Many employers experience the problem of workers who cycle between their workers’ compensation and short-term disability programs. It’s an issue and a hard one to catch and fix when human resources and risk management don’t talk.

The issue points to the need to build a better bridge between these different sides of the house to make the common ground between them – the employee’s health – more accessible and better managed. A more holistic approach to addressing the crossover can result in smarter interventions, improved productivity and a healthier workforce overall.

What is Short-Term Disability?

Short-term disability falls under the purview of employee benefits and is frequently offered as a voluntary benefit. It allows workers suffering from injuries or illnesses that occurred while off the job to receive income replacement while they are going through treatment and recovery through the disability insurance that falls under the company’s employee benefit plan.

Short-Term Disability Characteristics

• It pays benefits at a lower percentage of the employee’s salary than workers’ comp (usually about 60%).
• Benefits may be taxable, depending on how the plan is set up.
• The employee is responsible for out-of-pocket healthcare plan deductible costs.

What is Workers' Compensation?

Workers’ compensation, on the other hand, is the employer’s responsibility and a risk management issue. Through workers’ comp insurance, employers must pay the medical bills and lost wages for employees injured on the job.

Workers' Compensation Characteristics

• This program also pays out more money – typically about two-thirds of the worker’s salary.
• It is not taxable.
• The employee is not responsible for out-of-pocket healthcare plan deductible costs related to the on-the-job injury.

What is the difference between workers' compensation and short-term disability?

When people know how both systems work, inevitably there’s crossover and shuffling between the two. It’s not that employees are trying to scam the system, but they are trying to maximize their benefits. Take the office worker who’s been experiencing some back issues off the job – she goes into work, lifts a box of files and her back goes out completely.

Even if the original problem was unrelated to her job, she may find a way to file a workers’ comp claim and get a better deal than under short-term disability – assuming she even has the insurance offered through her benefits package. If she did have short-term disability, though, she might have gone out earlier on that program for treatment and avoided the workers’ comp claim. 

Why Is Encouraging Better Integration Good for the Employee and the Employer?

For the employee, it can lead to development of programs to stave off the negative effects of extended leaves from work, no matter which umbrella they fall under. The toll is largely emotional. The longer the leave, the more likely it is that depression will set in as employees start to question their self-worth without the anchor of the job. Many won’t return to work at all.

The employer ultimately pays on various fronts, including losses of productivity and the individual’s institutional knowledge. There’s a tangible dollars-and-cents impact, too.

Benefits of Better Integration Between Workers Compensation and Short Term Disability

A study of three years of claims data from four large employers by the Integrated Benefits Institute uncovered a significant pattern: Thirty percent of those filing for workers’ comp for back pain and 22% for sprains later filed a short-term disability claim for the same diagnosis.

The average disability claim costs ran $4,200 for sprains and $7,000 for back pain. The costs of the same diagnoses in the workers’ comp system? $21,000 and $46,000, respectively. The workers’ comp claims costs are more expensive because workers’ comp pays lost time benefits at a higher rate than short-term disability does and covers all of the employee’s medical treatment.

Ultimately, this underscores the need for a more concerted effort by employers to keep employees engaged in the workplace as much as possible after injuries to stave off recurring issues and claims. And that is best accomplished when HR and risk management come together to create strategies that work.

When I got involved with ITL, going on nine years ago, because I saw insurance as a target-rich environment for innovation, my outsider perspective made me wonder whether many of the traditional lines of demarcation in the industry weren't artificial. 

Why were personal lines and commercial lines such discrete entities, when so many people were starting to operate businesses from their homes or at least mingle their personal lives and their small businesses? Why was life insurance treated as so separate from wealth management, when life insurance could be such an important financial asset? Why did people have so many different pieces of health insurance -- perhaps a group health policy, a personal policy for long-term disability, workers' comp, a piece in auto insurance, etc.? Why did I have to assemble all the pieces myself; why couldn't insurers put together a policy that I could just call Me?

