All posts by Lucian McMahon

Blockchain: the anatomy of a hype

March 20, 2019 Lucian McMahon Leave a comment

Remember blockchains?

They were going to change the world. Is there a problem or challenge? Consider using a blockchain. Engaged in a business? Consider the blockchain. Thinking about where to get lunch? Again, blockchain.

No industry would be left un-disrupted. Insurance would never be the same again.

And sure, that all might come to pass someday. Very smart people are working on blockchain applications. But right now it seems like the hype bubble is bursting, at least in the public mind.

Here are Google searches for “blockchain” over the past five years in the “finance” category:

Here is the search for “cryptocurrency”:

And just for fun, here’s the valuation of bitcoin:

I’m not the first person to notice this, of course. The Gartner “Hype Cycle for Emerging Technologies” 2018 report put “blockchains” on the cusp of the dreaded “trough of disillusionment”.

Trough of disillusionment. Sounds ominous.

Why the cool down about blockchains? The short answer: expectations have begun to re-align with reality.

There are several reasons why.

Earlier this year I wrote an article for the Actuarial Review about blockchains – and how they might be solutions in search of a problem. In the article, I cited Stephen J. Mildenhall from the School of Risk Management of St. John’s University, who compared a blockchain to a military tank. In theory you could drive your kids to school in a tank. But why would you? Tanks are extremely expensive, slow and inefficient (plus, I’m not sure they’re road-legal). A minivan would be a better solution. Like a minivan, a simple SQL database could probably do most jobs that a blockchain could do, except much more cheaply, quickly and efficiently.

Another big sell of blockchains was that they were theoretically unhackable. As I wrote last year, that’s only kinda-sorta the case. Blockchains themselves might be unhackable (depending on their governance structures), but for a lot of applications they need to connect to that extremely hackable thing called The Internet. Which is why you’re regularly reading about massive cryptocurrency heists.

But just because we’re in the trough of disillusionment (sorry, I just love that phrase), doesn’t spell the end for blockchains. This is a normal process for emerging technologies: a new technology is developed, everyone gets extremely excited, then reality kicks in and the hard (and underreported) work begins of perfecting the technology for real-world use.

I wouldn’t be surprised if blockchains quietly become ubiquitous for some applications in the near future – but how they’re integrated and what kind of real impact they’ll have are anyone’s guess.

In the meantime: beware the hype about any emerging technology.

Business Risk

Rampaging animals and farm liability insurance

March 18, 2019 Lucian McMahon Leave a comment

According to Deutsche Welle, an Austrian court has held a farmer liable after one of his cows killed a hiker walking through his farm. The article reported that the cow grew enraged at the hiker’s dog and charged at them. The farmer will have to pay over $200,000 in restitution for the horrible event to the deceased’s spouse and son.

I’m not well-versed on the nuances of Austrian liability law and insurance. But what if a similar (hopefully non-fatal) accident happened on a farm in the U.S. – how would insurance play a role?

Luckily, there’s a thing called “farm insurance.” It can get complicated, but often a farm insurance policy is just a hodgepodge of property and liability coverages – with a lot of customization in between for the unique needs of each farm.

Today, let’s just focus on the liability part. Imagine Farmer Joe’s cow, Betty, runs wild and breaks the leg of someone visiting his farm. What happens?

Paying for liability damages and medical expenses

The standard farm liability policy will cover damages if someone is hurt on the farm (subject to various limitations and exclusions, of course). So when Betty breaks someone’s leg, Farmer Joe’s insurance will help cover any damages he has to pay. The farm policy will also pay for some medical expenses, regardless of who is at fault for the injury. Medical expenses usually include first aid and other necessary services.

Feats of strength are not covered

Easy enough. But imagine another scenario: Farmer Joe is holding a cow race on his farm and has invited his neighbors to watch. Betty breaks loose from the race track and breaks his neighbor’s leg. In this case, Farmer Joe is probably not covered for any injuries arising out of races, strength contests, or stunts. Nor is he covered if someone got hurt while riding Betty for a fee.

Lots of policies, lots of options

There are many types of farms: dairy farms, cattle ranches, horse farms, poultry farms, agritourism farms. There are many different types of insurance coverages available for each unique situation. Here’s just a taste:

Horse farms and ranches (property and liability)
Commercial equine (liability for horse-breeding operations)
Equine (business coverage if a horse becomes ill or dies)
Livestock insurance (covers animals other than horses)
Crop insurance
Farrier (property and liability for people who shoe horses)
Riding instructor
Roadside farm stand and farmers’ market insurance
Agritourism (corn mazes, on-premises hay rides, petting zoos)

It’s always important to talk to an insurance agent about your coverage needs. You may not think that you have farm liability exposures, but if you live in a semi-rural or rural area and own livestock, it’s probably a good idea to double check.

