Tag Archives: aflac

Group Insurance: On the Path to Maturity

The group insurance market shows real promise, but most carriers are still trying to determine the best path forward. Moving from being in a quiet sector to the front lines of new ways of doing business has shaken the industry and confronted it with challenges – and opportunities – that many could not have foreseen even a decade ago.

For starters, let’s take a look at where the market is right now. Three recent trends, in particular, are having a profound impact:

  • The Affordable Care Act, which has led health carriers to increase their focus on non-major medical aspects of the parts of their business that the legislation has not affected. In turn, this has led to intensifying competition.
  • Consumerism, which has resulted largely from workers’ increasing responsibility for choosing their own benefits. This has created disruption as employees/consumers have become increasingly dissatisfied with the gap between group insurance service, information and advice and what they have come to expect from other industries.
  • The aging distribution force, which means that experienced brokers/agents are leaving the work force and are being replaced by inexperienced producers at decreasing rates or are not being replaced at all.

Group players – which historically have been conservative in their market strategies – focus on aggressively driving profitable growth. To do this, they are concentrating on four key areas: 1) growing their voluntary business, 2) streamlining their operating models, 3) re-shaping their distribution strategies and 4) making significant investments in technology.

See Also: Long-Term Care Insurance: Group Plans vs. Individual

Group insurance is no longer a quiet sector of the industry but instead is in the front lines of developments in customer-centricity and technological innovation.

Growing the voluntary business – The voluntary market has been of interest to traditional group insurance carriers for more than two decades, but the success of the core employer paid group insurance business has resulted in a lack of robust voluntary capabilities. However, with employers shifting more costs to employees, voluntary products have become a key way to manage group benefit costs while expanding the portfolio of employee products.

Some carriers are expanding their voluntary businesses by offering a modified employer paid group product in which the employee “checks the box” to pay an incremental premium and receive additional group coverage (e.g., long term disability (LTD), life and dental). Other carriers are exploring models where employees can sign up for an individual policy at a special premium rate. The former example is a traditional voluntary product, while the latter example is a traditional worksite product. For most carriers, adding the traditional voluntary product is fairly straightforward because it is still a product that the group underwrites. However, more carriers are looking into the worksite product (which AFLAC and Colonial Life & Accident have executed particularly well) because, with the passage of the Affordable Care Act, some see a potential opportunity to reach small businesses that previously may not have been interested in group benefits.

Streamlining operating models – Group carriers also are trying to develop streamlined, cost-effective, customer-centric operating models. The traditional group insurance operating model has been built around product groups such as group LTD, short-term LTD, dental, etc. However, the product-based model is inefficient because it increases service costs, slows speed to market and fails to support the holistic views of the customer that enables carriers to serve customers in the ways they prefer.

Group insurers are now investing both time and capital to understand how to remove inefficient product-focused layers of their operations and streamline their processes to profitably grow. Many have focused on enrollment, which cuts across products and is a frequent source of frustration for everyone. Carriers are frustrated because they can spend days and weeks trying to ensure that everyone is properly enrolled in the right plan. Moreover, what should be a fairly straightforward, automated process often can require considerable manual intervention to ensure that employees are properly enrolled. In the meantime, employees are frustrated with recurring requests for information and the slowness of the enrollment process. Employers are frustrated by the additional time and effort that they have to expend and the poor enrollee experience. Producers become frustrated because the employer often holds them accountable for the recommended carriers’ performance.

Reshaping distribution strategies – In terms of distribution, private exchanges initially promised to connect group carriers with the right customers using extremely efficient exchange platforms. As a result, many group carriers joined multiple exchanges expecting that this model would put them on the cusp of the next wave of growth. However, success has proven more elusive than they expected, largely because they’ve spread themselves too thin across too many, often unproven exchanges. And, while private exchanges still offer great potential, many carriers have now begun to rethink their private exchange strategies with the realization that the channel is not yet a fully mature group insurance platform.

