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The Internet of Things

Connected to Custom Coverage

The Internet of Things may lead to more personalized insurance coverage, benefiting both insurers and customers.
By: | October 15, 2014 • 6 min read
10152014_07_cyber_smart_home

Seismic changes are afoot in the insurance world with new technological developments stemming from the rush to the Internet of Things (IoT).

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According to a report from McKinsey Global Institute, IoT has the potential to unleash as much as $6.2 trillion in new global economic value annually by 2025.

But what value will it bring to the insurance industry and, more specifically, to their customers? Let’s take a look at a few common areas of insurance — automotive, health benefits and commercial real estate — and see what the future holds.

Connected Cars

Do you have the same driving patterns as your friends, family and colleagues? It’s highly unlikely, but until now, you’ve had no choice but to pay the same rates and premiums, based on the average risk level. If you are a safer than average driver, you end up paying to cover those at greater risk. Is it fair and is this the best system we can have?

Paul Bermingham, executive director of claims, Xchanging Claims Services

Paul Bermingham, executive director of claims, Xchanging Claims Services

One in five new cars already collect driver and driving data for car manufacturers, but the future of the connected car will allow consumers to manage their individual automotive policies from the comfort of their driver seats.

Automotive dealers will be able to team up with insurance companies to provide data on driving habits and behaviors such as acceleration and taking corners too harshly via embedded sensors, and assign highly personalized risk scores.

But take this another step into the future and picture your car connecting to your Facebook. According to Ovum, insurers should focus on creative initiatives that analyze data from a number of sources, including social media and machine-to-machine communications.

If your car could sort through your contacts and match your driving profile (developed by the embedded sensors) to other people with similar driving profiles then you could band together to buy insurance as a group. For this example’s sake, imagine that you’re the picture-perfect driver with zero black marks on your record and your car has grouped you with other spotless drivers.

Your group of safe drivers can now buy insurance for a much lower premium and will qualify for a massive safe driver discount. Will connected cars be the ticket to replacing individual or company policies?

Driving Like a Girl

You may read this and think I’m being sexist, but the insurance industry has notoriously charged teenage male drivers much higher premiums than their female counterparts. In 2012, however, the European Court of Justice passed the “EU Gender Directive” that stated men and women must be offered the same quote if their circumstances are otherwise identical.

In response, Drive Like a Girl, a UK-based, telematics car insurer, has used little black boxes to record driving behaviors and discern whether a driver is driving with the profile of a 17-year-old girl regardless of age, gender, occupation, etc.

Video: Wireless Car describes the wide-ranging benefits of telematics to both drivers, manufacturers and businesses.

Telematics allows an insurer to provide lower rates accordingly. So, you don’t actually have to be a 17-year-old girl to catch a break on your insurance; you just have to drive like one!

The EU ruling is only one factor fueling the massive growth of global insurance telematics subscriptions, expected to grow 81 percent from 5.5 million at the end of 2013, to 107 million in 2018. More consumers want to take insurance underwriting into their own hands.

The United States doesn’t have a similar ruling on the books yet, but some companies, such as Progressive, are relying on the technology.

More than one million drivers have chosen to install that company’s device under the wheel, which allows Progressive to analyze individual driving habits and track projected savings, allowing a totally personalized rate for the driver.

The emergence of mobile apps and enhanced customer experiences through the use of technology in order to improve customer retention are additional reasons for this growth.

Impact on Health

Wearable devices such as smart watches or wristbands allow employees and consumers to say, and prove, that their lifestyles are low-risk. Fitness junkies and professional athletes are already commonly using this technology to monitor heart rate, stress levels, sleep schedules and calories burned.

But the next logical step is to use these devices to qualify for better employee health insurance or personal health insurance discounts.

Video: Some employees at Atlantic Corp. talk about the health changes they have experienced since wearing Fitbit.

According to research from the Henry J. Kaiser Family Foundation and the American Hospital Association’s Health Research and Educational Trust, the cost of employee health insurance is still increasing faster than wages and overall inflation.