You can read more about farm and ranch insurance here.

Emerging Risks, Health & Safety

I.I.I. Report: Marijuana legalization raises concerns about drugged driving

March 13, 2019 Lucian McMahon Leave a comment

The “green gold rush” shows no sign of slowing.

Most recently, New Jersey legislators reportedly announced a bill that would permit recreational marijuana. If signed into law, New Jersey would join ten other states and D.C. that currently permit recreational marijuana. More than 30 states and D.C. also permit medical marijuana programs of some kind.

But as legalization spreads, concerns about driving under the influence of marijuana continue unabated.

Today, the I.I.I. has published a report that examines the current state of the issue.

“A rocky road so far: Recreational marijuana and impaired driving” dives into the hazy questions surrounding marijuana impairment: its effects on driving abilities, how traffic safety might be impacted, and how states are grappling with the issue of “stoned driving.” (Download the report here.)

Unfortunately, there are still many unknowns when it comes to stoned driving. Marijuana impairment degrades cognitive and motor skills, of course – but marijuana-impaired driving is an evolving issue with many questions and few concrete answers. Legalization is still relatively recent. Data are still being gathered. How to understand and measure marijuana impairment are still open questions.

Do the rates of marijuana-impaired driving increase following recreational legalization? Answer: probably. Does marijuana-impaired driving increase crash risks? Answer: probably, but we still don’t concretely know to what degree. What about traffic fatalities – do those increase after legalization? There’s evidence that traffic fatalities could increase following legalization, but there is still quite a bit of discussion about this issue.

There is active research, discussion and debate being conducted to answer these and other questions. As more states legalize recreational marijuana, forthcoming answers will become ever more critical to help best guide public policy and traffic safety initiatives.

To learn more, download the report here.

Technology, Workers Compensation

The future of telemedicine and workers’ compensation insurance

March 4, 2019 Lucian McMahon Leave a comment

You can’t talk about workers’ compensation insurance these days without mentioning “telemedicine” at least once. It should therefore come as no surprise that telemedicine was given its own panel discussion at the 2019 Workers’ Compensation Research Institute’s (WCRI) Annual Issues and Research Conference.

(In case you don’t know, the American Telemedicine Association (ATA) defines telemedicine as the “remote delivery of health care services and clinical information using telecommunications technology.” Think of an app that lets you video chat with a doctor, for example.)

The potential benefits of telemedicine to patients, providers, and employers could be immense. Improved access to healthcare services. Fast, personalized care. Treatment efficiencies. Reduced costs. Dr. Stephen Dawkins of Caduceus USA put it this way: “It’s crystal clear, as a provider, that telemedicine is a tsunami that will change the paradigm of medical care.”

Indeed, as Dr. David Deitz of Deitz & Associates noted, telemedicine is almost the perfect storm of improved healthcare services – and is already experiencing exponential growth in the commercial health sector. Citing the ATA, he noted that there were an estimated 1.25 million telehealth visits in 2016 alone – and that some sources estimate that over 400 million of U.S. medical visits could have been telemedicine encounters.

But has telemedicine made inroads into workers’ compensation?

Dr. Deitz pointed out that there is “essentially no quantitative data on [telemedicine] use in workers’ compensation.” Furthermore, he argued that there are several open questions when it comes to telemedicine: what are the appropriate regulations and reimbursement models? Is there a quality trade-off for telemedicine versus in-person encounters? Are there any privacy or cybersecurity concerns?

Kurt Leisure, vice president of risk services for The Cheesecake Factory, offered some preliminary answers when describing his company’s new telemedicine program for worker injuries, implemented in February 2018.

According to Leisure, the program basically works as follows. An injury occurs. If urgent, the injured worker proceeds directly to urgent care or the emergency room. If it’s non-urgent, the worker calls the company’s nurse triage system for preliminary care. If the phone call isn’t enough, the worker has the option of being escalated to a telemedicine program on their smartphone.

What have been the results so far? Generally positive, with the program leading to $153,000 in hard dollar savings in 2018. But Leisure did note that there are still wrinkles that need to be ironed out. Identification of telemedicine candidates during the triage phase needs improvement. Employee trust in the program could also improve.