Well, a recent announcement of collaboration between John Hancock and Allstate suggests that some are starting to think about how they might break down those artificial barriers. 

This is just a baby step, mind you, but the companies announced that policyholders participating in Hancock's wellness-incentive program, Vitality Plus, can receive “Vitality Points” for safe driving—as certified by participation in Allstate’s Drivewise telematics program. Basically, the companies are combining their insights into customers to produce a joint risk assessment that can lead to lower prices for customers.

Hancock, which monitors their activity via wearables and usage data from a meditation app, is now also incorporating data from Allstate, which accesses data from smartphones for acceleration, deacceleration, speed, locations, etc. to evaluate how safely people drive. Based on the risk assessment, Hancock offers discounts as high as 25%. Allstate policyholders can receive as much as 10% cash back on enrolling in the Drivewise program and as much as 25% cash back at the end of each policy period. 

Donald Light, a director in Celent's North America insurance practice, describes some of the potential for what he calls "the great cross-over" in this provocative piece. 

For me, it's hard to see that there's lots of utility here. Auto insurers have had a hard enough time interpreting telematics data to better price auto policies, so I don't imagine that data about driving behavior will provide a breakthrough in understanding people's health risks. 

But I certainly see marketing opportunities for Hancock and Allstate to jointly reach people who are focused on their safety, broadly defined, and who are thus good risks. 

I also like that Hancock and Allstate are setting an example and perhaps spurring other companies to look for alliances that cross traditional lines, where all sorts of opportunities surely lie.

As I've said before -- and will no doubt say again -- when businesses go digital, they get stripped down to their essences, which can then be recombined in any number of surprising, new ways. Once photography became digital, with cameras in every smartphone, just about all the traditional fixtures went away -- stand-alone cameras, film, paper, the related chemicals, the one-hour-photo shops and kiosks and so on. But the essence of photography, the image, actually became far more prevalent and even enabled whole new types of businesses that were far more valuable than Kodak ever was -- try to imagine Facebook, Instagram, TikTok and any number of other businesses without digital images. 

Insurance's traditional role in making people whole after a loss is on its way to being stripped down to its essence, which is three things. There is a customer/contract. There is an adjudication mechanism that decides whether a payment should be made and how large it should be. And there is capital. That's it. 

Those three elements are currently organized into distribution networks of agents, underwriting departments, claims departments, etc. Insurers are organized by line of business (auto, health, life, workers' comp, etc.). And there are demarcations between insurers, reinsurers and the capital markets. 

But those traditional divisions don't have to be there, just because they always have. We're already seeing insurance offerings be embedded into sales of autos and homes. We're seeing diversification of capital sources. And now we see a glimmer of what it might be like if companies cooperate across lines of business in creative ways, as the Hancock wellness program and Allstate telematics program combine data to try to better understand and market to customers. 

Progress may take a while to really show up, but I'm optimistic.