Currently, the average price for a single worker is $6,025 and the average annual premium for a family plan rose to $16,834. But with the Affordable Care Act’s higher costs for employers, we will begin to see more companies turning to wearable devices to help them monitor their employee’s health in the near future.

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In order to combat costs, wearables will be given to employees, and incentive programs will be created to encourage their use.

For example, British Petroleum handed out Fitbit Zip devices to about 14,000 employees in 2013. If employees took one million steps, they received points that qualified them for lower insurance premiums.

In fact, Fitbit reports that sales to companies are one of the fastest growing segments of its customer base. We may need to establish a new technology acronym to replace BYOD — perhaps BYOW will take off in 2015?

The technology can also usher in crowdsourcing for personal health insurance as well — there is undeniably more buying power with 1,000 individuals than just one person.

Perhaps this will even open the door to pet insurance as well given new wearables designed specifically for man’s best friend continue to roll out. And what does the insurance industry love more than the ability to break into niche markets? Insurance companies can use this technology to target low-risk opportunities to drive a better return and greater volumes.

Automatic Adjustments

The advent of smart commercial buildings will eliminate the need for building managers to total a stated insurable value by listing everything on its premises.

With a smart building monitoring itself and updating its central system in real time, the building can tell an insurer that its risk profile this afternoon is at at a lower risk than it was just yesterday.

Instead, property premiums can be automatically tallied by connecting the insurance company to the building’s central smart hub, which houses all of the data such as air quality and temperature.

Access to security systems, sprinklers, and disaster recovery plans in one location provides a much crisper insurance profile than just relying on raw building and cost data.

With a smart building monitoring itself and updating its central system in real time, the building can tell an insurer that its risk profile this afternoon is at at a lower risk than it was just yesterday.

Rather than replacing an annual policy or going through the hassle of a three year deal, policies can be adjusted daily.

As such, building owners could qualify for better insurance premiums by providing a historical view of building trends. There are also benefits aside from cost savings.

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For example, say you own a building in Miami. You can match and profile your hurricane risk by the minute and remediate high-risk issues very quickly. Additionally, the need to hire field evaluators to do this process manually is eliminated.

Thanks to the advancements taking place within the IoT, shopping for insurance of any sort will be akin to shopping for new clothes.

It won’t be a cumbersome process where you are purchasing retrofitted policies that don’t seem to match. It will be a sleek and automated experience where policies will be developed to fit individual needs.

We’re entering an insurance era where consumers and companies are empowered and we all should be ready for it.

Paul Bermingham is the executive director of claims at Xchanging Claims Services. He has 25 years’ claims experience in both national and global insurance markets. He can be reached at riskletters@lrp.com.
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Risk Scenario

Caught Out

A typhoon exposes the inadequacies of a U.S. pharmacy company's local insurance policies and hinders its move to Asia.
By: | October 1, 2014 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Good Morning Shah Alam

From his perspective in the third row, John Treme could make out the colorful costumes and motions of the dancers below him.

RiskScenario_CaughtOut

Treme, the risk manager for Vitalex, a pharmaceutical manufacturer based in Pennsylvania, was attending a performance of Joget Lambak, a traditional dance of Malaysia. The occasion was the grand opening of a Vitalex factory in Shah Alam, one of Malaysia’s manufacturing cities.

Normally, Treme wouldn’t be at an event like this. But he’d been conducting some business with a local insurance partner and happened to be in country on the event date: In other words, the timing was right for him to get a ticket.

Treme might’ve been feeling kind of lucky — but he didn’t.

To a focused, open observer, the movements of the assembled dancers and the music of their accompanying musicians were mesmerizing. John Treme, however, was a man easily distracted by his vivid imagination, combined with a razor-sharp memory that wouldn’t leave him alone.

Scenario Partner

Scenario Partner

As Treme watched the dancers, a strong, steady breeze, laden with moisture, passed through the performance space.

“Breeze … storm … tropical storm … typhoon.” Treme’s overactive mind skipped through the severity escalations unbidden. It was just what his brain did.

His brain also harassed him with the memory of his instructions from treasury when he’d been sent to bind the property coverage for the factory in Shah Alam.

