things like needed tests or medication reconciliation. To encourage patients to follow up, Camden offers $20 gift cards to patients who make their appointments.

“There’s a lot that goes on with a hospitalization,” says Natasha Dravid, director for clinical redesign initiatives at the Camden Coalition. “It’s a very vulnerable moment after a hospitalization, and there is lots of opportunity for things to go wrong.”

According to Dravid, they found that patients who saw their primary care provider within seven days of leaving the hospital had fewer readmissions at both 30 and 90 days after discharge than people who saw their physician later or not at all.

Another coalition program gets women to see a primary care provider within three months of delivering a child. Many of the supports pregnant women receive fall off after they give birth, so the Camden Coalition works to ensure they continue to receive care, particularly for women who had high blood pressure or diabetes during their pregnancy.

After he unsuccessfully attempted to change Camden’s policing around these locations, the doctor, Jeffrey Brenner, transferred this knowledge to his own field. Brenner aggregated data from area hospitals and found a similar phenomenon. People from just two of the city’s neighborhoods, one with a large nursing home and another with a low-income housing complex, accounted for more than 4,000 hospital visits and $200 million in healthcare costs.

Brenner had found his own hot spots. Just a small group of patients with unmet healthcare needs were accounting for an enormous percentage of Camden’s healthcare costs.

Out of his work was borne the Camden Coalition of Healthcare Providers, which began identifying patients who had been to the hospital two or more times in the past six months and were battling social complexities that might be impacting their health. They sent out care teams to meet people at their hospital bedsides while in crisis. They determined their needs, then provided short-term, wraparound services such as housing assistance, transportation to doctor’s appointments, and substance use assistance to help them better manage their health. For his work, Brenner was awarded a MacArthur Fellowship—the so-called Genius Grant—in 2013.

Like Brenner’s work, much of the research surrounding these superusers has been focused on lower-income people or Medicaid recipients. But it’s not just these populations that have a top tier of patients responsible for well more than their share of costs.

According to the Agency for Healthcare Research and Quality, 5% of patients in the United States account for 59% of all healthcare costs. Dr. Ronald Leopold, chief medical officer at Lockton Companies, says among its 1.67 million covered client employees, 3% account for 56.5% of healthcare costs. And 1.4% of that population spends more than $50,000 a year.

“We are increasingly seeing more and more of our clients’ overall dollar spend jam-packed into a very small number of members, and that trend is growing,” Leopold says. “If you are looking for cost mitigation, the real runaway costs are in this population.”

With healthcare costs consistently on the rise, being able to identify where a large portion of the spending is going is a valuable skill for any broker or employer. But it’s not an easy thing to do. It takes access to gads of data, followed by careful analysis, and then a range of solutions to meet the needs of the population. It may not be simple, but some groups, such as Lockton and the Camden Coalition, have found ways to improve care for these superusers while realizing healthcare savings.

Cohort Turnover

A group out of Denver Health and the University of Colorado School of Medicine performed a comprehensive study of this medically complex, high-cost population in 2015. They analyzed records of more than 4,500 publicly insured or uninsured superusers at an urban safety-net system over a two-year period. They found 3% of adults over that time met superuser criteria, accounting for 30% of the adult healthcare costs in the system (costing more than $113,000 per capita).

They also found the top 3% tended to have the same demographics, health status, payer source and spending. A vast majority had multiple chronic conditions, and nearly half had a serious mental health diagnosis.

The highest-cost patients were those with terminal cancer and those receiving emergency dialysis.

What was even more interesting about the discussion, however, was that the superusers weren’t the same people from year to year. Fewer than half were still superusers just seven months after being identified as one, and even fewer were superusers a year later.

“What we found was dramatic,” says Tracy Johnson, director of healthcare reform initiatives at Denver Health and the study’s lead author. “The population nearly turns over in a two-year period.”

And though this was a group of Medicaid patients, private insurers are likely to find similar results. It can be called regressing to the mean—or what essentially amounts to the ebb and flow of an individual’s health.

Dr. Alan Glaseroff, an adjunct professor of medicine at Stanford, says it’s normal for about two thirds of superusers in any population to reduce their healthcare spending the year after they are in that group. It makes sense, he says, that someone who has uncontrolled diabetes and needs to have surgery or another costly intervention won’t have those same charges again immediately.

“The person doesn’t change,” he says. “They will just have periods that cost more or less.”

Identification Is Critical

The revolving character of this population is partially why identifying them can be like hitting a moving target. Each organization’s complex, high-cost group is going to look slightly different, so it’s important to choose a segment and tease out who among them may be able to receive better, low-cost care.

Lockton breaks groups into three sections: people whose annual healthcare costs run between $25,000 and $50,000, those who fall between $50,000 and $100,000, and the $100,000-plus spenders. While Lockton tries to reduce spending in the upper echelon, Leopold says the company focuses mostly on the $50,000-$100,000 group because of the higher likelihood of improving preventable conditions, such as diabetes, and thus lowering costs.

One in three people in the $50,000 group can trace their healthcare spending to hospitalizations and attached complications. Among the rest, 23% have chronic conditions such as diabetes and congestive heart failure, 20% have experienced trauma and musculoskeletal issues, and 16% are being treated for cancer.

Dr. Eric Bricker, chief medical officer at Compass Professional Health Services, an Alight Company, says among its 1,700 clients, about half of the top spenders have unmanaged chronic conditions, mental health and substance use disorders, or some combination of both. The chronic conditions among the fully insured tend to be related to musculoskeletal problems, cancer and cardiovascular disease. At businesses with a younger workforce, maternity and its complications also rank high in spending.

Prediction Versus Real Time

There is typically one of two tracks used when it comes to identifying high-cost patients. Both tracks are performed with the help of some sort of proprietary algorithm or intensive data crunching.

The first is trying to determine risk in advance. For example, Glaseroff’s group employed predictive analytics to help determine future high-cost users. The group used Milliman Advanced Risk Adjusters, which Glaseroff says could predict with about 30% accuracy who was going to be a high-risk claimant next year. Milliman takes a person’s health information and analyzes factors like medications and claims to try to understand what spending might occur in areas like hospitalizations, ER visits and pharmacy.

We are increasingly seeing more and more of our clients’ overall dollar spend jam-packed into a very small number of members, and that trend is growing. If you are looking for cost mitigation, the real runaway costs are in this population.

Dr. Ronald Leopold, chief medical officer, Lockton Companies

In 2017, Aetna launched a new program called AetnaCare, in which the insurer works with accountable care organizations in New Jersey to identify and provide support to high-need, complex patients. Aetna uses its own algorithm to determine who might be high-risk.

Dr. Sunny Ramchandani, Aetna’s deputy chief medical officer, says the company runs data from a given population through its program to determine who has the highest risk scores. “We went to the ACOs and said, ‘We’ve found some high-cost folks in your market, and we can work with you to tackle them,’” Ramchandani says. “We’ve been able to lower healthcare costs for many of them.”

But some say predictive analytics in healthcare can be tricky. Mark Rosenberg, president of healthcare analytics benefits and HR consulting at Gallagher, concedes that healthcare is the toughest industry in which to use predictive modeling, because each patient is so very different.

“You can have five 50-year-old males brought up the same, living in the same place with the same condition, and they may all react differently to certain medications or treatments,” Rosenberg says.

That theory leads to a second way to stratify high-risk patients, which is to do it in real time, like the Camden Coalition. “Lots of insurers love working with predictive models and algorithms,” says Natasha Dravid, director for clinical redesign initiatives at the Camden Coalition. “We are real-time in our data. We are able to look at who was in the hospital yesterday and identify them when they are in those high-risk moments.”

The Camden Coalition uses hospital utilization as a proxy for high-risk patients—they search for people admitted to the hospital two or more times a month or those going to the ER more than six times in a few months. Dravid says this is a good option because they are able to connect with people at the moment their spending is high to improve care. And also because of the regression to the mean: high users today might not need as much care next year.

“We really think that looking at who is going to the hospital is where to start,” she says. “If they are there that much, something’s going wrong with their care. It’s about getting the right care for the right folks at the right time.”

Finding the Gaps

In addition to stratifying employees into cost groups, organizations also must determine the care gaps and other cost drivers.

There are always two pools in any high-cost group, says Jeff Hadden, partner and president at LHD Benefit Advisors. One consists of those with unpreventable conditions, such as the birth of a preemie. The second, which Hadden says accounts for more than one third of high-cost claims, is made up of those dealing with generally preventable conditions like diabetes or its complications. Catching these early is critical to reducing costs.

But even among the preventable conditions, identifying where to put resources can be a challenge. “Just because you have a group of diabetics, it doesn’t mean you can bring in a vendor and make them cost less,” Rosenberg says. “They may be high-cost but are already doing what they need to do—see their doctor, take medicine and track their glucose levels. You have to understand where the gaps are, and then you can bring in a solution.”