Cheers, 

*|MC_PREVIEW_TEXT|*

FROM THE EDITOR While blockchain has been an intriguing topic for some time now, interest has skyrocketed in recent months.  Facebook said late last year that it believes so much in the "metaverse" that it was changing its name to Meta. Microsoft followed quickly with its own vision of how technology could enable a whole new sort of world, where our selves are disembodied and our interactions occur via virtual reality. Venture capital firms such as Andreessen Horowitz are all over the investment opportunities in the metaverse, sometimes referred to as Web 3.0. And pundits are making bold proclamations about how life as we know it is about to change forever.  At the center of all this fuss? Blockchain, plus cryptocurrencies such as bitcoin.  Blockchain is expected to serve as the record-keeping technology, providing access to a centralized, trusted, public data base, while cryptocurrencies are to be the basis of the financial system.  Now,  I'm on record  as saying the metaverse is a bunch of hooey.  But, in terms of the impetus the hype provides for blockchain, it doesn't matter whether the proponents are right or whether I am. (I'm right. But you knew that. 🙂 ) What matters is that all sorts of investment will flow into blockchain because of the hype, speeding blockchain's progress. Look at Tesla. It has such fans that it has an $850 billion market value, 12 times that of General Motors, even though Tesla has only about 1% of the global car market. Tesla may or may not grow into that market cap with an extended stretch of extraordinary growth, but, whatever happens to Tesla, the market for electric vehicles is going to get a massive boost because so many Tesla wannabes are flooding the market with EVs and because the excitement has helped convince the federal government to invest billions of dollars in charging stations. In insurance, blockchain has been making steady progress, as you'll see from this month's interview and from the articles I've selected. I hope you'll spend some time with them. And then get ready to see those efforts get turbocharged as the metaverse/Web 3.0 enthusiasm reinforces what our industry has been doing. Cheers, Paul   INTERVIEW WITH SANJEEV CHAUDHRY As part of this month's ITL Focus on blockchain, we spoke with Sanjeev Chaudhry, founder and CEO of Gigaforce, about how far blockchain has already progressed as a force in the insurance industry and about where it can go from here.  "We are hearing more buzz in the market than we ever heard before. People want to hear about it and want to talk about it. They’re ready." -Sanjeev Chaudhry Read the Full Interview READ MORE The Opportunities in Blockchain It is estimated that roughly one-third of blockchain use cases are in the insurance industry. Here are the leading examples. Read More Blockchain's Future in Insurance In the short term, blockchain can be applied to data exchange and storage, P2P electronic payments and smart contracts. Read More Blockchain in Insurance: 3 Use Cases Many blockchain insurance projects are lingering at the proof of concept stage, but three trailblazing applications are emerging. Read More Blockchain, Privacy and Regulation The discussion on blockchain needs to be fully integrated within the context of existing and anticipated regulatory compliance requirements. Read More Where Blockchain Shines Right Now The seafood supply chain, for instance, can become transparent and trustworthy, while blockchain automates location updates. Read More Blockchain: Seizing the Opportunities Here’s where blockchain stands today — plus how to see the inherent risks and opportunities of using this exciting technology in insurance. Read More FEATURED THOUGHT LEADERS Yael Tamar An Wang Ivan Kot Mark Webb Tom Hammond This Month Sponsored by: Gigaforce  Gigaforce Inc. is an Insurtech provider of a SaaS-based, blockchain-optimized, claims platform that combines artificial intelligence (AI)-driven predictive models, specialized expertise, and customized services to expedite subrogation, recovery, and salvage processing for insurance ecosystems, including insurers, law firms, and third-party adjusters (TPAs). For more information, please visit www.gigaforce.io.   View all ITL FOCUS topics Share Share Tweet

As 2022 unfolds, consumer expectations are higher than ever. The insurance industry is amid a major digital shift, making quality customer service top of mind, and the COVID-19 pandemic means insurance providers will face the daunting task of maintaining personal customer connections without the in-person interactions the industry once relied on. 

For instance, 29% of life insurance purchasers bought their policy online in 2020, up from 21% in 2016. Given the rise of digital customer service in recent years, we can only expect this number to increase across all commercial and consumer insurance offerings. The demand for digital experiences isn’t going anywhere, and, with an updated customer service strategy, insurance providers can maximize client retention and expand into new markets, all while saving themselves time and money. 

Unlock brand loyalty with these three digital customer service strategies 

Despite the pandemic expediting digital transformation for most businesses, many insurance companies have been slow to adapt. Policy Advice reports that 68% of young insurance agents think the digital transformation of insurance companies is too slow. But the industry is not immune to the heightened customer expectations for a fast, personalized customer experience. In fact, 88% of consumers demand more personalized insurance products.

