NCCI's Industry Roundtable: NCCI president and CEO Bill Donnell engages workers compensation leaders on the critical issues and trends impacting the industry today and in the future. In this installment, Donnell speaks with Phil Kalin about industry transformation and disruption. Kalin is the president and CEO of Pinnacol Assurance, and the current chair of the American Association of State Compensation Insurance Funds, which represents workers compensation insurance companies from 26 different states, plus 8 workers compensation boards in Canada.
Q. We often speak about the need to transform as an industry to remain relevant. It’s evident that this is something you’ve been committed to as a leader in the past several years. Why do you believe transformation is necessary for the workers compensation industry?
We believe that every aspect of how business gets done in every industry is rapidly being disrupted by a variety of market forces, the most powerful being customer expectations of fast, easy, and less expensive products and services. Increasingly, those customer experiences are being provided through customer-centric, digital-first solutions. We believe that our customers and stakeholders in insurance, and specifically, workers compensation, have many of the same expectations that drive the success of Amazon, Uber, Netflix, and other consumer and business services.
These customer expectations are playing out in an increasingly competitive workers comp space. Record low combined ratios have made the line more attractive to both established and new carriers, many of which are using new distribution channels to reach customers. This disruption requires every CEO and leadership team in workers comp to map out and be implementing their own plans for staying ahead of the rapid changes that are accelerating every single day.
Q. Some believe that the insurance industry tends to be resistant to transformation. Can you share your thoughts on this viewpoint?
I don’t think that there is anything particularly unique about insurance as it relates to resistance to transformation. Every industry’s leaders range from those who embrace change and want to be in the lead, to others who are fast-followers and others who might be skeptical or resistant. What I believe is unique in the insurance world is an innate conservatism based on the nature of our business. We are in the business of carefully managing risk and capital and have had to develop precise business processes in order to succeed in a highly regulated industry. These characteristics have contributed to a practice of looking at change from our own vantage point rather than that of our customers.
A related factor is often a habit of looking at change as a series of enterprise-wide projects that are very scripted and often span months or years. That’s an old-fashioned, and increasingly less successful way of adapting to disruption in business. The winners in every industry, including insurance, will be those who bring a human-centered design approach to transforming all aspects of our business processes, implementing them in a series of very agile and iterative series of experiments and journeys for our very diverse set of stakeholders.
Q. Often with transformation, comes disruption. Some concerns might be insuretech startups, and even softer market conditions in recent years, which could prime the industry for a major shift. What are some advantages and challenges your members are seeing in relation to disruptions in insurance and business overall?
Speaking, in particular, for the 28 companies that make up AASCIF, we have the unique benefit of lineages that can be traced to each company’s roots in the various states (or, in Canada, the provinces) in which we all began providing workers comp insurance. All of our companies have a deep commitment to supporting the businesses and workers of our communities, with a particular focus on keeping workers safe and providing the very best care and support to those workers when they get hurt. As part of that local heritage, we each bring a very deep and unique understanding of our respective regions’ businesses, workers, and operating environment that has been honed over many decades.
At the same time, I believe it’s fair to say that the disruptive forces referred to in your question are eroding the advantages of those operating in a mono-line and often mono-state environment. In a digital-first world, geography will not provide a great deal of protection as companies of increasingly greater size or with unique solutions find ways to beat us through better data, pricing, scale, technology, and creative approaches that will disrupt the way the workers comp market has traditionally worked.
In addition, many state funds have not had to “compete” in any meaningful way, because their historic ties to their states and role as carriers of last resort have made them the go-to source for workers comp. Many of us are just waking up to the realities of competing for business in a meaningful way. These realities, in combination with the demands by customers for fast, easy, and less expensive products and services, will increasingly put pressure on companies that don’t have the scale, strategies, or urgency to compete.
Q. What can our industry do to keep up with the many changes ahead—from technology to a changing workforce—to prepare for disruption and embrace transformation?
At Pinnacol, we focus on two categories of strategic questions and imperatives. First, we talk a lot about how the rapid changes in how work gets done, and changing expectations of workers, will impact our industry. Automation, artificial intelligence, a gig economy, and increasingly digital-first tools and products will dramatically change the companies and the workers that we insure.
As a result, we will likely have fewer—and less risky—workers to insure in the coming years, which may have a material impact on our premium base. I would call this a “shrinking” platform rather than a “burning” platform. But there is no question that 10 years from now, we won’t recognize aspects of who and how we insure. So, we need to start planning now for how to retool our approaches.
The second category that is imperative for every executive team to have thought through and implemented is a strategy that will do two very simple things: improve the customer experience and lower customer costs. The concepts are easy but putting them into action is the challenge.
Lastly, if the technological and competitive challenges aren’t enough, the even bigger challenge for leaders in our industry is managing change within our organizations. The pace and scope of the transformations that we will be seeing over the next few years will push everybody out of their comfort zones.
It will be critical for each of us to bring our employees into this fast-changing world with both empathy and urgency. The first question every employee asks will be related to how change will impact them and, secondly, how they can engage meaningfully in the transformations. It’s a big challenge—but managing these rapid changes will separate the winners and losers in a disruptive environment.
Q. Finally, at
AIS 2019, I announced our word of the year—“Delivering.” How are the State Funds delivering for their stakeholders, particularly as it relates to modernizing our system?
All of us in the State Fund world are exceedingly proud of the ways in which we are currently providing caring services and strong, fiscally stable insurance coverage to our constituents. But just like the warning on every investment opportunity, “past performance does not equate to performance in the future.”
Our challenge, and one that I believe our State Funds are prepared for, is operating in a fast-changing and disrupted business environment where meeting customer expectations is critical. I know we are up to the challenge, and look forward to continued success in the future, including our work with organizations such as NCCI.
This article is provided solely as a reference tool to be used for informational purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. Use of this article for any purpose other than as set forth herein is strictly prohibited.