Pinnacol Assurance hopes Colorado small biz will take a bite of its Cake for-profit subsidiary

 –  Reporter, Denver Business Journal

Colorado’s largest workers’ compensation insurer will roll out a new for-profit subsidiary company next month that is designed to appeal particularly to small-business owners.

The subsidiary — called Cake — offers a digital platform for small businesses to sign up for coverage. It also cuts down on the number of questions companies must answer and the amount of paper they must fill out.

Pinnacol Assurance, a state-chartered workers-comp provider, developed the Cake platform over the past 18 months in an effort to re-think the process of how companies will be buying insurance over the next 10 years and in reaction to the massive changes the industry has seen in just the past few years.

It will go live on Oct. 10, offering small business leaders the chance to answer 12 to 14 questions about their companies and then to sign up for an insurance policy in just five minutes.

Pinnacol CEO Phil Kalin said Wednesday that he doesn’t believe other workers-comp insurers who are focused on their states have attempted to offer such a product. And because of that, Pinnacol next year will seek to partner with other state-based insurers willing to invest in the platform, at which point it would turn Cake into an independent “C corporation” and would reposition it as an affiliate of Pinnacol.

The C corp structure would allow it to increase revenues and put much of that money back to existing customers and programs, he said.

Currently, Pinnacol writes workers’ compensation policies for some 57,000 businesses, giving it about 58 percent of the state market, and Kalin acknowledged it was hard to get company officials to think of ways to disrupt its business model while things are going so well.

But he said the new platform, which was developed with the advice of a number of outside businesses and organizations, is necessary to keep Pinnacol in its current position and even deepen its penetration of the market at a time when the faces of company owners and their ways of doing business are changing rapidly, he said.

“The world as we know it is changing at lightning speed. And our belief is you won’t even recognize insurance five years from now,” Kalin said. “The game of insurance is going to be turned on its head through digital innovations.”

Two numbers help to explain that change already:

  • One is that by 2023, 60 percent of Colorado business owners are expected to be millennials — the generation of people who are accustomed to online interactions and to getting things done quickly.
  • The other, according to Forrester vice president/chief marketing officer Sheryl Pattek, is that more than 60 percent of buyers of business-to-business products believe they can make decisions about who to do business with solely based on digital information. Pattek, an executive partner with the national research and advisory firm, was one of the people advising Pinnacol on the business model its new platform needed.

With those thoughts in mind, Cake is aimed at the smallest companies — usually those of 10 or fewer employees that pay $10,000 or less in workers’ compensation insurance premiums each year — that rarely file claims and likely only buy the insurance because it’s mandated by the state.

These are companies primary concerned with ease, engagement and emotion in their purchases, and they don’t need a hand-holding long-term relationship with their insurer that business owners in past generations have sought, Pattek said.

By using third-party data and artificial intelligence, Cake will cut what has been a battery of 40 to 50 questions needed to figure out the risk and calculate premiums for potential business customers down to just 12 or 13 questions, Kalin said.

Once those are answered, the platform can provide a quote on premium prices and issue a policy within three to five minutes.

And the better Pinnacol gets at doing this, the more it can save money by reducing its loss ratio in insurance payouts and can return that money to stakeholders through increased dividends and reduced premiums, he said.

In addition, the platform will eliminate paperwork and allow customers to provide proof of coverage digitally, reducing a number of existing customer headaches, said Robert Norris, chief strategy officer for Pinnacol and CEO of Cake Insure Inc.

Also, platform developers created a chat bot so that policy holders working in areas with weak Internet coverage could text questions or documents to the company to deal with their issues, he said.

Once Cake is up and going next year, likely by April, Norris and other Pinnacol leaders will shop it to other worker’s compensation insurers who also deal only in one state and in one line of insurance, to see if they would like to partner on the C-Corp.

By owning just less than 50 percent of the company, Pinnacol officials can offer this new product to other states without having to seek approval from the Legislature and without endangering their tax status as the state’s workers’ compensation insurer of last resort, Kalin said.

That is key after the Legislature has rebuffed the company’s efforts in recent years either to become an independent for-profit company or to expand its insurance sales beyond Colorado borders.

“The message has been delivered to us pretty clearly by the Legislature recently that they are not interested in changing our statutes,” said Edie Sonn, Pinnacol vice president of communications and public affairs.


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