Health exchanges pose opportunities and challenges for group life and disability products

The expansion of private and public health exchanges into more diverse insurance markets presents both opportunity and risk to group life and disability insurers. Exchanges promise insurers potential growth opportunities through new forms of distribution. Still, there is uncertainty as to how new business will evolve under these models.

Milliman’s Paul Correia authored a recent article in Best’s Review discussing strategies that group life and disability carriers should consider in marketing products on the exchanges. Here is an excerpt:

Pricing on Exchanges
Many group life and disability insurance companies are still developing their exchange strategies. Those that are considering participating in exchanges are giving serious thought to the inherent pricing challenges.

The lack of historical experience in this market segment poses obvious challenges. First, the demographics and risk characteristics of future insured populations are unknown. Some insurers speculate that exchanges may be popular among cost-conscious employers and first-time buyers of ancillary products, for example, but there are many unknowns, such as variations by employer size or location.

Second, future participation levels are unknown. Most voluntary group life and disability insurance products have minimum participation requirements to mitigate anti-selection risk. But it may be difficult to enforce these requirements in exchange markets.

One-on-one sessions with employees and group meetings at the work site have been effective for boosting participation, but these initiatives likely will not be integrated with exchange enrollment platforms. Insurers may be reluctant to refuse coverage to a case that fails to meet a minimum participation requirement on an exchange. They may also be pressured to dispense with minimum participation requirements entirely.

Finally, there are concerns over allowing plans to be split among multiple insurers. Disability and life insurers typically have been immune to this issue, although it is not uncommon in the large-group medical insurance market. The primary concern is that allowing employees to choose from among multiple insurers’ plans will exacerbate anti-selection risk. The consensus, however, seems to be that exchanges will not split disability and life insurance plans among multiple insurers in the near term, although this could be a subsequent development.

Enrollment and Administration
Group life and disability insurers understand that exchanges can provide valuable enrollment platforms for tapping into new markets. It is likely, however, that some exchanges will be better than others at providing enrollment and distribution support, and some may be able to provide administrative services that others cannot provide.

These insurers should pay close attention to capabilities such as the ability of an exchange to efficiently process changes in employee earnings, or the ability to effectively administer open enrollments of new hires. Exchanges that have solid front- and back-end capabilities should appeal most to group life and disability insurers.

Some group life and disability insurers have not invested in voluntary products and are now faced with the decision of whether to invest in these products and potentially participate in exchanges or not. Insurers that already operate in voluntary markets need to decide what types of products should be offered through exchanges.

Designing products that are attractive to employers is critical. Equally important is the ability to market these products on exchange platforms. Insurers are considering marketing strategies that take advantage of exchange formats. For example, insurers may see opportunities for distributing less-prevalent ancillary products, such as accident indemnity and critical illness insurance, traditionally sold through work site distribution channels. Because exchanges fundamentally facilitate sales of voluntary products, they could prove to be effective at bolstering enrollment and participation in these types of products.

To read the entire article, click here.

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