While Gallagher does work with clients’ higher-cost populations to make change, the brokerage really focus its efforts on the middle of the pack—those responsible for 30% to 35% of spend—because, Rosenberg says, they can have the most impact on that population.

The upper echelons can be difficult to change because their expenses may be incurred during an event like a premature birth or come from people with multiple complex conditions. For the latter group, Rosenberg says, Gallagher works to make sure employees are seeing physicians who are in-network (which can dramatically lower costs) and provides individualized case management to help them better navigate the system.

In the rare case there is a group of these employees with similar conditions, outside vendors like diabetes management groups may be called on to improve care.

Mary Delaney, president of Vital Incite, a population health consulting firm that works with employers, came from the healthcare side of things, where she learned that most employers didn’t know what kind of programs to use to improve their population’s health and that many advisors didn’t know if solutions they were putting in place were working.

But data like that which her organization crunches can create risk scores based on an individual’s disease burden. Using this can help identify which people are likely to become high-cost claimants and what resources they may need beforehand to keep that from happening.

“We can analyze every health plan to find where the waste is and needs are that, if they are met, could drive down future dependency on the healthcare plan,” she says.

According to one of the organization’s case studies, they were able to reduce emergency rooms visits and lower hospital costs per admission by almost 35% over a two-year period. Vital Incite did this by analyzing employee data, health plans and healthcare usage. To plug gaps in the system, it worked to increase use of an on-site clinic (where it completed new-hire physicals), connected employees with primary care providers, and implemented programs for diabetes and high blood pressure.

Some Simpler Solutions

There are a host of options for improving care and reducing cost among the top healthcare users. They begin with simple and free options, such as changing plan design to encourage employees to make better health choices. One possibility Rosenberg recommends is encouraging—and paying for—second opinions when a major diagnosis is given. He says this often leads to better decisions on potential treatments.

Or insurers could offer free prescriptions to people who manage their care well. Diabetes patients may get metformin at no expense if they get regular blood work and do a physical and eye and foot exams. These initiatives could be coupled with creative solutions like a communications campaign around a particular condition to encourage people to manage it better.

One of Rosenberg’s recent clients found the top three conditions for which people used the ER were headaches, sore throats and urinary tract infections. When Gallagher looked at the client’s plan, it realized patients paid only a $25 co-pay for emergency room visits. These conditions could easily be treated at a primary care provider, so the client changed the plan to deter employees from ER overuse. The co-pay was increased to $100, and the client saved $1.2 million in medical costs in one year.

“Members suddenly had some skin in the game and were thinking more about which provider to use even though it was just bumped to $100,” he says. “An answer could be as simple as that.”

Delaney favors requiring people to get annual physicals. First, she says, a physical can identify conditions earlier, preventing an employee from going into the high-risk group. They also can help people who are already diagnosed with complicated conditions from amassing significant costs down the road.

Hadden says just connecting people with a primary care provider can make a big difference in costs down the road. He says studies have shown that cancer tends to be detected earlier in people who have a good relationship with a primary care provider, mainly due to increased screening rates among these patients. (For more on the advantages of primary care, see the sidebar “Primary Care Benefits.”)

We went to the ACOs and said, ‘We’ve found some high-cost folks in your market, and we can work with you to tackle them. We’ve been able to lower healthcare costs for many of them.

Dr. Sunny Ramchandani, deputy chief medical officer, Aetna

Many of these solutions are good for employers who are apprehensive to try moving the needle even though they may want to reduce their costs. Typically, businesses with fewer than 500 employees will have a tougher time implementing programs that require much financial input on their part.

“It will be dependent upon the client and their appetite for change and ability to spend a little money to save a lot,” Rosenberg says. “They are spending a fixed amount of known money to hopefully reduce cost, but because it’s not guaranteed, they see it as a cost.”

Going All In

For larger organizations with more spending power, high-touch case-management options can be effective in better serving complex patients. Glaseroff was able to use the resources of Stanford to back his program, which he labeled an ambulatory intensive caring unit, or AICU.

The unit began by determining the top spenders in the workforce and interviewing them to create an individualized care plan. Among the top of the spending spectrum, the unit found high rates of diabetes and hypertension and some cancers and neurologic conditions, along with chronic obstructive pulmonary disease (COPD) and asthma.

Healthcare providers set goals for the patients and worked with them to ensure success. For example, Glaseroff says, if a patient says she needs to start exercising, the provider might prod her by asking what type of exercise she wants to do, when she would do it, with whom she plans to exercise, and how confident she is about following through. If walking is her goal, the provider might request she do a short walk the next day, just to get started. The day after that, the provider would call the patient to see how the walk went.

Glaseroff’s group averaged about one contact each week per patient via messaging, phone or in-person visits. They worked with pharmacy, physical therapy, diabetes educators, nurses and social workers to provide wraparound services. Providers were paid through capitation and received shared savings when a patient’s costs were reduced.

Ramchandani says Aetna’s program is similarly high-touch for a short duration. When superusers are identified, nurses located near the patients are dispatched to their homes. Seeing the patients face to face helps Aetna design a more personalized care plan, he says. This plan, or care map, offers health actions members can take to improve their chronic conditions, including treatment adherence, meeting social needs and improving lifestyle behaviors. The goal is to improve patients’ health while making sure they have the knowledge and skills to manage their condition after a two- or three-month intervention.

Aetna has measured its results on more than 100 patients, and Ramchandani says engagement rates are 65% (compared to the 20% to 30% industry average for this type of program), inpatient hospital use is down 70%, and per-member per-month cost is down 45%. Part of Aetna’s success, Ramchandani says, is because they “curate and integrate a host of ecosystem services.” This includes a medical estimator tool that helps plan recipients purchase more inexpensive medications and a partnership with a local grocery store where members can shop for groceries with a nutritionist.

Alcohol Under the Radar

Because of the tremendous costs of some of these top-tier individuals and the complexity of their conditions, Leopold says, he has seen a proliferation of vendors coming to the market offering programs that target specific high-cost populations. “There are a lot of third-party players and carve-out opportunities where employers can plug in cost-management solutions,” he says.

Annum Health is one of these. It was created by Michael Laskoff in 2008 when he realized there was one major population flying under the wellness radar: people with alcohol issues.

And there is a large unmet need here. According to Laskoff, one in four Americans binge drinks, and one in six does so more than four times a month. Two thirds of all people with a self-admitted drinking issue are employed, which he estimates costs the workforce $80 billion annually in lost productivity.

Most of the more than 16 million people who meet clinical guidelines for an alcohol-use disorder never get help for the condition, Laskoff says, even though there are thousands of addiction clinics across the country.

And even if they do, a vast majority relapse even with costly inpatient rehabilitation, which can run well over $30,000.

These grim rehabilitation statistics led Annum to focus on a modern treatment alternative for heavy drinkers. “The product has to be better,” Laskoff says. “Right now, it’s expensive, stigmatizing, inconvenient and generally ineffective. People would rather live with the problem than pay for the solution.”

Laskoff says a majority of people with drinking issues wish their employer would offer some sort of private, effective treatment option. But this can be a tricky proposition. To avoid HIPAA issues, Annum reaches out to all employees to see if they would like to take part in the service. This helps Annum and the employer avoid pointing fingers and allows employees who might be worried about seeking treatment to get the help they want.

People who enroll in the program are eligible for a year’s worth of treatment. During this time, the employee meets with a local social worker in six to eight live sessions. Employees can also meet via video with physicians who can prescribe medication or guide the employees to reducing or stopping their drinking. They also receive a year’s worth of support and coaching through an app and texts. And for those who want a social component, they can take part in private, online, moderated group sessions.

The goal is to track the amount of alcohol consumed and help employees drink less or stop altogether. Employees are monitored via the app, on which they answer basic questions each day: “Did you drink yesterday?” “If so, how much?” “Did you work yesterday?” “If so, how was your mood and productivity?”

Laskoff says the yearlong program is offered for about 75% less than the cost of inpatient treatment. Annum partners with the health plan to offer the program and gets paid only for patients treated. Laskoff couldn’t provide specific results at this point but says the program has shown to be two to three times more effective than traditional behavioral health interventions.

“Our results are terrific, and a lot of that is because we don’t dictate what success is,” Laskoff says. “They have a goal of zero unsafe drinking days per year…at the same time, they are reminded that lapsing is a normal part of recovery.”

Specialty Drugs

Another vendor, Mymee, works with people who are severely ill with autoimmune diseases to see if they can stop taking expensive specialty medications.

About 24 million Americans have at least one autoimmune condition. Mymee doesn’t target the whole spectrum of specialty drugs for these conditions but instead focuses on the most costly ones, such as Humira and Enbrel, which treat a range of autoimmune disorders, including rheumatoid arthritis and Crohn’s disease. These are the two most expensive drugs on the market that treat these autoimmune conditions, costing $50,000 to $60,000 annually per person.

