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
2015 General Liability Renewal Outlook
There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.
Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.
This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.
However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.
Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.
Flattening the GL insurance cycle
Any discussion of today’s stable GL market has to start with data and analytics.
These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.
“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.
With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.
The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.
Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual
Dynamic risks lurking
The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.
The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.
And today’s business environment presents many of these risks:
- Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
- Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
- Legal costs: Hourly rates as well as award and settlement costs are all increasing.
- Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law
David Perez outlines the risks general liability buyers and brokers currently face.
Managing GL costs in a flat market
While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.
With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.
And the key word is indeed “partners.”
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.
While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.
Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.
Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:
Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.
“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.
Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.
“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”
David Perez on managing legal costs.
Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual
“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”
While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.