Rumors have an intriguing side effect. Whether true or not, they open your mind to possibilities that never before existed. Earlier this year, reports circulated that one of the nation's most popular mass merchandisers considered building a private health insurance exchange.
At first, the concept sounded ludicrous. Imagine throngs of shoppers clogging the checkout line, negotiating details of family insurance policies with the cashier as they toss bathroom supplies and produce onto a conveyor belt. OK, we know in reality it wouldn't function this way, but for industry veterans, initially, the proposition didn't make sense. Unless you think outside the big box. From this perspective, it's a great idea.
Like this forward-thinking retailer, our own industry would benefit from advancing its collective mindset. We need to consider innovative possibilities, rather than cling to time-honored practices. We must expand beyond the walls of tradition that confine us. If we don't, these realities will lead to our demise:
- The economics of our business is changing
- The employee benefits distribution model is transforming
- New retail and carrier direct distribution models will alter the competitive landscape
- Carrier access will diminish
- Exchanges will both give and take away business, depending upon your capabilities
In this new world, conventional agency organization and infrastructure will not work. Evolution is mandatory.
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Dramatic shifts await firms serving groups of all sizes – especially groups up to 100 lives. This is the realm in which the vast majority of agents, brokers and advisors in our country operate. With the emergence of public and private exchanges, the entire playing field will be transformed. This dynamic will force enormous expansion of individual coverage and continued erosion of the small group market. There also will be a bifurcation by industry. Companies with high-salaried, full-time positions will require one approach to benefits; those with lower paid employees or part-time and temporary workers will have different needs. Whether an employer considers their employees to be an "asset" versus an "expense" might serve as a gauge to determine whether they retain group health benefits or devolve to individual coverage. At the same time, carrier access will be limited due to new distribution models. In much the way the P&C industry is organized, health insurance carriers will aggressively segment brokers.
Yet opportunity exists for those who can evolve. Two facts are certain during these uncertain times: every individual will need health insurance, and every employer will need an employee benefits strategy — which may or may not involve group health insurance. It requires more than the ability to read between the lines to reposition your agency. It demands new capabilities, infrastructure, expertise and scale.
Let's examine why:
- Longstanding relationships will no longer be enough to retain the benefits component of clients' business. To maintain viability, size and scale will become essential.
- Rather than rely on commissions, agencies will charge fees for services. The ability to articulate a unique value proposition will be crucial to success.
- Clients will require deep expertise to determine the appropriate strategy for their business, along with intensive consultation during the transitional period. Advisors will need sophisticated analytic tools, as well as the ability to expand their leadership team to include experts on health care reform, compliance and legal issues, plus others to manage the intricacies of public and private exchanges and carrier relationships.
- Individual employees will need help navigating the system. Advisors must enhance their bandwidth and infrastructure to customize communications, educate policy holders and support individual decision-making. Mandatory elements in a firm's repertoire will include online tools and call centers with dedicated personnel.
- Because medical plans will no longer be the centerpiece of many benefits programs, to maintain margins and enable growth, voluntary options must be sold as part of an integrated package that will feature improved, simplified products. Scale will enable advisors to negotiate directly with carriers to offer differentiated benefits and customized packages.
While firms may see the handwriting on the wall and WANT to change, the challenge is often that they cannot afford to invest in talent and infrastructure. And even if they do, they still will not attain the scale needed to operate in this changing environment. The solution for many is to partner or sell — and there are numerous companies with which to explore these opportunities.
Earlier, I mentioned retailers are entering the health insurance distribution game. Because we view this as an opportunity, we are now in extensive discussions with two such companies to partner with them in this process. How this comes together is still up in the air. The key for us is to make decisions and move forward with an eye on strategic alignment. It is not a clear path, but it is clear enough to make incremental decisions and move forward.
When it comes to agency partnerships and mergers, you can choose an "arranged marriage" that will position your firm to operate the way our industry has for decades – or a relationship built on attraction and mutual respect that enables your business to evolve into a more powerful entity. When considering your options, remember, the rules are changing. After all is said and done, do you want to be confined inside of a box, or have the freedom to operate beyond its boundaries?
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