Anthem announced Friday that it will purchase Cigna for $48.4 billion, a merger that will create both opportunity and risk for benefit brokers.
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Anytime there is change and potential disruption in the market, it creates opportunity for brokers to engage their clients by keeping them informed and guiding them through the inevitable worry and confusion, says Jim OConnor, president of employee benefits services at CBIZ.
Risk because it results in fewer health carrier choices for clients, which is not a positive outcome for our clients, he says. It also means risk because fewer carriers means greater leverage by the few remaining carriers relative to pricing, plan designs, broker compensation, etc.
Smaller, commission-based brokers could be the most adversely affected by the merger, OConnor says. I believe eventually the few remaining health carriers will do business with fewer mid-size and larger brokers, he says. Health carriers may also more aggressively move to eliminate broker commissions.
Brokers that are comfortable working on a fee-basis will be fine, but the majority of small and mid-size brokers still work on a commission basis, so this could be a real risk for them if they do not have the skill set or culture in their organization to engage clients on a fee-basis, OConnor says.
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This latest merger comes three weeks after Aetna agreed to buy Humana for $37 billion, leaving just three major insurance companies in the U.S. The deal will also result in less bargaining power for brokers, says Perry Braun, executive director of Benefit Advisors Network.
The arms race for market share limits options in the market place for brokers, he says. Fewer product companies creates challenges for agents to define themselves from one another. In addition, the compensation earned may change at the direction of the carrier.
If the consolidation continues, brokers will need to create additional approaches to serve a client ancillary product advising, HR advising, compliance review, vendor management, employee advocacy are all approaches to consider, Braun says.
OConnor agrees: The traditional role of product middleman has been dying off now for quite some time and this consolidation will accelerate that dynamic. An integrated approach to serving clients will be more and more important, he says.
OConnor recommends expanding voluntary offerings, which will help brokers add value to employer clients and serve as an additional revenue source. Brokers should also develop expertise in alternative risk approaches to health benefits, he says. These alternative risk models reduce the broker's and client's reliance on a shrinking number of large health insurance carriers.
With fewer insurers, its essential for benefit brokers to distinguish themselves from the carriers, says Wendy Keneipp, a partner and coach at Q4intelligence. Brokers need to make their sure their own service and value is so great and beyond the scope of simply the carrier products that they create a buffer and clear differentiator between their worth and the carriers contributions, she says.
Consolidation was inevitable
Consolidation among insurance companies was inevitable, Keneipp says. Weve been watching it in the broker world for several years now, and its natural to see the carriers move that direction, she says.
Still, she has reservations. Im not a fan of mega companies dominating the market, Keneipp says. The theory is that it will be good for the clients because of efficiencies and economies of scales, but it often doesnt turn out to be favorable.
Poor leadership through the consolidation process will kill the cultures, which creates increasingly unhappy employees, and that translates directly to the way the employees behave with the clients, she adds. Think Comcast and Time Warner Cable as examples of huge industry-dominating companies with unending examples of epically bad customer service.
And the insurance industry is one that must put client service first, Keneipp says. Were dealing with peoples lives, and we cant afford to have consolidation that limits the carriers need to compete to win business either from passionate customer service or financial competition with one another, she says. When those motivators are eliminated, the clients lose.
Ultimately, federal regulators and insurance departments at the state level will decide if the recent mergers will benefit the insurance industry and consumers, says Kelly Loussedes, senior vice president of public relations at the National Association of Health Underwriters. But, benefit brokers need to be considered as those mergers are reviewed, she says. Agent and broker involvement in this process is the ultimate consumer protection.