“Just get us some basic property coverage with a local partner, we’ll let the global master property program handle the overflow if there ever is any,” the company treasurer told Treme at the time.

That put Treme in a tough spot. It went against his nature to not do as he was bidden. Still, the idea of “basic” coverage in typhoon country gave him the willy-nillies.

“What if something happens?” he asked himself when he couldn’t sleep at night.

“What if we get hit?”

“What are we doing in Malaysia in the first place?” he asked himself in his weaker moments.

He very well knew what Vitalex was doing in Malaysia.

The company had the right specialty with its focus on products in oncological medicine.

Pharmaceutical products in that area were high-growth. But sales in the mature markets like the U.S. and Europe were flat. If Vitalex was going to succeed in the highly competitive world of global pharmacy sales, it needed to move aggressively into high-growth markets like Asia and Southeast Asia.

It also needed to keep costs down, hence the treasurers’ concerns about what he perceived as duplicative or redundant insurance coverages.

A colorful flourish by one of the dancers and a particularly loud sequence from the Malaysian drummers brought Treme back into the moment; somewhat. He reassured himself by counting the offshore layers of reinsurance that Vitalex had on its master global program.

“We’re going to be okay,” he said softly, but still out loud. One of his co-executives looked over at him with concern.

As it turned out, John Treme’s worries were justified. It was really just a matter of time.

Eighteen months after the Vitalex factory in Shah Alam began production, Typhoon Ahayan roared up the Straits of Johor, packing wind speeds of more than 100 miles per hour. The typhoon slammed directly into Shah Alam, causing substantial wind and water damage to Vitalex’s new factory.

“How bad is it?” John Treme asked the plant’s manager, when power was restored sufficiently for phone service, two days after the storm.

“You better get over here,” said Smitty Fields, the plant manager.

A Mortal Blow

Due to a nice run of luck, Vitalex thought of themselves as the chosen ones due to their long string of uninterrupted business with no major property losses.

Scenario_CaughtOut

In placing the coverage for the Shah Alam factory, John Treme engaged in some fairly tense discussions with Terra Firma Ltd., a U.S.-based carrier with an A + rating, which had been on Vitalex’s program for years, long before John Treme came to work for the company.

The Vitalex facility in Shah Alam cost $250 million to build. Against some rather stiff resistance from the underwriters with Terra Firma and Vitalex’s broker, Treme prevailed in placing a $5 million property policy to cover the facility.

The reasoning from the Vitalex C-suite was that the company’s layers of reinsurance on its master global program were robust enough to pick up any slack should the Shah Alam factory suffer a sizable loss. And there was that aforementioned shield of good fortune the company deluded themselves into thinking would last forever.

John Treme was two hours back in country and in his hotel, preparing to visit the typhoon-ravaged Shah Alam factory when he got a disturbing text message.

“Please get here ASAP, I have bureaucrats on my back.”

It was from Smitty Fields.

When Treme got to the factory, the damage the facility suffered was clearly visible. Siding was torn off three quarters of the manufacturing space and parts of the roof appeared to be missing. And that was just on a cursory glimpse. Happily, or perhaps unhappily, some of the office space appeared to be functional.




There were two matching black SUV’s parked conspicuously near the front entrance. When Treme got to Smitty Field’s office, the men who drove those SUV’s were waiting.

“The cavalry’s here,” Smitty said with something resembling a smile when John walked into the office.

John barely had time to shoot Smitty a questioning look before Mr. Yei spoke.

“You are Mr. Treme, correct?” Mr. Yei said.

“Yes, I am,” Treme said. “How can I help you gentlemen?”

Mr. Razak consulted a file briefly before speaking.

“We work for Bank Negara Malaysia, the insurance regulator in this country,” Mr. Razak said. “We have questions about your coverage of this factory.”

“Like what?” Treme said, again shooting Smitty a look, which Smitty ducked.

“Who is your local carrier?” Yei said.

“Ungku Assurance,” Treme said.

“And your carrier in the United States?” Mr. Yei said.

“Terra Firma Ltd.,” John Treme said.

