‘There Will Be Insurance Deserts’

In some states, it’s becoming increasingly difficult to buy property and auto policies at any price.

Good Morning!

Here are today’s highlights:            

• The founder of Chipotle is back with a new chain that wants to be seen as a tech company.

• How much would it help small manufacturers if they didn’t have to offer health insurance?

• A study finds that office workers really want to spend more time in the office.

• John Arensmeyer of Small Business Majority on the state of small business.

INSURANCE

As insurance companies choose the nuclear option, buying property and auto policies is no longer routine: “After Allstate suffered billions of dollars in losses and failed to get the rate increases it wanted, it resorted to the nuclear option. The insurance giant threatened last fall to stop renewing auto insurance for customers in three states that hadn’t given in to its demands, which would have left those policyholders scrambling for coverage. The states blinked. In December, New Jersey approved auto rate increases for Allstate averaging 17 percent and New York, a 15 percent hike. Regulators in California are allowing Allstate to boost auto rates by 30 percent, but still haven’t decided on its request for a 40 percent increase in home-insurance rates after the insurer refused to write new policies.”

• “Warmer temperatures have made storms worse and contributed to droughts that have elevated wildfire risk. Too many new homes were built in areas at risk of fire. As losses mounted, inflation only made matters worse, boosting the cost of repairing or replacing cars or homes.”

• “Tough times are nothing new for insurers. They are in the business of predicting the future. When losses are low, companies such as Progressive and Geico—known to consumers for their ubiquitous ads featuring, respectively, Flo and the gecko—fight for customers.”

• “When disasters hit, they tally their losses and raise prices or cut offerings. Big profits often follow, leading to complaints from consumers and regulators. Shares of insurers, including Allstate’s, already have rebounded in anticipation of higher profits. Nevertheless, the industry’s traditional business model is under pressure and, some think, broken.”

• “Allstate CEO Wilson said: ‘There will be insurance deserts.’ Insurance deserts, where private-sector companies no longer will sell regular home-insurance policies, are already developing in high-risk areas. Florida’s insurer of last resort is now the main provider of home coverage in that state.” READ MORE

21 HATS PODCAST: DASHBOARD

The State of Small Business, 2024: This week, John Arensmeyer, founder and CEO of the advocacy group Small Business Majority, tells us that he senses considerable optimism among the many business owners in his network notwithstanding some concern for looming policy and economic issues. Among those issues: access to capital, the cost of health care and health insurance, relations between franchisors and franchisees, price discrimination against smaller businesses, the burden of the new Corporate Transparency Act, and the upcoming battle over the sunsetting of the Trump tax cuts.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

BUSINESS MODELS

Steve Ells, founder of Chipotle, is trying to pitch his next lunch chain as a tech company: “Kernel — a name that brings to mind plants and the germ of an idea, and which Ells came up with one day on a jog — is organized under a significantly leaner business model. The menu eschews the sprawling combinatorics of bowls for a simple, 10-item roster of meatless chicken sandwiches and burgers, salads, and vegetables. Skilled cooks at a central kitchen will prepare ingredients, which will be loaded into insulated totes and bicycled to perhaps a dozen small satellite restaurants within a close radius. Each of those locations will be staffed by just three employees and one robot, working together to cook and assemble orders.”

• “The Kernel model does not include manned registers, ordering kiosks, or even seating. Customers will place their orders ahead of time on Kernel’s app and, when the time comes, use an SMS code to unlock a metal cubby that contains their food.”

• “A ‘lean consultant’ named Scott Heydon led the Kernel team in mapping out the production of the menu action by action, stripping the process of extraneous movement. Says Heydon, ‘Our target was to produce one consumable item every 15 seconds.’”

• “To make a burger, the arm — an off-the-shelf model from the robotics company Kuka, modified with a proprietary gripper — grabs a small pan containing a patty and places it on a conveyor belt en route to something called an impingement oven, which blasts the patty with high heat and 65-mile-an-hour air currents to cook it rapidly.”

• “None of the tech on display here looks particularly space-age, but the Kernel team estimates it replaces the equivalent of around two employees. A smaller staff reduces expenses, potentially resulting in larger profits for investors, who might be inclined to see a business like Kernel more like a tech company and less like a restaurant company.” READ MORE

MANUFACTURING

Ben and Whitney Waxman, husband-and-wife co-founders of American Roots, are trying to prove that small manufacturers can still make things in America: “First, their company had to survive the pandemic. I followed them through the fall of 2020, as demand for American-made masks dried up when imported masks began flooding in again. That year, they tripled their annual revenue, hitting $3.6 million. I was with them through 2021, as they returned to the hard work of rebuilding their hoodie business. They struggled to find buyers for their apparel in a wildly uncertain time, forced to shrink their labor force to 45 while just clearing $2 million in revenue.”

• “I was with them through 2021, as they returned to the hard work of rebuilding their hoodie business. They struggled to find buyers for their apparel in a wildly uncertain time, forced to shrink their labor force to 45 while just clearing $2 million in revenue.”

• “I spent time on the shop floor and in the homes of their dedicated workers, many of whom are new Americans, who, with their families, had fled untenable, dangerous situations in the Democratic Republic of Congo, Iraq, Angola and other countries, and had found themselves in Maine, eager to build new lives there.”

• “Every day is a struggle. Sourcing American-made components — cotton fleece, zippers, drawstrings, buttons — is a constant issue, because the apparel industry has shrunk considerably. Finding and training workers requires a huge investment in time and resources.”