To make matters even more challenging, despite call volumes continuing to soar for all businesses, insurance businesses are dealing with leaner customer service teams and tightened budgets. This makes efficiency more important than ever. 2022 is the year for insurance brands to invest in digital customer service technologies to streamline internal and external communications while providing the instant gratification that consumers crave. To retain long-term customers while attracting new ones, here are some of the most important strategies for brands in 2022:

1) Simplify agent workflows and enable easy channel switching

Digital contact center agents will continue to face a flood of incoming questions. Research shows that over the next two years, 73% of brands expect the number of inbound channels to rise, while 53% believe the same for outbound channels. Now more than ever, consumers want to communicate with their insurance agencies across a multitude of digital channels. In fact, 62% of customers prefer engaging on platforms, including email, SMS messaging and social media. However, this means that internal teams must be able to seamlessly view all previous interactions and points of the customer’s journey to avoid redundancy. 

The best way to simplify agent workflows and increase customer satisfaction is to integrate all of your channels into a single-view platform to provide omnichannel support. Rather than making consumers repeat their queries, agents can use a simplified dashboard to get caught up before interacting with the policyholder, regardless of which channel they used before. 

For instance, the customer should be able to submit a claim online but be able to follow up via digital channels such as instant chat or social media without having to provide background context to the agent. By moving to a user-first, omnichannel approach, your contact center can bolster its effectiveness and cut costs. 

See also: Seeing Through Digital Glasses

2) Enable digital self-service options to speed customer support without the need for a live agent

Traditionally, call center and claims agents spent the bulk of their time answering the same commonly asked questions, contributing to sky-high call volumes and lengthy wait times. With nationwide agent shortages, digital self-service tools are the missing key to agent efficiency. What’s more, self-service offerings are proven to reduce agent attrition, which can be anywhere from 45% to 90% annually. Digital self-service options allow insurance companies to provide the personalized, one-on-one interactions that customers expect, without sacrificing performance. 

To empower policyholders to find solutions to their own problems, consider investing in AI-powered messaging and online brand communities. Advancements in AI mean chatbots can now tackle everyday requests like checking on a claim status or setting up online payments. Chatbots optimize customer and agent experience by tackling commonly asked questions and escalating high-priority queries that need the help of a live agent. When questions repeat again and again, AI-powered omnichannel analytics solutions can recognize a potential pain point in the customer journey to help your team resolve it quickly. The same technology can also analyze customer sentiment to gauge not just what customers are saying but how they truly feel about your business.

When leveraging AI, it’s important to consider containment rate, which tracks the number of users who reached a solution via an automated service, thus not needing to speak to a human agent. Even if the containment rate is low for an interaction, automation might have made that interaction more efficient, allowing agents to deal with higher-priority issues.

On top of AI-powered messaging, an online brand community is also an excellent way to encourage policyholders to answer each other’s questions, so your agents don’t have to. These self-service platforms are a hub for your company’s most loyal, informed followers that can give other customers the help they need without relying on a brand representative. In turn, online communities will not only strengthen brand loyalty but result in higher satisfaction in your policyholders. 

3) Use a customer experience insights solution to gauge customer sentiment

Given the digital transformation that is in store for 2022 and beyond, it’s vital to use a customer experience (CX) insights platform to track customer sentiment and feedback, especially regarding new digital offerings. This technology offers a comprehensive but easy-to-understand view of all customer communications across channels, allowing your brand to visualize data from a high level down to individual interactions. By understanding what questions are repeatedly coming up with policyholders, the insurance industry can tweak and revamp its digital self-service offerings to anticipate the repetitive questions before they emerge. For instance, a CX Insights tool can help gather real-time data regarding all client-related processes such as submitting online claims or purchasing a new policy via digital channels and, in turn, understand customers’ insurance needs and address them better. 

See also: Good, Bad and Ugly of Going Digital

Start with a top-notch digital customer service strategy 

No company will go untouched by digitization in 2022. By revamping their digital customer service strategy and providing a world-class customer experience, insurance companies are bound to strengthen customer retention and expand into new markets. The financial services industry is an ever-changing landscape, and the brands that can put themselves at the forefront of innovation will be the ones to prosper.

