According to LIMRA, 50% of US households say that they need more life insurance. But fewer and fewer middle and upper-middle income employees are being served by traditional life insurance industry distribution channels. What if we created a new distribution channel for life insurance that reaches over 40 million employees a year? Would that be a helpful conduit to benefits decision-makers?
Private insurance exchanges Last year there were just a few hundred thousand employees in the US in private insurance exchanges. But, in May of 2013 Accenture estimated that private insurance exchanges will grow from 1 million employees in 2014 to 40 million employees by 2018. Unlike the public exchanges set up by government agencies to sell health insurance, a big motivation behind employers setting up private exchanges is to shift from a defined benefit to a defined contribution approach to funding employee health insurance.
This shift is having a big impact on the large employee benefit consultants. They are basically faced moving from their traditional institutional sales model to a direct to consumer sales model. In 2012, Towers Watson acquired private exchange direct to consumer marketer Extend Health, Inc. for $435 million and followed up this past November with the acquisition of Liazon for $210 million. Earlier this year, Mercer acquired private exchange direct marketer Transition Assist for an undisclosed sum.
So how will these investments by the large benefit consultants in growing direct to consumer sales platforms impact the life insurance industry? In a 2013 Mercer research report, half of all employers considering a private exchange said the exchange should provide access to a wide range of insurance products beyond health insurance. But benefits consultants have offered worksite life insurance products for decades, why will this shift to private exchanges disrupt life industry competitive dynamics? This brings us to the second driving force.
Wellness plan growth A 2013 report by the Rand Corporation on employee wellness plans provides a wealth of insight into the state of this market. If we take just employers with 50 or more employees, about 36 million employees have access to free biometric screenings (lab testing, BMI, BP, etc.) as part of their employer sponsored wellness plans as of 2013. About 16.5 million of those employees take advantage of these screenings each year. Thats more than all of the exams performed by life insurance companies in a year. As a result of recent Federal health care regulations allowing discounts of 20% to 30% of health insurance premiums for wellness plan participation, its likely that this 16.5 million employee number will grow dramatically over the next few years.
These biometric screenings position private exchanges to weave together direct self-service and sales rep support to make life insurance offers to employees who participate in a biometric screening. But an even bigger opportunity for the life insurance industry lies in creating products that fully embrace wellness. For example, why not develop products that link ongoing discounts to maintaining an age appropriate wellness exam schedule?
Last November IBM announced that they were making their Watson Platform (notable as the World Jeopardy Champion) available to developers via a Watson cloud infrastructure. Why not develop Concierge Wellness Advisory Riders powered by Watson or other cognitive computing technologies designed to improve employee health and deliver advice in the event of a new health condition?
The rise of private insurance exchanges and the growth of wellness plan participation will position these powerful new distribution platforms to capture a big share of the individual life insurance market.
Brian Mulconrey is president of BG Mulconrey, Inc,. with over 20 years experience in the life insurance and employee benefits industry (
