Tag Archives: COO

zenefits

Zenefits Compliance Saga Takes a Turn

Things happen fast in the start-up world.

Early yesterday, I wrote a post on how Zenefits’ compliance challenges in Washington state could cost the company millions of dollars in lost commissions. While noting that it was only a matter of time before someone at Zenefits lost his job over the situation, I had no idea that Zenefits CEO Parker Conrad would resign later in the day, citing the compliance problems.

In a press release cited by VentureBeat.com announcing Conrad’s departure, Zenefits’ new CEO, David Sacks, who had been COO, declared, ”I believe that Zenefits has a great future ahead, but only if we do the right things. We sell insurance in a highly regulated industry. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die. The fact is that many of our internal processes, controls and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned.” (The entire press release is worth reading).

The loss of a founder and CEO is another cost Zenefits will pay for the alleged failure to comply with states’ insurance laws. I don’t believe they’re done paying for their mistake, however.

What follows is a slightly edited version of my earlier article:

Washington regulators are investigating Zenefits’ alleged use of unlicensed agents selling insurance policies in the state. This is not only embarrassing for a company as brash and boastful as Zenefits, but the company’s finances could be substantially affected, too. Not just because, if found guilty of this felony, Zenefits could face a multimillion-dollar fine. The far greater risk to Zenefits is the prospect of losing commission income — a lot of it.

William Alden at BuzzFeed News has done a great job pursuing the story of Zenefits’ unlicensed sales. Now Alden is reporting that, based on public records, it seems “83% of the insurance policies sold or serviced by the company through August 2015 were peddled by employees without necessary state licenses….”

The potential fallout is quite substantial even though only a small number of sales are involved — just 110 policies out of 132 sold or serviced by Zenefits in Washington between November 2013 and August 2015. “Soft dollar” costs include a damaged brand because of the bad press, distractions at all levels of the company and the need to address whether the company is ignoring other consumer protections.

Then there are the hard costs. 110 policies times the maximum $25,000 per violation that Washington can impose means fines of as much as $2.8 million. Financial penalties imposed by other states could add to this figure. While paying a $2.8 million fine is no laughing matter for a company losing money every month, this represents less than 0.5% of what Zenefits has raised from investors. However, the legal fines are, potentially, just the tip of the proverbial iceberg. As Alden points out, the fallout from this investigation could result in carriers dumping Zenefits, and that could cost the company far more than any criminal fines.

Carriers require agents to meet several requirements before contracting with them, and agents must continue to meet these requirements to keep the agreement in-force. Common provisions include being appropriately licensed, maintaining adequate errors and omissions coverage and not committing felonies or breaching fiduciary responsibilities. Fail to meet any of these requirements, and agents can find their contract terminated for cause.

Terminations for cause usually allow insurance companies to withhold future commissions from the agent and, depending on the specific terms of the contract, from the agent’s agency, as well. If an agency or agent knows or should have known he was in violation of contract terms when executing the agreement, carriers may be able to rescind the contract and demand repayment of commissions.

Being found guilty of a felony in Washington state could allow a carrier — any carrier, anywhere in the country — to terminate Zenefits’ agent contract for cause. Late last year, Zenefits CEO Conrad claimed the company was on track to earn $80 million in 2015. So, let’s see, millions times 50% … carry the one … yeah, this hurts. A lot.

A nuclear outcome is highly unlikely. The Washington state investigation into Zenefits is continuing, and Zenefits, to date, has been found guilty of nothing.

Even if Washington regulators find Zenefits committed a felony, for reasons described in a previous post, the outcome is highly unlikely to be a fatal blow to the company. Insurance regulators have considerable leeway in determining fines and penalties. Absent proof that Zenefits intentionally violated state law or that consumers experienced actual harm, the Washington State Department of Insurance is likely to conclude that this situation resulted from incompetence. The department might then impose a modest fine on Zenefits and subject the company to enhanced review of its licensing practices for a few years.

Let’s put this in perspective. Richard Nixon resigned the presidency as a result of what started off as a two-bit break-in. That kind of cascading escalation is extremely rare. What we’re seeing unfold in Washington state is probably not Zenefits’ Watergate moment.

