U.S. Life and Annuity Insurers Positioned To Address Shifting Tides in 2016

U.S. life and annuity insurers will enter 2016 in relatively good financial condition. Rapid advances in technology, rising customer expectations, and increasing competition will require insurers to reinvent their strategies, services, and processes, according a report by Ernst & Young. Global economic conditions, regulatory and monetary policies, and the political landscape are still concerns for the industry. Life and annuity insurers need to take decisive action to stay ahead of the curve. “After years of bolstering their balance sheets, life-annuity firms are in a strong position to invest in the innovations and technologies needed to fuel growth,” said Doug French, of Ernst & Young. According to the report, life-annuity insurers should focus on these six areas in 2016:

  1. Increase innovation: Insurers should create a culture of innovation, drive innovation through cross-functional teams, and share information openly across departments.
  2.  Reinvent products and services for the new digital customer: If insurers don’t respond to customer demands for greater digital access, better information, and quicker service, they will have a hard time attracting and retaining customers. Priorities in 2016 should include offering multi-device access for customers, providing clearer product information and pricing transparency, delivering more flexible solutions, improving customer engagement, and moving from focusing on products to serving as a trusted advisor.
  3. Adjust distribution strategies for technological and regulatory shifts: Life and annuity insurers may lose market share if they fail to adapt to a multi-channel world. Insurers should adapt services for new distribution models and explore the use of robo-advisors. Insurers need to prepare for new fiduciary standards, as the Dept. of Labor’s proposed fiduciary rule could upend existing distribution models in 2016.
  4. Drive efficiency and market growth: Insurers should determine whether their systems are ready for rapid market change. The assembly-line approach to policy quoting, issuance, and administration can slow application turnaround and detract from the customer and distributor experience. Companies also should ensure that their systems meet new regulatory standards. They should invest in next-generation processes and analytics, revamp IT systems built for simpler times, and consider partnerships to facilitate technology transformation.
  5. Hire the right talent: Insurers need to attract young, diverse workers to match emerging customer demographics and help drive innovation. Priorities for 2016 should include competing for the talent, offering more flexibility in work locations, finding creative ways to motivate and reward employees, and making diversity a priority.
  6. Place cybersecurity high on the corporate agenda: Leveraging social media, the cloud, and other digital technologies will expose life and annuity insurers to greater cyber risks in 2016. Companies will need to take a broad view of potential risks, such as cyber-attacks and reputation risks through social media. Insurers also should establish processes to monitor changing data regulations around the world since their data could reside in multiple jurisdictions and be subject to a variety of laws.

Hospitals Shift Strategies to Face Private Exchanges

The advent of private exchanges will be one of the biggest challenges for health care providers over the next several years, especially in light of the Cadillac tax for employer-based health insurance set to go into effect in 2018, according to James Bonnette, MD of the Advisory Board Company. “As health care purchasing behavior becomes more consumer-oriented, providers will be forced to develop new skills in consumer marketing. Providers don’t look at patients as consumers, but they need to understand them as consumers, the same way retail outlets do,” said Dr. Bonnette. “There may not be strong employer appetite to pay the tax, so the number of firms offering employees health insurance could shrink significantly. Consumers will generally choose high-deductible options, with supplemental plans, and act more like the price-sensitive consumers typical in other sectors of the economy,” he added. For more information, visit http://www.advisory.com/consulting.

Study Looks At WellPoint’s Post-ACA Strategies

The nation’s largest commercial insurer, WellPoint Inc., is transforming its products-and its provider relationships to prepare for the new healthcare market in 2014, according to an analysis by HealthLeaders-InterStudy. WellPoint has narrow provider networks in all 14 Blue Cross Blue/Shield affiliate states. This strategy supports narrow-network plans in the healthcare exchanges, which opened for enrollment October 1, 2013.

WellPoint’s previous model was based on broad networks that included almost every local provider. Because of the changes in healthcare reform, the company is offering smaller, cost-effective network options, said HealthLeaders-InterStudy Principal Analyst Paula Wade. Depending on how the larger commercial market responds to the narrow-network designs,hospitals outside of the narrow networks could face some real strain.

These narrow-network plans offer lower premiums for individuals and groups by excluding high-cost providers. The strategy allows these low-cost networks to be offered in its other commercial products. WellPoint is already offering narrow-network products and tiered-network products in its largest market, California.

WellPoint also rewards providers for managing the healthcare of patients with chronic conditions and keeping patients compliant with their medications.  For more information, visit www.hl-isy.com.

