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2019 Trend Report | AssociatedBRC.com

MarketPulse

Predictive modelingPAGE 3

Data analyticsPAGE 5

Emerging trendsPAGE 8

Predictive modelingPAGE 5

Data analyticsPAGE 7

Emerging trendsPAGE 10

6000 Clearwater Drive Minnetonka, MN 55343-9437

800-258-3190 AssociatedBRC.com [email protected]

Insurance products are offered by licensed agents of Associated Financial Group, LLC (d/b/a Associated BRC Insurance Solutions in California). The financial consultants at Associated Financial Group are registered representatives with, and securities and advisory services are offered through LPL Financial “LPL”, a registered investment advisor and member FINRA/SIPC. Associated Financial Group uses Associated Benefits and Risk Consulting (“ABRC”) as a marketing name. ABRC is a wholly-owned subsidiary of Associated Bank, N.A. (“AB”). AB is a wholly-owned subsidiary of Associated Banc-Corp (“AB-C”). LPL is NOT an affiliate of either AB or AB-C. AB-C and its subsidiaries do not provide tax, legal, or accounting advice. Please consult with your tax, legal, or accounting advisors regarding your individual situation. ABRC’s standard of care and legal duty to the insured in providing insurance products and services is to follow the instructions of the insured, in good faith.

(1/19) 13025

Investments, Securities and Insurance Products:

NOT FDIC INSURED

NOT BANKGUARANTEED

MAY LOSE VALUE

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

NOT A DEPOSIT

I’m pleased to present our yearly trend report. We like to discuss what our clients and other employers are doing to manage risks, promote employee productivity and morale, reduce costs and improve their organizations as a whole. We study trends, not to follow the herd but to cultivate best practices for making a positive impact. Our hope is that you will find the practices and action steps outlined in these articles useful—and productive— as you step into 2019.

William M. BohnChairman of the Board

CONTE

NTS

MarketPulse 2019 Trend Report

1 Executive summary

1 Specialty drugs and biologics How employers are combating rising costs

2 Cyber risks Increasing reliance on third-party vendors increases exposure to risk

3 Predictive modeling Changing the way insurance carriers assess risk

4 Across the spectrum An integrated approach to workplace well-being

5 Data analytics Data analytics is helping employers control costs related to chronic health conditions

6 Target date funds What should plan sponsors know?

7 Large medical claims Self-insured employers may bear more of the cost

8 Emerging trends for employers Artificial Intelligence, paid parental leave, sustainable investing and mental health in the workplace

3 Executive summary









MarketPulse 2019 Trend Report | AssociatedBRC.com2

https://www.AssociatedBRC.com

Historically low unemployment rates and shifting expectations and opportunities in the workforce have forced organizations of all sizes to make smarter investments in their employees and resources. Employers seeking to attract, hire and retain top talent have been re-examining their tactics and embracing technology to accomplish their goals:

• Employers are using data analytics and artificial intelligence to make strategic investments in their workforce to improve productivity and employee well-being.

• Employers are offering a widening spectrum of benefits to attract and retain the best talent.

• Employers are becoming nimble adapters in the face of a recovered, yet uncertain, insurance and financial marketplace.

This year’s trend report focuses on the strategies employers have been implementing in response to the constant changes and challenges they face today.

To further explore any of these solutions, contact an ABRC consultant at 800-258-3190.

Executive summary

Specialty drugs and biologics are driving up costs

According to the 2018 Pharmacy Benefit Management Institute (PBMI) report Trends in Specialty Drug Benefits, only 1-2% of Americans use specialty drugs. However, by the year 2020, specialty drugs are expected to account for half of total U.S. drug spending. Therefore, it’s not surprising that 61% of employers in the PBMI report say that managing specialty drug costs is their number one priority when it comes to specialty drug benefits.

The use of biologics is also an increasing cost for employers. Biologics are produced from living organisms or contain components of living organisms and have become a mainstay in the treatment of cancer and autoimmune conditions. While less than 2% of Americans use biologics, they represent 40% of total spending on prescription drugs, according to a July 2018 statement by the U.S. Food and Drug Administration (FDA).

