Target Breach a Threat to All
Computer security breaches that enable the theft of confidential financial information are no laughing matter. Just ask the 110 million or so people who have been affected by the infamous hack into Target’s customer-facing systems. So why should we in the insurance industry be sitting up and taking notice?
Internet sources report that this particular break-in used a form of memory-scraping malware technology that captures information as it is being input at the point of sale, but before it can be encrypted in the retailer’s systems.
We in the seemingly safe insurance sector may feel bad for our friends in retail, but before we get to feeling too comfy, it would be wise to consider that retail isn’t the only industry using point-of-sale (POS) devices. In fact, such input devices are used in lots of industries — retail, hospitality and health care among them.
It is that final class of users that should give us pause in the insurance sector. In case you weren’t paying attention, the Affordable Care Act requires electronic record-keeping. This naturally involves uncountable points of sale in doctors’ offices, clinics, and hospitals, not to mention places like Wal-Mart that are beginning to offer insured health care services.
Many of the individuals affected by the Target, et al., breach are promising never to do business with the involved retailers again. But what if the breached party was a major broker or insurer?
In the Target heist, an executive reported that someone had actually installed the malware on its POS systems. How that was done is a mystery at this writing, but one has to assume that these systems were connected to the Internet — which would allow the thieves to then retrieve the stolen data remotely. So, it seems likely that the malware was also remotely introduced into Target’s systems, as well as those of Nieman Marcus and other affected retailers.
These kinds of attacks are not exactly on the cutting edge of technology, however. According to InformationWeek, “Memory-scraping attacks date from at least 2011, when security researchers first spotted an advanced version of the Trackr (a.k.a. Alina) malware, which can be controlled via a botnet.” So, it won’t just be the most advanced thieves who pull off these kinds of crimes. The less-sophisticated, whether here or abroad, will likely be able to do the same.
Personal financial information is an extremely valuable commodity on the black market, and if you’re a criminal, it seems surprisingly easy to steal. Hackers can sell the credit card numbers for $35 to $100 each, while gold or platinum credit cards go for $60 each, business credit cards for $80 and some platinum cards for $100, said Cisco security researcher Levi Gundert in a blog posting. Interestingly, the information stolen in the Target incident includes names, addresses, credit card numbers, PINs and other data that enable thieves to assume an individual’s identity — which could lead to far bigger losses for those who are victimized.
Here’s the bottom line. Many of the individuals affected by the Target, et al., breach are promising never to do business with the involved retailers again. But what if the breached party was a major broker or insurer? Can insurance companies and brokers — already involved in a dog-eat-dog competition for insureds — afford to have that kind of backlash aimed at them?
The answers remain to be seen, but it is clear that with cyber crime escalating and becoming easier to perpetrate, our industry cannot stand back and hope the boogeyman goes away.
Coping with Cancellations
Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.
At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.
For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.
Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.
Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.
And another potentially heavy snowfall was forecast for last weekend, from California to New England.
The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.
“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”
Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.
“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.
Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.
“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”
But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.
“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”
Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.
For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.
“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”
The Next Wave of Workers’ Comp Medical Cost Savings
Managing medical costs for workers’ compensation claims is like pushing on a balloon. As you effectively manage expenses in one area, there are bound to be bulges in another.
Over the last decade, great strides have been made in managing many aspects of workers’ compensation medical costs. Case management, bill review and pharmacy benefits management are just a few categories that produce significant returns.
And yet, according to the National Council on Compensation Insurance (NCCI), medical costs remain the largest percentage of workers’ comp expenses. Worse still, medical costs continue to be the fastest growing expense category.
Many medical services are closely managed through provider negotiations, bill review, utilization review, pharmacy benefits management, to name a few. But a large opportunity for medical cost containment remains largely untouched and therefore represents a significant opportunity for cost savings.
Ancillary medical services is a term used to describe specialty or supplemental health care services such as medical supplies, home health care, durable medical equipment, transportation and physical therapy, etc.
According to Clifford James, Vice President of Strategic Development at Healthesystems in Tampa, Fla., modernizing the process for managing ancillary medical services presents compelling opportunities for cost savings and improved patient care.
Source: 2014 Healthesystems Ancillary Medical Services Survey
“The challenge of managing these types of medical products and services is a cumbersome and extremely disconnected process,” James said. “As a result, it represents a missing link in an overall medical cost management strategy, which means it is costing payers money and patients the most optimal care.”