Individual Medicare Market to Get a Boost

Many employers are sourcing post-65 retiree health care coverage through the individual Medicare plan market or are considering doing so, according to a survey by Aon Hewitt. The ACA is causing more than 60% of employers to reassess their long-term retiree health strategies.

More than 40% companies that have decided to change their strategy for post-65 retirees are now directing retirees to the individual market for coverage, often accompanied by a defined contribution subsidy. More than half of companies that expect to change their post-65 retiree strategies indicate strong interest in this approach.

Maureen Scholl, CEO of Health Care Exchanges for Aon Hewitt said, “Individual market-based retiree health care sourcing strategies can create significant savings opportunities for all stakeholders. We expect to see many employers apply these strategies where possible and supplement them with modified group-based programs for those retiree populations where individual strategies do not make sense.”

Fifty-three percent of employers have altered or their Medicare Part D benefit strategies or plan to do so. Thirty-six percent of companies that have made changes, since 2010, have moved to a group-based Medicare Part D plan and another 21% anticipate doing so.

In 2013, 48% of of employers filed to collect the federal Medicare Part D Retiree Drug Subsidy compared to 63% in 2010. Only 18% plan to file for the subsidy longer-term. Milind Desai, retirement actuary at Aon Hewitt explained that employees had the impetus to take action with the elimination of the tax-favored status of the Retiree Drug Subsidy for 2013 and ACA-prescribed improvements to the Medicare Part D program. While many employers will continue to rely on group-based sourcing, they are likely to migrate toward more cost effective sourcing, he said.

Only 34% of employers offer local/regional or national group-based Medicare Advantage plans, and just 6% consider Medicare Advantage to be a viable group-based strategy. However, 38% of employers say they would consider replacing their group-based Medicare medical indemnity supplement strategies with a national Medicare Advantage PPO if there would be no change in retiree benefits and if it would generate near-term savings.

John Grosso, leader of Aon Hewitt’s Retiree Health Care task force said, “While ACA introduced a number of changes to the Medicare Advantage program, employers generally want to see consistent performance over time and a stable federal funding commitment before investing in these group-based strategies for the long-term.”

Some settlement strategies with a retiree benefit buy-out enable employers to eliminate their retiree medical commitment completely or in part. Employers are considering the following strategies: purchasing life annuities to provide a fixed income stream in lieu of ongoing medical coverage, establishing and funding a VEBA trust to support continued retiree benefits, or making direct cash lump-sum payments to retirees.

More than a quarter of companies say they would consider a retiree health care settlement strategy for all or a portion of their retiree group if it were cost-effective. Desai said, “We saw tremendous pension settlement activity during 2012, and that trend is continuing in 2013. Companies looking to shrink benefit liabilities…can explore…settling their retiree health care obligations as well…There are a number of tax, legal and market hurdles that limit the feasibility of settling retiree medical program commitments in a cost-effective manner, but this can change in the future.” For more information, visitwww.aonhewitt.com.

Employers Adopt Pay-For-Peformance Strategies

Fifty-three percent of large- and mid-size employers, surveyed by Aon Hewitt, are moving toward pay-for-performance payment models to promote cost effective, high quality health care. Jim Winkler of Aon Hewitt said that employers are beginning to work directly with health plans to reduce unnecessary expenses and create more efficiency in the way they purchase health care.

Thirty-one percent of employers adjust the compensation of health care vendors based on performance targets, and another 44% are considering doing so in the next three-to-five years. Just 14% of employers use integrated delivery models, including patient-centered medical homes. But another 61% plan to do so in the next few years.

Pay-for-performance is moving beyond measuring how fast customer service reps answer the phone toward a focus on fees and increases in medical spending. A growing number of employers are interested in shifting to reference-based pricing and value-based pricing over the next three-to-five years. Reference-based pricing limits benefits for specified procedures to a specific dollar amount. Value based pricing rewards performance based on patient outcomes.

Just 8% of companies limit plan reimbursements to a set dollar amount for certain medical services when there is wide cost variation. However, 62% are considering adopting reference-based pricing, which has been commonplace for prescription drug coverage.

Fifty-nine percent of employers plan to steer participants to high-quality hospitals or physicians through plan design or lower cost. Thirty-eight percent plan to participate in cooperative purchasing efforts with other employers or groups (coalition-based pricing). For more information, visit www.aonhewitt.com.

