Risk Insider: Martin Frappolli

The Digitization of Risk Management and Insurance

By: | May 21, 2018 • 2 min read
Martin J. Frappolli, CPCU, FIDM, AIC, is Senior Director of Knowledge Resources at The Institutes, and editor of the organization's new “Managing Cyber Risk” textbook. He can be reached at [email protected]

When I think about insurance, I usually regard it as just one tool in the risk manager’s tool box. When a person or organization is faced with risk that carries a significant financial consequence, the prudent response is to begin to find ways to avoid or mitigate the risk. Often, the final step is risk financing — transferring the risk by insurance.

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Sometimes, though, insurance is more out front in managing risk. Workers’ compensation insurance is a great example. When states began passing workers’ comp laws in the early part of the twentieth century, employers sought to insure that cost, and insurers responded with workers’ compensation insurance policies.

The wonderful upside was that insurers quickly understood that they had a financial interest not only in helping injured employees recover and return to the workplace, but also in the prevention of accidents.  So many of the leaps forward in workplace safety can be attributed to the motivation of employers to obtain good workers’ comp coverage at favorable rates.

In the early days of indoor heating and plumbing, boiler explosions were common and disastrous. Here again, the boiler insurers were the driving force behind safety standards that dramatically reduced the frequency of boiler explosions. The insurance wasn’t just a tool for the risk manager, but a force for innovation in risk management.

We can turn from those early examples to the modern waves of technology that are poised to change the world of insurance and risk management. Some are simple and easy to grasp; why should a claims adjuster ever again climb onto a roof to inspect hail damage when high-resolution images can be taken better, faster, and cheaper by a drone?

Insurers have a long history of capturing, storing, and processing data related to exposures and losses. With all the new external data generated by the Internet of Things, new methods of data storage become essential.

Perhaps even more promising are the advances tied to new ways of data generation/capture, data storage, and data analysis. The huge waves of data produced by devices on the Internet of Things offer insurers and risk managers information not previously available. For example, a tractor-trailer can be equipped with sensors that monitor engine oil and temperature, tire pressure, load factors, even the alertness of the driver. While these data points are useful for rating and underwriting, the most promising aspect is the value of the data for loss prevention. Much like the early days of workers’ comp and boiler insurance, every party to the insurance transaction has a deep interest in preventing accidents.

Insurers have a long history of capturing, storing, and processing data related to exposures and losses. With all the new external data generated by the Internet of Things, new methods of data storage become essential. Cloud storage isn’t brand new, but this decentralized technology enables efficient and affordable methods to organize the volumes of new data. More cutting edge is Blockchain technology, which enables storage of smart contracts that can automate a lot of otherwise labor-intensive processes in underwriting risks and settling claims.

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My favorite insurance Blockchain example is index insurance for crops. Consider a farmer in a remote part of the world whose entire crop is worth $500. No insurer would ever visit to underwrite nor send a claims rep to investigate a loss. But now the farmer can insure his crop for $500 via index insurance, which pays out if there is a verifiable event that would destroy the crop, such as drought or flood. By a smart contract agreement stored in a Blockchain, an independently-verifiable source could confirm the weather event and automatically trigger the loss payment. Not only is the farmer saved, but Blockchain enables a new class of business not previously viable for the insurer.

Of course, all the new data with the new storage techniques require advanced data analysis techniques to turn data into actionable information. Smart insurers are already embracing these new tools for data capture, data storage, and data analysis. The good news is that these technologies don’t only make insurance more efficient, but that they offer a new path to better risk management.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]