Great opportunities often arise in times of great change, and that is certainly the case for the auto insurance market.

Used cars are suddenly worth more instead of less - an inversion of the normal depreciation curve is imploding claim reserves at both primary carriers and reinsurers. The price index for used cars has climbed recently at about 70% above the run rate for the last 10 years. The result is that, for claims in progress, there's a significantly higher payout for fixing and replacing cars.

In just the last six quarters, the normal and expected phenomenon of a car getting cheaper as it gets older has been flipped on its head. Data from J. D. Power tracks used car prices in a value index for the fleet on the street under eight years old. Consumers typically secure full insurance coverage for such cars, which are also the kind still under a loan or just recently paid off. We have not seen this extreme price inversion in this century, so actuarial and predictive analytics models have not been trained for this event. Even a portfolio stress test for auto property damage would not expect a 50% to 70% increase in severity.

Many companies are rapidly filing rate increases; more will likely join them. At the same time, many advertising channels are "going dark" so they don't drive sales of a product with high loss likelihood. It may take several underwriting cycles for rate and risk to again reach equilibrium.

The only silver lining is that newer and better VIN data sources have come to market recently at scale. These detailed configuration and specification data permit VIN-personalization where the actual price new and the current street price can reflect the individual build data per VIN. The only way to accurately set total insured value now is to re-value your portfolio/fleet by VIN to see the magnitude of where you already know the direction of the possible loss ratio.

See also: The End of Auto Insurance

For a fleet of 1 million vehicles, append 1 million current prices. Check your TIV. Check your total loss calculator. Check your open reserves. Check your intrinsic diminished value subrogation if that is on your radar. At least when things age for a while, you will have actual data to show your board of directors, the audit committee and the solvency inspector from the DOI. If you are signing your own name to the reserve opinion this year and next, you may feel smart with a frequent append of VIN-to-price for your fleet in each of the next months and quarters. An opinion of magnitude is better with street pricing of actual cash value -- at least until simpler times of downward-trending depreciation returns.

One of the many takeaways from J.D. Power's quarterly auto insurance shopping report is that consumers are seeking value when buying insurance and are open to methods that allow for personalization of policies. Now, it's up to insurers themselves to take advantage of this dynamic and better align their practices to meet the needs and preferences of these consumers while also making sure their own foundation is strong.

NFTs are creating a buzz in the art world. Touted as an innovative way for digital artists to get paid for their work, non-fungible tokens, or NFTs, offer a proof of ownership for things that by definition are intangible. NFTs also represent a whole new world of risk, and with risk comes insurance. 

In some ways, the risks introduced by NFTs are novel, but in other ways they are as old as the insurance industry. And, while there aren’t yet a slew of policies stepping into the breach to cover NFTs, a new class of policies is emerging to manage risk for this developing market. 

Basics of NFTs

An NFT is a nonfungible token. Something that is fungible can be traded for something exactly comparable. A $20 bill is fungible. A Picasso isn’t. 

NFTs are pieces of computer code. They are made up of URLs that point to something in the world – typically a piece of digital art hosted on a server somewhere, along with a metadata description of the thing the NFT represents. 

If someone draws a character on an iPad and then hosts that character on a server, that artist can create an NFT linked to that digital art and then sell it, transferring ownership in a verifiable way. NFTs are tracked through a blockchain ledger, creating a publicly validated chain of ownership. 

The owner of the NFT can store it in their digital crypto wallet and has the right to sell it to anyone else down the line. 

A common confusion is that many people see NFTs as the art itself, but it is better thought of as a “digital deed of ownership.” Just like a deed represents ownership of your home, an NFT represents ownership of something else. While NFTs are often used for digital art, they can be associated with just about anything, even real-world art, baseball cards or real estate. 