Employers Top Strategies for Controlling Healthcare Costs

EmployeesA report by Zywave’s revealed the top strategies that employers used to manage health benefit costs in 2012:

• While PPO remains the most prevalent plan type (43% of all known plans), there was a 5% increase in HSA plan types – from 16% to 21% of plans. This represents a common cost-control strategy as more employers shift to a consumer-driven model.
• The highest individual deductible option ($2,500) saw a significant increase over the past year, rising 7% in popularity. This supports the growth in HSA plan types, as HSAs must be accompanied by a high-deductible health plan. It also illustrates another employer cost-shifting strategy.
• The most common range for out-of-pocket costs stayed the same from 2011 to 2012, in the $2,500-$3,499 category. However, there was a noticeable shift toward higher out-of-pocket maximums across the board.
• Another cost-cutting strategy was to increase the prescription drug deductible.
• Though Rx deductibles under $50 remained the most common, the Rx deductibles over $250 now represent 25% of all plans – up 5% from 2011.

For more information, visit www.zywave.com.

Strategies Boost Employees’ Health

Certain employer strategies, such as consumer driven plans and wellness programs, are effective in motivating employees to improve their health, according to a survey from Aon Hewitt. Researchers surveyed more than 2,800 employees and their dependents covered by employer health plans. Sixty percent of employees who are enrolled in consumer-driven plans say they have made positive behavior changes related to their health; 28% get routine preventative care more often; 23% seek lower-cost health care options and 19% research health costs more frequently.

Seventy-eight percent of employees who are enrolled in consumer-driven plans are satisfied with the plans and 89% expect to re-enroll in this option for 2013. Ninety-seven percent of workers who have been in an account-based plan for two years or more say they plan to re-enroll.

Up to half of consumers would participate in a wellness activity that offered no financial incentive as long as participation was easy and convenient. Sixty-three percent of consumers would complete a health risk questionnaire for a monetary reward, and 62% would participate in a healthy eating or weight management program. Forty-eight percent would participate in a medically sponsored program to help them manage a health condition.

Fifty-eight percent of employers offer incentives for completing a lifestyle modification program (for example, to quit smoking or lose weight). About one-quarter offer incentives (monetary or non-monetary) for making progress toward meeting acceptable ranges for biometric measures, such as blood pressure, BMI, blood sugar, and cholesterol.

Eighty-six percent of workers who received suggested action steps based on a health-risk questionnaire went on to take some action, and 65% made at least one lifestyle improvement. Total health care costs per employee were $10,522 in 2012, and employers’ share of that cost was $8,318. When asked how much of the bill their employer pays, consumers significantly underestimate the portion their employers paid, guessing about half of the cost. For more information, visit www.businessgrouphealth.org.

Life Insurers Rethink Their Strategies for 2013

Life insurers are transforming their strategies in response to demographic, economic, and regulatory pressures, according to Ernst & Young. New players are entering the market, the largest carriers are gaining market share, and distributors are consolidating. Carriers are evaluating books of business for the ability to generate profits and diversify risks. Meanwhile, regulators are evaluating suitability standards, which could alter sales practices among distributors and insurers.  For many companies, the goal is to have a balanced product portfolio, in which no single line dominates the business.

The average household expenditure for life insurance has declined 50% in the past decade. So insurers need to consider offering new simpler products geared to younger consumers, such as term and whole life insurance and use digital marketing and mobile distribution, according to researchers.

Insurers need to pay more attention to the risk transfer and savings needs of young people while continuing to build a case for retirees and pre-retirees. These areas offer significant growth opportunities in 2013.

Business strategies need to change in the face of unrelenting interest-rate pressure. According to the study, “Many life insurers have responded by de-risking [sic] and redesigning products, writing down certain lines of business, and increasing reserves on a fair-value basis.” Insurers are likely to renew their focus on asset management and wealth management, rather than on costly and risky guarantees. Improving capital and risk management remains a priority.

Insurers will need to hire talent to invest in sophisticated modeling techniques. Insurers need to stay attentive to tax changes as the government seeks new sources of revenue. The Federal Reserve may issue new regulations to improve risk management. Also, the Consumer Financial Protection Bureau may expand its scope reviewing insurance products.

Proposed U.S. and international accounting standards will have a significant effect on life insurance business models. Insurers have to make sure that they can implement these new requirements. For a copy of the U.S. Life Insurance Industry 2012 Outlook report, visit www.ey.com/insurance.

Report lists 8 wellness strategies at top companies

A Buck Consultants report profiling wellness programs at 13 large multinational companies found key factors to success include creating a program that senior managers believe offers value to the company. Successful programs also ensure employees understand the reasons and goals behind wellness initiatives, enlist the help of local health professionals, and ensure accountability. EHS Today (10/12)

Last Updated 10/20/2021

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