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 / Autumn 2010 / Issue 60(originally published by Booz & Company)


Health Insurance Gets Personal

Health plans must learn to build customer trust and loyalty — an area that represents heretofore ignored opportunities for many insurers. In much the same way that Harrah’s creates loyal relationships by using customer insights to offer carefully designed, added-value perks, health plans can link consumer insights with medical data to drive engagement and influence behavior. The most successful plans in the new retail era may be those that cement consumer relationships by serving as a valued partner — helping their customers access health and wellness services, make more informed decisions, and manage out-of-pocket healthcare expenditures.

Within the context of a retail market, health plans have to make important decisions about their brand, such as what brand equities and positioning they should adopt, and whether they should differ by the consumer segments that they are serving. Consumers will be paying attention to brands. In the Massachusetts Connector, for example, shoppers are using their awareness of health plan brands and brand reputations to quickly screen their options and simplify their choices.

Many plans should also consider how to diversify their revenue bases. There may be no other way to preserve margins in response to the ongoing price pressure on medical coverage from governments, consumers, and competitors. New sources of revenue can come from ancillary products, financial services, or other ventures, and from up-selling and cross-selling customers a suite of products designed to enhance profitability and retention. Our study of the Massachusetts Connector indicates that exchange customers will be very open to offers from health plans.

The relevance of these offers is essential, of course, and insurers will have to maintain a holistic view of their customers’ needs to craft “sticky” offers. USAA is a notable example in this regard. Founded in 1922 by 25 U.S. Army officers to insure their personal vehicles, USAA now offers a full spectrum of financial services from insurance to investment products and banking. This broad portfolio allows the company to tailor its offerings to the needs of its customers throughout their lives and gain high levels of cross-selling, up-selling, satisfaction, and retention.

Ultimately, health plans that choose to compete in retail markets in the U.S. and elsewhere may borrow a page from Aflac Inc.’s playbook in Japan. Aflac designed a portfolio of products for the Japanese market, which is characterized by a rapidly aging population and a government that is reluctant to pick up the tab for its citizens’ medical care. Aflac created a broad retail distribution network that includes Japan Post Network Company’s 24,000 offices, 354 banks, and 544 Aflac Service Shops. The company also built an extremely strong brand in Japan: In 2009, its ad featuring the Aflac duck and the maneki neko (a white cat thought to bring good luck in Asia) became the top-rated TV ad and the most popular cell phone download in that nation.

Mitigating risk. In its quest for near-universal health coverage, the health reform act purposefully upended the traditional risk management model used by health plans. No longer able to underwrite risk, insurers will need a new approach.

This new model will have to enable them to identify, attract, and retain new customers by appropriately tailoring and pricing health plan services to account for inherent risk, as well as aggressively managing the health and wellness of higher-risk customers.

For this model to work effectively, health plans must be able to identify the risk levels of consumers prior to purchase and set prices to attract these customers without surrendering the margins needed to support the customer pool. As Progressive has demonstrated in the auto insurance sector, this will require a deep understanding of consumer behavior and its outcomes, a superior risk model that utilizes multiple inputs, and a test-and-learn approach to continually lower risk and improve results. For example, Progressive discovered it could profitably supply motorcycle insurance to riders provided they were older than 30 and had no previous accidents, were college-educated, and had a credit score above 720. Health plans can follow this lead by using consumer marketing data and their deep knowledge of care outcomes to inform and improve their own risk models.

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