To combat rising specialty drug costs, employers are encouraging the use of biosimilars in place of biologics. Biosimilars are biologics similar in structure and function to existing FDA-approved medications, but often cost less. Employers are also implementing clinical utilization management tools, utilizing specialty pharmacies, creating specialty drug tiers that steer spending toward more economical options, and imposing limits on first-fill medications.

Biologics produced from living organisms or contain components of living organisms.

Biosimilars biologics similar in structure and function to existing FDA-approved medications.

AssociatedBRC.com 1

1 Executive summary









Continued on p. 2 > >

3 Executive summary










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Specialty drugs and biologics

There’s a robust pipeline of specialty drugs that are either in development or are due to receive FDA approval.

By implementing a plan that offers employees alternatives to specialty and biologic medications, employers can help mitigate the impact specialty drugs have on their bottom line.

Reliance on third-party vendors increases exposure to cyber risk

The risk of business disruptions

and lost income increase as

businesses become more

dependent on third-party

vendors for data storage and

management. According to

Cloud Down—Impacts on the

U.S. Economy, a 2018 Emerging

Risk Report co-produced by

Lloyd’s and AIR Worldwide, the

disruption of a top-three cloud

service provider for 3-6 days

would cost the U.S. economy

between $6.9 and $14.7 billion.

Smaller businesses relying on

third-party or cloud data services

are also less likely to have cyber

insurance to cover lost income

from a disruption and would

suffer an estimated 63% of the

losses. In the event of an outage,

industries such as manufacturing,

as well as wholesale and retail

trade, would be hit hardest, with

estimated losses between $1.4

and $8.6 billion.

Business interruption as part of a

cyber policy covers lost income

from disruptions triggered by a

network interruption caused by

a cyber event such as a breach.

It can even be extended to

cover disruptions caused by a

cyber event at a third-party data

hosting or cloud service provider.

Some insurance programs will

also extend this coverage to

include system failure in the event

of human error or an automated

system failure.

As more businesses come to

rely on third-party digital service

providers, it’s no longer a matter

of if, but when a disruption will

occur. Make sure your business

is prepared.

Specialty drugsBiologics

ACCOUNTING FOR 40% OF TOTAL U.S. DRUG SPENDING IN 2018.

PROJECTED TO ACCOUNT FOR 50% OF TOTAL U.S. DRUG SPENDING BY 2020.

1-2% OF AMERICANS USE SPECIALTY DRUGS, BUT ARE

LESS THAN 2% OF AMERICANS USE BIOLOGICS,

40%in 2018

Source: FDA Commissioner Scott Gottlieb, M.D. (2018)

50%by 2020

Source: PBMI. 2018 Trends in Specialty Drug Benefits.

MarketPulse 2019 Trend Report2

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Using sophisticated algorithms,

predictive modeling is the

application of statistics and

probabilities to variable data, such

as workers’ compensation claims,

to predict future outcomes.

Insurance carriers have used

predictive modeling to stabilize

underwriting cycles and take

preventative steps to lower the

cost of risk including initiatives to

curb opioid abuse, reduce medical

expenses and improve return-to-

work outcomes.

A 2018 benchmark report, based

on a survey of claims adjusters

conducted by Chicago-based

Rising Medical Solutions, called

predictive modeling a “best

practice,” noting that the highest

performing insurance carriers

used predictive modeling eight

times more often than less

successful carriers.

While predictive modeling has

allowed insurance carriers to

Predictive modeling changes the way insurance carriers assess risk

identify their biggest cost drivers

and flag those claims before costs

grow out of control, employers

run into trouble when insurance

carriers rely too heavily on

data analysis without tempered

experience from human adjusters.

Historically, insurance carriers

used an individual employer’s

past claims experience to assess

the likelihood of future workers’

compensation claims and credit

or debit the employer accordingly.