Mymee also works with people who are already on specialty medications. This enables them not only to improve patient care but also to track their results, as patients are able to reduce the amount of medications they take. The program is a 16-week digital therapeutic, which uses digital technology treatments including health monitoring, apps and virtual health coaching to treat health conditions.

Just because you have a group of diabetics, it doesn’t mean you can bring in a vendor and make them cost less. They may be high-cost but are already doing what they need to do—see their doctor, take medicine and track their glucose levels. You have to understand where the gaps are, and then you can bring in a solution.

Mark Rosenberg, president of healthcare analytics benefits and HR consulting, Gallagher

Mymee is tailored to each participant and is a high-tech, high-touch, functional medicine approach to this population. They work to zero in on each person’s triggers—lifestyle, diet and environmental factors—so those can be avoided, helping reduce their symptoms. It begins with participants tracking their diet and activity for six weeks. Then they are onboarded through a call with a health coach to talk about how they are functioning. Each week they work with the coach to find ways to avoid problematic foods, activities or other triggers and, in this way, to make their body run better.

Mymee is a risk-based system for the organization. They work with self-insured employers and treat employees who cost $50,000 or more a year. Employers pay for the service only when employees begin to see results. They are planning to begin working with insurers in the coming months.

Mymee did some testing to prove its worth among patients with lupus. It focused in this space because there are not a lot of options for treatment among this population and treatments can sometimes be dramatic.

Patients can take steroids or immunosuppressants or have surgery to remove affected organs.

Their test was small, consisting of only 18 people, three of whom had experienced organ removal prior to working with Mymee. By the end of the study, eight of these patients were off some or all of their medications. All 18 also reported an improved quality of life with its use, says Mette Dyhrberg, Mymee’s CEO.

Mymee is currently working with people who have active, moderate to severe symptoms of lupus, rheumatoid arthritis, Crohn’s disease, inflammatory bowel disease and Sjögren’s syndrome. Mymee will also work with psoriatic arthritis and some less common autoimmune diseases, such as hidradenitis suppurativa, Mette says.

Measuring Success

Delaney says the first lesson she learned moving from the healthcare space into consulting was that the results weren’t as good on almost every product out there as they expected them to be.

For this reason, Vital Incite sets very clear goals with vendors it works with—on-site clinics, diabetes management programs, wellness groups. Vital Incite reviews its specific expectations with the vendor (like a 1% reduction in A1c levels among uncontrolled diabetics) and determines whether it will help the employer meet its ROI. Then, Vital Incite measures the results and meets with vendors regularly to ensure those goals are being met. Another thing she learned, Delaney says, is that outcomes improve when performance guarantees are put in place.

Hadden cautions against jumping on board with each new product a vendor offers to improve the health of top-tier spenders. “There are a billion of them now, and they don’t all improve health outcomes,” he says.

“The problem is they are difficult to vet without putting them in place.”

Whatever option an employer picks to tackle the issue of complex, high-cost employees, Rosenberg recommends implementing a three- to five-year strategic plan on ways to address the issue. And be prepared for wins and losses.

“Different solutions can be short- or long-term, and clients all take different approaches,” Rosenberg says. “They just have to try to move the needle, because they are not going to be able to address the whole problem or even a majority of it. They just have to try to chip away at it. Look at better ways to deliver care and make sure people are getting it at the right place.”

Worth is a contributing writer. tammy.worth@sbcglobal.net

What’s to love
Frankfurt is Germany’s most international city (OK, I’ll include Berlin, too). You see people from all walks of life, which makes living and working here enriching. The relocation of the European Central Bank and Brexit made it even more international. Yet you can still enjoy the typical life of a Frankfurter with hard apple cider and kraut.

Dining scene
The dining scene mirrors the city’s diversity. You can find everything from modern Asian fusion hotspots to local homey restaurants that serve green sauce (cold herb sauce) and sour milk cheese. As in most cities, trendy restaurants pop up in areas that were formerly neglected. Low and slow BBQ and vegan places seem to be the flavor of the moment.

Favorite new restaurant
There are so many, but my pick would be Moriki, a modern sushi place with a lounge atmosphere.

German fare 
Zum Rad is in Frankfurt-Seckbach. It’s off the beaten path but the place to go if you want to experience a true Frankfurt hard apple cider evening. They serve all the classics of the traditional Frankfurt kitchen. I would try a cooked cheese as a starter followed by boiled knuckle. End your dinner with a medlar schnapps—but after that you should go home directly.

Watering holes 
For casual, definitely go to one of the open-air pubs. For more formal, check out the Kameha Suite. It’s in a former headquarters of Allianz Frankfurt, in a 19th-century sandstone building, and has a great bar (and a fine-dining restaurant).

If you like classic luxury hotels, stay at the Grandhotel Hessischer Hof. A more modern, hip place (nice bar, too) is the Hotel Roomers. One good thing about Frankfurt is that no place is more than 30 minutes from the airport.

Don’t miss
The recently rebuilt, old city center. It was destroyed during WWII, and then officials committed every construction sin to it. But it was recently restored to its former glory.

If you like soccer and big sporting events, definitely go to the Commerzbank-Arena to watch a game of Eintracht Frankfurt (Frankfurt Eagles). More than 50,000 supporters create a buzzing atmosphere, and this is coming from somebody who supports a different team.

Tell us about the Munich Re incubator and the Innovation Lab. 
The incubator is a regional innovation unit, and we focus on accelerating growth in new areas of risk where we don’t currently operate. We focus on longer-range innovations, three to five or more years out that expand new capabilities or address new customer needs, breakthrough innovations or looking at new technologies that are entering the insurance or reinsurance space.

The incubator has several components. There’s a lab team that runs pilots and an underwriting unit. There are two strategic domains. One domain is focused on mobility, and the other is insurance on demand. These are two big themes within the space. Mobility is about getting people and goods from place to place. Insurance on demand is focused on how data, digitization, technology and consumer preferences are disrupting insurance as we know it—although we don’t see this as disruption but, rather, as an opportunity for our industry to evolve.

The underwriting unit is taking on what we’re calling frontier risks, like autonomous vehicles, car sharing and ride sharing, and we provide insurance coverage for companies that are operating in those areas. This is really exciting, learning how to underwrite these risks when there still is very little, if any, historical data to refer to for insights.

The team of specialists in the lab take on very early-stage ideas that have been through a vetting process to help us determine if we want to pilot them. The lab operates with a mix of lean startup tools as well as agile and design thinking. These help us shape minimally viable pilots to test them in the market before scaling. If a pilot is successful, we take some time in progressing it toward scale. And if the opportunity is very far removed from our existing business model, we might consider creating an entirely new business unit or spin the company out.

Outside of the incubator, across Munich Re’s North American operations, each of the company’s U.S. businesses has a group dedicated to innovation. These business units are working on innovations that align with their core business.

Can you give an example of an innovative idea? 
One of the projects launched out of the incubator is Smart Mobility. Smart Mobility is the simple solution to the complex issues surrounding auto risks. We use a patent-pending data analytics tool called LossDetect, which is an online, automated text-analysis tool that examines claim descriptions for commercial fleets to recommend potential solutions. It also identifies the potential for quantifiable savings. Based on this analysis, we outline the technology solutions to address a client’s causes of loss. These solutions include collision avoidance, telematics, driver coaching, and advanced fleet monitoring. Our partnerships with leading-edge companies in these areas provide us with an easy and efficient way to offer the technology to our clients. At the same time, we’re gathering loss data that can prove the benefits of new technology.

Why is it important for a global company like Munich Re to work with startups? 
The insurtech space exploded over the past few years, and certainly Munich Re was on the forefront of that. We started by sending several colleagues to Silicon Valley. They moved there and began to interact with the startup community. It’s important for big incumbent companies to have their ear to the ground and see where advancements in technology are taking place. We’re members of several accelerators. We were the founding partner for Plug and Play in their insurtech accelerator. That has fueled a lot of insight, whether it’s for the incubator or different innovation practices within our corporate innovation ecosystem. We don’t have to build everything ourselves—and that’s the answer to the question of why insurtech is important. We don’t have to be the experts in certain technology advancements. We can offer startups capacity, stability and, importantly, expertise in the insurance and reinsurance markets. Sometimes startups don’t have any of those things.

At a very high level, our role as a company is to continue to focus on our need to help protect people, our clients and businesses from the unknown. There’s a lot of change going on. It’s amazing to see what has happened in the last three to four years and to see whether the technology that you are investing in today will stand the test of time. Some may see this as disruption, but we see it as an opportunity.

What trends are you seeing in insurtech? 
We’re seeing things shift now. A few years ago, startups were focused on certain parts of the front end of the ecosystem and making it easier and simpler to purchase insurance products. Now, we’re seeing a growing interest in commercial products and an emerging trend within risk avoidance. It’s not just about the insurance product and covering new and emerging risks but also using data and technology to avoid or prevent risk.

We’re thinking more about how, as a reinsurer, we can add value to our clients by leveraging the data and insights that we see across all these areas of risk, as well as providing solutions and services beyond traditional reinsurance.

