Disrupting Insurance Distribution
As more insurance distribution channels are being created, the potential disruption of the ordinary course of business for underwriters and brokers increases.
One of those channels, although details are hazy, involves Overstock.com Inc., a Utah-based e-commerce site that survived the dot-com bust by selling dying Internet companies’ inventories.
Since April 2014, Overstock.com has sold insurance, including auto, property, liability and workers’ comp for businesses, through an exchange where consumers receive live quotes, pick which the coverage they like, and then have a policy bound for them.
“Overstock’s mission is to offer high-quality products at low prices in order to save people money, and the launch of our insurance tab fits this mission beautifully,” Dave Nielsen, Overstock.com’s senior vice president, said in an email.
Or as the slogan on the Overstock insurance site says, “We Do the Work, You Do the Saving.”
But who is really doing the work … a.k.a., the underwriting?
Apparently, the underwriters’ names had been confidential, but when we asked Nielsen, he shared some of them: 21st Century, Progressive, Safeco and American Strategic (ASI).
Overstock.com is “seeing good traffic” on the site, Nielsen said, and he’s expecting to “see [sales] continually increasing month over month” as the company adds more products.
The logistics of claims and other policy-servicing depends on the carrier, Nielsen added. Overstock services some accounts in-house; others it transfers directly to carriers. But no matter what, policyholders contact Overstock first.
Most of the insureds probably care little about the identify of the underwriters, said Denise Garth, partner and chief digital officer at consultancy Strategy Meets Action (SMA).
As far as the insurance buyer goes, they’re a customer of Overstock.com.
“[Overstock is] definitely the channel where it’s been sold, and it’s the channel where the customer is going to go to for service,” Garth said.
And it’s just one channel of many it seems that are on the verge of disrupting well-tread insurance distribution networks.
In particular, according to a report from London-based market risk and consulting firm Finaccord, as many as 281 retail brands around the world are selling insurance, up from 232 retailers in 2010.
Global names like Walmart, Tesco, Marks & Spencer, and Carrefour are “leveraging” their brands and huge customer bases to sell mainstream insurance products, said Finaccord Director Alan Leach.
“They can supplement the thin profit margin that they can earn from their core business by selling financial services,” Leach said.
They wield data they already collect on their customers to empower cross-selling. If they know which of their customers buy pet food, they know which of their customers to market pet insurance to.
At this point, however, this trend of retailers selling insurance is “not so much” in the United States, Leach said, and in many cases, they’re selling personal lines products to consumers. (Walmart does offer an auto-insurance exchange in 19 U.S. states.)
Impact on Industry
But retailers are just one group the traditional insurance world must confront.
Some observers, like Garth, argue that this trend doesn’t just put the insurance distribution process at stake, but affects the industry’s business model as a whole.
Some of the savviest, brawniest, data-driven companies in the world are coming. Alibaba, of the recent record-breaking IPO, launched an online insurance platform in 2013 called Leyebao, aimed at Alibaba’s online store owners and their employees. Google forayed into the insurance space in the U.K. in 2012, with a car insurance comparison tool.
They’re coming because consumers apparently want them to.
“Competition in the insurance industry could quickly intensify as consumers become open to buying insurance not only from traditional competitors such as banks but also from Internet giants.” — Michael Lyman, global managing director, insurance industry practice, Accenture
In its report on this new competitive landscape, SMA cited an Accenture study that found that two-thirds of respondents would consider buying insurance from organizations other than insurers. About 23 percent said it could be Google or Amazon; 14 percent said retailers.
“Competition in the insurance industry could quickly intensify as consumers become open to buying insurance not only from traditional competitors such as banks but also from Internet giants,” said Michael Lyman, global managing director for management consulting within Accenture’s insurance industry practice, when he announced the Feb. 2014 research.
The disruption will not be as black and white as an Alibaba launching an insurance company or Walmart taking jobs away from Main Street agents. The invaders seem to care less about the means than the end result.
“They want to own a customer for a lifetime,” Garth said.
Their success at that could leave insurers as mere “manufacturers” of insurance products, and agents and brokers as mere customer service representatives, for the companies that will own consumer loyalty and lifetime customer value.
Increasingly Tough Market for Brokers
Brokers are facing an increasingly tough market, according to the latest best practices study by the Independent Insurance Agents & Brokers of America (IIABA).
