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The quiet market for supplemental healthcare products suddenly finds itself in the spotlight. Traditionally sold through employers, supplemental coverage has run headlong into the realities of the “Great Resignation” and the rise of gig workers who now comprise one-third of the US workforce. For property and casualty (P&C) insurers, the shifting market is recasting supplemental healthcare as a prime business opportunity — if carriers can get past the myths and reach out to prospects in new ways.

Supplemental policies fill important gaps in coverage. The policies typically cover treatments and options not included in major medical plans, such as short- and long-term disabilities and dental, vision and hearing benefits. With 51% of the US workforce enrolled in low-premium, high-deductible health plans, supplemental benefit products also help offset steep out-of-pocket expenses by providing coverage of expenses related to chronic or debilitating illness.

Policy distribution, however, has collided with unexpected economic and cultural changes. In addition to pandemic-influenced workplace disruption, the market is seeing significant change in the key sector of small and medium-sized businesses (SMBs). Rather than rely on multiple providers to insure their employees, facilities and vehicle fleets, SMBs increasingly prefer a one-stop-shopping approach, relying on a single provider to gain a holistic view of their insurance coverage, including supplemental policies.

To reach prospective customers in the post-pandemic economy, providers of supplemental coverage increasingly need alternative distribution channels such as direct-to-consumer (DTC) and agent-assisted models. Insurers that have under-invested in technology will find themselves at a growing disadvantage, hampered by legacy product portfolios and manually intensive operations that lead to high administrative and medical loss ratio costs, especially as they compete against digital natives and insurtechs.

Five myths that keep insurers from getting ahead

Despite technology advances in areas such as policy and claims, we continue to see too many insurers held back by misconceptions that limit their growth in supplemental benefits and other high-potential markets. By confronting the myths and understanding the realities, they can expand product portfolios and establish new partnerships — and generate new revenue streams.

Myth #1: An attractive consumer-facing portal will solve our problems.

The reality: We often see insurers fall into the trap of expecting a great-looking portal to address the complexities of legacy products, risk assessment and servicing. Today’s customers want insurance that’s bought, not sold. This new paradigm requires a simplified, personalized customer experience (CX). Without modern core systems, even the sleekest portals lack access to the data and capabilities that generate the predictive insights and personalized CX customers expect. Although insurers’ consumer web sites have made huge gains, their B2B and B2C offerings continue to lag. Not so for insurtechs, which can assess risk classifications and then issue policies within minutes. Insurtechs’ all-digital platforms integrate easily with electronic health record players such as Human API and Dacadoo and data sources such as Experian and LexisNexis. But with a modern core platform and foundation built on data and microservices, traditional insurers can meet the same standard. We recently designed and implemented a solution that enables consumers to purchase critical illness coverage in 10 minutes rather than five days.

Myth #2: Building a wrapper around legacy processes and systems allows an organization to be agile and competitive.

The reality: While it saves time in the short term and offers a stopgap solution for customer service representatives (CSRs), building a wrapper falls short of the digital-first operating model that’s critical to delivering operational efficiencies and a competitive CX. The key is lack of integration. Because legacy core systems are built monolithically, they’re unable to integrate with a digital wrapper and as a result provide only limited capabilities. For example, they’re unable to deliver a near-touchless claims experience that provides approval and payment in minutes, not weeks. Delivering a modern CX takes a core platform that rapidly integrates with digital channels and provider systems such as physicians and hospitals.

Myth #3: Selling products outside the agency channel reduces agent loyalty.

The reality: Even as insurers open online channels like DTC, agents and brokers continue to play an important role in sales. Customer engagement is often more complex in the insurance sector, where policies have variables that consumers may need assistance sorting through. Potential DTC channel conflict is a universal problem for the P&C industry. A 2020 McKinsey survey found 55% of German customers prefer broker or agent assistance to buy insurance products. Given that Germany is regarded as one of the most mature markets for insurers along with the US, UK and Japan, we see strong parallels for the North American P&C sector. Based on our conversations with clients and industry analysts, we estimate the figure for supplemental benefit products, which typically feature greater complexities, is likely closer to 80%. The result is that agents shift to value-added advisory work. Because they’re no longer engaged in transactional activities such as filling in applications, they can sell more.

Myth #4: Core transformation is a multi-year, multi-million-dollar undertaking.

The reality: A modern core system for supplemental insurance can often be deployed in six to nine months.

Myth #5: Core insurance platforms are too complex for the cloud.

The reality: Insurers have made huge progress in cloud adoption, and growing numbers are considering more sophisticated applications. Ninety percent now use cloud technology in some form, according to a study by advisory firm Aite-Novarica Group. Heavy investments by Amazon Web Services and Microsoft Azure to address regulatory aspects, including HIPAA and PCI compliance, have helped to drive adoption. So has experience: Insurers’ contact center migration is a classic example of how cloud has become mainstream. CSRs working from home during the pandemic provided seamless, uninterrupted service — a feat many insurers could never have imagined was possible. Aite-Novarica’s study indicates three quarters of insurers are planning to expand their use of cloud computing in the next 18 months, and one third plan to “expand significantly.”

Core transformation for supplemental health insurance is no longer a question of “if” but “how soon.” For organizations looking to capitalize on the market opportunities and build long-term relationships outside traditional employer-employee constructs, maintaining the status quo isn’t an option.

This piece was authored by Sanjib Talukdar, Head of Cognizant’s Insurance Solutions.

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