• “What do manufacturers really need to build a resilient domestic supply chain? Topping their wish list is universal health care, which would unburden small manufacturers of approximately $17,000 per worker with a family per year, allowing American companies to compete with foreign producers.” READ MORE

ECOMMERCE

For the first time, most online shopping this holiday season was done on phones: “In November and December, people shopping on smartphones accounted for around 51 percent of online sales, according to Adobe. That includes Greg Portell. ‘I had a few minutes to kill at an airport, clicked a few buttons and all of a sudden the big holiday purchase was done in five minutes,’ he said. When he’s not scrolling and shopping, Portell is with management consulting firm Kearney. That big holiday purchase? A record player for his daughter. And Portell said the retailer was smart — it offered him only a few choices. ‘There are hundreds of record players, and their choice of showing me these three was brilliant,’ he said.”

• “Vivek Pandya, a lead analyst at Adobe, said consumers are getting more comfortable using their phones for impulse buys. And retailers are pushing smartphone apps to build loyalty among time-pressed scrollers: ‘That really drives how they shop, when they’re shopping, and their comfortability shopping with one retailer.’” READ MORE

Amazon’s shipping speed helped it capture a higher percentage of online orders right before Christmas: “Amazon.com’s share of online orders spiked in the final days of the holiday shopping season, demonstrating how big investments in delivery speed paid off with procrastinating shoppers looking for a wide selection of products they could get quickly. Amazon captured 29 percent of global order volume in the final two weeks before Christmas, up from 21 percent the week of Thanksgiving and Black Friday, according to Route, a package-tracking app that captured holiday season data from 55 million orders.”

• “‘It’s a pretty sharp shift in how consumers shop,’ said Michael Yamartino, Route’s chief executive officer. ‘The top priority in the days leading up to Christmas is on-time delivery, and when Amazon says it will take two days, it only takes two days. It’s a combination of speed and confidence.’”

• “Amazon in July announced plans to double the number of same-day delivery facilities in the coming years. The company said it reached its fastest-ever delivery speeds in the second quarter of 2023.” READ MORE

HUMAN RESOURCES

A study finds most workers want to be back in the office: “In the uneasy tug of war between bosses and workers about how much time should be spent in the office, new evidence reveals that many employees think they should come in more often than they do. Office workers recently surveyed by an international architecture firm reported that they typically come into the office about half the time, but said they ideally needed to be there two-thirds of a typical work week for their best productivity. The workers’ attitudes mark a change from the early months after the pandemic, when most said they got more work done at home. ‘That has been a surprising evolution,’ said Elizabeth Brink, a workplace expert at architecture firm Gensler. ‘People find they are more productive at the office.’”

• “While some find it easier to focus working at home, others find themselves more easily diverted there. Pets beckon. Children demand attention. Roommates are too loud. ‘Then there’s all the laundry,’ Brink said.”

• “Some employees who say they most need the office are often held back by long commutes, small children who need care or frequent business travel, Gensler found. People working across multiple time zones often find it easier to sync up with counterparts when working from home.”

• “In its international survey of 14,000 workers in 10 industries last year to help its clients make design decisions, Gensler found the biggest gap between what employees do and what they say they should do is among younger generations. Gen Z and millennial workers in their 20s and 30s — more than their older counterparts — value the office as a place to focus on their work, socialize with colleagues, be part of a community, and grow professionally.” READ MORE

LOGISTICS

The Red Sea attacks are reigniting supply-chain concerns: “The shipping companies that move goods on one of the world’s busiest trade routes for factories, stores, car dealerships, and other businesses face an excruciating decision. They can send their vessels through the Red Sea if they are willing to risk attacks by the Houthi militia in Yemen and to bear the cost of sharply higher insurance premiums. Or they can sail an extra 4,000 miles around Africa, adding 10 days in each direction and burning considerably more fuel. Neither option is appealing and both raise costs — expenses that analysts said could ultimately be borne by consumers through higher prices on the goods they buy.”

• “Already, some companies, including Ikea and Next, the British retailer, have said that avoiding the Suez Canal and taking the long route around Africa could delay the arrival of products.”

• “So far, the problems in the Red Sea have not disrupted global supply chains to the same extent that the pandemic did. ‘But we are heading in that direction,’ [Marco Forgione, director general of the Institute of Export and International Trade] said.”

• “The cost of transporting a container to an East Coast port from China has soared to around $3,900 from $2,300 before the Red Sea attacks, says Zvi Schreiber, the chief executive of Freightos, a digital shipping marketplace. When the shipping logjam was at its worst during the pandemic, the cost could be over $20,000.” READ MORE

THE ECONOMY

Bankruptcies were up 18 percent in 2023: “Commercial Chapter 11 business reorganization filings shot up by 72 percent to 6,569 from 3,819 the year before, the report said. Consumer filings rose 18 percent to 419,55 from 356,911 in 2022. For the final month of the year, total filings dipped to 34,447 from 37,860 in November, though they were up 16 percent from a year earlier. Bankruptcy case counts are expected to keep climbing in 2024, though there is still some distance to go to top the 757,816 bankruptcies filed in 2019, the year before the pandemic struck.” READ MORE

THE 21 HATS PODCAST 

This Is What It Takes to Build a Business, Vol. 2: This week, we take a look back at the conversations we had last year, highlighting some of our happiest, smartest, funniest, and most difficult exchanges. Along the way, we discuss topics such as escalating salary demands, how much profit a business should make, a new way to sell a business, the problems with ESOPs, how to sell cookies on LinkedIn, breaking a million dollars in annual revenue, escaping the valley of death, and the pain of having to fire a long-time employee.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren