Benefiting the Bottom Line
Employee benefits consultants and property/casualty brokers could see substantial gains as they move to take advantage of private exchanges for health care and other employee benefits.
Jim Blaney, chief executive officer, Willis human capital practice, said that offering clients private exchanges provides consultants and brokers with “a huge opportunity. … However, it’s all about gaining market share and converting new revenues.”
Roughly 30 million workers are expected to enroll in health care plans via private exchanges by 2017, “but costs and inertia could slow the adoption rate,” according Morgan Stanley research analysts.
“We think there are substantial market share opportunities for P&C brokers but large economic benefits will take years to materialize as they have to invest heavily to gain share,” the analysts wrote in a March 13 report, Private Exchanges: Friend or Foe.
For example, Aon Hewitt — which was “one of the first movers and the most vocal in private exchange efforts” — has invested roughly $100 million in its initiatives “which have not yet broken even,” according to the analysts. The firm has enrolled more than 600,000 members on its multicarrier, fully insured active employees exchange.
Aon executives were not available for an interview.
At Morgan Stanley’s Private Exchange Conference earlier this year, Aon said that it can overcome the cost gap and deliver up to 2 percent total savings for self-insured clients converting to Aon exchange.
A report by Moody’s offered a more positive viewpoint, concluding that the creation of private health exchanges “are credit positive for leading benefit consultants and brokers.”
“We believe the most successful exchanges will be those that minimize growth (or generate savings) in overall health care costs, rather than simply shifting costs from employers to employees,” according to a March 3 report.
Keys to success, it said, include building strong insurance carrier networks, guiding employees to select appropriate insurance coverage, promoting employee wellness, streamlining plan administration and ensuring compliance with regulations.
Blaney, at Willis, said that discussing its insurance exchange with clients and prospects is “a way to open doors,” as most employers are interested to learn more about both private and public exchange models.
“This gives us an opportunity to meet with potential new clients, build rapport and provide thought leadership and consulting. We are seeing an increase in new clients independent of whether they choose to use the private exchange,” he said.
Last year, Willis partnered with Liazon to offer clients The Willis Advantage, a private label of that company’s platform. Liazon, which was bought last year by Towers Watson, operates a multicarrier exchange with both self-insured and fully insured products.
“The Willis Advantage,” Blaney said, “is designed to be a consultative approach to help mid-market and upper mid-market clients consider the opportunity of advancing consumerism and possibly, a defined-contribution approach.
“We think our differentiation lies in our integrated health management capability aimed at addressing medical utilization trends,” he said.
The exchange includes built-in features such as incentive-based wellness options, health coaching, and disease-management programs, to help employees and employers drive down health care costs and increase productivity.
Over the past two quarters, interest in the private exchange has “spiked,” with 600 employers — both existing clients and prospects — considering adoption, he said. Two clients are currently on the platform, and another five are “in the queue.”
“The adoption rates for the mid-market seems to be evolving slower than adoption rates for the larger market, but in the next five years, I believe we are going to see a sizable migration toward defined-contribution funding approaches as employers seek to cap benefits costs and push more responsibility and accountability to employees,” Blaney said.
Mercer, the subsidiary of Marsh & McLennan Cos. launched its Mercer Marketplace in 2013. It currently works with 67 employers to provide medical and other benefits to 282,000 employees, retirees and family members.
The company recently expanded its service to offer access to individual medical plans via GetInsured, a California-based company whose technology platform powers state government exchanges.
Liazon, whose platform is used by more than 400 brokers — including Arthur J. Gallagher, Lockton and Brown & Brown — said larger brokers private label its platform, and can build in their own value-added support features, such as back-office capabilities, call centers, and employee assistance programs, said Managing Director Ashok Subramanian.
“This really enables brokers to leverage proven technology to wrap around their strategies, with a speed to market,” Subramanian said.
Smaller brokers use Liazon’s independent channel, Bright Choices, to save on costs, he said. Overall, Liazon has seen “an enormous uptick in usage over the past year, up 300 percent in 2013, from 2012.
“There is tremendous tailwind in the market for solutions like this among employers,” he said. “This happens to coincide with the opening of the public exchanges, but it’s not really related to that.”
Employers can also take advantage of private exchanges for retirees and older workers, such as Towers Watson’s OneExchange for Medicare-eligible individuals, said Bryce Williams, the consultancy’s managing director, Exchange Solutions.
“The Medicare market is so technical and highly regulated, that it’s less costly for them just to refer retirees to our exchange,” Williams said.
Currently, adoption rates are less than 5 percent, but Williams expects that in five to 10 years, adoption rates will rise to 50 percent, for employers who give their employees access to health care.
