The role that brokers will play in the future health market remains unclear. Earlier this year, several national payers announced that they would stop paying broker commissions on independent and family plans offered on the health insurance exchanges. Several more announced they would be cutting back on commission payments. In addition, private exchanges have the potential to disintermediate brokers altogether, as insurers bring their own consumer-friendly bundles and decision support to market. And yet… brokers’ consumer-facing (and consumer-friendly) capabilities position them for success in today’s shoppable market.
Here, Oliver Wyman Partners Chris Bernene and Howard Lapsley provide perspective on both sides of the argument and discuss what the future may hold for brokers.
Making the case: The broker is dead!
The broker channel is in secular decline and destined for the dustbin of history. Here’s why:
- The number of brokers is expected to decline by one-third over the next several years, according to an Oliver Wyman/Benefits Selling magazine survey. What the broker used to offer – expert advice, ability to negotiate down costs, and the ability to tailor solutions – is being supplanted and replicated (at a lower cost) by new technologies and models.
- Intense cost pressure on benefits is forcing an evaluation of all costs, including the cost of distribution. Payers are asking: Is there a cheaper way to get product to market?
- Some carriers have already begun touching the “third rail” of the broker equation – lowering commission payments and changing override structure – especially for brokers who are not in the top tier of producers.
- Alternative channels are proliferating; approximately one-third of employers say they are more likely to purchase benefits through a PEO or payroll administrator in the next three years. And though just 8 to 12 percent of employers are purchasing benefits through private exchanges today, 35 to 45 percent of employers (depending on segment) are strongly considering switching to this channel in the next three years.
- Purchasing benefits direct from the carrier is becoming a viable channel option. In fact, half of employers in the Oliver Wyman/Benefits Selling magazine survey are strongly considering this in the next three years.
Making this option especially attractive is the fact that platforms are increasingly taking the form of proprietary, carrier-owned exchanges. Consider: the Cigna/Namely partnership and Aetna/bSwift. The direct-from-carrier offering has a compelling value proposition: Lower cost, administrative ease, competitive and customized products, and bundled health and ancillary benefits.
Making the case: Long live the broker!
As has been the case for the past 15 years, reports of brokers’ demise are greatly exaggerated. Here’s why:
- Employers still need them. In fact, many employers continue to rely on their brokers as a trusted advisor. According to Oliver Wyman research, only 16 percent of small employers (fewer than 100 employees) say they are “less likely” to use brokers in the future. Meanwhile, large-group employers are mostly in wait-and-see mode on private exchanges and still need brokers to help select best-in-class and provide risk mitigation.
- Where employers are utilizing private exchanges, many of the exchanges are run by brokers/consultants (in partnership with technology vendors). These platforms are still fairly simple, but indicate that brokers can, in fact, adapt to the changing environment by utilizing and leveraging technology.
- Traditional channels (brokers, General Agents, Benefits Consultants) still represent more than 80 percent of the volume, underscoring the fundamental value of the traditional advisory role.
- Brokers can thrive in a multi-channel world. Consider the auto insurance world. Auto insurer Progressive sponsors an insurance marketplace (essentially a private exchange for P&C) that allows customers to self-select into their channel of choice –buy direct or be referred to a broker. The value proposition for each channel is different (pay more for the advice of a broker); but the decision is in consumers’ hands. And brokers have thrived in this model.
- The share of broker-driven business may decline, but after consolidation and shakeout, the surviving brokers will be stronger and better able to meet the needs of those targeted customers who value their services.
To quote the well-known commercial, tomorrow’s distribution landscape will not be “your father’s Oldsmobile.” The new omni-channel world is a vastly more complex, consumer-focused environment – more B-to-B-to-C than B-to-B.
But brokers are adapting and the successful ones are navigating the new landscape well, adjusting their business models, employing more sophisticated targeting, broadening their approach and product suite, and leveraging technology via partnerships or licensing arrangements.