By Dan Reynolds
Stepping into Joe Anderson's office gives you an inkling of how wide-ranging his interests are.
On one wall is a piece of framed art, surrealistic in nature; a hippopotamus is its central figure.
On another wall, there is a portrait of Theodore Roosevelt, the early 20th century two-term U.S. president who was also an author, conservationist and soldier.
Sharing wall space with President Roosevelt are pictures of RenÚDescartes, who gained lasting fame as a 17th century French philosopher, mathematician and metaphysician; Mark Twain, the American humorist and author; and Sequoyah, the 18th and 19th century Cherokee Indian credited with creating a writing system for the Cherokee Nation.
On the wall opposite the surrealistic artwork is a wipe board with a complex mathematical formula or diagram on it.
That is how Anderson, director of analytic services at Progressive Medical Inc., in part creates predictive models for the management of costs and care in workers' comp.
Anderson is otherwise engaged in working his way through a list of the top 500 books of all time, taking in music and film, and training for a triathlon. "I feel it helps to be well-rounded," Anderson said. "I studied math but I was always interested in other things."
In his professional life, Anderson finds himself in a field that is as hot as it can be. That's because pharmacy costs and catastrophic claims in workers' comp have been driving underwriters and payers to distraction and they need solutions sooner, rather than later.
Comp's Unprofitable Outlook
Fitch Ratings calculated an industry-wide combined ratio for workers' comp of about 117 for 2011. Anything under 100 is good; that means an underwriting profit. Anything over 100 translates to a loss: 117 is very bad.
It's even worse in California, where the combined ratio for workers' comp in 2011 was 122, a state ratings bureau reported in June. Analysts think 2012 could be worse.
High health care costs overall are a contributing factor in this. Rampant abuse and possible diversion, in many cases, of very expensive and addictive narcotic pain relievers represent risk subsets.
Transparency into what is driving costs in workers' comp claims is what is needed. And here, data is king, or will be king. That's where people such as Anderson come in. "It is always about having more data," Anderson said.
"I just feel there are lots of opportunities for technology to collect more data and I see that is where things are going in the future."
Anderson is not alone in the industry in this view.
According to a Towers Watson survey released in February, 41 percent of workers' comp carriers surveyed said they use or plan to use predictive analytics in the effort to control costs.
And there are a slew of companies competing to deliver services to carriers and payers to help them do just that.
"Certainly using rules engines and predictive modeling is something that we see a lot of potential for," said Gordon Clemons, chairman and CEO of Irvine, Calif.-based CorVel, a provider of pharmacy solutions and medical bill review services for carriers, third-party administrators and other industry swaths.
Anderson, the holder of a bachelor's degree in mathematics from the University of Chicago and a master's degree in business administration from the Kellogg School of Management at Northwestern University, represents young talent who might have gone anywhere, to Wall Street, maybe, but he is in the insurance industry, having been brought here, at least in part, by Emry Sisson, the co-CEO of Progressive Medical.
Sisson said he needed someone like Anderson to realize his ambition of bringing the best model he could possibly bring to the market. "I would tell you that this is a hot area, so it is going to be very competitive," Sisson said.
"Even before we heard about Joe, we were looking for somebody like him," Sisson said.
Mathematicians can pretty much go where they like because analytics are used in a host of industry sectors.
"The talent that is necessary to do this in insurance, or financial services, or whatever, is transferrable," said Dax Craig, president and CEO of Denver-based Valen Technologies Inc., a provider of predictive analytics services to insurance carriers.
Craig said one of the keys to keeping analytics talent in the business is opening up a prospect's eyes to how engaging the business is.
Insurance, after all, touches everything, and there is loads of complexity to it: Enough to stimulate even the most brilliant or easily bored.
"I personally think that the insurance industry does not give itself credit for being an interesting business," Craig said. But, he said, in retaining talent, it helps to have a business located near a technology hotspot.
CorVel's Clemons helms a business located in Southern California, one of the hotbeds for analytics talent. Craig's Valen is in Denver. Austin, Texas and the San Francisco Bay Area's Silicon Valley are other analytic talent centers.
"But I don't think the insurance industry is using as much of this talent as maybe they might market," Clemons said.
The arc of Anderson's career path provides a window into the thinking of one very bright person who has found not only a vocation, but a way to help others -- the "higher purpose" of helping injured people get back to work sooner and in the healthiest state possible.
Recalling his time at the University of Chicago, Anderson said his social circle placed more value on exercises of the mind as it did on exercising one's arm by downing shots or beers.
"We had a good time; our parties were just more intellectual," Anderson said.
For example, if one got into an undergraduate card game in Anderson's circle they might spend just as much time arguing philosophy as they would guessing whether a fellow player held an ace-high straight.
Anderson also found himself in a place where diversity of interests was encouraged. For a literary theory course, he studied "Ulysses," the James Joyce novel, one of the Irish writer's more challenging works. The course was taught by a biology professor, of all people. "I thought that was inspiring, being a math guy, studying 'Ulysses' with a biology professor," Anderson said.
As he looked to graduate school, Anderson knew he didn't want to do advanced studies in mathematics. A course toward an MBA beckoned. "You understand how marketing and operations and finance all work together," said Anderson.
"For me, that seemed like the right way to go coming out of undergrad."
At Kellogg, Anderson found himself studying finance at a very eye-opening time. Lehman Bros. was imploding and the values of many who worked in finance were being broadly questioned.
"I know there is a lot of value in making the markets more efficient," Anderson said.
But Anderson said he didn't see that concern as an emphasis for many finance students.
What Anderson knew was that he wanted to work in analytics. During his graduate school work, it was at Stax Inc., a global strategic consulting business, where he went to work using advanced analytics to predict growth opportunities in retail, and where he dove into market research to assess leveraged buyout growth scenarios for other industries.
One of Stax's clients was StoneRiver Pharmacy Solutions. "I had done a lot of the analysis for that project. I could talk to the data well," Anderson said.
And that's when others started talking about Anderson to Sisson, who was then StoneRiver's co-CEO.
"I actually reached out to one of Joe's former colleagues about how I should approach this search," said Sisson.
"He said, 'Well, why don't you try and get Joe onboard?' "
And that is what Sisson did.
When StoneRiver merged with Westerville, Ohio-based Progressive Medical in 2010, the stage was set for Anderson to take a title at Progressive.
Sisson is thankful he has Anderson because he thinks what Progressive and others are trying to accomplish is not easy.
"There has been very little true innovation in this market," Sisson said.
"I look at some of the solutions out there and I see a lot of tired, rehashed, re-skinned approaches to the same old problems," Sisson said.
"If we had not been able to get Joe onboard, I don't think we would be where we are now," Sisson said.
For his part, Anderson is glad to have in Sisson a leader who "gets it," a leader who realizes that top-down commitment to getting clean data and having the right approach to the use of predictors is how the battle against raging workers' comp costs will in part be won.
"Emry had a vision at StoneRiver for how he wanted to make analytics a core competency and needing somebody who was familiar with the data and could grow with the company and see his long-term vision on that," Anderson said.
"At the highest level, having somebody who is committed to analytics like that is rare."
DAN REYNOLDS is managing editor of Risk & Insurance«. He can be reached at email@example.com.
August 22, 2012
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