Employers that previously

relied on a low claims record

now run the risk of a higher

experience rating and premiums,

or nonrenewal—not based on

claims that have happened, but

claims that could. For example, a

Wisconsin employer was recently

non-renewed, despite not having

a claim in the past five years. Due

to the nature of the employer’s

industry and lack of a risk

management plan, the insurance

carrier determined this employer

was one bad year away from

disaster and decided not to take

on the risk.

Predictive modeling, when

thoughtfully applied, can add

tremendous value to employers,

but, when wielded without human

judgement, can put employers at

risk of paying higher premiums

or losing the coverage they need

to stay in business. Carefully

investing in a risk management

program can help employers

prepare for the changing tide.

“EMPLOYERS THAT PREVIOUSLY RELIED ON A LOW CLAIMS RECORD NOW RUN THE RISK OF A HIGHER EXPERIENCE RATING AND PREMIUMS, OR NONRENEWAL.”

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Across the spectrum: An integrated approach to workplace well-being

Claims are the biggest drivers of health insurance and workers’ compensation premiums, but these

areas are often viewed as separate, despite areas of overlap. A RAND Corporation study, Multiple

Chronic Conditions in the United States, reports chronic conditions such as obesity, diabetes, high

blood pressure and heart disease contribute to higher healthcare costs from more doctor visits,

prescriptions, and inpatient stays. As the National Council on Compensation Insurance (NCCI) noted in

its research brief, Comorbidities in Workers Compensation, the presence of multiple chronic conditions

also increases the cost of workers’ compensation claims 2 to 6 times the cost of all other claims. A

study conducted by Harbor Health Systems and reported in PropertyCasualty 360 also found that

chronic conditions raise the cost of workers’ compensation claims by increasing medical expenses,

significantly delaying recovery, and boosting the likelihood of surgery and even legal involvement.

Employers seeking to improve employee health and reduce injuries and illness in their workplace

should consider taking a more holistic approach that encompasses all areas of worker well-being.

The International Foundation of Employee Benefit Plans (IFEBP) notes in 2018 Workplace Wellness

Trends that more employers are shifting toward worker well-being as their primary focus for offering

wellness programs and initiatives. Employers with a greater emphasis on employee well-being also

saw a positive impact on employee engagement and satisfaction. Healthier, more engaged employees

experience fewer workers’ compensation claims and lower rates of absenteeism and utilize healthcare

less frequently.

As costs in both healthcare and workers’ compensation continue to climb, employers are starting to

understand that the first step toward driving down costs is breaking down departmental silos and

correlating the data to identify common trends. Integrating workers’ compensation and employee

well-being strategies takes thoughtful planning and implementation. However, with the support of a

trusted advisor, integration can be an investment that pays off.

“THE PRESENCE OF MULTIPLE CHRONIC CONDITIONS INCREASES THE COST OF WORKERS’ COMPENSATION CLAIMS 2 TO 6 TIMES THE COST OF ALL OTHER CLAIMS.”

Source: NCCI. Comorbidities in Workers Compensation, (2012).


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Advanced data analytics is helping employers control healthcare costs

In the latest Workplace Wellness Trends Survey by the

International Foundation of Employee Benefits Plans

(IFEBP), more than 500 employers were asked to

select the top three conditions impacting plan costs.

The following topped the list: diabetes (44%), cancer

(35%), obesity (32%), arthritis/back/musculoskeletal

conditions (30%), and heart disease (28%).

In any employee population, it is impossible to avoid

these conditions. The key is to help employees

manage these illnesses, thereby improving their

health while reducing costs to the organization’s

health plan. However, many people are failing to take

medications as prescribed or engage in recommended

therapies, regimens or other procedures. Patients

who do not comply with care guidelines are more

likely to experience adverse health events and require

expensive medical interventions.

Data analytics related to chronic conditions in the employee population can help employers make

strategic investments in education and disease management programs, increasing employee health

and productivity and reducing avoidable health plan expenses. For example, if nearly 35% of the

diabetics on an organization’s health plan are failing to comply with patient care guidelines, the

employer can use this information to improve outcomes for both the organization and health plan

members by making strategic investments in education and disease management programs.