How do you recognize the good ideas? 
Recognizing a good idea takes a disciplined approach—it’s essential to initially frame up the problem succinctly. You need to obsess about the problem and not the solution. Then it’s time to rank ideas and decide which ones to invest in for further exploration. That’s the approach we’re taking in the incubator. We need to be disciplined in learning about what the customer and the market is telling us about the idea. That’s hard, but it’s really important not to fall in love with an idea, because you can make costly investment mistakes and build something nobody wants to buy. Finding that out as early as possible in the innovation stage is an important way to avoid unnecessary costs.

How does Munich Re work with brokers on innovation? 
Brokers are another important part of our ecosystem. Some of the products that we have launched, or are in the process of launching, are a direct result of listening to brokers and what they say are gaps in the market. They are an important part of what I was just discussing—listening to your customer and listening to your market and understanding what it is that they need and then putting that idea into a process that allows for you to shape it well and then pilot it.

How did you get into insurtech? 
For the last 15 or so years, I’ve been leading business units of large corporations and leveraging innovation, product development and technology to fuel business transformation and growth. Running the incubator is a great opportunity to focus 100% on innovation and leverage all the interesting innovation in insurtech. I love that because there is so much change going on in the industry. This is a great place to make an impact.

Doing this well can help fuel transformation and growth for us, for our clients and for the industry. That’s what I think is so exciting. It’s a really fascinating time to be in the industry. If we do this well, it’s going to change the way we handle risk in the future. It’s a really cool place to be.

As cyber attacks cause increasing losses in the physical world, the insurance industry is turning up the volume on so-called silent cyber risks.

“Silent cyber is the danger that’s lurking in the existing policy coverage that insurers have been offering and something that could be triggered by cyber,” says Prashant Pai, vice president of cyber offerings at Verisk. “That’s something [insurers] haven’t really thought through.”

The hidden, or silent, risks arise when cyber-related exposures are not specifically included or excluded in policy language. Unlike stand-alone cyber insurance, which clearly defines the parameters of cyber cover, such as security and privacy breach expense and liability and business interruption, traditional insurance policies in many cases will not specifically refer to cyber and could end up paying claims for cyber losses. This exposure is also referred to as non-affirmative cyber, in contrast to affirmative cyber coverages that are explicitly outlined in a policy.

And these hidden risks can come with a high price tag. Last year’s global ransomware attacks NotPetya and WannaCry highlighted how cyber attacks can affect multiple lines of business and lead to massive losses. FedEx reported a $300 million impact on its operating earnings from the NotPetya attack, and shipper Maersk put the financial impact at $250 million to $300 million. The risks continue to grow as internet-connected devices multiply throughout all aspects of businesses and modern life.

To help bring these silent risks to light, Verisk’s risk modeling company, AIR Worldwide, is collaborating with global reinsurance brokerage Capsicum Re to expand its cyber modeling capabilities to include silent cyber.

AIR Worldwide’s existing cyber models estimate the potential frequency and severity of cyber attacks as well as the financial impact. As part of their development project, AIR Worldwide and Capsicum will identify which non-cyber lines of business are more likely to be exposed to losses related to silent cyber. Finding the cyber cause behind what looks on the surface like a traditional loss can prove challenging.

“Even if you think about it, and even if you implicitly include cyber-induced risks, there could be many different ways where you may not be able to attribute that back to cyber,” says Verisk’s Pai. For example, if an overheating printer hijacked by hackers causes a fire, it may be possible to attribute the fire to the printer but not necessarily to the malware planted in the now-destroyed printer.

AIR Worldwide hopes to finish the initial version of the silent cyber model by year-end and to release it early next year. The first version of the silent cyber model will focus on about a half-dozen lines, Pai says.

Working with a reinsurance brokerage allows AIR Worldwide to see a broad set of data from across the industry, Pai says.

“Our focus is to really sink our teeth into it and do a detailed job of analyzing and coming out with a view on what that risk really means,” Pai says.

Among other industry moves, Aon announced in September that it has sourced $350 million of reinsurance capacity from firms in Bermuda, London and Europe to help insurers mitigate their silent cyber exposures. Aon also has launched a silent cyber solution to help insurers identify, quantify and mitigate these exposures. The goal is to help insurers get a clearer picture of their cyber risks with an option to exclude or recognize the exposure in each portfolio.

Another development may tempt alternative capital into the silent cyber market. Verisk’s Property Claim Services is adding a cyber catastrophe component to its PCS Global Cyber loss index and estimates. The cyber cat estimates will include both affirmative and silent cyber losses of at least $250 million. That may help fuel the growth of trading in alternative solutions such as industry loss warranties, PCS says.

Why should brokers understand quality differences among healthcare providers?
What we are finding is more brokers are interested in understanding quality, irrespective of whether or not they discuss it with clients or how they use that knowledge.

Providers have been aware there is greater focus here and are attempting to remediate poor quality where they can. Carriers are trying to bring network solutions to employers through their brokers. Employers are more aware of significant quality variations across hospitals and physicians, but they, and the broker community, are lagging behind in understanding how significant that quality variation is and how to measure in a way that can be helpful.

Can understanding quality affect a broker’s relationship with clients?
The business impetus for them is to be at the table as informed stakeholders…[regarding the] tremendous variation in quality among providers.

By 2025, up to 32% of state and local governments’ costs could be on their healthcare spend. That’s such a large number, and private employers aren’t far behind. There is a role to play beyond just connecting clients to solutions. I think [brokers] could play a valuable part in helping these folks spend money more wisely and navigate toward higher quality.

How might this change how brokers do business?
They are going to have to be adaptive. A lot of people are talking about quality variations and reference-based pricing and bundling to get prices fixed. The role of brokers is being redefined.

How would they move to focusing more on quality for clients?
Turning the focus to the lowest-cost/best-quality option would be a different model where there is commission and shared savings. If they are trying to reduce costs and improve quality, a broker will be working with the client to achieve objectives that are in their [the client’s] best interest.

Brokers’ interests are best served in recognizing that they may have to maintain more flexibility in different revenue models and approaches. Brokers want to keep clients and keep them happy and recurring. They also want to have a good relationship with health plans and other organizations that can help meet their clients’ needs. They will need to be flexible to emerging models and the risk sharing they might be asked to participate in because of the escalation of health costs and the problems it introduces to a client.

For example, they could use service level agreements around their client’s total healthcare spend. They could use a per employee per year (PEPY) spend calculation where the broker gets a percentage of savings from the previous year. This can also include “kickers” where the percentage increases as savings increase. Specialty pharmacy is also an area of significant spend where they can partner with vendors to reduce [costs] and share in that savings.

They may also want to implement programs like concierge care or navigational tools to help beneficiaries find higher-value providers. The actual instrument might vary depending upon the risk tolerance of the client.

This sounds like a lot of change for some brokers. Are they reasonable to be wary of this kind of change?
It is intimidating for brokers. Their role is to connect a plan sponsor with a healthcare solution. Now that they know that different healthcare solutions provide tremendous variability in cost and quality, it puts a broker in a complex position.

Sometimes you get high quality at a lower cost, and other times you just get average quality at a lower cost. Navigating that and understanding those concepts can be difficult. They have to understand how, as brokers, they can become more informed about how to measure quality in a precise and reliable fashion, then know how to guide clients toward solutions that best meet their needs. Brokers are exploring ideas about how to become more aligned with the plan sponsors in terms of transparency, acting on their behalf, driving solutions to manage costs, but also helping to understand ways to achieve greater value.

Measuring quality can be a challenge for any organization. What do providers need to know about how to do this for their clients?
There are technology platforms that allow quality information to be compiled, and it comingles with pharmaceutical data and claims. There are a couple of ways this can happen. The employer can have its own platform and allow its broker access to that to help understand employer spend.

Or brokers can inject all of their clients’ data into a technology platform to better understand and help clients manage their healthcare spend. It allows them to say, “Hey I have a line of sight into other clients’ information, and here’s what we were able to do to improve quality for the same spend or lower cost.”

They would be looking for data aggregators or technology companies that are aggregating information from multiple clients so they have insight into what is going on within their healthcare spend. Deerwalk, for instance, has a nimble platform and can link its quality information to claims information from employers and brokers and benefit consultants. It allows quality information to become part of the analytic framework to relate with the client. They can look at providers and understand resource utilization, total cost of care, efficiency and efficacy of care. They have to become accustomed to getting quality as part of the other information and thinking about it as a dimension of network performance.

What about brand? Does it play into the perception of quality?
Yes. Consumers are oriented toward brands. They know Mercedes, for instance, might have higher quality than, say, Honda. Not that Hondas are bad cars, but they are based on reliability and cost of ownership and good value. Mercedes is about luxury and a different experience and aesthetic. Healthcare services can be seen that way as well sometimes, but the perception isn’t always true.

