Solution Partner Views
Technology Challenges Await Life Insurers with New Hybrid Health Products
The landscape of insurance in the U.S. is constantly changing, but product differentiation will always be a major business driver for life insurers. In the 1990s, complex, investment-driven products were popular. The focus in the early 2000s was optional, derivative-based guaranteed living benefits.
These days the market is trending toward hybrid health offerings. As life insurers increasingly look to offer health-related products or benefits to remain competitive, they are evaluating their readiness and devising viable strategies.
Numerous factors are driving life insurers to consider health benefits and product features. Healthcare costs continue to skyrocket, leaving an aging population focused more on funding healthcare needs than saving for retirement. Employer limitations in health coverage are creating a greater burden on consumers to fill the gap, through individual coverage or voluntary benefits.
The global market is prompting U.S. insurers to introduce European-style products requiring greater flexibility to cover multiple insureds with disparate benefits. The Affordable Care Act is, of course, also spurring a great deal of change in the health market and new growth opportunities for insurers.
Preparing for Life/Health Hybrid Products
All of this market change, combined with continued M&A activity and the ongoing trend to migrate from legacy systems to a single modern platform, is prompting insurers to look for systems that also support health-related products and benefits, including the resulting health claims.
Unfortunately, many insurers still tend to organize the operation, processes and related systems based on product. Separate silos for each type of product focus (life, annuity and health) remain the norm, rather than the exception. There has been some commingling of life insurance and annuity operations, but health remains its own fiefdom in most insurance organizations. That said, the goal of keeping products fresh, innovative, and competitive is compelling insurers to include ancillary riders, so that traditional life insurance and annuity products are more health-care related.
Modern Challenges for Traditional Life Insurers
Health products and benefits are not cut from the same cloth as typical life insurance and annuity benefits. The inclusion of healthcare benefits presents a completely new set of challenges for the traditional life insurer.
Given that most insurance companies have been organized by product in operational silos, the traditional policy administration systems were fit-for-purpose based upon the products offered, usually resulting in separate policy administration platforms for life, annuities, and health processing.
Customer service representatives were trained on systems specific to their product responsibilities. Add in the M&A activity that continues to present its own technical and process challenges, and most insurers are finding themselves ill-prepared to support the new hybrid life/health product reality.
Built specifically for life and annuity products, most current life and annuity policy administration systems don`t support health, yet success or failure in this changing market will depend upon an insurer`s ability to process and auto-adjudicate at an extremely high level. For most life and annuity providers, this is unchartered territory.
With handling health claims a new reality, does an insurer attempt to custom-develop new claims capabilities in their existing administration systems, implement a separate claims system with a complex interface or do they have yet another good business reason to replace the legacy environment with a new modern system that offers greater flexibility and configurability? It`s not just claims. Offering health features in products brings additional regulatory requirements that are typically not supported on legacy systems.
Required skillsets also need to be considered. While the team might be exemplary at handling life and annuity processing and service issues, how well-versed are they in health claims? Health benefit features bring a whole new vocabulary the staff needs to master: family rate discounts, schedule of benefits, elimination and waiting periods, daily and lifetime maximum benefits, etc.. Let`s not forget about being able to support, as well as fully understand, health- related regulations such as HIPAA.
The latest trend of life insurance requires health products and benefits to sit alongside life insurance and annuities, presenting new challenges to both life insurers and annuity providers. The products, processes and regulations require planning, system support and automation that differ from other life insurance products and processes. Insurers who are able to adapt and position themselves to support the unique challenges associated with health administration and claims will enjoy a substantial market advantage.