For maximum impact, a data analytics solution should consist of predictive modeling combined

with the latest health analysis technology that confidentially assesses the health risks of every plan

member. An effective data analytics solution should identify chronic conditions and ensure health plan

members are complying with patient care guidelines.

To protect the bottom line and create healthier, more productive employees, employers are focusing

on chronic care management and innovative strategies. Data analytics is the key to unlocking the full

potential for intervention and positive change in the workplace.

Diabetes Cancer Obesity Musculo-skeletal

HeartDisease

44%

35%

30%28%32%

Employers say these conditions cost them the most.

Source: IFEBP. Workplace Wellness Trends 2017 Survey Results.

AssociatedBRC.com 5






As a result, the DOL issued

employer guidance in Target Date

Retirement Funds – Tips for ERISA

Plan Fiduciaries.

While it is difficult to ensure every

participant understands what

they are getting, the best way

to fulfill your fiduciary duty is to

know exactly what is inside the

TDFs you have selected for your

company retirement plan. This

Why are target date funds so popular—and what should plan sponsors know?

According to the working paper

Opting out of Retirement Plan

Default Settings by the RAND

Corporation, 97.6% of retirement

plans featured a target date

fund (TDF) as the default

investment alternative in 2016,

and the popularity of these funds

continues to increase. Many

participants prefer target date

funds because they invest in

multiple, diverse asset classes.

Furthermore, the fund manager

changes how the assets are

allocated over time to become

more conservative as the fund

approaches the maturation date—

the year closest to when the

participant will turn 65.

Arguably, the biggest benefit

for investors in TDFs is that

the fund manager adjusts the

asset allocations based on the

participant’s age over his or

her life span. This adjustment is

called the “glide path.” There are

many different target date fund

managers, and they each have

their own philosophy on how to

construct a glide path strategy.

Investors must pay careful

attention to how a fund’s glide

path could affect their

retirement goals.

Potential problems with TDFs

include the inability to factor

in the individual risk tolerance

of a particular investor and

account for other sources of

income, assets or debts to

which the investors are subject.

includes knowing what funds are

used in the TDF, the exposure

to different asset classes, the

glide path structure, investment

management fees and fund

managers’ philosophy.

Figuring out how much to save for

retirement is different for every

working American. TDF offerings

can make it easier for some

employees, and it’s ultimately up

to them to determine whether

or not that strategy works. Plan

fiduciaries need to make sure they

are putting their plan participants

in the best position to reach their

retirement goals by doing

their due diligence and fulfilling

their fiduciary obligations by

properly selecting and monitoring

TDFs, as they do with all of the

plan’s investments.

“THE BEST WAY TO FULFILL YOUR FIDUCIARY DUTY IS TO KNOW EXACTLY WHAT IS INSIDE THE TDFs YOU HAVE SELECTED FOR YOUR COMPANY RETIREMENT PLAN.”


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Cost of large medical claims is shifting back onto self-funded employers

The cost of large and often

ongoing medical claims is

increasing along with the cost

of medications and treatment.

According to the 2018 Sun Life

Stop-Loss Research Report, the

number of claims over $1 million

increased 87% between 2014 and

2017. The HM Insurance Group’s

Five-Year Claims History report

shows the cost per employee per

month for large claims increased

139% between 2013 and 2017.

While claims over $1 million make

up only about 2% of stop-loss

claims, they account for nearly

20% of stop-loss reimbursement.

Historically, self-insured employers

have used stop-loss insurance to

mitigate the cost of large claims.

Stop-loss insurance carriers

responded to the rising costs of

claims by raising premiums and

imposing lifetime maximums.

The Affordable Care Act (ACA)

has since eliminated lifetime

maximums, but the cost of large

claims continues to rise. Insurance

carriers have responded by shifting

more of the burden back onto self-

insured employers and are:

• Implementing more rigorous

underwriting, resulting in denied

applications or non-renewal.