“If I may, gentleman, may I ask what’s going on here? We’ve got a severely damaged factory here and I need to get to work on the assessment and claims process,” Treme said.

“Yes, we think that is highly advisable,” Mr Razak said.

“We only have one question of substance for you today,” Mr. Yei said. “Although I think we are going to have more later,” he said unsmilingly.

“And that is …” Treme began.

“And that is …” Mr. Razak continued for him, holding out a document.

“Why did you arrange for only $5 million in coverage for a $250 million operation, that is, if your valuations can be believed,” Mr. Razak said.

“Gentlemen, we are very well capitalized company with substantial reinsurance protection on our global program,” Treme said.

“I don’t think there’s going to be a problem drawing down from our reinsurers to get this plant back up, if that’s what your concern is,” Treme said.

“I hope that’s the case because it’s of great concern that you have a gap in the tens of millions in your local coverage in all probability,” Mr. Yei said.

Mr. Razak jerked his head in the direction of the factory.

“The good people and the government of Shah Alam trusted that your company came here with good intentions, to do business and create local jobs,” Mr. Razak said.

“Your company’s failure to place adequate local coverage brings that premise substantially into question,” he said.

Minutes later, Treme stood with Smitty Fields, watching the two black SUVs wheel out of the storm-damaged parking lot.

“What do you think all of this means?” Smitty said to Treme.

“I’m not sure, I’m not sure,” Treme said. “I don’t want to think it, but we might be a little bit screwed,” he said.

Busted

Six months later, John Treme was on a conference call with his broker, Fred Tallex, and a vice president with Terra Firma, Suzette Pines.

Scenario_CaughtOut

“Okay Fred, do you want to take us through this?” John said to start things off.

“Sure,” Fred said, sounding like he was already mentally finished with the topic.

“Bank Negara Malaysia informed us yesterday that we are free to draw down the $40 million from Vitalex’s reinsurers to complete the factory restoration,” Fred said. “That’s the good news.”

“You all saw the email this morning,” Fred continued.

“Yes,” said Suzette Pines, somewhat tersely.

John didn’t say anything, yet.

“No one got fined, but the local regulators have got our brokerage and Terra Firma in their cross-hairs now,” Fred said.

“Sure looks like it,” Suzette said.

There was a long, awkward pause, which John attempted to fill.

“Well, we’ve only got a month or two to firm up the coverage on the renovated plant,” Treme said. “Can we get going on that?”

“Who’s we?” Suzette Pines said.

“Well, you’re our carrier in Asia,” Treme said.

“John, not any more we’re not. We have lost our appetite for this risk. A regulator that’s going to be in our grill all day long now will do that.”

“So you’re not …” Treme began.

“Sorry John, sorry but no way,” Suzette said. “No way if I want to keep my job and I do want to keep my job, such as it is,” she said ruefully.

“Guys, I’ve got to go, I need to pick up another call,” Suzette said.

“ ‘Bye Suzette,” Fred said.

Treme was too nonplussed to say goodbye.

“Now what?” Treme said to Fred after Suzette hung up.

“I really don’t know,” Fred said. “This project has so much stink on it I don’t know who we’re going to find and that’s not even bringing up price.”

“Well, can you …” Treme began.

“Yep, I’ll get started today John. You know we got reprimanded too,” Fred said, barely veiling his impatience.

“I know Fred, I know,” John said.

The business restoration delays suffered by Vitalex in getting the reinsurance draw down amidst the ongoing distraction of the investigation by Malaysian insurance regulators had severe impacts on Vitalex’s ambitions in Asia.

Vitalex suffered 14 months of business interruption due to the storm damage and the time needed to jump through regulatory hoops while trying to get the plant rebuilt.

A Munich-based competitor, Mayer Corp., which has a nimble, efficient manufacturing facility in Vietnam, was successful in taking substantial portions of the Asian oncology drug market that Vitalex was counting on as a difference maker.

Other markets might pay out like Asia had the potential too, but it would be years before Vitalex would be in a position to take advantage of them.

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. These “Lessons Learned” are not the editorial opinion of Risk & Insurance®.