For instance, in the U.S. News & World Report hospital rankings, a large portion of their approach is reputational. It’s based on surveys sent to physicians about where they would send patients. But these physician respondents usually have no understanding of what the outcomes are at these particular institutions. It’s not to say these places have poor quality, but when you are talking about quality variations, there are different ways to measure that. And it doesn’t always match up with the brand equity that lots of provider organizations have. 

There are so many things that go on at every different hospital—from spinal surgery to cardiothoracic care to heart failure or obstetrics. It’s going to vary across clinical areas, and within clinical areas you have physicians that will vary in their quality. Brokers have to determine what the clinical need is for clients and which providers those clients have access to are the ones that provide the ultimate in cost and quality.

Any other considerations when measuring quality?
Risk adjustment is essential. Patients have different propensities for outcomes based on age, gender, the type of clinical condition they have, co-morbid conditions, etc. If brokers are going to measure quality precisely, it has to be risk adjusted in a way that removes differences in clinical and demographic risks across providers. That’s a foundational principle to measuring risk.

If their measurements have solid risk adjustment that is adequate, they will have to measure whether variation across providers is meaningful, and the way to do that is use statistical significance testing to see if providers are different from each other in their outcomes.

How does it benefit brokers to understand quality?
Brokers who continue to assert that the value they bring is delivering the biggest discount to a client are going to have a more difficult time retaining those clients than other brokers who begin to discuss how much variability there is in quality. Brokers can help clients by helping them understand the options delivered through the health plans, what their quality really is and how to navigate that.

If they don’t, brokers may not be viewed as a stakeholder for the client. Clients might become more transient or use more products and services that move them away from using brokers as their primary relationship and relegate them to a different role.

But if brokers become more informed about quality variability, they can act on behalf of clients to connect them with a plan that works for them and then optimize their benefits.

Is this going to be needed with all clients?
Some clients are content to select an offering and roll it out in open enrollment and be done with it. Others are asking what other options there are, knowing they need to make a change. And others are saying, “I need to understand my spending and value and need you to come alongside and help me with it.”

Some stakeholders—benefit consultants, brokers and clients—are awakening to this idea of delving deeper into quality. A lot of younger brokers get this and know that their financial relationship with carriers has to move and that their revenue has to be at risk, based on performance. Brokers have a fiduciary responsibility to clients to help find solutions and navigate healthcare because it’s so complex. They have to decide if they want to be the person working at table alongside their client as they are working all of this out or if it will be someone else.

You’re a born-and-bred Chicago guy. Cubs or White Sox?
Definitely White Sox. I’m a South Side guy. But unlike most White Sox fans, I’m OK with the Cubs winning. I think it’s good for the city.

What’s the best thing about Chicago that people on both coasts don’t understand?
It’s a Midwestern mentality. People are friendly to each other. When you walk down the street, people look you in the eye and kind of nod, and they smile.

Who were your childhood heroes?
I can tell you the starting lineup for the 1959 White Sox, who won the American League pennant but lost to the Dodgers in the World Series. So my heroes were Nellie Fox and Luis Aparicio. The Yankee guys—Mantle, Berra—they were mystical. But we hated them.

You’ve been in the insurance industry for 45 years. What’s the most important thing you could tell a young person thinking about a career in insurance?
You really better understand what it is you’re selling, and you better be able to articulate what it is you’re selling. Those two things are absolutely essential.

You just began as chairman of The Council. What do you hope to accomplish in your year at the helm?
I intend to do whatever [CIAB president and CEO] Ken [Crerar] tells me to do. Kidding, of course, but CIAB is a great organization because we have great leadership. Several initiatives introduced by prior leaders Rob Cohen and Dave Eslick, especially the one on diversity, need to be supported.

When you were starting out, did you have a mentor who was especially influential?
A guy by the name of Lance Sanberg. I was probably 24 or so. Lance was probably 50. He used to say, “You can’t tell the players without a scorecard.” What he meant was, if you didn’t know who the players were and what motivated them, you were not going to be successful. He also drilled into me the need to document things.

And now you have a son in the business.
My son Neil is one of our six regional presidents.

Did you want him to go into the business?
In second grade, the teacher asked the class to write an answer to the question of what they wanted to do when they grew up. He said, “I want to do what my dad does.” He’s the only kid I’ve ever known who actually knew he wanted to go into insurance.

What business leader, in any industry, do you most admire?
Tim Cook, at Apple. I think the guy is disciplined, innovative, but he’s also somebody with a high level of ethics. He has a healthy dose of humility. That’s something else I’ve always believed in: better to be a plow horse than a show horse.

What does your perfect weekend look like?
I get out of Dodge at noon on Friday, get to our house on Lake Michigan in time to play a round of golf, then have dinner. My wife and I have three kids and 13 grandchildren, and the oldest is 11. They love coming to the lake, so we have a lot of great days on the beach.

If you could change one thing about the insurance industry, what would it be?
There has always been a massive amount of duplication of effort surrounding the submission, quotation and correct issuance of insurance policies. The process chokes both brokers and insurers. If we could fix this, it would be beneficial to all, including the insured.

Last question: What gives you your leader’s edge?
I think people have always found me to be trustworthy. One thing I still do to this day is I encourage debate. When there’s an important decision that needs to be made, if I sense that people are just going along with what I have to say, I will often take the opposite position, even if I don’t believe it, to stimulate the kind of debate it takes to come to the right conclusion.



The Hughes File

Favorite vacation spot: “The most fabulous vacations I have ever taken are family vacations that are kind of action-packed. In July, my wife and I took the kids and grandkids—21 of us—to a dude ranch in Montana, just outside Glacier Park. The kids were asking on the second day if we were coming back next year.”

Favorite movie: The Godfather

Favorite actor: Paul Newman

Favorite Paul Newman movies: Hud and Cool Hand Luke

Favorite musician: Bob Dylan (“I’m a child of the ’60s.”)

Favorite Chicago athlete: Mark Buehrle (“He was a pitcher for the White Sox on the team that won the World Series in 2005. I never saw a guy have more fun playing baseball.”)

Wheels: Mercedes AMG E 43

Favorite charities: The Chick Evans Caddie Scholarship, Mount Carmel High School (where he sits on the board), and the Cullen Hughes Memorial Fund, named in memory of his late son, who died at age 12 after being struck by a car while on his way to a Little League baseball game.

He spoke of many leadership qualities, but “listening” struck me as one of the most important. In a story about Vladimir Putin, he commented that we can learn a great deal by really listening to what people say—to the words they use when speaking. That’s a very simple yet profound concept we can all probably learn from: to slow down and pay attention to what others are saying.

As I continue to meet with business owners across the United States, I hear a consistent message of staunch independence. But in retrospect, the words they use are important. They frequently say that, unlike their peers, they will never, ever “sell out.” With deal counts continuing to rise as multiples in 2018 creep higher and higher, those two words take on added meaning. “Selling out” is different from “selling,” it would seem.

Bush also said that successful leaders recognize what they are good at and surround themselves with other capable people to help them with whatever they aren’t good at. This basic acknowledgement is what typically separates an average insurance brokerage from a top-quality brokerage. Those who recognize they don’t have all the answers tend to focus on what they can do best, and they seek help on everything else.

Enter, private equity. In recent years, the insurance distribution sector has enjoyed a generous infusion of private capital, record-high multiples and an unprecedented number of deals. But last year’s tax reform could be the pin that pops that bubble. Tax reform may be helping to stimulate the economy, but we anticipate it will negatively affect cash flow for firms with significant leverage on their balance sheets. As the leader of your firm, listen for indicators of change that could affect your M&A potential. For example:

Interest rates are rising. This is no secret after the hike in late September 2018, and another increase is expected before year-end. The cost of debt is going up, and only time will tell if the credit markets will continue to have seemingly unlimited capacity and flexibility.

The interest deduction is evaporating. The new tax law puts a cap on deductible interest that will tighten even more in 2022. For many private-equity backed brokerages, paying tax will become a new reality for them, and cash flow will be reduced.

We’re not really sure how investors will react, so we have to continue to listen to the messages they send. I don’t anticipate any one buyer is going to jump up and tell us that it is going to lower its pricing. The first one that does probably won’t get a deal done for a year because of the stigma that action would place on it.

What is likely to happen is that buyers and sellers will share the burden of this pending decrease in cash flow. The rising cost of debt and expected increase in taxable income will influence cash flow and possibly the returns investors receive. It all comes back to return on investment. Private-equity backed brokerages are driving the M&A market. If these firms have to pay more taxes along with more interest on their debt, the result could be a decrease in their investor groups’ returns.

Will financial investors be willing to take the lower returns? Perhaps to some extent. But it’s highly possible investors will choose to share the pain with sellers. We expect a general decline in valuations as acquiring brokerages reduce their leverage ratios, meaning they’ll likely pay less to buy firms.

