3 Trends Shaping the Life-Health Market

On June 28, 2012, in National Federation of Independent Business v. Sebelius, the U.S. Supreme Court ruled 5-4 to uphold the Affordable Care Act’s (ACA) individual mandate to buy health insurance as a constitutional exercise of Congress’s taxing power.

Almost exactly three years later, in King v. Burwell, the Supreme Court also upheld the ACA’s outlay of premium tax credits to qualifying persons in all states for both state and federal exchanges.

The ACA is here to stay—and will continue to transform the life-health marketplace for years to come. What else is on the horizon for this variable line of insurance? Here are the top life-health trends poised to shake up the marketplace in 2016 and beyond.

1) Private exchanges continue to evolve.

A number of questions still surround the ACA: Will it ultimately rein in health care costs? Will the excise tax take effect eventually? And what impact will minimum loss ratios have on independent agents?

Against this backdrop of uncertainty, the popularity of private health exchanges continues to grow.

Private health exchanges initially originated to help employers outsource the administration of retiree health benefits. Encouraged by passage of the ACA, companies then turned to a growing number of private exchanges to provide ACA-compliant group policies to their employees using a defined contribution model and multi-carrier exchanges. Following the economic recession in 2008, health care costs grew almost three times faster than the average salary, providing another catalyst for private exchanges to take hold.

According to a survey of employers conducted by the Private Exchange Evaluation Collaborative, 46% have implemented or are continuing to consider private health insurance exchanges as a way to offer health benefits to their covered populations.

Company size is a big determining factor in whether or not a company will consider a private exchange: Small and midsize firms show greater interest than larger ones. A survey from Accenture reports that midsize companies—those with 100-2,500 employees—continue to fuel growth of private health exchanges. Accenture also reports that 35% more people than last year have enrolled in their employer-sponsored health care benefits on private online marketplaces. While that growth was below expectations, Accenture’s research estimates that 8 million people enrolled—up from about 6 million in 2015.

Among the 200-plus private exchanges in the marketplace, some specialize in retiree health benefits, while others focus primarily on active employees. Some exchanges work only with large employers or fully insured employers, while others tailor coverage for self-insured employers. Some only offer health plan choices from certain insurance carriers, while others cast a wider net for plan options. And some are owned by insurance carriers themselves.

Evaluating exchanges, then, begins with an understanding of the employer’s demographics and requirements. That means agents and brokers must provide a valuable service when analyzing the multifaceted aspects of selecting a private exchange. A number of larger brokers have created their own private exchanges, investing millions of dollars in the process.

In order to deliver the efficiencies employers want from exchanges, the private exchange must offer a cohesive set of plan options across all lines of coverage, vendor types and plan designs. With this growing array of options comes greater configurability to meet an employer’s specific needs.

2) New players enter the game.

The concept of “disruption” is nothing new in a capitalistic society. From Henry Ford’s zealous introduction of mass production to labor-saving inventions such as Cyrus McCormick’s reaper, innovation has created dramatic efficiencies while simultaneously displacing the status quo.

For the most part, service industries haven’t experienced the shockwaves others faced when new technologies emerged, thanks to their reliance on human expertise. But now, innovators are using highly sophisticated technology to eliminate intermediaries, enabling consumers and businesses to self-service their needs. At the same time, many companies have started diversifying into other business lines in order to achieve synergy with their core business.

Consider payroll service companies like ADP and Paychex, which have emerged as property-casualty insurance competitors by offering health and retirement services, workers comp and other product lines. Meanwhile, major alphabet brokers have been acquiring independent agencies and employee benefits firms to focus on midsize employers. The larger brokers and agencies typically provide a broad product offering, including employee benefits, which enables them to open the door to sell p-c products and services once they establish a relationship with an employer.

In January 2016, Fidelity announced its entry into the benefits business as a broker. According to the Boston Globe, “Fidelity will act as a broker, selling the plans of traditional insurance providers and competing against hundreds of other agents and brokers for that business.” This complements the company’s investment management, retirement services, benefits outsourcing and payroll services.

One of the more meteoric benefits disrupters, Zenefits, has come down to earth after revelations of sophomoric behavior at corporate headquarters. Additionally, Zenefits reportedly used a program called a “macro” that helped salespeople skirt California regulations requiring health insurance brokers to have 52 hours of pre-licensing training. The macro enabled salespeople to stay logged in to an online course even while they were sleeping or pursuing other activities. In the wake of these revelations, Zenefits CEO Parker Conrad was forced to resign.

But agents should not dismiss firms like Zenefits and Gusto that are providing a mix of technology and human resources-related services in return for receiving a broker of record letter for clients’ p-c insurance. What can independent agents do to offset the threat of these potential disruptors?

The answer is to embrace what the marketplace requires by investing in technology and staff that gives your clients access to information 24/7 in an easily retrievable fashion. If your agency isn’t capable of offering these solutions, partner with other firms that can.

But remember, you can’t be all things to all clients. Sometimes, the right answer may be exiting the segments where you can’t compete.

3) Millennials want life insurance.

Independent agents sometimes lament that their clients are lukewarm about purchasing life insurance. And long-term industry data supports that complaint: According to LIMRA, sales of individual life insurance policies have dropped 45% since the mid-1980s, and about 30% of all American households have no life insurance at all—up from 19% 30 years ago.

But it has probably escaped most agents’ radar that application activity for individually underwritten life insurance posted its largest historical year-end gain in 2015, up 2.7% year to date, according to the MIB Life Index. Continuing the expansion of the last two quarters of 2014, application activity progressively gained momentum across all four quarters of 2015—suggesting continued growth in 2016.

Most notably, for the first time in the history of the Index—which began in 2001—the 0-44 age group led all others in year-over-year growth at the close of 2015, closing out the year at a record-breaking +3.9%. Rounding out the demographics, ages 45-59 were up 0.7%, while ages 60 and above were up 2.3%.

McKinsey & Company predicts that it is possible for the U.S. life insurance industry to return to its former levels of growth if insurers focus on building value propositions that connect with consumers’ concerns about lifestyle and income preservation in retirement. According to McKinsey, four factors have been hindering the growth of the U.S. life insurance industry: poor market positioning, “pain points” that degrade the customer experience, low consumer engagement and failure to adopt new technologies to meet evolving consumer preferences.

Three major life insurers have recently started or purchased businesses designed specifically to engage millennial customers. MassMutual opened a Generation Y-friendly hangout space near Boston in October called the Society of Grownups that offers financial education through supper clubs and wine tastings. Northwestern Mutual bought millennial-focused financial planning company LearnVest for $250 million in March. And Pacific Life funded Swell Investing, which launched in March and helps tech-savvy investors buy stock in companies that support their favorite causes.

The question, then, is whether independent agencies are effectively positioning their assets to capture the 25-44 cohort by utilizing social media to discuss the importance of life insurance and present relevant topics that increase financial literacy. Millennials begin their investigation of virtually any purchase online. Try boosting your agency’s organic search results by providing information on your website related to beneficiary designations—especially involving minors.

And take a fresh look at your office layout. Is it inviting? Does it encourage people to stop in and take advantage of a wireless connection, have a cup of coffee and mingle? Do you have a flat screen television tuned to a financial channel for clients and prospects to enjoy and learn when they stop in?

The data indicates that young people are purchasing life insurance. Is your agency taking steps to reap the benefits?

Dave Evans is a certified financial planner and an IA contributor.