See also: The Opportunities in Blockchain

NFT Insurance

Insuring an NFT depends on what in particular you are looking to protect. 

NFT policies can protect the digital asset itself, just like a homeowner’s insurance policy can protect an oil painting. If the art is destroyed, the policy could pay out. 

But that is not the only place where NFT insurance comes into play. The digital NFT – the computer code – could also be insured in case the URL or the metadata is somehow corrupted. 

When an NFT is minted, it comes with both a public key and a private key. The public key is what moves through the blockchain ledger. The private key is your proof of ownership, just like the private key to cryptocurrency, and is necessary to validate ownership or sell it to someone else. 

If that private key is lost, ownership is essentially lost, so an insurance policy can cover this. 

If a hacker gets that private key, they can transfer ownership, essentially stealing ownership of the art, and that possibility, too, can be insured. 

Finally, the ability to transfer the NFT to an heir after death could be insured. 

Most insurers aren’t offering NFT policies at this point. There is a policy offered by Coincover. Some auction houses may also be able to connect high-end buyers with other specialty lines, such as Lloyds.  

NFT best practices

Because of its novelty, there are some unique challenges inherent to NFTs. 

First, setting valuation is difficult. Because the art or property an NFT represents isn’t fungible, there is no market price to establish valuation the way a cryptocurrency can be valued. 

There is also a challenge when it comes to copyright around NFTs. Because NFTs aren’t the art, but rather a proof of ownership of that art, if someone mints a fraudulent NFT it isn’t completely clear who is the crime victim. The artist wouldn’t necessarily have a copyright claim because the art itself wasn’t reproduced. 

The person who bought the bogus NFT could have a fraud claim. It is akin to someone making a fraudulent deed to their neighbor’s house. They can sell that fraudulent deed, but that doesn’t transfer ownership, so the homeowner isn’t necessarily the victim — the person who bought the bad deed is the victim. Now, if someone with a bad deed tries to move in, then the homeowner has a claim, but it isn’t necessarily against the person who sold the deed, but instead against the person trying to move in and take ownership. Needless to say, things can get complicated fast.  

Fraudulent NFTs have been a high-profile problem on some of the public art markets, with fraudsters and even bots minting bogus NFTs and then selling them on the exchanges, as recently reported in insuranceQuotes.com’s 2022 guide to protecting non-fungible tokens. 

So, beyond the question of insurance, there is a large element of buyer beware where prospective buyers need to validate that they are buying something the other person has a right to sell in the first place.

NFT owners also must practice good crypto habits – protect their wallets, protect their private keys and use a custodian to ensure that, if the owner loses the private key, it can still be recovered. 

It is also essential to back up the digital asset in as many ways as possible – on-site, on the cloud, or even through more complex solutions, such as a distributed file system, in case the original is damaged. 

See also: The Defining Issue for Financial Markets

Conclusion

NFTs seem exotic, but protecting art and assets falls squarely within the constraints of typical insurance policies. Even protecting a deed could fall into the realm of title insurance. So, while NFTs themselves are new, the issues are all solvable. 

As the NFT market matures, billions of dollars are expected to flow into this market, so more insurance policies will inevitably emerge. 

But, while those factors fall into place, NFTs will remain an area of huge potential, and potential risk, that will inevitably shake out.

ITL:

Blockchain has been a hot topic of conversation for a few years now. How far has the technology progressed?

Sanjeev Chaudhry:

Blockchain is not a new technology, per se. It has been around for a while and has definitely proved its mettle. I'm very confident about the stability of the platform, the stability of the technology and the impact it can have. What we’re trying to do is to bring it to the enterprise world, and we do see some success. We are hearing more buzz in the market than we ever heard before. People want to hear about it and want to talk about it. They’re ready.

ITL:

Can you give us a couple of examples of where blockchain applications are currently in production?

