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Insurance Market Turbulence

We’re not quite in a hypercompetitive market, but we are definitely experiencing severe turbulence while effective underwriting and claims analysis is replaced by illogical market forces. The current pricing strategy employed by new entrants and Hartford mainstays, has introduced irrationality into an otherwise sophisticated underwriting approach. Our valued partners aren’t solely responsible. Compliance with the Affordable Care Act, complex funding strategies, and increased service level expectations, has led to consolidation in the broker distribution channel as well. This consolidation has left collateral damage, with some employing desperate tactics in an attempt to hang on. Here are the perspectives of three stakeholders:

The Insurance Company
It’s a land grab. With two mega mergers on the horizon, (Anthem’s proposed purchase of Cigna and Aetna’s proposed purchase of Humana) along with new market entrants vying for market share, turmoil reigns. This turbulence has impacted conventional underwriting practices. We continue to witness competitive pricing disproportionate to the risk acquired. In other words, “what’s it going to take to get the deal done today?” This unpredictability dilutes underwriting credibility but with seven or eight figure employee benefits budgets, many employers are naturally drawn to the short term gains offered by carriers willing to make irrational investments for their business.

Employers
With experience based renewals taking a backseat to market forces and new business credit, valued vendor partnerships are at risk as employers are correctly forced to question everything. As 30% renewals are reduced to 18% with the incumbent, and new market entrants subsequently bid flat or no increase, employers must strongly consider the short-term win. The irrational rating brings carrier credibility into question but six figure savings cannot be ignored. In an efficient market, potential fallout from network disruption, pharmacy and medical management, “switching costs” all play a major role in the decision process.

The Broker
Land grabs. Significant merger and acquisition activity locally and nationally, aging out of the old guard, combined with frantic offensive and defensive tactics alike, all contribute to some irrational decisions. The additional roles that a top tier broker has taken on; compliance expert, technology & administration support, specialty drug strategist, health improvement advocate, to name a few, has a positive impact on our client partnerships. The turbulent market however, can have a commoditization effect. In the municipal space for example, a 100% variance in competing broker service proposals is the norm. Price wars in the private sector are not the norm, but brokers with less than solid employer and vendor relationships are vulnerable to aggressive tactics.

Recommendation
Recognize the current environment as a normal business cycle. Trusted, long-term business relationships should prevail. Exercise a healthy skepticism when presented with the “too good to be true” alternative. In addition to price, a full vetting of potential new partners should include; customer service, financial viability, client on-boarding, technology, and disruption. If the cost benefit analysis reveals that a change is warranted, test the impact with potential stakeholders. Challenge the status quo solutions.

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