James singled out three key hurdles:
Lack of transparency
As the adage goes, you can only manage what you can measure.
Yet when it comes to the broad range of products and services that comprise ancillary benefits, comprehensive data and benchmarking metrics by which to gauge success are hard to come by.
The problem begins with an antiquated approach to coding medical services that was developed in the 1970s. The coding system falls short in today’s modern health care environment due to its lack of product and service level detail such as consistent units of measure, quantity and descriptors.
As a result, a meaningful percentage of ancillary benefits spending is coded as “miscellaneous,” which means a payer has little to no visibility into what product or service is being delivered — and no way to determine if the correct price is being applied or if the item is even necessary or appropriate.
Source: 2014 Healthesystems Ancillary Medical Services Survey
“It’s a big challenge. Especially when you consider that for many payers, it’s difficult to determine exactly what they are spending, or identify what the major cost drivers are when it comes to ancillary services,” James said. And when frequently over 20 percent of these types of services are billed as miscellaneous, payers have zero visibility to effectively manage these costs.
Measurement and monitoring
Often, performance that is monitored is given the most attention. Therefore, ancillary programs that are closely monitored and measured against objective benchmarks should be the most successful.
However, benchmarks are hard to determine because multiple vendors are frequently involved using disparate data and processes. There isn’t a consistent focus on continuous quality improvement, because each vendor operates off of their own success criteria.
“Leveraging objective competitive comparisons breeds success in any industry. Yet for ancillary services there is very limited data to clearly measure performance across all vendors,” James said. “And for payers, this is a major area of opportunity to promote service and cost containment excellence.”
Source: 2014 Healthesystems Ancillary Medical Services Survey
If you ask claims executives about their strategies for improving the claims management process, a likely response may be “workload optimization.” The goal for some is to enable claims professionals to handle a maximum case load by minimizing administrative duties so they can leverage their expertise to better manage the outcome of each case.
But the path towards “workload optimization” has many hurdles, especially when you consider what needs to be coordinated and the manual way it frequently is done.
Ancillary benefits are a prime example. For a single case, a claims professional might need to coordinate durable medical equipment, secure translation services, arrange for transportation and confirm the best physical therapy plan. Unfortunately they often don’t have the needed time, or the pertinent information, in order to make quick, yet informed, decisions about the ancillary needs of their claimants.
In addition there is the complexity of managing multiple vendor relationships, juggling various contacts, and accessing multiple platforms and/or making endless phone calls.
“We’ve been called the ‘industry integrator’ by some people, and that’s accurate. We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
– Clifford James, Vice President of Strategic Development, Healthesystems
Modernizing the process
To the benefit of both payers and vendors, Healthesystems offers Ancillary Benefits Management (ABM).
The breakthrough ABM solution consists of three foundational components — a technological platform, proprietary medical coding system and a comprehensive benefits management methodology.
The technological platform integrates payers and vendors with a standardized architecture and processes. Business rules and edits can be easily managed and applied across all contracted vendors. All processes – from referral to billing and payment – are managed on a single platform, empowering the payer with a centralized tool for managing the quality of all ancillary providers.
But when it comes to ancillary products, the critical and unique challenge Healthesystems had to solve is the antiquated coding system. This was completed by developing a highly granular, product-specific coding system including detailed descriptions and units of measure for all products and services. This coding provides payers with the clearest understanding of all products and services delivered including pricing and all the necessary utilization metrics.
“We bring the highest level of transparency and visibility into all ancillary products and services,” James said, adding that the ABM platform uses an extensive preferred product coding system 15 times more detailed than any other existing system or program.
This combination of sophisticated technology, proprietary coding system and benefit management methodology revolutionizes the ancillary category. Some of the benefits include:
- Crystal-clear transparency
- A more detailed and comprehensive view into ancillary products and services
- An automated process that eliminates billing discrepancies or resubmittals
- Integrated and consistent processes
- Strategic program management
Taken together, the system leapfrogs over the existing hurdles while creating entirely new opportunities. It’s a win for vendors and payers, and ultimately for patients, who receive the optimal product or service.
“We’ve been called the ‘industry integrator’ by some people, and that’s accurate,” James said. “We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
To learn more about the Healthesystems Ancillary Benefits Management solution visit: http://www.healthesystems.com/solutions-services/ancillary-benefits