So your actionable takeaway this month is to listen. Listen to the acquirers and their investor groups. Perhaps their words (or what they do) will signal a shift in the market. Listen to your partners. Determine if they are truly committed to the independence they claim to support. And listen to your own instincts as you figure out how to position your future. You may reject “selling out,” but maybe your future includes “buying in” with another firm. Alternatively, upon evaluating all you hear, you could find you truly can remain independent, which may be music to your ears.

Market Update

September added 45 more transactions to the year-to-date total, which is up to 392 announced transactions. This compares to 418 deals announced over the same time period in 2017. With the continuance of retroactive announcements, it appears as if 2018 has the potential to outpace 2017’s 557 total deals.
Private-equity backed agencies/brokerages remain the most active buyers in the marketplace, with AssuredPartners announcing 28 deals year to date and BroadStreet Partners and Acrisure each announcing 26 deals through September.
Several large transactions hit the headlines in September. Marsh & McLennan Companies is set to acquire Jardine Lloyd Thompson Group, and American International Group agreed to acquire Glatfelter Insurance Group. Although public brokerages have remained quiet within the marketplace, accounting for only 9% of total announced transactions through September this year, it seems that when they do announce a transaction it is certain to make noise. MMC has received board approval for its acquisition of JLT, which was ranked 16th on the 2018 100 largest U.S. brokerages measured by 2017 brokerage revenue generated by U.S.-based clients. The JLT transaction is anticipated to close in the spring of 2019. Headquartered in York, Pa., Glatfelters is one of the largest specialty program and insurance brokerages in the United States. The Glatfelters transaction is expected to close later in 2018.

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.

One of the messages coming out of our Insurance Leadership Forum last month was that democracy is only as good as the willingness of its citizenry to participate. So let’s lead by example. If you’re with me, tweet at us @TheCIAB and let us know you’re taking the pledge.

Voter turnout in midterm elections historically has been significantly lower than the turnout in presidential elections, which is why we need to make this coming Election Tuesday a top priority. Statistics show that turnout of eligible voters in midterm years hovers around 40 percent, while the turnout in presidential elections from 2000-2016 ranged between 54-58 percent. Those numbers are staggering to me, revealing more than anything that there are several million voters out there who don’t get out and perform their civic duty. It’s incomprehensible. It’s also the cause of many of our major issues. 

This year, dozens of competitive House and Senate races as well as 36 gubernatorial seats up for are grabs. We are in a critical time, each day headlined by an increasingly toxic political environment. And whether you like or dislike what's going on, the best thing we can all do is vote.

We have one major obligation as members of a democracy and that is to make our voices heard. If you don’t vote, you don’t get to complain—simple as that.

One way to see change is to vote different people into office, which brings me to our continued efforts around diversity and inclusion. In recent months, The Council hosted a “Dive In” event at our DC offices (one of more than 50 Dive In events held across 27 countries, as part of the insurance industry’s global effort to improve diversity in the workplace), adopted a formal D&I resolution at the Board level, and continued our relationship with inclusion strategist and cultural innovator, Vernā Myers (who spoke at both our Employee Benefits Leadership Forum in May and the Insurance Leadership Forum last month). Check out our exclusive interview with her. 

We are doing these things to highlight the importance of cultivating environments of inclusion in workplaces all over the world. As one of our Board members commented recently, diversity and inclusion are not HR issues; they are leadership issues.

Both politics and D&I are not easy topics, but they shouldn’t be difficult to talk about. As citizens and as leaders, we have to be open to engaging in the conversation. If we show a willingness to come to the table on difficult issues, maybe those in office will follow suit. If we create safer office environments for all to feel included and valued, maybe the barriers we have been living with will break down. These require long-term, incremental changes. Progress will not happen overnight, but it will happen. As Vernā Myers tells us, “The approach we need is courage.”

Now, more than ever, leaders need to learn how to embody the principles of democracy and of diversity and inclusion on a daily basis. Only then can we lead effectively across difference. This is important for our organizations, for our communities, and for our country.

When we’re at the polls, we are in the best position we can be to create change. And when we’re at the office, we are in the best position we've ever been to move diversity and inclusion forward. Together, we can make a difference.

With the right playbook, you won’t have to scramble when you get that call, saying, “We’re expanding overseas. Can you help?”

There is some initial information you need to gather to assess how you can best help an organization prepare to expand outside U.S. borders. With the basic questions in hand, engage your client in your first conversation about their new venture, starting with where they’re headed. Here’s how that conversation might look, with some advice along the way.

1. Where will you be opening the office(s)?

First, confirm where your client is headed. Let’s say it’s Amsterdam. Everyone is going to Ireland and, because of Brexit, London is out. Your client feels like Amsterdam is not quite off the beaten path, is still a major city, and has lots of talent.

2. Do you have a legal entity set up in that country?

If you’re lucky, the client answers, “Yes, Finance is on top of it.” After all, it’s important to have a legal entity if your client intends to stay in the country. If not, there are alternatives such as GEOs (global employment organizations), which can help your client get set up quickly. As part of working with a GEO, your client can spend 24 months determining if they want to stay in Amsterdam or anywhere else. There’s a premium to pay (generally 25%) for this service, but it reduces risk.

3. Do you have a payroll provider in that country?

You can offer to help source a payroll provider or even manage the process—though the client’s accounting firm may already be handling it. And banking, accounting, office space? Are those being managed?

4. How many people do you intend to hire?

Ask about the people they intend to hire. Are they U.S. expats? Third-country nationals (TCNs)? Local nationals?

Perhaps they’re transferring a few expats to start, to plant the flag, and are planning to hire locally over the next year—a best practice for startups. So you ask about relocation. They’ll need a relocation policy, which is a document that explains all aspects of the employee’s experience in Amsterdam, including relocation expenses, tax equalization, how often they can come back to the States, what to do with their home here, goods and services, and any other cross-border issues. You could also recommend a relocation firm if that applies.

U.S. expats are managed differently from TCNs, which are managed differently from local nationals. Each type of employee requires a different approach. Off-shore retirement savings plans are mostly, if not all, restricted to TCNs and local nationals because of onerous reporting standards required under U.S. legislation. Know that many U.S. expats move from country to country throughout their careers. Often, they are not vested in retirement plans because of their mobile work history. Special programs need to be designed for these individuals.

5. Do you need help with compensation plans, benefit plans, and even an employee handbook? Or just benefits?

The expatriates will need an international medical plan. There are specialty carriers that focus just on expats. And your client will eventually need comp and benefit programs for the local nationals in the Netherlands.

Benefits, as you may know, vary from country to country—and sometimes greatly. The Netherlands, for example, has a mandatory private system, requiring employers to contribute on behalf of the employees, yet there are choices. Many countries have a national health system, and more and more, countries are struggling with the high cost of medical care. Services are reduced, and in many cases the quality has suffered. Private health programs are expanding. Countries are welcoming the relief, and many employers are as well because it gets their people back to work faster.

You move on to comp data, which your client probably needs to price jobs for local nationals. The client will also have to decide how to pay the expats—for example, are they receiving a bonus to go over?

Your client might not know the answers to all of these questions initially and may even balk at the cost involved, but you can remind them of the importance of building the infrastructure correctly. If not, they’ll have greater consequences down the road. We’ve even seen organizations have to leave the country in which they opened offices because they didn’t prepare the infrastructure correctly to follow governance and compliance procedures.

Moving Forward

You’re done for now. You’ve completed your initial assessment and can start to build out a holistic strategy to support your client’s growth overseas. Now it’s time to bring in your international strategic partners who specialize in this and will dig deeper and help your client get set up properly with local representation on the ground that can place policies.

With this playbook in hand, you will once again prove your value to your client. You’ve helped them grow their business and attract, engage and retain employees. Congratulations. A win for everyone!

Polak is EVP, Multinational Benefits & HR, Benefits & HR Consulting for Gallagher. richard_polak@ajg.com

That’s great for knowledge and client service but a decided threat for succession planning. The agency was fairly traditional, having just added a second service layer (CSR) in the prior year. Team issues ran the gamut, from lack of delegation and consistency to book size imbalance to struggles with backup support. You name it.

Since that time, we’ve been through three senior-level service colleague retirements. The first one left everyone frustrated by lack of qualified talent, over-hiring, underperformance, and dissatisfied clients. We’ve learned a few lessons since then and have revamped our hiring process and team structure as a result. The next two exits were extraordinarily successful. And with an expected 40% of key account managers retiring in the next five years, I’m now confident we can handle the changes.

Our commercial property and casualty middle-market service team has three basic layers: account manager (A/M), client service representative (CSR), and client service representative assistant (CSRA). We also have a separate Service Processing Department that handles certificates of insurance, policy three-ring binders, printing and binding documents, etc. Claims are handled by our specialized claims consultant department.

Entry Point

We’ve created entry-level positions at three points: service assistant (SPD), CSRA, and our receptionist. When I interview qualified candidates, I take them through our team structure graphic and show them their potential career path. Many candidates are from employers without career paths, so it is exciting for them to see a future. Additionally, I include time for the candidate to meet promoted employees, and I let them explain how they have been trained and promoted and what they like about our employee culture. For me, this is where the rubber hits the road. I’m so proud of what we’ve created when I hear the positive feedback from our current staff.