6 Non-Cyber Risks for Technology Companies
The Risk List is presented by:
Hot Hacks That Leave You Cold
Thousands of dollars lost at the blink of an eye, and systems shut down for weeks. It might sound like something out of a movie, but it’s becoming more and more of a reality thanks to modern hackers. As technology evolves and becomes more sophisticated, so do the occurrence of cyber breaches.
“The more we rely on technology, the more everything becomes interconnected,” said Jackie Lee, associate vice president, Cyber Liability at Nationwide. “We are in an age where our car is a giant computer, and we can turn on our air conditioners with our phones. Everyone holds data. It’s everywhere.”
Phishing Out Fraud
According to Lee, phishing is on the rise as one of the most common forms of cyber attacks. What used to be easy to identify as fraudulent has become harder to distinguish. Gone are the days of the emails from the Nigerian prince, which have been replaced with much more sophisticated—and tricky—techniques that could extort millions.
“A typical phishing email is much more legitimate and plausible,” Lee said. “It could be an email appearing to be from human resources at annual benefits enrollment or it could be a seemingly authentic message from the CFO asking to release an invoice.”
According to Lee, the root of phishing is behavior and analytics. “Hackers can pick out so much from a person’s behavior, whether it’s a key word in an engagement survey or certain times when they are logging onto VPN.”
On the flip side, behavior also helps determine the best course of action to prevent phishing.
“When we send an exercise email to test how associates respond to phishing, we monitor who has clicked the first round, then a second round,” she said. “We look at repeat offenders and also determine if there is one exercise that is more susceptible. Once we understand that, we can take the right steps to make sure employees are trained to be more aware and recognize a potentially fraudulent email.”
Lee stressed that phishing can affect employees at all levels.
“When the exercise is sent out, we find that 20 percent of the opens are from employees at the executive level,” she said. “It’s just as important they are taking the right steps to ensure they are practicing what they are preaching.”
Locking Down Ransomware
Another hot hacking ploy is ransomware, a type of property-related cyber attack that prevents or limits users from accessing their system unless a ransom is paid. The average ransom request for a business is around $10,000. According to the FBI, there were 2,400 ransomware complaints in 2015, resulting in total estimated losses of more than $24 million. These threats are expected to increase by 300% this year alone.
“These events are happening, and businesses aren’t reporting them,” Lee said.
In the last five years, government entities saw the largest amount of ransomware attacks. Lee added that another popular target is hospitals.
After a recent cyber attack, a hospital in Los Angeles was without its crucial computer programs until it paid the hackers $17,000 to restore its systems.
Lee said there is beginning to be more industry-wide awareness around ransomware, and many healthcare organizations are starting to buy cyber insurance and are taking steps to safeguard their electronic files.
“A hospital holds an enormous amount of data, but there is so much more at stake than just the computer systems,” Lee said. “All their medical systems are technology-based. To lose those would be catastrophic.”
And though not all situations are life-or-death, Lee does emphasize that any kind of property loss could be crippling. “On a granular scale, you look at everything from your car to your security system. All data storage points could be controlled and compromised at some point.”
The Future of Cyber Liability
According to Lee, the Cyber product, which is still in its infancy, is poised to affect every line of business. She foresees underwriting offering more expertise in crime and becoming more segmented into areas of engineering, property, and automotive to address ongoing growing concerns.”
“Cyber coverage will become more than a one-dimensional product,” she said. “I see a large gap in coverage. Consistency is evolving, and as technology evolves, we are beginning to touch other lines. It’s no longer about if a breach will happen. It’s when.”
About Nationwide’s Cyber Solutions
Nationwide’s cyber liability coverage includes a service-based solution that helps mitigate losses. Whether it’s loss prevention resources, breach response and remediation expertise, or an experienced claim team, Nationwide’s comprehensive package of services will complement and enhance an organization’s cyber risk profile.
Nationwide currently offers up to $15 million in limits for Network Security, Data Privacy, Technology E&O, and First Party Business Interruption.
Products underwritten by Nationwide Mutual Insurance Company and Affiliated Companies. Not all Nationwide affiliated companies are mutual companies, and not all Nationwide members are insured by a mutual company. Subject to underwriting guidelines, review, and approval. Products and discounts not available to all persons in all states. Home Office: One Nationwide Plaza, Columbus, OH. Nationwide, the Nationwide N and Eagle, and other marks displayed on this page are service marks of Nationwide Mutual Insurance Company, unless otherwise disclosed. © 2016 Nationwide Mutual Insurance Company.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Nationwide. The editorial staff of Risk & Insurance had no role in its preparation.