Chaudhry:

Gigaforce is currently focusing on mainly three areas. One is subrogation, another is salvage, and the third is reinsurance. Other companies are specializing in areas like title. Outside of insurance, the financial area is very strong for blockchain, including some of the stock exchanges implementing it for the settlement process.

I think the biggest thing that blockchain is able to do is bring trust, because there's always a history there and always the possibility of audit. You can go back and see all previous transactions.

The blockchain is built on two parts, cryptocurrency and a distributed ledger. Let's say there are three companies involved in a process, and they're part of one transaction. Any update that takes place automatically can get reflected in every ledger that’s part of the blockchain transaction. Let's say there's an uninsured motorist, and money gets collected from that person by a collection agency. The moment that money gets collected, the carrier can know about it. So can in-between parties, like law firms and recovery agencies. There is a misconception in the insurance industry that all the parties have to sign up before being part of the transaction, but a private blockchain operates no differently than Docusign. All you need to be part of a transaction is an enabler like Gigaforce and a browser.

Now let's extend this and look at it from the reinsurance perspective. Once a transaction from a carrier hits the threshold, the reinsurer would like to know each and every update happening on that transaction. Money is just one piece of the information here. Everything, even all the documents exchanged between law firms, is part of a new phase of visibility at the reinsurance level. Now, nobody has to transfer the information manually, on a document-by-document basis. This represents the biggest gain in efficiency.

ITL:

We've come quite a ways in the years I've been following blockchain. Are there other applications that you see becoming possible in insurance sometime over the next year or two?

Chaudhry:

For two years, when I talked with people in the industry about blockchain, they’d say, “We have a hammer; we’re just looking for a nail.”

There’s a whole range of opportunities across the whole spectrum of activities in the industry – distribution management, underwriting, payments, claims, policy administration and reinsurance – although some of the opportunities have trouble gaining traction with management even though they promise efficiencies and better engagement with customers.

I think subrogation should be the first use case because there are multiple partners updating and sharing data, and a sequential process has to be followed in a timely way.

ITL:

What should the industry be doing today to get ready?

Chaudhry:

We suggest companies ask themselves six questions about each of their processes:

1. Are multiple parties sharing data?
2. Will multiple parties be updating data?
3. Is there a requirement for verification?
4. Is verification adding cost and complexity?
5. Are interactions time sensitive?
6. Will transactions by different users depend on each other?

If a company answers yes to four or more of those questions, then the company should consider using blockchain.

When people talk about security, they say you’re only as secure as the weakest link in your chain. The same is true when companies talk about how far along they are with digitalization. If a company only talks about digitalization at the company level, they are not digitized. You’re only truly digitalized if you’re digital all the way down to the level of your processes and subprocesses. You need to go across corporate boundaries, too, so you’re collaborating with all the digital sources out there.

The pandemic has been an eye opener. There were a lot of manual activities that could be done only in the office. That’s where the check would come in, so you’d have to be there to make a copy of the check, turn it into a PDF and send it to the next party involved. Now, because everything is digitized, the moment that a check is collected by the first company, everybody in the chain can automatically know. Nobody has to make a copy, scan, email, mail, etc.

There's also a huge labor shortage in the industry, which puts pressure on companies to automate. And blockchain is a technology that gives you automation right out of the box.

It also cuts costs – we can reduce the cost of claims processing 10% to 15%.

So, I think it’s just a matter of matter of time before blockchain is widely adopted. I don't think there is any choice.

ITL:

That’s great. Thanks, Sanjeev.

Ron Rock is a Senior Director at JobsOhio, a private nonprofit corporation designed to drive job creation and new capital investment in Ohio through business attraction, retention and expansion efforts.Ron was interviewed by Michael Fiedel, a Managing Director at InsurTech Ohio and Co-Founder at PolicyFly, Inc.

Read the Full Interview

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We were promised an insurtech revolution, right? Well, don't look now, but some of the biggest names are having a rough go of it. 

