Frequent Life Insurance Selling contributor Maria Ferrante-Schepis (formerly Umbach) has been warning readers for years now about the possibility of an upcoming “Napster moment” in the life insurance industry — even as recently as our July issue. (See: Is Infertility Killing Independent Distribution?)
A Napster moment, Ferrante-Schepis says, occurs when someone who has no business being in your business swoops in and reinvents your business — putting you out of business. We’ve seen it happen before. Just look at what Napster and, later, iTunes did with the music industry. And the life insurance industry certainly possesses a lot of the hallmarks of a business ripe for reinvention — commoditization, a flight to the high end of the market, a growing underserved market, an imbalance in the supply chain.
Yet, no matter how much Napster moment predictions make sense, it’s easy to write them off. We often pay them as much heed as that downtown loony wearing a “The End is Near” sandwich board. It won’t happen to our industry, we tell ourselves. Or, it’ll happen, but not until I’m long retired. And then we get back to business as usual.
That likely won’t be the case much longer, though. This week’s Time has an article about a new player in the health insurance market — a little company named Costco. The big-box membership club formed a partnership with Aetna in April and is now offering individual health insurance policies to customers in nine states. It plans to roll out the program in additional states later this year.
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The health plans aren’t a particularly good deal. They’re about 5% cheaper than the individual policies Aetna sells, but a Costco membership is required to purchase them. According to the article, the deductibles for in-network care on a family plan range from $6,000 to $15,000. And customers are on the hook for $350 if they visit an emergency room and aren’t admitted.
So why would anyone buy one of these plans? Sheer convenience. There’s no need to call an agent, to set up an appointment, to drive over to an office, sit through a sales spiel and wonder whether this stranger has your best interest — or just his commission — at heart. Instead, people shopping for insurance can now head down the block, to a business they already trust, and quickly pick up a health plan with straightforward pricing — and maybe a 10-gallon tub of Spaghetti-Os while they’re at it.
It’s not much of a stretch to imagine Costco adding to its insurance lines if this venture goes well. After all, it’s not a store that’s built its reputation on offering a narrow, carefully curated product selection. It’s a one-stop shop that’s likely not going to see much point in offering health insurance to its customers while sending them elsewhere for life and disability — or even auto and home — policies.