It’s important to note that I’m hiring for the next level, and I explain that to our candidates. I’m hiring someone who is promotable, so they need to understand there will be parts of the entry-level position that are tedious. These are also foundational positions that provide a service to many clients—for example, certificates of insurance—and that may be the only communication clients receive from us on a regular basis. But showing up, taking notes, doing excellent work, and having a great attitude will get them in line for promotions as soon as possible. I prefer to keep entry-level employees in a position for six months or more, but it doesn’t always work out due to internal promotions and staff changes.

We do not use any outsourcing firms for our entry-level work, such as policy checking or certificate issuance. In our job market, we are most effective hiring and training our entry-level employees in our culture, systems, team structure and expectations. CSR assistants begin their training by learning our Applied Epic agency management system. During this time, they are also learning to check policies by comparing the issued policy to the policy detail in the system. The CSRA learns to understand where to find limits, coverages, and application, premium and transaction information, even if they don’t understand the nuance behind the screens. Policies are double-checked with a CSR, questions answered, changes requested, etc., until such time as the CSRA becomes proficient. We are also following our Training Boot Camp timeline, planning for licensing school, then sending the licensed CSRA to CISR (Certified Insurance Service Representative) courses to support an insurance designation. CSRAs are involved in most team meetings with the producer and other colleagues. Over time, the CSRA learns how best to support the CSR and back up the CSR when he is out. Ultimately, the CSRA learns the CSR role. Then, it’s only a matter of time before a CSR position opens due to internal promotion or growth within the department.

On the other end of the spectrum, we begin identifying retiring employees well in advance. We consider anyone within three years as “high risk” and a high priority. Using a succession planning spreadsheet, we look at who would be ready now, ready in one to two years, or ready within three to four years. We maintain this conversation at the team leader level throughout the year. In this structure, one of our most important positions is the senior CSR. This is a mentored, safety net position. Successful CSRs who want to become account managers begin by taking approximately 10% of the book of business they work on as a CSR and move into the A/M role on those accounts. The former A/M is now a mentor, assisting and guiding as needed.

We’ve moved beyond theory to actual nuts and bolts. In the past 18 months, two longtime A/Ms retired, with a combined 50+ years of service between them. We followed our process and had a smooth transition, especially key when one of the retirees ended up taking the last two months on an emergency medical leave. Our system was in place, and we pulled the trigger just a little earlier than we’d expected.

What we did:

  • Added an additional CSR position so that every A/M shared a CSR who supported their book of business.
  • Reassigned the book of business by account so that the future A/M began working on the account while being mentored by the retiring A/M. We used our Applied Epic system to keep both A/Ms on each account.
  • At the same time, the CSRs were trained to fully support the A/M so that the A/M could delegate 100% of what needed to be flowed down. (This also begins the training process for the CSR to move into a future A/M position.)
  • Once the big day arrived, the A/M was able to handle the accounts with familiarity and confidence. Clients didn’t suffer any service issues, because there weren’t any service gaps.

The true additional staffing cost was the new CSR. Investing in this employee in advance, or any entry-level employee, creates a training opportunity that ultimately translates into satisfied clients, reduced staff stress and disruption, and opportunities for future internal promotions.

New voices and fresh eyes make a difference. Our CSR and CSRA colleagues formed their own working group to be able to discuss issues, training, coverages and recommendations as a group. They are a strong voice for continuous improvement.

Hayward is SVP of Client Services for The Campbell Group. shayward@thecampbellgrp.com

The directive introduces requirements for insurance brokers, carriers and “ancillary intermediaries” to provide impartial advice to clients and sets potential parameters for future business conduct, spanning conflict of interest, insurance intermediaries’ remuneration disclosures, marketing strategy, and product overview.

For those following EU regulations closely, the IDD is a known commodity. Brussels issued the directive back in 2016, with an implementation date of February 2018. When it became apparent that only half of the members had transposed the directive by February, the deadline was moved to October. In the meantime, the European Insurance and Occupational Pensions Authority adopted mandatory delegated acts and technical standards, clarifying IDD provisions on product governance, conflicts of interest, and inducements. According to Carlos Montalvo, a former executive director of the authority and a PwC partner, “Some jurisdictions, including Spain, will transpose the full package of IDD requirements only in 2019. But when disputes arise, even if the directive has not been transposed into national law, the implementing regulations are directly applicable and enforceable.”

Diminishing Minimum Harmonization

The IDD is one of those alphabet-soup rules intended as a common denominator for the EU’s disparate regulatory landscape. It replaces the Insurance Mediation Directive, which was transposed into local legislation after 2002. It is a minimum harmonization rule, which still keeps the door open for local authorities to differentiate themselves, always upwards, in how strictly they treat insurance distribution.

The regulations make an important distinction between insurance manufacturers and distributors, resulting in varied responsibilities. If insurance distributors are required to advise on the product in a professional and impartial manner and pass on disclosures from insurance manufacturers, those manufacturers must implement a process for a new product’s approval to ensure consumers’ demands and needs are adequately met.

They also must preempt any conflicts of interest and put in place an infrastructure for product management, review, oversight and governance.

In practical terms, this means a stronger coordination of marketing efforts and business strategies by carriers and brokers to show evidence that insurance products meet the target market’s needs. A broker’s role might also be somewhat fluid, as brokers might act as manufacturers when they make important decisions on costs, coverage, risks and target markets.

To strengthen the IDD provisions on consumer protection, the European Union Commission issued several delegated acts on how insurance products should be distributed. They are clear and detailed when it comes to personal insurance and overall business practices but not on commercial brokers’ product disclosures. Starting in October, non-life clients must be provided an Insurance Product Information Document (IPID), a standardized summary of terms and conditions accompanying any insurance contract. The European Insurance and Occupational Pensions Authority has acknowledged little benefit to commercial clients from having an IPID and left it to European Union states to decide on types of covered customers. In the end, EU members are likely to specify their own disclosure requirements for commercial property and casualty insurance products.

Similarly, the Insurance Distribution Directive does not provide solid policy guidance on insurers’ commissions. Even though some EU states pioneered a ban on commissions in the most aggressive way, the directive simply reiterates each broker’s responsibility to provide adequate and professional advice in the client’s best interests. As one of those responsibilities, brokers need secure and continuous quality control over fee transparency, commissions and professional qualifications. It is yet to be seen how these requirements will play out in practice, but both insurance product manufacturers and distributors must align their distribution strategies with the target market’s evolving needs.

Cross-Border Clarity

The IDD gave more clarity on cross-border insurance product distribution to brokers with an EU presence, though at the cost of adding another layer of compliance requirements. On a global scale, these rules will have precedent-setting consequences when we factor in regulators’ present focus on the quality of brokers’ advice and overall consumer protection. Earlier, the EU General Data Protection Regulation paved the way for stronger data transfer and processing rules, which have had a ripple effect worldwide. We have seen a proliferation of similar rules in other developed countries, including state-level regulations in the United States and Canada and in developing economies such as India.

As regulators unroll their insurance distribution rules, brokers and carriers with EU offices may need to assess the implications of local regulators’ implementing the IDD, because the conduct requirements fall under the host country’s remit. The passporting provisions in the IDD allow brokers to operate in a host country under their home regulations, unless most of the broker’s business takes place in the host country.

Under a negative Brexit scenario, this is far from reassuring. Even though the United Kingdom has transposed most IDD provisions into law, the directive does not allow for “enhanced equivalency,” dealing another blow to London-based brokers’ ability to serve clients in Europe and to EU companies’ access to the London market. As Britain makes its way out of the European Union, brokers with London offices will be left in the cold, as passporting will not be extended. Since bilateral negotiations are stalled, the prospect of anything close to passporting grows dimmer every day.

Order to Chaos

Brokers with an EU presence face the daunting task of reviewing clients’ operation and transaction flows and adjusting their internal processes and product marketing accordingly. Yet brokers are presented with a valuable opportunity to review risks in a comprehensive way and align internal operations with global best practices in business conduct and consumer protection. “Insurance brokers and manufacturers alike can use IDD for some housekeeping and initiate business and operational review internally,” Montalvo says. “For business review, brokers can assess their product portfolio against present risks, including prudential, reputational and other risks. A review of distribution relationships with carriers will ensure the IDD’s guiding principles are observed and senior managers are clear about their responsibilities. An important element of the IDD is that responsibilities will not be diluted: both manufacturers and distributors will be held accountable for that.”

So where can you start? “Prioritize the impact of these changes on IT systems and solutions, both existing and under development,” Montalvo suggests. “You will avoid headaches and save money.”

Gololobov is The Council’s international director. vladimir.gololobov@ciab.com

This includes health plans, group plans and employee benefit plans subject to HIPAA, including self-insured group health, dental, vision, pharmacy benefits, healthcare reimbursement spending accounts, employee assistance programs, health reimbursement arrangements and long-term care plans.

