Thoughts on Group Insurance - A New Year's Resolution
Readers of this blog have probably noticed a recurring theme when I write about the challenges facing the group insurance industry: Most (but not all) group insurance companies have very little data about the individuals covered by their plans. They get life-by-life census/exposure data at the time of sale, but they either don't keep it up to date or can't access it easily if they do. When it's time to renew the group coverage, updated census data is requested from the broker or employer, but after analysis it goes to the same place as the earlier data - which might as well be nowhere. Our underwriters tell me that there are group insurers who will even renew business without a census, for fear of "rocking the boat" or as an accommodation to a particular broker or client. As I've said before, this situation is not very different from what it was 25 or 30 years ago.
So far, there has been little or no "penalty" for this kind of behavior. Since companies that have high quality and accessible data are the exception, not the rule, it's been easy to "go along to get along" and continue to make do with poor quality exposure data, knowing that most of your competitors are in the same boat. Everyone agrees that we can and should do better, but somehow this rarely makes it to the "must do" pile. Groups are getting older and benefit amounts are increasing - we hope our pricing is keeping up, but we'll worry about that if and when the claims come in.
Even as the traditional group insurance business moves toward voluntary and worksite products - bought and paid for by individual consumers, not employers - many carriers are not improving their data capture and analysis capabilities. Yes, getting more people to enroll is important and a lot of effort is being expended there. But group carriers are doing very little to capture and leverage data to create lasting relationships with individual consumers. Michael Kelly, CEO of Fineos, a leading global provider of software solutions for the life and health insurance industry, puts it this way: "Group insurers must view their customers as both empowered individuals and members of a group. In the near future, it will be the individuals who decide whether or not the business stays with the carrier."
Why am I beating this dead horse again? Because I'm hoping that predictive analytics - the "big data" we're all reading and hearing so much about - might be the catalyst for lasting change. If group insurers can capture and update exposure data on the millions of individuals covered by their plans, they may be able to use predictive analytic techniques to "mine" this data to produce new and sustainable sources of competitive advantage. All of a sudden, the "penalty" for having little or no accessible data will go up, big time, and companies who are slow to react may never catch up. The few companies who have already fixed this problem are now moving in this direction, I'm sure. So are companies from outside our industry that we won't notice until it's too late.
Don't just take my word for it. The consulting firm Ernst & Young in a recent study of the U.S. life and health insurance industry wrote, "We believe that U.S. life and health companies must move from playing defense to taking the offense: Become more customer centric and adopt digital technologies to reach expanding markets; streamline operations to improve efficiency and resolve legacy systems; and invest in enterprise data excellence."
So, here's a New Year's Resolution for the group insurance industry: Let 2014 be the year that we finally get our data in order, so that we'll be able to compete in 2015 and beyond.