Healthcare organizations are seeing the emergence of a new customer—the individual. Along with the arrival of this new customer profile, healthcare organizations are also adapting to a new type of market—the business to consumer (B2C) market. The traditional group insurance market is moving towards a consumer-centric model where individuals are no longer delegating, but rather taking an active role in insurance purchase decisions. Under the Affordable Care Act, small employers are experiencing premium increases as a result of rating rule changes and minimum benefit requirements. So, fewer of them are offering coverage, driving more people to purchase individual plans. In addition, roughly 29 million uninsured Americans are entering the market, posing a significant opportunity for insurers. Consequently, individual coverage is growing, causing the healthcare insurance market to transform into a business to consumer model as opposed to a traditional business to business model.
Not competing in the B2C healthcare market creates multiple risks for insurers. The first is the inability to replace the potentially significant amount of group business that will shift to retail. The second is that traditional competitors will use the assets and capabilities developed for B2C markets to strengthen their group products. The direct-to-consumer access that characterizes B2C markets makes these opportunities even more attractive. In addition to the potential profitability of this market, an insurer’s traction can lead to complementary opportunities such as distribution and customer lifecycle management. Due to the structural advantages of the B2C distribution channel (i.e., less intermediation by third parties), the healthcare markets offer more ways for insurers to participate in coverage distribution, thereby capturing additional profits.
While customer acquisition costs can be higher in B2C than in group markets, the opportunity to cross-sell and develop a longer lifecycle relationship is greater in retail. In B2C healthcare markets, insurers can develop captive sales forces, win exclusive access to consumers via a retailer, and/or develop an exclusive co-branding arrangement. Since product ownership is attached to an individual, not to his or her employer, B2C markets also offer more potential to broaden consumer spending throughout the customer lifecycle. Insurers can capture additional value by retaining the customer through more stages of the lifecycle and by increasing retention during consumer transition points such as graduation from college or retirement.
Market growth will be driven by growing innovation as the transformation from a B2B to a B2C business model represents a major challenge. Insurers, for example, have introduced new individual products and product combinations and new distribution partnerships are emerging, allowing them to develop new capabilities. Success in the B2C healthcare market will mean putting energy and attention against six challenges:
- Dealing with significant and problematic uncertainty in individual market regulation and legislation
- Addressing the full spectrum of health and health-related financial needs
- Meeting growing consumer need for advice and guidance across healthcare interactions
- Turning consumer recognition into a total consumer brand
- Using distribution to reach consumers “where they are”
- Developing meaningful and actionable consumer insights
The B2C healthcare market is seeing a flood of new entrants and increasing investment from existing players. Market growth will be driven by competitor behavior and early movers in the individual major medical market will also experience strong organic growth. Some insurers have begun to offer traditional ancillary products to individuals, under their main brand or through sub-brands, while others have gained both members and additional capabilities through acquisition. However, effective implementation of this strategy will require insurers to act far more collectively. It will necessitate new system-wide standards and joint efforts to build capabilities.
The success and maybe the very survival of insurers in creating a winning strategy in the business to consumer retail market will need to focus on three key points:
- Consumers will need to have a positive experience with products and services across all marketing, sales and support channels
- Insurer will need to keep choices simple and easy to comprehend and limit the number of options available
- Insurers will have to empower consumer advocates as word of mouth will remain the top source of healthcare recommendations in the B2C marketplace
A high premium will be placed on faster decision making to keep up with the pace of change in the market. Even if change comes slowly, the impact on the industry will be significant, if not revolutionary.