The individual health insurance market has reached a defining moment. Demographic, economic and workforce trends point to a tremendous market opportunity. These powerful dynamics are creating favorable conditions for individual medical insurance:
§ Shifting work-force (self-employment, early retirement, small business formation)
§ Movement toward Consumer Directed Healthcare, High Deductible Health Plans and Health Savings Accounts
§ Decreasing employer-based coverage options with increased employee cost sharing
§ Favorable Federal tax environment
§ Growing numbers of “non-poor” working uninsured.
An estimated seventeen million people under age-65 are covered by an Individual Medical (IM) insurance policy. Thousands of new eligible policyholders continually enter the market every day. Almost 16% of the U.S. population is has no health insurance. Of these 47 million individuals it is estimated that 20 million could afford an individual policy with tax, employment or other purchasing incentives.
It’s Not Group
Historically, lackluster products, legacy technology, high-cost business acquisition and poor pricing characterized the individual medical market. Few carriers had the resolve to embrace new ways of doing business and learn from past mistakes.
What does it take for success in the Individual Medical market – get in synch with both customer needs and profitable risk management. IM insurance is a blocking and tackling business requiring intense data analysis, administrative efficiency, sales acumen and proactive customer service.
However, the most important factor for health plans considering Individual Medical is recognizing that it’s not group insurance. Time and time again, carriers substitute “group” experience in formulating and executing IM business strategy. They do not fully appreciate the essential differences between the two product-lines.
For example, when pricing an IM product, medical loss experience patterns are vastly different. Underwriting with the “accept/reject” rules has significant consequences on the long-term effect of risk selection and needs to be built into baseline pricing assumptions and performance benchmarks.
Selling is another critical difference. Prospecting and selling IM is a one-to-one venture, impacting both the number of sales agents needed and how they are supported. And, complementing traditional field distribution with telesales can make a significant difference in production volume. On the customer front, servicing individuals without the intermediation of a group’s human resource department takes different front-end customer service training and skills. Individual Medical isn’t group insurance!
Competition in the IM marketplace is at an all-time high as health plans seek growth opportunities outside the saturated group market. These plans know that they need to offer a market-segmented product matrix that includes serving the needs of individuals.
The individual health market has attractive fundamentals. There are favorable operating cash flow characteristics and, given current opportunities for strategic outsourcing, fixed cost overhead can be contained while deploying state of the art technology and operating processes.
A successful foray into the IM market requires disciplined accountability. Several areas of focus can be identified:
1) Financial Control
AAAAAAA At the financial core are solid risk management tools and premium adequacy --- a focus on pricing, underwriting guidelines and claims practices. Risk controls are targeted to properly designed products and various customer and distribution segments.
2) Operational Efficiency Competitive advantage will come from innovations in information technology and bandwidth that renders traditional health insurance backrooms obsolete. Alignment with the “right” partners (without yielding accountability) can leverage an investment in intellectual property to contain expenses and broaden a company’s reach.
3) Marketing Expertise Understanding your target customer, whether young invincibles, empty nesters or prime market self-employed, goes a long way to ensuring success. This means data-driven marketing and direct response skills able to deliver the most effective ways possible to connect with customers—capture attention and interest of target audience, answer the question “What’s in it for me?” and, a call-to-action that motivates prospects to start a relationship with your company.
4) Performance Benchmarks Business metrics need to be in place to measure performance across functions: underwriting and claim costs, staffing and productivity, sales production and risk management. These benchmarks need to be buttressed with a robust decision support capability to ensure mission critical information is available and actionable.
If you’re already in the individual medical market, but not meeting expectations, the cost of delay far exceeds the cost of action. Given IM pricing and cost structure volatility, there is a very short timeframe for crucial decisions if growth and financial results are falling short. A “wait-and see” approach can mean trouble comes fast in the form of an “underwriting death spiral” where healthy lives go elsewhere and severe anti-selection causes unrecoverable losses. These companies must act quickly to implement corrective actions and improve performance.
For new market entrants, the advice is simple - - - do it right! Study and learn from others’ mistakes. Establish a business platform built on disciplined management. Recruit knowledgeable leadership and engage expert external resources – risk and care management, marketing and telesales. Bring a commitment to change the way the market thinks about the individual medical insurance in terms of premium adequacy, product design, customer segmentation and sales distribution. Demand profitable growth. And always remember, it’s not group insurance.
For questions and comments contact:
Lindsay R. Resnick
Chief Marketing Officer
150 N Michigan Ave, Suite 2900
Chicago IL 60601