The study, which the IIABA — or Big “I” — has been carrying out over the past 22 years, looked at the results of America’s top performing independent insurance agencies in six revenue categories, ranging from less than $1.25 million to more than $25 million.
The study showed that growth is continuing, but has slowed across the board in all sectors — especially compared to last year, when the review found some of the highest growth rates since 2008.
Madelyn Flannagan, vice president of agent development, research and education at the organization, said the “challenging environment” is affecting all agents.
“The CL [commercial lines] P&C market has softened again and the economy in many parts of the country remains sluggish, making it hard to achieve organic growth,” she said.
“New and different competitors entering the industry will always be a challenge, especially those with huge advertising budgets and the technology platforms to support their competitive edge.
“Independent agents have to be able to bridge that resource gap by offering significant value, which is harder to do for the more traditional, independent agencies. The world is changing rapidly but those that adapt are doing very well,” she said.
The IIABA study found that brokers earning less than $1.25 million saw increased net revenue organic growth of 4.6 percent in 2014, a decrease of 2.3 percent, from 6.9 percent in 2013. Similarly, agents in the $2.5 million to $5 million category saw 7.8 percent growth in 2014, which was a decrease of 1.7 percent, from 9.5 percent growth in 2013.
Brokers in the $10 million to $25 million category saw slight year-over-year growth, from 10.4 percent in 2013 to 10.8 percent in 2014.
“The independent brokerage market is being affected by several factors,” said Jeffrey Rieder, partner at Ward Group, which provides benchmarking and best practices studies for insurance companies.
“Price increases have slowed down and the rate of growth itself has slowed — brokers have been seeing price increases of 3 to 4 percent, where they’d previously seen 5 to 6 percent or more in some sectors.
“There’s also been a lot of mergers and acquisitions activity and this has led to a lot of consolidation that has seen the core force [of brokers] dwindling.
“The consolidation,” he said, “has been driven by the retirement of agency principals, agencies trying to maximize contingent commission payments and also trying to achieve economies of scale in the back offices.
“The low interest rate environment has also had an impact, with much more focus on underwriting profits, as opposed to 15 to 20 years ago, when there was an emphasis on cash flow to be used for investment purposes.
“While the cost of reinsurance is more affordable at the moment, many companies are able to keep more of the risks on their books due to very strong surplus positions,” he said.
The Promise of Technology
The field of workers’ compensation claims management seems ideally suited as a proving place for the power of technology.
Predictive analytics in the hands of pharmacy and medical management experts can give claims managers the data they need to intervene in troublesome claims. Wearables and other mobile technologies have the potential to give healthcare providers “real-time” reports on the medical condition of injured workers.
Never before have the goals of quick turnaround and transparency in managing claims appeared so tantalizingly achievable.
In the effort to learn more about technology’s potential, in September, Risk & Insurance® partnered with Duluth, Ga.-based Healthcare Solutions to convene an information technology executive roundtable in Philadelphia.
The goal of the roundtable was to explore technology’s promise and to gauge how advancements are serving the industry’s ultimate purpose, getting injured workers safely back to work.
Big Data, Transparency and the Economies of Scale
Integration is a word often heard in connection with workers’ compensation claims management. On one hand, it refers to industry consolidation, as investors and larger service providers seek to combine a host of services through mergers and acquisitions.
In another way, integration applies to workers’ compensation data management. As companies merge, technology is allowing previously siloed stores of data to be combined. Access to these new supersets of data, which technology professionals like to call “Big Data,” present a host of opportunities for payers and service providers.
Through accessible exchange systems that give both providers and payers better access to the internal processes of vendors, a service provider can show the payer the status of the claim across a much broader spectrum of services.
“One of the things I see with all of this data starting to exchange is the ability to use analytics to predict outcomes, and to implement workflows to intervene.”
–Matthew Landon, Vice President of Analytics, Bunch CareSolutions.
“Any time that we can integrate with a payer across multiple products such as pharmacy, specialty and PPO services, what it does is gives us a better picture of the claim and that helps us to drive better outcomes,” said roundtable participant Chuck Cavaness, chief information officer for Healthcare Solutions.
Integration across multiple product lines also produces economies of scale for the payer, he said.
Big Data, according to the roundtable participants, also provides claims managers an unparalleled perspective on the cases they manage.
“One of the things that excites us as more data is exchanged is the ability to use analytics to predict outcomes, and to implement workflows to intervene,” said roundtable participant Matthew Landon, vice president of analytics with Lakeland, Fla.-based Bunch CareSolutions, A Xerox Company.