Investing in technology – Whether group carriers are focusing most on entering the voluntary market, streamlining operations or refining their private exchange strategies, successful in all these areas depends on technology. Group technology investments have lagged behind the rest of the industry. The reasons for this range from a lack of proven technology solutions that truly focus on the group market to downright stinginess and the resulting reliance on “heroic acts” and dedication of committed employees to drive growth, profits and customer satisfaction. However, viable technological solutions now exist – and they are probably the most critical element in the march toward effective data integration, efficient customer service and ultimately profitable growth. Every facet of the business –underwriting, marketing, claims, billing, policy administration, enrollment, renewal and more – is critically dependent upon technological solutions that have been designed to meet the unique needs of the group business and its customers. Prescient group carriers understand this and have been investing in developing their own solutions and partnering with on-shore and offshore solutions providers to fill gaps in non-core areas.

Whatever their primary focus – growth, operations or distribution – a necessary element for success is up-to-date and effective technology.

A market in flux

In conclusion, group insurance is in a time of transition. Major mergers and acquisitions have already started to reshape the market landscape, and existing players are likely to use acquisitions and divestitures as a way to refine their market focus. Moreover, new entrants are looking to exploit openings in the group space by providing the kind of focus, cutting-edge product offerings and service capabilities that many incumbents have not. These developments show group’s promise. The winners will be the companies that wisely refine their business models and effectively employ technology to meet the unique needs of new, consumer-driven markets.

Implications

  • We will continue to see group carriers focus on the voluntary market, especially traditional group-underwritten products. They will look to not only round out their product bundle by providing solutions that meet consumer needs, but also integrate their offerings with other employee solutions like wealth and retirement products.
  • Group insurers will continue to aggressively streamline processes to promote productive and profitable customer interactions.
  • Private exchange participation strategy needs to align with target markets goals, including matching products with appropriate exchanges. Focusing on participation means that group carriers avoid spreading themselves too thin trying to support the various exchanges (often with manual back-end processes).
  • Group carriers can no longer compete with antiquated and inadequate technology. Fortunately, there are now group-specific solutions that can make modernization a reality, not just an aspiration.

What Limelight Shows on InsurTech’s Future

Limelight Health, the winner of our start-up Showcase at our first Insurance Disrupted | Silicon Valley, gives a sense of what’s to come with innovation in insurance.

Limelight Health has a product called QuotePad, which is one of the first real-time, mobile, all-in-one quoting platforms for health insurance and benefits professionals. (The others highlighted at the Showcase are RigGroupHubroostJumpstart RecoveryZenehomeSureify.)

oneitl

Jason Andrew, CEO of Limelight, says what his company is doing is a harbinger of even bigger changes: “We are witnessing one of the largest transformations in the history of a multitrillion-dollar industry. New technology is changing the game for the entire insurance ecosystem. Quicker, more seamless data integration is changing the insurance process, from the way consumers research and purchase insurance to how claims are underwritten. As a result, companies large and small are sprinting to keep up with the demand for agile and integrated technology platforms that can harness this growing data volume and extract real value from it.  The largest carriers are now paying attention to big data, spending more money on research and bringing on data scientists to analyze and shape the future of insurance. “

As the industry moves from a legacy framework to a series of more connected systems with intelligent logic built in, all parties involved in the selling and decision-making process will be allowed to spend more time executing decisions and much less time on the administrative work that is a large and protracted part of the process today.

Andrew says, “For the health insurance market, which is fragmented with a lot of outdated systems that don’t connect or communicate easily, and where redundancy often leads to a high probability of error, we see this as being where QuotePad will make a significant impact on the insurance industry.”

Limelight Health was born in February 2014. Before that, the insurance technology boom had not fully launched, and it took several years of pitching, partnering and persistence to gain the attention of an industry that now supports the cause. Prior to 2014, no one was really interested in investing in insurance.

What we now know as #insuretech and #fintech was not the sexy vertical it is today. And we’re just getting started.

If you’re in the industry you are probably keenly aware of some of the changes that are coming, but not all. Please consider joining us for future Insurance Disrupted conferences, with our start-up Showcases. The next will be held March 22-23 in Silicon Valley. ITL readers receive a 15% discount here.