But the injured workers seem to approve of the program. “Overall, I’m really excited, there’s a lot of upside potential just in our initial program,” Leisure said. “I think it will explode over time.” One particular benefit of telemedicine could be keeping workers and employers out of the courtroom. “We think the litigation rate is going to drop significantly” with widespread and effective telemedicine, said Leisure.

Indeed, despite some open questions about workers’ compensation adoption of telemedicine, the panel agreed that the industry would benefit tremendously. “Telemedicine basically gives you a conduit through which you can achieve better case management,” said Dr. Dawkins.

Workers Compensation

WCRI Annual Conference: Opioid Crisis Still Very Much Top of Mind

March 1, 2019 Lucian McMahon Leave a comment

Unsurprisingly, the opioid crisis was a major topic of conversation at the 2019 Workers’ Compensation Research Institute’s (WCRI) Annual Issues and Research Conference.

Workers’ compensation insurance has been particularly affected by the crisis. Opioid use can, perversely, increase a worker’s risk of disability. Opioid use can lead to dependency, which results in increased dosages and higher costs. Dependency can lead to abuse; abuse can result in on-the-job performance impairment and further injuries – or it can delay a worker’s ability to return to work. In the worst case scenario, abuse leads to addiction and death.

These are just some of the reasons why opioid use can significantly increase the costs of workers’ compensation claims.

The crisis continues

The Centers for Disease Control and Prevention (CDC) found that 70,327 people died from fatal drug overdoses in the U.S. in 2017.

That’s up from 63,632 in 2016 and 23,518 in 2002, a three-fold increase in absolute terms in 15 years. But of course, the U.S. population grew over that time – and the death rate per 100,000 people is also alarming, rising from 8.2 in 2002 to 21.7 in 2017.

Source: Centers for Disease Control and Prevention

More alarming yet, the opioid epidemic continues to drive a significant portion of total drug overdose deaths. 47,600 people died from an opioid-related drug overdose in 2017, making up fully 68 percent of total overdose deaths. That’s up from 11,920 in 2002.

As Dr. Alan Krueger of Princeton University noted, the problem is most concentrated among men and women with lower levels of education: “Americans with diminished economic expectations are particularly vulnerable to the opioid epidemic.”

But no one is immune, he added. “Essentially no group has been spared from this crisis in the U.S.”

Blue-collar trades especially impacted

Dr. Vennela Thumela of the WCRI presented recent findings about the correlates of opioid abuse and overdose. She found that mining and constructions workers were most impacted, representing the highest percentage of opioid prescriptions among all workers receiving pain medications. Higher rates of opioid prescriptions also correlated with workers who are older, male, and live in rural areas.

Dr. Letitia Davis, of the Massachusetts Department of Public Health, found Massachusetts-specific evidence agreeing with Dr. Thumela’s findings. The highest opioid overdose death rates in the state are for construction/mining workers and farming/fishing/forestry workers. Construction workers overdosed at six times the rate expected based on average experience.

In fact, per Dr. Davis, 24 percent of all opioid deaths in the state between 2011 to 2015 were construction workers.

The costs are staggering

Dr. Krueger put it bluntly: “This is a human tragedy.”

It has also been a tremendous tragedy to the U.S. economy. Dr. Krueger cited a 2017 Council of Economic Advisers (CEA) report, which estimated that in 2015 alone, the economic cost of the opioid crisis was over $500 billion – or 2.8 percent of GDP. Dr. Krueger noted that the number of opioid-related overdoses in 2017 increased by at least 50 percent since 2015 – implying a cost in 2017 alone of about $750 billion.

As Dr. Krueger put it, “We have not done enough to address the scale of the crisis. Even if it has reached a peak, it has reached a peak of an unacceptably high level.”

Legal Environment, Risk Management

“Patent trolls”? No thanks, says Apple…probably

February 27, 2019 Lucian McMahon Leave a comment

I once took an Uber in Fairfield, Ohio. As we sat at a light, the driver pointed to an empty big box storefront.

“What’s that building look like?” he asked. I said it looked like an empty big box storefront.

“That’s right. You know where it went?” I said no, confused. He pointed down the street a few hundred yards away to a brand-new big box store.

“There it is. You know why they moved down the street? Taxes. Lower sales tax across the county line.”

I was reminded of that story of fiscal competition at its finest when reading about Apple’s recent decision to close two of its stores in the Dallas suburbs.

Or more accurately, as Ars Technica reported, Apple’s decision to close two stores within the federal court jurisdiction of the Eastern District of Texas. Rumor has it that Apple’s move could be in response to intellectual property litigation. Per Ars Technica:

The Eastern District is known for its extremely patent-friendly judges, and so for decades patent plaintiffs have set up shop there and sued defendants located all over the country. Prior to 2017, the law allowed a plaintiff based in the Eastern District of Texas to sue defendants there if defendants had even tenuous connections to the district. And, of course, a company of Apple’s size has business ties to every part of the country.

These plaintiffs are often called “patent trolls,” which the Electronic Frontier Foundation defines as companies or individuals that cheaply purchase patents (often “overbroad and vague” patents, at that) and then threaten expensive litigation against companies allegedly in violation of said patents:

These letters threaten legal action unless the alleged infringer agrees to pay a licensing fee, which can often range to the tens of thousands or even hundreds of thousands of dollars.

Many who receive infringement letters will choose to pay the licensing fee, even if they believe the patent is bogus or their product did not infringe. That’s because patent litigation is extremely expensive — often millions of dollars per suit — and can take years of court battles. It’s faster and easier for companies to settle.

The Eastern District has been a favorite venue for this kind of litigation – even after the Supreme Court sought to rein in so-called “venue shopping” in a 2017 decision. Ars Technica explains:

[U]nder the Supreme Court’s 2017 TC Heartland decision, a defendant can only be sued in a district where it “resides”—meaning where it was incorporated—or “has a regular and established place of business.”

Apple’s two stores in the Eastern District would likely count as “regular and established places of business” for patent-law purposes. So under the new rules, continuing to operate the stores makes it easier for patent plaintiffs to sue Apple in the Eastern District.

Apple has not confirmed that its move is related to patent-troll litigation. But, tellingly, the company is replacing its two shuttered stores with a new store…directly across the border of the Eastern District. Sometimes, the best offense is a good defense.

Emerging Risks

Medical marijuana is not a prescription drug

February 26, 2019 Lucian McMahon Leave a comment

I’m going to get a little wonky here, bear with me.

The standard homeowners insurance policy only explicitly mentions the word “marijuana” once: to exclude it from liability coverage. Basically, the policy says that the insurer won’t pay for any bodily injuries or property damage to another person arising out of any controlled substance, including marijuana.

But there’s an interesting wrinkle to this. The exclusion also states the following: “However, this exclusion does not apply to the legitimate use of prescription drugs by a person following the orders of a licensed physician.”

“Wait,” you say. “Isn’t there a conflict here? Wouldn’t the policy cover damages from medical marijuana, since it’s a prescription drug?”

Sorry to rain on your parade, but the answer is no.

All together now: Medical marijuana is not a prescription drug

You can be forgiven for thinking that medical marijuana is a prescription drug. After all, that’s how it’s often described by news outlets the world over: Wall Street Journal, New York Times, Washington Post, etc.

But medical marijuana is not a prescription drug under any state’s current medical marijuana program.

Physicians don’t “prescribe” marijuana like they do painkillers and other drugs. Rather, physicians will “certify,” “recommend,” or “authorize” (the exact wording depends on the state) that a patient qualifies under a state program to purchase marijuana products. Often this qualification depends on whether a patient suffers from any of a list of “qualifying conditions” – which vary by state.

With a “recommendation” in hand, the patient can then purchase medical marijuana products from a dispensary, subject to various state-specific limitations (like how much marijuana they can buy in any given month).

“Prescription”, on the other hand, has a specific meaning. The Kansas City Medical Society notes that medical drugs are supported by years of study that can provide guidelines for dosages and plans of care. The U.S. Food and Drug Administration regulates these drugs. Patients with a prescription receive these drugs from a certified pharmacist.

Not so with marijuana. Though some states do require physician dosage recommendations, these are not well understood. The FDA has “not approved marijuana as a safe and effective drug for any indication.” Medical marijuana dispensaries are not pharmacies. They don’t employ pharmacists. The people selling the marijuana are basically like knowledgeable sommeliers at a fancy liquor store.

As we saw above, this distinction has insurance implications. As another example, consider workers’ compensation insurance: do these policies reimburse for an injured worker’s medical marijuana? The answer is far more complicated than you’d think.

One more time: medical marijuana is not a prescription drug.

Auto Insurance, Technology

Latest Driverless Vehicle Roadblock: Bicycles

February 22, 2019 Lucian McMahon Leave a comment

As someone who (perhaps unwisely), likes to bike around New York, I’ve long looked forward to driverless cars. They can’t drive drunk. They won’t drive like reckless teenagers. They won’t threaten to beat me up for ringing my bell (true story).

Even better: they’ll be able to see and avoid me even on a dark and stormy night.

Or so I thought.

As it turns out, bicycles could slow driverless vehicle deployment. Case in point: Holland, land of bicycles.

