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Unleashing Latent Value in Group Insurance
An article by Kevin Dunn, Vice President

July 29, 2019 – Group Insurance companies find themselves surrounded by a rapidly evolving competitive playing field shaped by new market entrants using technology to radically change the industry and healthcare companies seeking to combat margin compression by looking toward securing revenue from more profitable lines of business.

 

Health insurance companies pose a more immediate threat. They have access to the same distribution networks as group carriers and many have acquired non-health or group insurance companies. And while the integration of non-medical products in the form of bundling has not proven successful to date, when compared to group insurance companies, health insurance companies are investing significantly more in digital transformation and data and analytics – signaling that the clock is ticking for group carriers. Group insurance companies are particularly vulnerable because very little of their investments are allocated to grow or transform their data and analytics capabilities. Investment in data and analytics to date are primarily focused on running and maintaining existing, antiquated systems. Moreover, there is not much emphasis on integration (e.g. product consolidation) and limited agreement on what data assets mean. This is particularly true for midsize life and group companies.

 

When it comes to new market entrants, what makes these interlopers unique is they aren’t just technically savvy folks looking to build a better mousetrap. They are also marketing and sales organizations looking to crack a new market. They seek to offer customers what they want, through the channels they want, when they want at a lower price – they are not burdened by inefficient, unresponsive legacy environments, they are digital natives. According to a recent report, almost 30 percent of customers globally are willing to buy insurance products from tech companies such as Amazon and Google. This means that traditional providers must develop an operating model that can satisfy evolving customer preferences.

 

Many of these well-intentioned outsiders, however, don’t quite comprehend the inherent complexities of the insurance ecosystem. Things like the long tail of liability claims, state-by-state regulation, and the technical challenges of a data-heavy industry and their impact on product management and product development. Product development in the insurance industry is not a quick or easy proposition. There are many hindrances and so far these new entrants from outside the industry don’t appear to have the appetite for it – this is where traditional group insurance companies can have the advantage against this nascent threat.

 

Whether the threat to group carriers is from healthcare insurers or new market entrants, product proliferation can be used as a strategy to manage industry rivalry and deter entry. In a mature market such as insurance, most companies have a product in each market segment or niche and compete head-to-head for customers. If a new niche develops, the leader will get a first-mover advantage but soon all the other companies’ catch-up, and once again the competition is stabilized and industry rivalry reduced. Product proliferation thus allows the development of a stable industry based on product differentiation and not price – that is, non-price competition based on the development of new products. The non-price competition will also help group carriers overcome cutthroat pricing the digital natives hope to evoke. The battle lines would be drawn over a product’s perceived quality and uniqueness, not over its price.

 

Unfortunately for most group Insurance companies, they are hindered by a patchwork of applications. When it comes to product management they have applications, infrastructure, and employees as discrete, standalone entities and not as interconnected systems. They have built in-house legacy systems to meet their specific business needs but not necessarily the needs of their customers. Rather than focusing on developing an internal IT team to build a solution from the ground up, group insurer’s would be well-served integrating a commercially available platform that allows them to unlock the value currently trapped by these legacy systems and processes – one that consolidates all product data. That way group carriers can focus on their core competency and push these context activities (non-core such as software development and systems integration) off to those whose core competency it is.

 

Consolidating product data must be considered a strategic imperative for group insurance companies. Today upwards of seventy percent of insurance companies are exploring predictive modeling in the area of automated, simplified, or accelerated underwriting. A select few are leveraging data analytics and predictive modeling for new product development – particularly in the health and property & casualty segments. For example, in response to three states making it illegal to price products based on credit scores, some P & C insurers have used predictive modeling to develop new pricing models and products based on where consumers live or drive. When it comes to health insurers, some are using data analytics to identify customers who potentially have gaps in healthcare coverage (e.g. from high-deductible plans) to target for gap products like hospital indemnity and accident policies. For group carriers, product bundles, riders, add-ons could be developed similarly. Consolidating product data can help a group carrier:

  • Determine which variables outside the rating plan are predictive of underwriting results
  • Determine what is the most predictive rating variable
  • Better understand which external data can help more clearly understand price risks
  • Anticipate the needs of its insured’s and quickly answer those needs with relevant, useful products

 

Products for group carriers do not have to be confined to traditional indemnification or reimbursement contracts. Instead of writing a check when something bad happens, group insurance carriers can look to create a service that stops the bad thing from happening altogether, or at least mitigates the severity and/or cost. Services such as diet plans integrated with critical illness or life policies could reduce the severity of an illness or lengthen the life of an insured. Providing access to a network of urgent care centers integrated with a mobile application as part of an accident policy might reduce the cost of reimbursement and improve brand loyalty. Services if done right will lead to higher revenues and less volatile profits. Customers today do not want to buy a product; they want their problems to be solved. Having product data in a single data store will allow carries to collect and juxtapose additional data from disparate sources such as third-party apps (e.g. Social media) to determine customer preferences and customer behavior, allowing for the ability to synthesize that data into timely, granular recommendations – none of which can be done without first consolidating all product data.

 

There are immediate cost savings benefits too. Take policy amendments such as adding a rider for example – one that might apply to multiple products (e.g. Life Insurance, Long and Short-term Disability, Critical Illness). Every form typically goes through the same process for review – underwriting, claims, marketing, etc. Policy language must be agreed upon and in compliance with regulatory requirements. Having all product data consolidated into a single data store:

  • Provides efficient access to product form filings to identify controversial or non-compliant provisions in order to modify or supplement them on a state by state basis, ensure compliance with state requirements and limit DOI interrogatories
  • Facilitates the development of form libraries (e.g. policy forms, endorsements, applications, notices, etc.) for new insurance products
  • Enables a speedy, globally coordinated product launch via a large group of partners (e.g. campaign vehicles, channel partners to pitch to employers, etc.
  • Squeezes costs and delays out of the marketing value chain
  • Allow carriers to compile pertinent information from insurance statutes and regulations and organize it for ease of review and reference.
  • Allows the entire globally distributed enterprise to collaborate on the best use of product assets
  • Can isolate policy/claim characteristics that point to fraud
  • Provides the ability to Identify variables that provide insights to reduce litigation expense

 

Creating new or improved products and services to replace existing ones will play an important role in defending group insurance companies from existing or nascent market threats. Automating the product development and subsequent state filing process will be a critical component of success for group insurance companies in the future. It will become increasingly important for insurers to collect and analyze data in order to understand consumer behaviors and deliver products that match those needs. New product development requires a great deal of information from many stakeholders. As the speed of markets, technology, regulation, competition, and inputs increases and as more of these elements become critical to a particular product, the complexity, and speed with which a carrier acquires and analyzes information must also increase. In order for insurance companies to realize the many benefits of new product development as a first step, product data must be consolidated into a single data store. Once product data is in a central repository product development can be automated yielding increased speed-to-market and revenue, reduced costs, and improved accountability for compliance through a defined audit trail.

 

The question is not whether the data is available but rather is it accessible? Group insurance companies investing in new product development will be able to establish a fast mover advantage to differentiate with products and services in an increasingly competitive market.