By Melissa Carruthers
In recent years the life and health insurance industry has felt the ripple effect of emerging technologies and the shift in customer expectations driven by changes in other sectors. While lagging behind in their responses, insurers are now on the cusp of transformation. In Canada, insurers, third-party administrators, advisers and consulting firms are particularly concerned with what the future has in store for their group benefits business, which made up approximately 39 percent of Canada’s 2016 total life and health insurance premiums.
The high-touch, high-volume nature of group benefits has a number of significant customer (both plan sponsor and member) friction points. These friction points are so important that they belong to the list of executive priorities.
In this article we explore how group benefits may evolve in Canada, how product development will be affected, and how carriers will look at gaining a competitive advantage through pricing and underwriting.
Amongst the forces driving change in the insurance industry there are five that are making incumbents reconsider their traditional business models and product offerings:
- Rapid shifts in customer expectations. Driven by customer expectations in other sectors, insurance consumers are demanding improved products and services. They are looking for transparency, enhanced digital capabilities and a more personalized experience.
- Emerging technologies and increased availability of data. Group benefits providers are looking to capitalize on the integration of third-party data with traditional datasets and emerging technologies to achieve operational efficiencies and gain insights to improve business decisions.
- Increasing competition. There are an increasing number of startups and InsurTechs that are targeting, through the use of technology, areas unaddressed by traditional incumbents. In addition, several specialty health care providers are becoming competitors of traditional carriers due to the increasing overlap in services between the two.
- Increasing plan costs. The sharp increase in specialty drug costs and the rising incidence of mental illness have driven plan costs up significantly in recent years. Sponsors and carriers are looking for opportunities to manage them.
- Evolving workforce demographics. Across Canada there are a growing number of contract workers, independent contractors, micro-businesses and millennials entering the workforce with new and varying benefit demands, which currently are satisfied, to some extent, by traditional benefit plans.
It is clear that one must understand the market’s direction and prepare for the future to avoid being left behind. While several carriers have started to respond to these market dynamics, there is no leader. On the brighter side, with uncertainty comes opportunity to create a new value proposition, refresh products, redesign business models and, in general, act strategically.
There are friction points and customer demands that will need to be addressed if a carrier wishes to achieve a competitive advantage, including five that are key:
- Balancing sponsor cost with member value. While managing plan cost is front and center in the minds of sponsors, group customers see benefits as a critical component of their talent retention strategy. With the commoditizing of group health and dental plans, nontraditional benefits are becoming more important. Members value benefits that (i) they understand and (ii) they plan to access in the short term such as health care spending accounts (as opposed, for example to life insurance). Benefit providers will not only need to manage costs but also improve customer experience and, crucially important, develop creative solutions that balance traditional and nontraditional offerings.
- Redefining your customer. Historically the plan sponsor has been the primary customer in the eyes of advisers and carriers. Evolving customer expectations and the increased frequency with which carriers interact with members are forcing carriers to pay more attention to members’ needs and expectations. While the sponsor may dictate the suite of benefits that the member has access to, member experience (onboarding, customer service, etc.) can strongly influence the plan sponsor choice of benefits provider. Products, services, communication and distribution channels must cater to both the sponsor and the member. Developing a deeper understanding of member needs and how they vary by segment (e.g., group size, industry, demographic, etc.) must be at the center of how insurers operate.
- Integrated market exchange. The reduction in benefits and the growing number of contract workers (who are not offered group benefits) have resulted in high demand for individual and top-up coverages. To date carriers have been unsuccessful in their attempts to cross-sell for numerous reasons such as the need of approval from the plan sponsor, unavailable personal data and problems of integration across business lines. However, driven by experiences in other sectors, members are increasingly open to more personalized marketing, particularly if the process is convenient. Should members express a desire to purchase insurance products (e.g., health, wealth and lifestyle products) from one convenient platform, sponsors may be more likely to grant providers direct access to members. Competing in the future will mean to provide members with a one-stop shop for all their needs, including nonstandard benefits. Marketing directly to members will require the integration of data from various internal business lines and operations. Ensuring you are equipped with the digital platforms and analytic capabilities will be foundational to attaining a competitive advantage in the group benefits market and ultimately across all lines of business.
- Adviser of the future. Product distribution has seen the greatest amount of disruption as new entrants and incumbents try to address unmet needs in the market. Small groups (groups that do not exceed 50 employees) are increasingly targeted with low-cost, pre-packaged offerings (including advice). Similarly, the shift toward a member-centric offering aims at establishing communication directly with members. However, with flexibility and benefit choice comes the demand for transparency and personalized advice. The ability to successfully target small groups and members via digital channels will be heavily dependent on the carriers’ ability to develop simplified products that support digital distribution and personalized advice. Mid-sized to large groups (100 or more employees) continue to rely on their relationship with the adviser and value face-to-face interactions. Identifying capable advisers will be increasingly important.
- Engaging in nontraditional partnerships. Leadership in the group benefits space will require new capabilities and the ability to offer nontraditional products. Technology and digital capabilities, which will require significant upfront investment and resources, will be difficult to build at the pace required to win in the market. For this reason, creating a “partner ecosystem” will be key to both managing fixed costs and creating differentiation. Hence, engaging with nontraditional partners such as startups, InsurTechs or health care specialists are expected to become common business models in the future. In this new environment, carriers will have to decide where they will position themselves within the value chain. They will need to identify their core capabilities and how to augment them with external partnerships.
The ability to design and distribute products and services in a way that adheres to the unique needs of the member while balancing cost and value will be key to success in the Canadian group benefits business. Success will require a review of current strategy, value proposition, capabilities and business models. It will be an exciting and a long journey with a promising outlook.
Melissa Carruthers, FSA, FCIA, is a manager in Toronto’s Monitor Deloitte practice. She can be contacted at firstname.lastname@example.org.