According to a recent KPMG report, the Netherlands is the country most prepared for autonomous vehicles. The country is actively working to begin autonomous truck platooning on highways; a legal framework has been developed for testing AVs on public roads without a driver; and the country is even preparing a drivers license for AVs.

But whether AVs will ever operate in Holland’s cities is an open question. Because, as an executive quoted in the report put it, “We have a lot of bicycles.” That’s an understatement. According to The Guardian, there are an estimated 22.5 million bicycles for a population of 17 million people.

And unfortunately, as the article notes, bicyclists are unpredictable: “the varying sizes and agility of cyclists, with their sudden changes in speed and loose adherence to the rules of the road, present a major challenge to the [AV] existing technology.”

Such a major challenge, in fact, that KPMG suggests forgetting about ever integrating AVs into a bicycle-heavy environment: just keep AVs and bicyclists separated entirely.

We don’t have as many bicyclists in New York. The city estimates somewhere in the ballpark of 1.5 million casual riders. But that’s probably enough cycling on our already-crowded, dilapidated streets to put a hold on my dream of a safe, driverless vehicle future. (AVs in Phoenix, meanwhile, have an entirely different problem…)

In the meantime, you would do well to wear a helmet and stop texting!

Workers Compensation

REMINDER: WCRI ANNUAL ISSUES AND RESEARCH CONFERENCE

February 15, 2019 Lucian McMahon Leave a comment

Looking for an excuse to brush up on your knowledge of workers’ compensation insurance and maybe catch a Cactus League baseball game? Look no further.

The Workers Compensation Research Institute (WCRI) is holding its 35th Annual Issues and Research Conference on February 28th at the Renaissance Phoenix Downtown in Phoenix, AZ. (You can register for the conference here).

Particularly interesting will be a session on the opioid crisis and its impacts on workers’ comp. WCRI will present its findings on correlates of opioid prescribing practices to injured workers, which could help predict which injured workers are likely to receive opioids.

Another important agenda item you won’t want to miss is the “State of the States” session, in which WCRI will discuss performance measures for various state workers’ compensation systems.

Anyone working to improve workers’ compensation systems or seeking to manage a changing environment would benefit from attending these and the other sessions in the conference agenda.

Technology

Data Analytics Comes to the Legal Profession

February 14, 2019 Lucian McMahon 1 Comment

Did “data analytics” ruin baseball? Depends on whom you ask: the cranky old man in a Staten Island bar or the nerd busy calculating Manny Machado’s wRC+ (it was 141 in 2018, if you cared to know).

What is indisputable, though, is that the so-called “Sabermetrics revolution” rapidly and fundamentally changed how the game is played – this is not your grandpa’s outfield!

And data is eating the whole world, not just baseball. Now it’s coming for the legal profession, of all places. The Financial Times recently published an article on how law analytics companies are using statistics on judges and courts to weigh how a lawsuit might play out in the real world. One such company does the following (per the article):

The sort of information that might be analysed includes how many times the opposing lawyer has filed certain types of lawsuit, in which court, with what success rate, who they have represented, and which attorneys they have faced. Once a judge has been assigned to the case, legal research companies can provide statistics on his or her record as well. 

Another law analytics firm “shows the litigation history of judges, lawyers and law firms, including win/loss rates for trials that are benchmarked to competitors, the success rates of different types of motion in individual courts and a database of who sues and gets sued most often.”

Proponents reportedly argue that this is a) a more efficient way to go about the business of law and b) a way to identify where the legal system is inconsistent.

That being said, it’s not yet all sunshine and roses for legal system Sabermetricians. As the FT notes, most litigation is dropped or settled, which means there are no public court documents for those cases. Which means no data to be mined. How many cases get dropped or settled? Perhaps as many as 90 percent. Big data is hard when most of the data don’t exist.

So that means doing things the old-fashioned way. One law firm identified by the FT supplements data gaps by using (quel horreur!) real human lawyers to assess how a case might fare during the legal process.

Another issue is whether anything useful can be gleaned from what little data there are. One gentleman quoted in the article put it thus: “The judge analytics demonstrations I have seen to date oscillate between the blindingly obvious and the statistically irrelevant.”

Nonetheless, as the datasets grow, it doesn’t seem impossible that the ability to assess lawsuits will only improve. Which leads me to wonder: will judges change their behavior in response? The baseball data revolution didn’t just reveal information – it changed how players actually played in response to that information. Data isn’t passive, turns out. It remains to be seen how shining the light of data on the court system could change the court system itself.

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