Zenefits has already paid a small price for what it allegedly did. I’m guessing the whole mess has been a bit distracting to management. And the fact remains: Mishandling more than 80% of sales in a state is a sign of immense ineptitude, arrogance or both. Having this reality aired publicly is not good for Zenefits’ brand, and resources will need to be expended to make sure it doesn’t happen again. I’m not aware the company has fired anyone as a direct result of the lax licensing controls, but that could happen.

As a result of this fiasco, Zenefits has already taken down its controversial broker comparison pages in which the company used carefully selected criteria to compare itself to community-based agents. (I guess the company was reluctant to add “being investigated for multiple felonies” as one of the comparison points). This is a small sacrifice as the comparison page was likely an attempt to enhance search engine optimization rather than an effort to take business from the competition.

Zenefits has paid a small price. The open question is: How large a price will the company ultimately pay?

1 Myth, 2 Truths, 5 Hot Trends in Health IT

There is a myth out there that healthcare providers are unwilling to adopt new technology. It’s just not true. In the last few months, I have spoken to dozens of healthcare leaders at hospitals both small and large, and I am amazed at their willingness to understand and adopt technology.

Pretty much every hospital CEO, COO, CMIO or CIO I talk to believes two things:

With growing demand, rising costs and constrained supply, healthcare is facing a crisis unless providers figure out how to “do more with less.”

Technology is a key enabler. There is technology out there to help save more lives, deliver better care, reduce costs and achieve a healthier America. If a technology solution solves a real problem and has a clearly articulated return on investment (ROI), healthcare isn’t that different from any other industry, and the healthcare industry is willing to adopt that technology.

Given my conversations, here are the five biggest IT trends I see in healthcare:

1. Consumerization of the electronic health record (EHR). Love it or hate it, the EHR sits at the center of innovation. Since the passage of the HITECH Act in 2009—a $30 billion effort to transform healthcare delivery through the widespread use of EHRs—the “next generation” EHR is becoming a reality driven by three factors:

  • Providers feeling the pressure to find innovative ways to cut costs and bring more efficiency to healthcare delivery
  • The explosion of “machine-generated” healthcare data from mobile apps, wearables and sensors
  • The “operating terminal” shifting from a desktop to a smartphone/tablet, forcing providers to reimagine how patient care data is produced and consumed

The “next generation” EHR will be built around physicians’ workflows and will make it easier for them to produce and consume data. It will, of course, need to have proper controls in place to make sure data can only be accessed by the right people to ensure privacy and safety. I expect more organizations will adopt the “app store” model Kaiser pioneered so that developers can innovate on their open platform.

2. Interoperability— Lack of system interoperability has made it very hard for providers to adopt new technologies such as data mining, machine learning, image recognition, the Internet of Things and mobile. This is changing fast because:

  • HHS’s mandate for interoperability in all EHRs by 2024 means patient data can be shared across systems to enable better care at lower cost.
  • HITECH incentives and the mandate to move 50% of Medicare payments from fee-for-service to value-based alternatives by 2018 imply care coordination. Interoperability will become imperative.
  • Project Argonaut, an industry-wide effort to create a modern API and data/services sharing between the EHR and other systems using HL7 FHIR, has already made impressive progress.
  • More than 60% of the proposed Stage 3 meaningful use rules require interoperability, up from 33% in Stage 2.

3. Mobile— With more than 50% of patients using their smartphone to monitor health and more than 50% of physicians using (or wanting to use) their smartphone to monitor patient health, and with seamless data sharing on its way, the way care is delivered will truly change.

Telemedicine is showing significant gains in delivering primary care. We will continue to see more adoption of mobile-enabled services for ambulatory and specialty care in 2016 and beyond for three reasons:

  • Mobile provides “situational awareness” to all stakeholders so they can know what’s going on with a patient in an instant and can move the right resources quickly with the push of a button.
  • Mobile-enabled services radically reduce communication overhead, especially when you’re dealing with multiple situations at the same time with urgency and communication is key.
  • The services can significantly improve the patient experience and reduce operating costs. Studies have shown that remote monitoring and mobile post-discharge care can significantly reduce readmissions and unnecessary admissions.

The key hurdle here is regulatory compliance. For example, auto-dialing 9-1-1 if a phone detects a heart attack can be dangerous if not properly done. As with the EHR, mobile services have to be designed around physician workflows and must comply with regulations.

