Clover Health Investments (NASDAQ:CLOV) has been one of the year’s bigger disappointments. Other than a couple of days when CLOV stock was lifted by a short squeeze in June, the shares have been almost unrelentingly trending downward. With the latest decline, Clover’s shares are now down more than 50% in 2021.

This was an unwelcome turnaround from the company’s hot start. Clover was brought to the market by the so-called King of SPACs, Chamath Palihapitiya. The company seemed poised to disrupt a huge market — insurance. And the shares initially got off to a hot start.

Now, though, Clover’s shares keep going lower and lower. Is there any hope for CLOV stock on the horizon? While Clover still faces a tough road ahead, it’s at least starting to gain some positive momentum . That’s because Clover is getting back to basics and has begun to focus on improving its insurance business.

Clover’s Biggest Problem Is Poor Underwriting

While CLOV stock has had its ups and downs for a variety of reasons, the company’s core problem has been its underwhelming insurance offering. That issue was visible from the beginning.

Indeed, in a letter sent back in November 2020, the Securities and Exchange Commission (SEC) asked Clover: “Please specifically explain your repeated use of the term, ‘obvious’ as used to describe your Medicare Advantage plans, when you first use the term in the Summary, on page 1.” It turns out it was much less than obvious that Clover’s Medicare Advantage plans were better than those of its  rivals, including Humana (NYSE:HUM).

That wasn’t the SEC’s only concern about Clover’s prospectus. The agency also asked pointed questions about the cost advantages cited by the company, the growth of its membership, and its risks, such as the concentration of its customers in just a couple of metropolitan areas.

These points affected CLOV  stock significantly in 2021, as  the company’s earnings have been underwhelming. Importantly, its medical claims ratio (MCR) has been over 100%.

In simple English, that means that Clover has spent more on health insurance claims than it brings in via premiums. That breaks the first rule of insurance underwriting; don’t pay out more to policy-holders than you earn in premiums.

A Step Forward

Clover has blamed a variety of external factors, such as its Covid-19 expenses, for its unacceptably high MCR. However, other publicly traded health insurers haven’t had such high MCRs, making Clover’s explanation less credible.

Perhaps the company has actually struggled because its insurance offerings simply aren’t that attractive. And, as a result, it might not attract the most desirable clients. In banking and finance, it’s well-known that you tend to attract higher-risk customers if you rely on price-sensitive clients.

Clover can solve this problem by improving its core product. Since the insurer is supposed to be using technology to improve insurance, creating a strong, core product is very important for the company.

Clover recently announced a significant breakthrough in that area. In October, the Centers for Medicare and Medicaid Services (CMS) upgraded its rating of  Clover’s Preferred Provider Organization (PPO) plan to 3.5 stars

The vast majority of Clover’s revenue is derived from PPO plans.   The upgrade comes at a key time, as Clover plans to roll out offerings to many more geographic markets soon.

The Verdict on CLOV Stock

I’ve written numerous, negative articles about CLOV stock this year. And so far, I’ve been right, as the shares are trading near their 52-week lows .

Further, the news reported by the company has been bad, featuring Department of Justice inquiries, top executives leaving, bad earnings reports, etc. Clover has been a mess.

In my last article, I urged Clover to focus more on improving its core insurance product. After all, if CLOV stock is going to pay off for shareholders, the company needs to sell a better product. That approach — not short squeezes — is the route to sustainable value creation for the company’s shareholders.

With that in mind, the recent upgrade of Clover’s PPO plan to 3.5 stars is a good first step. That’s still not a great score, of course. And it’s unclear whether Clover has ironed out the problems with its insurance underwriting that have resulted in such lackluster profitability. To gain confidence on that front, we’ll need to see better earnings reports

However, let’s give credit where it is due: Clover significantly improved its core insurance product. That’s the sort of thing that could get the company back on track. After a rough year for its shareholders, this could be the start of a turning point for the company.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.