• Using “lasers” to apply a higher

stop-loss deductible, often

2 to 3 times the specified

deductible, to high cost

individuals (or “known risks”)

on the plan.

Source: HM Insurance Group. Five-Year Claims History report, (2017).

139%increase in cost per employee per month between 2013 and 2017.

Source: 2018 Sun Life Stop-Loss Research Report.

87%increase in number of claims over $1 million between 2014 and 2017.

of large claims by looking at

your current stop-loss policy to

determine whether the coverage

meets your risk profile, as well as

examining your cost-containment

strategies. If you find your stop-

loss coverage is inadequate, it

may be time to look for a new

carrier or consider changing to a

fully insured plan.

Arguing that stop-loss coverage

is really meant for “unknown

risks,” one insurance carrier in the

Minnesota market took it a step

further by announcing they will

be exercising provisions to apply

a total laser to large, ongoing

claims once they become a

“known risk,” which removes the

stop-loss deductible and transfers

the risk entirely onto the self-

insured employer.

As a self-insured employer, you

can prepare for the rising costs

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Automating routine HR tasks. AI can

reduce time spent on

routine tasks such as onboarding

employees, responding to

common questions, scheduling

meetings, and more.

With the right tools, HR staff

can analyze data rather than just

collect it, and partner with other

departments to better meet the

organization’s objectives.

EMERGING TRENDS FOR EMPLOYERS

Artificial intelligence is influencing HR tech

According to IBM’s 2017

survey Extending expertise:

How cognitive computing is

transforming HR and the employee

experience, 66% of CEOs believe

artificial intelligence (AI) can drive

significant value in HR. Half of the

HR executives surveyed agree,

saying they recognize that AI

has the power to transform key

dimensions of HR.

Improving candidate selection, job match and retention. AI can

help managers identify new

hires with the highest probability

of success, place them on the

right teams and pair them

with the right supervisors. AI

can also recommend learning

opportunities and career options,

and suggest which employees

may be at risk of leaving.

Enhancing workplace learning. Many

employers using AI-

based learning technology are

creating more personalized

learning experiences and

seeing an increase in employee

productivity and retention.

Check out AssociatedBRC.com/MarketPulse to read about more emerging trends impacting employers.

Rise of paid parental leave

Fierce competition for top talent

and changing demographics in

the workforce have brought paid

parental leave to the forefront.

The Society for Human Resource

Management (SHRM) 2018

Employee Benefits report notes

that between 2016 and 2018, the

number of companies offering

this benefit grew significantly

from 26% to 35%. There are also

a growing number of states

offering employees the right to

take paid parental leave.

While employers of all sizes are

starting to offer paid parental

leave, large companies are

leading the charge. SHRM

reports employers with 10,000+

employees were twice as likely to

offer paid maternity leave (60%

vs 30%) and/or parental leave

(52% vs 25%) than employers

with 500 or fewer employees.

There are many benefits to

employers offering paid parental

leave including an increased

likelihood of new mothers

returning to work after the birth

of a child, plus sustained or even

improved productivity. Parents

and their child also benefit from

fewer financial worries during

leave, more time to adjust to the

new reality of being a parent and

critical bonding time with baby.

A carefully crafted parental

leave policy may give employers

the edge in a competitive

labor market.

“BETWEEN 2016 AND 2018, THE NUMBER OF COMPANIES OFFERING PAID PARENTAL LEAVE GREW FROM 26% TO 35%.”

Source: SHRM. 2018 Employee Benefits.

MarketPulse 2019 Trend Report8 MarketPulse 2019 Trend Report | AssociatedBRC.com10



in investment decisions. Among

millennials, this nearly doubles

to 67%.

Regulatory developments and

the establishment of responsible

investing initiatives act as another

catalyst for ESG investment

growth. The U.S. Department of

Labor (DOL) issued guidance

that pension fund fiduciaries

can consider ESG factors in

investment decisions. Other

countries require their pension

plans to disclose whether

ESG data is incorporated

into investment policies, and

some countries outright ban

controversial investments.

Major financial analytic firms such

as Bloomberg, FactSet, Thomson

Reuters, Morningstar and MSCI are

conducting ESG research as well.

The upsurge of data, combined

with growing investor interest

and new regulations, has fostered

the desire and ability of active

managers to integrate ESG analysis

into the investment process.

ESG investing is increasing

Environmental, Social and

Governance (ESG) investing

is “sustainable investing” that

seeks positive returns while

evaluating the long-term impact

a company’s practices have on

the environment, society and the

governance of the business itself.

Various forms of sustainable

investing have been around for

decades, but interest in these

strategies has increased in recent

years. According to the 2017

McKinsey & Co. report From

“Why” to “Why not”: Sustainable

Investing as the New Normal,

ESG investments make up 26%

of professionally managed assets

around the world.

Concerns about these issues are

growing as younger generations

enter the workforce. According

to the 2018 U.S. Trust Insights

on Wealth and Worth® survey,

36% of baby boomers believe

environmental and social

factors play an important role

Mental health in the workplace

According to the National

Alliance on Mental Illness (NAMI),

approximately one in five adults

in the U.S. experiences some form

of mental illness. Mental health

issues are becoming increasingly

impactful on the workplace and,

if mismanaged, can lead to lower

productivity, higher healthcare

expenses and potential legal

claims. The World Health

Organization (WHO) estimates

in its Mental Health in the

Workplace report that depression

and anxiety disorders cost the

global economy $1 trillion each

year in lost productivity.

Employers can take steps

to address mental health in

the work environment by

promoting available resources

and examining workplace

culture. Adopting a collaborative

approach to addressing

employee mental health ensures

their needs are met, and satisfies

legal obligations to reasonably

accommodate mental illness

under the ADA.

Taking steps toward creating a

positive work environment that

supports employees’ mental health

will pay off in terms of retention,

engagement and productivity.

36%of baby boomers believe environmental and social factors play an important role in investment decisions, vs.

67% of millennials.

$1 trillionCOST OF DEPRESSION AND ANXIETY DISORDERS IN LOST PRODUCTIVITY TO THE GLOBAL ECONOMY.

Source: WHO. Mental Health in the Workplace, (2017).

AssociatedBRC.com 9MarketPulse 2019 Trend Report | AssociatedBRC.com11


NOT ADEPOSIT

NOT FDIC INSURED

NOT BANKGUARANTEED

MAY LOSE VALUE

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

Investments, Securities and Insurance Products:

WE REMOVE THE OBSTACLES

Insurance products are offered by licensed agents of Associated Financial Group, LLC (d/b/a Associated BRC Insurance Solutions in California). The financial consultants at Associated Financial Group are registered representatives with, and securities and advisory services are offered through LPL Financial “LPL”, a registered investment advisor and member FINRA/SIPC. Associated Financial Group uses Associated Benefits and Risk Consulting (“ABRC”) as a marketing name. ABRC is a wholly-owned subsidiary of Associated Bank, N.A. (“AB”). AB is a wholly-owned subsidiary of Associated Banc-Corp (“AB-C”). LPL is NOT an affiliate of either AB or AB-C. AB-C and its subsidiaries do not provide tax, legal, or accounting advice. Please consult with your tax, legal, or accounting advisors regarding your individual situation. ABRC’s standard of care and legal duty to the insured in providing insurance products and services is to follow the instructions of the insured, in good faith. (1/19) 13025

SO YOU CAN MOVE YOUR BUSINESS FORWARD.

Reducing risk. Saving time. Remaining compliant. Hiring

and retaining a quality workforce. How are you meeting

these challenges?

When you partner with Associated Benefits and Risk

Consulting, you’ll get tailored, responsive solutions that

simplify the complicated so you can focus on your goals.

Visit AssociatedBRC.com or call 800-258-3190 to learn more.



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