Six Dimensions of a Successful Global Risk Management Program

1. Breadth and depth of a network: Risk managers want a consistent level of products and hands-on services delivered as well as the ability to offer broad, compliant, on-the-ground coverage. They need to settle claims locally and they want their carrier to offer consistent performance in terms of policy documentation and contract certainty.

2. State-of-the-art global master form combined with broad “standard” local underlyers: The ideal global program matches local coverage and master coverage as closely as possible. This maximizes coverage in the local territory and the local loss payment. Should a loss occur, it can be paid with certainty at the local level.

3. Balanced global and local service: Most risk managers value consistency when it comes to certain important aspects of their program, including capacity, coverage, claims and the level and quality of key services they choose. Yet keeping local constituencies and decision-makers engaged (and happy) can be an equally important element of a successful global program.

4. Consistent loss prevention engineering service, protocols and deliverables: As companies expand their footprints overseas, they often find the challenges they face in understanding hazards and managing risks grow disproportionately.

Companies often discover the prevailing standards of protection and construction differ significantly from what they may be used to at home. Local codes may be lax or non-existent, often in regions that may be more prone to natural hazards.

5. Claims control and settlement via in-house claims adjustment network: One way of ensuring prompt claims service anywhere in the world, is by insurers recruiting, training and retaining well-qualified claims professionals with on-the-spot authority, who are located around the globe.

6. Success in the global arena: A successful risk management plan depends on a concerted effort from numerous parties, including underwriters, engineers, brokers, contractors and countless others who are integral to its success. Taking that same simple plan “global” means that extended communication lines, cultural differences, language barriers and time zones must be added to the list of challenges.



Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at dreynolds@lrp.com.
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Sponsored: Helmsman Management Services

Six Best Practices For Effective WC Management

An ever-changing healthcare landscape keeps workers comp managers on their toes.
By: | October 15, 2014 • 5 min read

It’s no secret that the professionals responsible for managing workers compensation programs need to be constantly vigilant.

Rising health care costs, complex state regulation, opioid-based prescription drug use and other scary trends tend to keep workers comp managers awake at night.

“Risk managers can never be comfortable because it’s the nature of the beast,” said Debbie Michel, president of Helmsman Management Services LLC, a third-party claims administrator (and a subsidiary of Liberty Mutual Insurance). “To manage comp requires a laser-like, constant focus on following best practices across the continuum.”

Michel pointed to two notable industry trends — rises in loss severity and overall medical spending — that will combine to drive comp costs higher. For example, loss severity is predicted to increase in 2014-2015, mainly due to those rising medical costs.

Debbie discusses the top workers’ comp challenge facing buyers and brokers.

The nation’s annual medical spending, for its part, is expected to grow 6.1 percent in 2014 and 6.2 percent on average from 2015 through 2022, according to the Federal Government’s Centers for Medicare and Medicaid Services. This increase is expected to be driven partially by increased medical services demand among the nation’s aging population – many of whom are baby boomers who have remained in the workplace longer.

Other emerging trends also can have a potential negative impact on comp costs. For example, the recent classification of obesity as a disease (and the corresponding rise of obesity in the U.S.) may increase both workers comp claim frequency and severity.

SponsoredContent_LM“The true goal here is to think about injured employees. Everyone needs to focus on helping them get well, back to work and functioning at their best. At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep.”
– Debbie Michel, President, Helmsman Management Services LLC (a subsidiary of Liberty Mutual)

“These are just some factors affecting the workers compensation loss dollar,” she added. “Risk managers, working with their TPAs and carriers, must focus on constant improvement. The good news is there are proven best practices to make it happen.”

Michel outlined some of those best practices risk managers can take to ensure they get the most value from their workers comp spending and help their employees receive the best possible medical outcomes:

Pre-Loss

1. Workplace Partnering

Risk managers should look to partner with workplace wellness/health programs. While typically managed by different departments, there is an obvious need for risk management and health and wellness programs to be aligned in understanding workforce demographics, health patterns and other claim red flags. These are the factors that often drive claims or impede recovery.

