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4 factors reshaping the benefits market

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The employee benefits industry has officially arrived in a new era. I’m calling it the age of “coopetition.” Think of it as cooperative competition. I didn’t coin the phrase, but it aptly describes the predominant force at play in our field today. I can’t give you the exact start date — although a line in the sand may have been drawn the day the Supreme Court upheld health care reform. Honestly, it doesn’t matter. What is significant is that we are no longer doing business the way we did even one year ago.

See also: Q&A: 10 things you need to know about the PPACA ruling

Many of my days are spent talking with benefit advisors, carriers, technology firms and businesses about how they can work with our company to bolster their position in the marketplace. Other days, I’m in discussions with outside entities trying to set up agreements to leverage our mutual assets.

Either way, many of these conversations are with businesses that once might have been considered our competitors — or that perceived us as their rival. In some cases, we are forging connections with parties who never have been on our radar.

More than 200 years ago Napoleon Bonaparte pronounced, “There are only two forces that unite men — fear and interest.” The remark is germane to our current state of affairs. Initially, I think both elements were at play when these dialogues commenced. Now, in boardrooms and on endless conference calls, I observe excitement emerging about what possibilities we can create together.

The central theme? How we can align and collaborate to mutually benefit from new marketplace dynamics. The outcomes? Heretofore unimagined strategic alliances, partnerships, outsourcing engagements, mergers and acquisitions. Ultimately, we are reshaping the benefits industry.

After literally hundreds of encounters, some topics are proving fertile ground for potential cooperative engagement, including:

1. Technology: The technology most important to our future is not what our industry has invested in during the past. This crucial need must be rapidly addressed. Our next-generation vitality will be tied to enhanced communication platforms directly with employers and individuals, new multi-media educational tools and decision support software to help them become better health care consumers. We also need to harness data to create tools and resources that deliver meaningful intel and transparency about price and quality.

2. Exchanges: Health insurance exchanges are not a death sentence. We must stop considering them a threat and focus on the opportunity. Through this lens, they become a market complexity requiring client advisory services. If we cannot generate a commission’s worth of value by competing against the “DMV of health care” in each state, shame on our industry. Those of us who can help employers navigate through the morass will capture market share.

3. Consumerism: Our view of the client must expand through the employer to the consumer.This is core to survival downstream, yet demands a significant structural transformation for traditional agencies. Most advisors do not possess the tools, resources and technology to make this change. Aligning with those who do may be one key to the future. 

4. State politics: Whether you are in a red or blue state may impact your economic outlook more than anything else. Consider what’s happened in New York. Because the Department of Insurance limited premium increases, a major carrier pulled out of the under-50 market. And, thanks to legislative changes in Vermont, many brokers in the under-50 market will soon be out of the health insurance business. Through our own alliances, our firm will enjoy dramatic growth in Vermont with both a private exchange and an interesting collection of new business partnerships. It is essential to track political developments in your state and band with others to advocate for your interests and/or create new approaches to business.

The carrier conundrum

While all of these issues are important, we cannot ignore the need to evolve our relationships with carriers. In essence, health care reform provided a pretext for carriers to accomplish several objectives they already desired to transform their own business strategy.

In addition, carriers are devising innovative solutions to address concerns about affordability. Both factors impact our business. In many markets we have already dealt with the realities of compression. Next on the horizon: broker segmentation, direct sales and possible product access issues for many firms.

There is strong evidence that access to products will change on a market-by-market basis. Brokers will be segmented according to the size of their book of business and ability to grow. Larger firms will have greater options and choices for their clients; smaller ones may get squeezed out. Volume and reach will become essential to survival. Here’s where partnering or merging with an outside entity could deliver great value to brokers, particularly those specializing in small business with few, if any, middle market accounts.

There also are rumblings of another colossal shift. Carriers eventually may manage their own captive (direct) sales and retention teams, beginning at the smaller end of the market. In this environment, the pressure on advisors to prove their value will multiply exponentially.

And finally, perhaps some good news. We are going to see new risk-bearing entities and products emerge to provide counterweight to community rating trends and public exchanges. Among the possibilities: PEOs, captives and self-funding solutions down to fewer lives, ACOs and private exchanges. These could offer compelling opportunities if your firm is positioned to take advantage of them.

As we approach 2013, the concepts of collaboration and cooperation take on new significance in the employee benefits industry. We must work together to maintain relevance with our clients and carriers. I’m reminded of the words of another important historical figure that seem particularly pertinent. At the signing of the Declaration of Independence, Benjamin Franklin said, “We must all hang together, or assuredly we shall all hang separately.” Indeed.

For more from Mike Sullivan, see:

The merger: Are you in it for love or money?

The key to future success? Disruptive innovation

Building a team for the future


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