Organizer and host of Insurance Disrupted Conference: Silicon Valley Insurance Accelerator – SVIA

Innovation Partner: Insurance Thought Leadership

Conference sponsors: Aflac, Munich RE, Captricity, Zendrive, XL Innovate, Saama Technologies, CRC Insurance Brokers, Novarica

svia

 

Can You Trust the Aflac Duck?

I'm always a bit skeptical when companies report the results of self-serving surveys, so let's look at what Aflac — you know, the duck-spokesman company — said about a survey that indicated that offering disability insurance coverage to workers could drive workers' compensation claims down considerably. The survey found:

  • 42% of all companies providing voluntary accident and disability insurance report declines in their workers’ comp claims—some of as much as 50%.
  • Roughly 17% of employers offering voluntary accident insurance and 15% of those offering disability saw claims declines of 25% to 49%. The declines were most frequent for large employers, 55% of whom saw workers’ compensation claims drop. Of small- and medium-sized companies, 34% reported the same results.

Is this really true? Can simply purchasing disability insurance really lower the number of workers' compensation claims? Forgive me for immediately thinking that this sounds a bit like the marketing strategy of snake oil salesmen: “Buy one bottle of this magic elixir, and it cures everything from rheumatism to scarlet fever.”

I can think of three reasons why “purchasing disability insurance = lower workers' comp costs” may not be a valid equation.

1. Lower claims may not amount to lower costs.

In the exposure mod rating game, there is no question that lowering the number of claims can reduce the E-Mod and result in lower premiums. However, just because the claims are lower does not automatically mean that the costs are lower.

For example, if the claims reduced by the purchase of disability insurance were small medical-only claims or small lost-time claims, this would reduce the actual number of claims but may not have much of an effect on the E-Mod of a large company that also has more serious injuries. Sure, the number of claims may have gone down, but if Acme Co.’s comp costs stayed the same because of the presence of larger or more serious claims, does that really amount to a substantive benefit?

2. Disability insurance cost may exceed any savings on workers' comp.

What this survey doesn't tell us is how much companies had to spend on disability insurance coverage to realize the savings in workers' comp costs. In other words, did Acme Co. have to spend an additional $100,000 for the disability insurance coverage to save $40,000 in workers' comp costs? If so, that doesn't seem like much of a bargain – – spending $100,000 to save $40,000 (unless we use U.S. federal government math. . . . )

The survey didn’t give us this information probably because the costs to purchase disability insurance coverage would be different for every company surveyed, as would the savings (if any) from the alleged reduction in workers' compensation claims. Nevertheless, I don’t see how we can determine the validity of the “purchasing disability insurance = lower workers comp costs” equation unless we know the ratio of dollars spent on disability insurance vs. the dollars saved in workers comp costs.

3. Why would injured workers leave money on the table?

Let’s assume that Joe Sixpack is injured on the job. If his employer, Acme Co., has both disability insurance and workers' comp coverage, Mr. Sixpack now has a choice of how he seeks payment for medical care and payment of lost wages. The implied argument from the survey is that if Mr. Sixpack has the choice between the two, he will choose disability insurance over workers' comp, thereby reducing the number of comp claims for Acme Co.

But wait…does disability insurance pay for permanent partial disability benefits? Does disability insurance pay for permanent total disability? Does disability insurance pay benefits longer than the term specified in the policy?

Obviously, the answer to these questions could vary. However, in most states, workers' compensation coverage would pay an injured worker a lot more money than the type of disability coverage refererred to in the survey. I’m not attempting to argue that injured workers should choose workers' comp over disability insurance — but I am pointing out that claimants will typically choose whichever type of benefit will pay them the most money. If that turns out to be workers' comp, then it is doubtful that claimants would be so magnanimous as to choose to file a claim through disability insurance.

Finally, the state where Mr. Sixpack lives may allow him to file a comp claim after he gets benefits through his disability insurance coverage. The presence of disability insurance wouldn’t even amount to a reduction in claims if Mr. Sixpack pursues both avenues.

Bottom line: If you are considering the purchase of disability insurance coverage because it may decrease your workers' comp costs, make sure the math works. Ducks are cute, but I don’t trust their math skills.