4. Big data— Healthcare has been slower than verticals such as retail to adopt big data technologies, mainly because the ROI has not been very clear to date. With more wins on both the clinical and operational sides, that’s clearly changing. Of all the technology capabilities, big data can have the greatest near-term impact on the clinical and operational sides for providers, and it will be one of the biggest trends in 2016 and beyond. Successful companies providing big data solutions will do three things right:

  • Clean up data as needed: There’s lots of data, but it’s not easy to access it, and isn’t not quite primed “or clean” for analysis. There’s only so much you can see, and you spend a lot of time cleansing before you can do any meaningful analysis.
  • Meaningful results: It’s not always hard to build predictive analytic models, but they have to translate to results that enable evidence-based decision-making.
  • Deliver ROI: There are a lot of products out there that produce 1% to 2% gains; that doesn’t necessarily justify the investment.

5. Internet of Things— While hospitals have been a bit slow in adopting IoT, three key trends will shape faster adoption:

  • Innovation in hardware components (smaller, faster CPUs at lower cost) will create cheaper, more advanced medical devices, such as a WiFi-enabled blood pressure monitor connected to the EHR for smoother patient care coordination.
  • General-purpose sensors are maturing and becoming more reliable for enterprise use.
  • Devices are becoming smart, but making them all work together is painful. It’s good to have bed sensors that talk to the nursing station, and they will become part of a top level “platform” within the hospital. More sensors also mean more data, and providers will create a “back-end platform” to collect, process and route it to the right place at the right time to can create “holistic” value propositions.

With increased regulatory and financial support, we’re on our way to making healthcare what it should be: smarter, cheaper and more effective. Providers want to do whatever it takes to cut costs and improve patient access and experience, so there are no real barriers.

Innovate and prosper!

How to Spot and Avoid Your Next Crisis

Q: Can I identify my organization’s next crisis? If so, how?

A: Jim Satterfield– Undoubtedly, yes. Knowing what the next crisis might be is a way to think about planning and information. There are warning signs and indicators when we discuss human behavior. Understanding behaviors of concern and identifying them earlier in the process is imperative. It provides an idea of the frequency and severity of a situation.

If we can see those indicators, if we can identify those behaviors, then we can intervene before they become a problem. Sometimes, they are business or financial indicators; sometimes, it’s just human behavior.

On 9/11, I was EVP and chief operating officer of a public technology firm with employees in the States and around the world. When the first plane hit the first tower, we thought it could have been an accident. When the second plane hit the second tower, clearly not an accident. We called a meeting in our boardroom and, while sitting around the table, decided it was a day unlike any that we’ve ever seen.

Our management team decided it would be better to let everybody go home. I turned to our HR director and said, “Could you send a global email out to everybody in the company telling them they could just go home”? She went back to her desk, and she typed this message: “If you want to live, leave.”

The intended message was to be: “If you want to leave, leave.” Those are two entirely different messages. “If you want to live, leave.” “If you want to leave, leave.”

Thinking about your messages when you’re not under stress is very, very critical, and planning makes a difference.

Q: I already have a detailed and updated copy of our organization’s crisis plan. Do I need to have a digital copy, as well?

A: Jim Satterfield– Unless you’re planning to add a psychic on your crisis management team, it’s not going to do you any good to have an outdated or out-of-reach plan. Keeping your plans current and available is crucial. If you can’t get access to the right information at the right time, it’s not going to do you any good. “Oh, the plan’s back in the office, and I’m at home.”

Speed is quality. Getting the right answers to the right people at the right time becomes a critical element in every crisis.

Q: What should my organization’s key messages be to each stakeholder group for vulnerabilities and threats?

A: Jim Satterfield– What we’re going to say internally will be different than what we’ll say externally. Think about who your stakeholders are. If you’re in a business that’s heavily regulated, you have regulators as a stakeholder group. You have employees and investors, as well. If a school, you have parents, students and possibly church affiliation. You have various elements to be dealt with, and that makes a difference in approach.

Q: What resource can help with quick decision-making?

A: Jim Satterfield– What you do is list in one column things that could happen, things that could damage:

  • The facility
  • The employees
  • The data
  • The brand
  • The reputation

Across two more columns, we indicate what would qualify as a minor event and what is considered a crisis. You then include descriptive terms and circulate it to the entire company.

Immediately, when something comes up, refer to the matrix. If an employee is injured, but did not receive emergency treatment, it remains a minor event. If the employee had to have some medical attention, it rises to the next level. If an employee dies, that’s crisis. It’s at the highest level that management would want to be involved, so creating an event activation matrix is the fastest way to get that quick response with everyone on the same page at the same time.

Q: What are common mistakes people have made during a crisis?

A: Jim Satterfield– These are the five failures that we see over and over and over again in a disaster or crisis:

  • Failure to control critical supply chains
  • Failure to train employees for both work and home
  • Failure to identify and monitor all threats and risks
  • Failure to conduct exercises and update plan
  • Failure to develop crisis communications plans
  • About 70% of employees don’t know what they’re supposed to do in a disaster or a crisis. In addition, 95% don’t have a disaster plan at home. If something happens in your area, and you think your family is at risk, family wins. That’s why people don’t show up in a crisis, because they’re concerned about their family.

    We work on these failures through our Predict/Plan/Perform process. First, identify groups. Then conduct exercises and establish how you’re going to monitor and communicate. When you think about your individual plans, think about them in light of these groups. You need to build preparation in from all of these groups that could ultimately be a problem within the organization.

    Q: Are school students classified under workplace violence?

    A: Jim Satterfield– Yes, because it’s a workplace. The school is a workplace, yes.

    Q: Prevention is rare in organizations that have small staffs. Have you found organizations are willing to assign staff to conduct social media monitoring on their time?

    A: Jim Satterfield– They can, or you can use an outside service that will do it for you. This route is much more cost-effective. Why? Because that’s the specialist’s full-time job.

    Whatever your full-time job is, you’re good at that job. If you only do something every now and then, you’re not going to be as good, and you may miss an important signal or piece of information.

    We are finding organizations — both large and small — are conducting monitoring as a preventative measure, and we conduct such intelligence gathering for a number of clients.

    Telematics, Big Data in Car Policies

    Once upon a time, an insurance COO was walking along a beach, deep in thought. His CEO had just asked him to increase the motor business. The COO was in a sweat, knowing that he could quickly increase sales by dropping premium rates and excesses, but that claims would also follow. The loss ratio was already 103 – a marketing push like that would certainly throw them further over the edge! On he walked.

    As he strolled, deep in thought, he came across a strange glowing bottle, rolling back and forth in the surf as waves gently lapped on the beach. He picked up the bottle and marveled at its exquisite beauty, yet simple design. Wondering what on earth could be inside such a work of art, he pulled off the cap. Suddenly, purple smoke erupted from the opening, which gradually took the form of a smiling genie.

    “Who the heck are you?” the stunned COO asked.

    “I am the career genie. I grant three wishes that help people along with their jobs,” the genie replied.

    “OK,” the COO thought, “let’s test this guy out.” He said, “Genie, for my first wish, I would like safe drivers to buy my motor insurance product.”

    The genie crossed his arms and blinked. “It’s done,” he said with a smile. “Safe drivers will actively choose your insurance product over those of your competitors.”

    “Amazing!” the COO thought. “OK, genie, for my next wish, I want to find a way to charge more premium for dangerous drivers before they have an accident.”

    Again, the genie crossed his arms and blinked. “Your wish is my command. Poor drivers will automatically get smaller discounts. You will know how well your policy holders drive as they drive. In fact, you will be able to coach them to be better drivers as they go. Bad drivers won’t like the net premium you charge and will move to your competitors.”

    “Awesome!!” the COO thought. “OK, genie, for my last wish, I want you to reduce claims and fraud — make my motor line of business really profitable.” Once again, the genie crossed his arms and blinked. “Your wish is granted. Claims will drop by at least 20%, and fraudsters will find my magic accident reconstruction technology difficult to overcome and will move to easier pickings with your competitors.”

    The insurance COO was dumbfounded. He stammered: “Oh great career genie, what is your name?” The genie replied, “Some know me as UBI the Amazing; others know me as Telematics the Fantastic. I am a magical creature who simply likes to help mortals such as you to find better ways to do business. I hope your wishes work out for you.”

    In a flash, the genie disappeared, and the COO was left alone, with his loss ratio sitting at 80, his customer renewal rate at 96% and his customer satisfaction going through the roof. Happily, he headed back to the office, ready to recommend a brisk beach walk to all the other senior executives.

    Yes, this story is a fiction, but the results are very real.

    Usage-based insurance (UBI) is fast becoming a mainstream game-changing offering for general insurers in the U.S., Europe and elsewhere directly because of the outstanding results it delivers for insurers and customers.

    The first truly successful UBI program was Progressive in the U.S. with its patented Snapshot technology that was introduced in 2010. As of the end of 2013, the program has achieved more than US$1.5 billion in annual premiums, with nearly 35% of motor customers having signed up.

    Customers are given discounts of as much as 30% by opting into the program. Snapshot works through a device linked to the vehicle’s On Board Diagnostic Interface (OBDI), which captures the distance driven, braking force and the time of journey and transmits the journey data back to the insurer, enabling the calculation of premium discount. Progressive continues to enhance Snapshot and is currently planning to add GPS location data.

    A number of other large U.S. P&C insurers have become fast followers, most notably Allstate with Drivewise, State Farm with Drive Safe and Save, plus another 10 carriers with similar programs.

    In Europe, some legislation has stepped in to help drive UBI adoption. In the past, some premium rating factors discriminated based on gender, with young males paying more premium than young females.

    This practice is now banned under EU regulations and has spurred one UBI program called “Drive like a girl,” which combines a clever social media pitch to promote safe driving habits in young drivers while premium discounts are calculated in a gender-neutral fashion, based purely on how the insured drives.

    A recent study shows UBI programs in the UK, Ireland, France, Germany, Spain, Italy, Belgium, Netherlands, Denmark, Finland and Sweden involving considerably more than 50 insurers. It also estimates the global policy count to be more than 5 million as of mid-2013.

    Here in Asia, I am aware of established UBI programs in Japan, China and Australia.

    The UBI genie is out of the bottle, and more and more markets are catching on. The value proposition is really game-changing:

    • Safe drivers will tend to opt in to UBI programs as they believe they will get a better deal and be rewarded for their superior driving skills;
    • Poor drivers will migrate away simply based on price, if they can get a cheaper base deal;
    • Overall, the UBI approach appeals to people’s common sense – you drive less, you pay less; you drive more, you pay more – you pay for what you use;
    • Driver behavior/style is monitored, and, where UBI provides feed-back, drivers tend to drive more safely;
    • UBI programs are statistically proven to reduce claims, and in some instances have achieved 30% reductions – this has the biggest impact on insurers’ bottom lines where typically motor makes up 65% of the portfolio and claims make up 70% of expenses;
    • Claims are much more difficult to stage, because the UBI device records much of the vehicle’s performance data and geo-location data. When UBI is coupled with dashcams, accidents are easy to reconstruct, thereby chasing away fraudsters to competitors;
    • Because UBI provides rich data and customer engagement, claims can be settled faster, thereby improving customer satisfaction; and
    • Because the pricing is dynamic based on how you drive, it becomes more difficult for customers to do an apples-to-apples comparison between different insurance providers policies when shopping around.

    In the past, you bought your policy, tucked the schedule in the glove compartment and forgot about it until you had a claim, at which time your insurer became your adversary. With the UBI model, your insurer is right there in the vehicle with you on every journey, telling you when you brake too hard, alerting you when you accelerate too quickly, letting you know when you are swerving and swapping lanes too much. Your insurer is engaging with you – partnering with you to avoid accidents, and to be a better, more efficient driver.

    This is a perfect platform for introducing value-added services. The UBI program is serving up a great data set from which the insurer can potentially craft personalized services with relevance to each individual driver.

    Ideally, the value created will entice the insured to share even more data from which further services can be fashioned. With UBI customers focused on value, it becomes much more difficult for other insurers to compete simply on price. Policy retention rates and customer satisfaction will naturally increase.

    It is clear that insurers in the region are starting to look at UBI. The rewards are immense for those that adopt this game-changing approach. Do not wait to stumble over your own genie on the beach. Do your career and your customers a big favor by checking out this new approach to motor insurance. After all, if you don’t, your competitors certainly will.