Lemonade's stock price is down 81% since its peak in the middle of February, even as the S&P 500 average has climbed 15%. Hippo is down 85% over the same stretch. Root is off 91%. Metromile has plunged 92%. Oscar has tumbled 81% since mid-March.

What happened?

The short answer is: nothing. Lemonade still has a $1.97 billion market capitalization, the sort that most entrepreneurs would kill for. Hippo carries a $1.18 billion valuation; Root, a valuation north of $500 million; and Oscar, a market cap of $1.4 billion. Even Metromile, which is being acquired by Lemonade, carries a price tag of roughly $250 million (half the stated value when the purchase was announced in November because the transaction is all stock and Lemonade's share price has fallen 50%).

Not too shabby.

Yes, some investors have lost money, but as the Cockney saying has it, "You pays yer money, and you takes yer chances." Most of the investors have surely done plenty well elsewhere in a robust investing climate. From a business standpoint, while all certainly face challenges, the insurtech superstars are maturing into sustainable businesses, even if they may not turn out to be the rocket ships to the stars that many assumed a year ago.   

The longer answer is that there has been a resetting of expectations about the role of insurtechs, and this sharp lowering of valuations seems to just be part of that.

At ITL, we've published any number of articles over the years that aimed to temper enthusiasm about some of these "full-stack" startups, which were designed to become full-fledged carriers that competed head-on with incumbents. Like just about everyone else, we were captivated by the charismatic founders, the novel ideas, the crisp use of technology and the friendly user interfaces, but we stayed pretty firmly within the grasp of reality, largely thanks to Matteo Carbone and some colleagues. They wrote occasional articles that cut through the hype and looked at the numbers to see how Lemonade, Root and Metromile were doing as they tried to move up the learning curve on understanding and pricing risks and attempted to keep their early, exponential growth going. Here, for instance, is the latest article on the three companies, from 2020, raising some issues about, in particular, Lemonade and Metromile. 

I, for one, was more surprised at the valuation north of $10 billion for Lemonade and at the peak valuations of the others than I am about today's market caps, which still seem quite healthy to me. The decline makes even more sense when you think about how quick these companies were to enter the public market -- many insiders surely took the opportunity to lock up some serious wealth by cashing out part of their holdings, even if they still believe fervently in the long-term prospects. 

The tumbling back toward Earth of these big-name companies doesn't, for me, indicate anything about the continued opportunities for breakthrough innovations. 

There will always be opportunities for what were known as "arms suppliers" during the internet boom. The term, despite being military, actually originates from the Gold Rush days. While few miners built huge fortunes -- and while I couldn't name you a single famous mining family despite having lived in Northern California for 25 years -- loads of people made bank by "arming" the miners. A guy who sold jeans to the miners is the namesake for the San Francisco 49ers' Levi Stadium. A guy who built railroads that connected the Gold Rush to the rest of the country, and not a miner, has his name on Stanford University up the road. And so on. During the internet boom of the mid- to late 1990s, lots of attention went to the companies that swung for the fences, like Exodus Communications, which became the biggest web hosting company and hit a market value of $32 billion in 2000. But some of the smart folks I knew said at the time that the far safer bet was to be an "arms supplier" like Sun Microsystems, which sold the servers that powered Exodus and so many other companies. Sure enough, Exodus filed for bankruptcy in 2001 and was sold for parts, while Sun sold itself to Oracle for $7.4 billion in 2009.

In insurance, there have been lots of "arms supplier" stories -- RiskGenius folding its AI into Bold Penguin, which was then bought by American Family Insurance mostly for its brokerage platform -- and there will be many, many more.

As you've seen if you've been following this newsletter for any length of time, I also think there is huge opportunity in platforms like Bold Penguin's -- or those of Bolt, Matic, Branch and more -- and in ecosystems of partners that share data and coordinate activities via application programming interfaces (APIs). So, I believe that innovation is just starting to gather steam in the insurance industry, no matter what the hit to some high-profile stocks might suggest.

Cheers,

Paul