Philadelphia roundtable participant Mike Cwynar, vice president of Irvine, Calif.-based Mitchell International, agrees with Landon.
“We are utilizing technology to consolidate all of the data, to automate as many tasks as we can, and to provide exception-based processing to flag unusual activity where claims professionals can add value,” Cwynar said.
Technology is also enabling the claims management industry to have more productive interactions with medical providers, long considered one of the Holy Grails of better case management.
Philadelphia roundtable participant Jerry Poole, president and CEO of Malvern, Pa-based claims management company Acrometis, said more uniform and accessible information exchange systems are giving medical providers access to see how bills are moving through the claims manager’s process.
“The technology is enabling providers to call in or to visit a portal to figure out what’s happening in the process,” Poole said.
Another area where technology is moving the industry forward, according to the Philadelphia technology roundtable participants, is mobile technology, which is being used to support adjustors and case managers and is also contributing to quicker return to work and lower costs for payers.
The ability to take a digital tablet to a meeting with an injured worker or a health care provider is allowing case managers to enter data and give feedback on a patient’s condition in real time.
“Our field-based case managers have mobile connectivity to our claims systems that they use while they’re out of the office attending doctor’s appointments, and can enter the data right there into the system, so they’re not having to wait until they are back at the office to enter critical clinical documentation,” said Landon.
Injured workers that use social media, e-mail and the texting function on their mobile phones are staying in better touch with those that are charged with insuring that they are in compliance with their treatment plans.
Wearable devices that provide in-the-moment information about an injured workers’ condition have the potential to recreate what is known in aviation as the “black box,” a device that will record and store the precise physical state of an employee when they were injured. Such a device could also monitor their recovery process.
But as with many technologies, worker and patient privacy also needs to be observed.
“At the end of the day, we need to make sure that we approach technology enhancement that demonstrates value to the client, while ensuring patient advocacy,” Landon said.
As payers and claims managers set out to harness the power of computing in assessing an injured worker’s condition and response to treatment, the cycle of investment in companies that serve the workers’ compensation space is currently playing a significant role.
The trend of private equity investing in companies that can establish one-stop shopping for such services as medical case management, bill review, pharmacy benefit management and fraud forensics has huge potential.
“Any time that we can integrate with a payer across multiple products such as pharmacy, specialty and PPO services, what it does is gives us a better picture of the claim and that helps us to drive better outcomes.”
— Chuck Cavaness, Chief Information Officer, Healthcare Solutions.
The challenge now facing the industry, one the information technology roundtable participants are confident it can meet, is integrating those systems. But doing so won’t happen overnight.
“There’s a lot of specialization in the industry today,” said Jerry Poole of Acrometis.
Years ago there was a PT network. Now there’s a surgical implant guy, there’s specialized negotiations, there’s special investigations, said Poole.
The various data needs to be integrated into an overall data set to be used by the carriers to help lower the cost of risk.
Securing Sensitive Information
Long before hackers turned the cyber defenses of major national retailers inside out, claims management professionals have focused increased attention on the protection of data shared across multiple partners.
Information security safeguards are changing and apply to what technology pros refer to “data at rest,” data that is stored on a particular company’s servers, and “data in flight,” data that is transferred from one user to another.
Mitchell’s Cwynar said carriers want certification that every company their data is being sent to needs to have that information and that both data at rest and data in flight is encrypted.
The roundtable participants agreed that the industry is in a conundrum. Carriers want more help in predictive analytics but are less willing to share the data needed to make those predictions.
And as crucial as avoiding cyber exposures and the corresponding reputational damage is for large, multinational corporations, it is even more acute for smaller companies in the workers’ compensation industry.
Healthcare Solutions’ Cavaness said the millions in loss notification and credit monitoring costs that impact a Target or a Home Depot in the case of a large data theft would devastate many a workers’ compensation service vendor.
“They’d be done in a minute,” Cavaness said.
The barriers to entry in this space are higher now than ever before, continued Cavaness, and companies wishing to do business with large carriers have the burden of proving that its security standards are uncompromising.
Workers’ compensation risk management in the United States is by its very nature, complex and demanding. But keep in mind that those charged with managing that risk get better results year after year.
Technology has a proven capability to iron out the system’s inherent complications and take its more mundane tasks off of the shoulders of case adjustors.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthcare Solutions. The editorial staff of Risk & Insurance had no role in its preparation.