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Health Exchange Glitches Offer Lessons for Direct Insurance Sellers

Posted by Sam Friedman, Insurance research leader, Deloitte Services LP, on February 12, 2014

The technical glitches that have plagued the launch of the new federal health insurance exchange provide a cautionary tale for private carriers thinking of selling other types of coverage direct to consumers over the Web.

That is, you'd better make sure your online application, underwriting and pricing systems are functioning properly before you launch, because you may not get a second chance with prospects.

Public health insurance exchanges have an advantage that private carriers selling online may not necessarily share. Under the Patient Protection and Affordable Care Act, individual consumers are mandated to get health insurance either through their employer, purchased on their own, or via Medicaid or Medicare programs. Otherwise, they will have to pay a penalty on their federal income tax forms.

This means that at some point, once all the kinks and bugs are eventually worked out, millions of currently uninsured people will probably go to a state or federal exchange to shop for health coverage, regardless of how good or poor their first encounter with this new distribution outlet went, or whatever horror stories they might've heard in the media or from people they know. That's because they may have no other alternative, or may not be aware of other options.

Private carriers probably don't have that luxury. If a consumer comes to an insurer's site to research their options or actually buy coverage, only to be frozen out, confused, or frustrated because the processing technology either isn't working or is too complicated to follow, not only won't they be able to complete a purchase, but they may never return to try again. Unlike hard-to-find health coverage, there are just too many distribution alternatives for other lines in the traditional insurance market for most people to bother banging their heads against a virtual wall.

What's worse, take note of the negative publicity generated as tales of those who had problems dealing with malfunctioning health insurance exchanges went viral. Technical difficulties won't just alienate the individuals who have trouble buying insurance direct from carriers over the Web. Indeed, those who are disappointed and even angry about their initial online purchase experience will most likely share their war stories with family, friends, neighbors, work colleagues, business associates, as well as potentially with millions of others via social media. Such downbeat buzz could discourage people from trying the direct channel themselves.

This is a particularly valuable lesson for the latest newcomers to online sales — those marketing small-business insurance directly to a segment of 'do-it-myself' consumers, or those considering doing so.

Small-business insurers looking to sell coverage over the Web should follow the example set by their personal line counterparts, which appear to have generally delivered a very positive experience to buyers. Nine in 10 small-business owners and managers Deloitte surveyed who had bought auto, homeowners, or life insurance online were either satisfied or very satisfied with the process.

This finding is very important, because when slicing and dicing our data further, we found that 52 percent of those who had bought personal lines online (versus only 12 percent who had not) said they were likely to go that same route for commercial property coverage. The difference was even more pronounced for workers' compensation (46 percent versus 7 percent) and commercial auto (42 percent versus 8 percent).

Get the online customer experience right, and insurers are likely to have a much easier time generating direct sales momentum. On the front end, that means the application process should be intuitive and easy to navigate, while the straight-through-processing systems handling underwriting and pricing should be quick and reliable.

On the back end, after a policy is sold over the Web, claims reporting should be transparent and user-friendly. And while the emphasis with direct online sales is on tech-driven self-service, insurers should have live people available — via text, e-mail, phone and/or video chat — to answer questions and handle problems.

To drive home this point, note that lack of trust in the industry to handle consumers fairly was by far the biggest objection cited by those "naysayer" respondents who indicated in our survey they were not at all likely to buy small-business coverage direct from insurers online, without an agent or broker serving as an intermediary.

Part of that trust issue, I believe, might have to do with the fact that the vast majority of small-businesses have never bought commercial coverage online, and neither has anyone else they've encountered. That's because until recently, outside of commercial auto and professional liability, the opportunity to do so has not generally been available. Therefore, most are cautious and perhaps skeptical because they simply don't know what to expect.

That situation is likely to change dramatically over the next few years as more direct players join the handful of carriers that have already entered this emerging market. One of the big questions is whether carriers will be ready technologically to handle it. Are you? What challenges do you anticipate? What concerns do you have?

For an overview of some of these issues, check out our report, "Voice of the Small-Business Consumer: Are buyers ready to take the direct sales route?"

Sam Friedman is insurance research leader with Deloitte's Center for Financial Services in New York. He may be reached at samfriedman@deloitte.com.

As used in this document, “Deloitte” means Deloitte LLP [and its subsidiaries]. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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