By September, the civil rights office had more than 400 such cases under investigation, with more than 200 reported thus far in 2018. The office lists the types of breaches as hacking/IT incident, unauthorized access/disclosure, theft, loss and improper disclosure. The location of the breached electronic data includes email, network server, desktop computer, electronic medical record, laptop and other portable electronic devices.

Cyber criminals go after the gold. Electronic medical records can contain a vast amount of personal information, including address, phone, email, Social Security number, birth date, banking information, medical visits and diagnoses. Healthcare and employee benefits data, especially electronic health record data, are much more valuable on the black market than credit card numbers. That’s because the data usually contain static information and can be used in fraudulent operations longer than credit card numbers that are invalidated shortly after a breach.

Although the value of breached data can vary widely, in 2017 Forbes claimed Social Security numbers are worth 10 cents and credit card numbers are worth 25 cents, while electronic medical records can bring hundreds or thousands of dollars when sold to cyber criminals. The Forbes article noted that, in 2016, 65% of the 450 breaches of health data that year were not caused by external hackers but by insider actions.

In early September, Marsh & McLennan published a report on cyber risks in the healthcare industry that indicated healthcare was one of the most vulnerable industries for high-profile cyber attacks. The report noted that healthcare “is the only industry that has more internal threat actors behind data breaches than external.”

Even if a hacker has not broken into a system or an insider has not committed an action to disclose personal data, malware attacks can cause equivalent or greater damage. Malware today is sophisticated and can change internal system settings, turn off anti-virus software, allow remote access and export data. These attacks can also trigger breach notification laws, increasing reputational risk. In 2016, Deven McGraw, then the privacy chief at the Office for Civil Rights, noted, “If the breach definition is met, which in many times in a ransomware attack it would be, then the presumption is to notify.”

Cylance’s 2017 Threat Report noted healthcare was the most impacted industry sector by ransomware in both 2016 (34%) and 2017 (58%). It’s vital to note that, although the healthcare industry is in the bullseye, so are all organizations that store and process employee benefit data. Even though some benefit data may not be protected under HIPAA, the data held in an organization’s benefit program can contain a lot of personally identifiable information about employees and their dependents, a rich repository for cyber criminals.

Data Protection

Companies are struggling to keep pace with an increasingly sophisticated threat environment, and gaps in the maturity of their cyber-security programs are easily exploited. The Cylance Threat Report declared that, “many of the attacks we saw in 2017 were initiated by exploiting vulnerabilities that were reported more than nine months before the attack was detected and blocked.”

A steep increase in the sheer amount of malware identified is also a factor. This includes polymorphic malware, which constantly changes its identifiable features to enable it to avoid detection, and single-use malware, which is custom-built for one-time use against a specific organization. In his security blog GData, Ralf Benzmüller noted an average of 959 new malware specimens per hour in 2017, a 63-fold increase since 2007. It is difficult for any organization to hold the line against such an army of malware.

So what can companies do to protect their benefit data from being compromised? The best defense is a strong security program that has integrated controls for privacy compliance requirements. This includes having a data inventory, assigned data ownership, restrictions on access, system monitoring, and policies and procedures for handling, storing, and sharing personally identifiable information, protected health information and benefit data.

Additionally, it is very important to remember that privacy compliance requirements remain a responsibility of the organization that owns them. “The organization is ultimately responsible for its compliance requirements, even if it involves outsourcing the administration of its health benefits plan,” says Philip Gordon, head of Littler Mendelson’s privacy practice. “In the contracting process, the company needs to be sure it is protecting itself in the event the provider has a breach.”

Organizations also have to remember that U.S. privacy laws are fluid. The expansion of privacy laws in several states, including Arizona, Colorado and Oregon, sweeps in some personal data that was not previously within the scope of the law. Under Colorado’s new privacy law, effective Sept. 1, Colorado’s definition of “covered entity” is so broad that it effectively covers every business “that maintains, owns or licenses personal identifying information in the course of the person’s business, vocation, or occupation.”

As Gordon notes, “Employee benefit data outside the scope of HIPAA may qualify as protected data under many of these new laws.”

A company should also ensure that proper cyber governance is in place at the board and executive levels. The Marsh report indicated that 83% of healthcare respondents relegated responsibility for cyber risk management to the IT department. Across industry sectors, only 70% assign cyber risk management to IT, which indicates the sector with the highest risk—healthcare—has the poorest cyber governance practices.

A key component of cyber risk management involves purchasing adequate cyber insurance to transfer risks associated with an attack. Less than half of Marsh healthcare respondents indicated they have cyber insurance coverage, while the industry average is only 34% (by contrast, 52% of the financial industry reports having cyber insurance).

All too often, the risks associated with benefit data are not adequately factored into cyber risk management. Agents and brokers should work with their clients to evaluate the benefit data they have and conduct risk assessments to determine their loss exposure and the types of cyber coverage that will best protect them.

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

At times it has been tagged (for the most part unfairly) with the moniker “NAIC: No Action Is Contemplated.” We could talk for hours about issues on which the regulators should have moved faster…or not moved at all. But one arena in which regulators are trying to move with due haste is technology—and the related regulatory innovation made necessary by technological change.

To be clear, the NAIC is not where the industry is, and it has some catching up to do. That said, it’s unrealistic to expect government regulators to be as agile and entrepreneurial as the private sector. They view their role differently: to protect consumers and foster a strong marketplace through solvency and market conduct regulation.

Logically, this means they will be reacting to industry and marketplace activity—and thankfully so—not leading it. But it also means they need to be prepared. Regulators realize they need the tools to understand how new technologies work, and they can’t be seen as holding up progress because they aren’t up to that task.

So what has the NAIC been doing to get there?

The regulators started the year by adopting and publicizing their latest three-year strategic plan. Titled “State Ahead”—get it?—the plan is designed to focus the association’s efforts on developing itself into a hub of technology and innovation resources for the state insurance commissioners and their departments. The organization is aiming to be a nexus of innovation for the states, capable of providing the expertise and support the states will need going forward.

Strategic plans sometimes overdo it by focusing on everything, and “State Ahead” is guilty of that to some degree. And while many specific priorities are not concretely defined, the document, both in its overall message and in some of its specific goals and objectives, does provide helpful direction to the NAIC in terms of the use and development of resources.

The association already has a lot of data and sophisticated technology. It has the largest insurance database in the world and, with the National Insurance Producer Registry, holds millions of financial, licensing and other records of insurers and producers, all in electronic form.

The plan directs the organization to bolster its use of those resources and to be more agile in its application and development of technology, continually innovating to stay current and to provide the help the states need to stay current.

In terms of what specifics are there, the NAIC will continue to use the Center for Insurance Policy and Research to analyze and educate regulators and others about insurtech and corresponding regulatory innovation.

The center and the NAIC’s Innovation and Technology Task Force have highlighted individual insurtech start-ups and what they bring (or might bring) to the sector. Much of their focus has been on personal lines and consumers—new smart phone apps and streamlined claims processes, for example. Their interesting presentations tend to demonstrate that insurtech is really an evolution, not a revolution, for the industry.

The task force also has continued its discussion of regulatory sandboxes. There isn’t much support for the concept structurally, although some states are comfortable with providing more regulatory flexibility to integrate new technologies and concepts into the insurance marketplace. As a general rule, however, regulators don’t like to be seen as loosening the rules or favoring some players (such as insurtechs) over others.

It doesn’t look like there will be a uniform state approach or a model act any time soon.

Cyber security continues to be an NAIC theme this year, even beyond its mention in the strategic plan, which directs the association to create a cyber-security insurance institute. (It’s not clear what they’re going to try to do there.)

The NAIC adopted its Insurance Data Security Model Law last fall, moving the issue onto an October conference call instead of holding it for its fall national meeting in order to give regulators a chance to incorporate the model into their legislative proposals for the 2018 state legislative sessions. Only one state, though, ended up enacting the model this year (thank you, South Carolina). Efforts in several other states failed, but we expect renewed efforts to enact the model in those and several other states in 2019.

Speaking of next year, the ranks of the state insurance commissioners are likely to change significantly after the 2018 elections. Four states—California, Georgia, Kansas and Oklahoma—are electing new insurance commissioners this year. The commissioners in those states are either retiring or term-limited. And 36 states are holding gubernatorial elections. As of this writing—prior to election day—we don’t know how much turnover there will be in the governors’ ranks, but a number of races are predicted to be toss-ups. In several, a change in party control is likely. In many cases, the new governor is likely to install a new insurance commissioner, bringing change and new blood to the NAIC’s ranks and providing new challenges for its leadership and staff in implementing their “State Ahead” plan.

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

Fielding is The Council’s general counsel and lead advocate at the NAIC. john.fielding@ciab.com

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?
It’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.

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. 

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.

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.

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!

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.

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.

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.


Phil Trem


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…

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.


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.

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.

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.

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.