Having started this blog on January 2nd, it’s almost mandatory to post a list of predictions for the coming year. So here it goes:
1. More Major Carriers Will Enter the California Individual Health Insurance Marketplace
Expect to see Humana, Golden Rule and maybe even CIGNA making serious efforts to capture a share of the market while current players increase their investments here. Why? The individual and family insurance market segment is too large a prize for serious national and regional carriers to ignore — even those who think of themselves as “big market” carriers. Nationally over 17 million Americans under the age of 65 purchase their own coverage. Another 12 million of the uninsured can, according to academics, afford coverage. That’s a lot of potential membership — and premium. Too much of each for carriers hungry for growth to ignore.
2. Carriers Will Experiment With New Distribution Strategies
Reaching this market can be a challenge. Most agents focus on group sales and distribution costs are expensive. Meanwhile, carriers are worried about the aging agency population. The “old days” of having life carriers recruit new agents, train them, and then watch as they migrated to selling health insurance are pretty much gone. So in 2007 watch for a leading carrier to introduce a captive sales force. (And no, I don’t have any idea which one). Some of the insurers already have captive phone-based agents and some already deploy captive field agents outside of California. All of them are nervous about agents’ reaction to a move like this. But one of them is likely to seek an “edge” and take the risk. They’ll try to shift attention to Kaiser distribution strategy, which is very reliant on direct sales, but I’m not sure this will help them.
3. A Carrier Will Try to Introduce Per Member Compensation
Distribution costs are an expense carriers watch very carefully. Because commissions are based on a percentage of the premium, agents receive a raise with every rate increase. A flat per member (or contract) fee, on the other hand, is an appealing alternative. Some carriers have introduced this in other states, but only Kaiser has been able to make it stick here, primarily because their distribution focus is on direct sales. The risks of this approach is high, but the lure of gaining a cost advantage on the competition is likely to be too much for one of the carriers (again, I don’t know which one).
4. Kaiser Will Seek to Work Closer With Agents in the Individual Market
Kaiser has a mission: to deliver excellent health care to its members at the lowest possible cost. This has meant keeping distribution costs to the bare minimum. Which has meant focusing on direct sales and offering agents only token compensation for bringing them clients. However, their experience in the small group market has shown they can do both — keep costs low while paying a competitive commission. There are several Kaiser executives who have worked successfully with agents, for example, Tom Carter and a recent recruit, Mitch Ross, formerly of Blue Shield. They understand the value of agents. And with new entrants to the individual market (see prediction #1), now is the time to reach out to agents. It won’t be easy for them to come up with a workable formula. But they’re smart and they’re motivated. This could be the year.
5. No Major State Health Care Reform in 2007
This is a cheap prediction. While health care reform is at the top of everyone’s agenda in Sacramento, the issue is too big and complicated, there are too many stakeholders involved with too many diverse perspectives, and there are too many other pressing issues demanding attention for the Governor and Legislature to work things out in one year. But watch out for 2008.
6. Mandates Become Viable
Health care reform that doesn’t bring down the number of full-time uninsureds won’t be viewed as meaningful reform. Yet too many Californians choose to avoid buying coverage (until after they have a need for it, of course). To get more dollars into the system, expect a mandate to be a big part of the health care reform debate. Personally, I can support this, but what terrifies me are how lawmakers and regulators handle the implications of this approach. Consider: if the government requires people to buy insurance then carriers must be required to accept all comers. And acceptable minimum coverage needs to be defined. Someone in Sacramento will call for regulation of the cost of this coverage. Which means they’ll want to regulate loss-ratios and distribution costs, too. It’s a slippery slope which, if not handled correctly, could have dire, unintended consequences for consumers, health insurers and health insurance agents.
7. More Musical Chairs in Carrier Organizations
We’ve seen a lot of changes lately at a lot of carriers. Expect more. With new carriers entering the market the demand for strong leaders with a proven track record and strong relations with agents will dramatically increase. And there’s a lot of good talent available. I haven’t talked to her lately, but I bet Lisa Rubino’s phone is ringing.
8. Online Sales Will Continue to Grow
eHealth, Inc.’s recent IPO demonstrated Wall Street’s belief in the future of online sales, at least in the Individual and Small Group markets. Personally, I’m making a strong bet on this distribution channel (just visit www.InsuranceNeighborhood.com to see what I mean). But it’s the increasing number of independent agents moving online that points to growth in online sales. Thousands of agents in California alone have the ability to sell medical plans online. And consumers are buying online at increasing rates. They like the ability to quickly compare rates and benefits from a variety of carriers and to shop anonymously and to do all this at all hours of the day and night. Of course, I believe they also want to have a local expert available to them to help assure they find the right plan. That’s at the heart of the Insurance Neighborhood approach. My prediction: consumers will want the best of both worlds. Which argues well for not only my company, but for every local agent who sets up a robust sales site, too.
So here they are, nothing profound or too whacky. Some of them quite obvious. The list could be a lot longer, too, but, eight will do. A year from now I’ll dust these off. If they all turn out to be true, expect to see a self-congatulatory posting on this blog. If they turn out wrong, well, hopefully I’ll have figured out how to delete postings by then.
In the meantime, I’d be happy to post your predictions. Just send them my way.