“A workforce might have a higher percentage of smokers or diabetics than the norm, something you can learn from health and wellness programs. Comp managers can collaborate with health and wellness programs to help mitigate the potential impact,” Michel said, adding that there needs to be a direct line between the workers compensation goals and overall employee health and wellness goals.

Debbie discusses the second biggest challenge facing buyers and brokers.

2. Financing Alternatives

Risk managers must constantly re-evaluate how they finance workers compensation insurance programs. For example, there could be an opportunity to reduce costs by moving to higher retention or deductible levels, or creating a captive. Taking on a larger financial, more direct stake in a workers comp program can drive positive changes in safety and related areas.

“We saw this trend grow in 2012-2013 during comp rate increases,” Michel said. “When you have something to lose, you naturally are more focused on safety and other pre-loss issues.”

3. TPA Training, Tenure and Resources

Businesses need to look for a tailored relationship with their TPA or carrier, where they work together to identify and build positive, strategic workers compensation programs. Also, they must exercise due diligence when choosing a TPA by taking a hard look at its training, experience and tools, which ultimately drive program performance.

For instance, Michel said, does the TPA hold regular monthly or quarterly meetings with clients and brokers to gauge progress or address issues? Or, does the TPA help create specific initiatives in a quest to take the workers compensation program to a higher level?

Post-Loss

4. Analytics to Drive Positive Outcomes, Lower Loss Costs

Michel explained that best practices for an effective comp claims management process involve taking advantage of today’s powerful analytics tools, especially sophisticated predictive modeling. When woven into an overall claims management strategy, analytics can pinpoint where to focus resources on a high-cost claim, or they can capture the best data to be used for future safety and accident prevention efforts.

“Big data and advanced analytics drive a better understanding of the claims process to bring down the total cost of risk,” Michel added.

5. Provider Network Reach, Collaboration

Risk managers must pay close attention to provider networks and specifically work with outcome-based networks – in those states that allow employers to direct the care of injured workers. Such providers understand workers compensation and how to achieve optimal outcomes.

Risk managers should also understand if and how the TPA interacts with treating physicians. For example, Helmsman offers a peer-to-peer process with its 10 regional medical directors (one in each claims office). While the medical directors work closely with claims case professionals, they also interact directly, “peer-to-peer,” with treatment providers to create effective care paths or considerations.

“We have seen a lot of value here for our clients,” Michel said. “It’s a true differentiator.”

6. Strategic Outlook

Most of all, Michel said, it’s important for risk managers, brokers and TPAs to think strategically – from pre-loss and prevention to a claims process that delivers the best possible outcome for injured workers.

Debbie explains the value of working with Helmsman Management Services.

Helmsman, which provides claims management, managed care and risk control solutions for businesses with 50 employees or more, offers clients what it calls the Account Management Stewardship Program. The program coordinates the “right” resources within an organization and brings together all critical players – risk manager, safety and claims professionals, broker, account manager, etc. The program also frequently utilizes subject matter experts (pharma, networks, nurses, etc.) to help increase knowledge levels for risk and safety managers.

“The true goal here is to think about injured employees,” Michel said. “Everyone needs to focus on helping them get well, back to work and functioning at their best.

“At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep,” she said.

To learn more about how a third-party administrator like Helmsman Management Services LLC (a subsidiary of Liberty Mutual) can help manage your workers compensation costs, contact your broker.

Email Debbie Michel

Visit Helmsman’s website

@HelmsmanTPA Twitter

Additional Insights 

Debbie discusses how Helmsman drives outcomes for risk managers.

Debbie explains how to manage medical outcomes.

Debbie discusses considerations when selecting a TPA.

SponsoredContent

BrandStudioLogo

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Helmsman Management Services. The editorial staff of Risk & Insurance had no role in its preparation.


Helmsman Management Services (HMS) helps better control the total cost of risk by delivering superior outcomes for workers compensation, general liability and commercial auto claims. The third party claims administrator – a wholly owned subsidiary of Liberty Mutual Insurance – delivers better outcomes by blending the strength and innovation of a major carrier with the flexibility of an independent TPA.
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