Market Changes in Health Insurance
Digital innovation in health insurance can- achieve substantial SG&A cost savings (10-15%)
- decrease medical spending (lower-cost alternative services; customers are the major beneficiaries)
- drive organizational transformation
- change the operating model
- improve customer engagement and satisfaction
Disruption starts to impact health insurance
- healthcare has traditionally been slow on customer centricity
- digitally native firms are entering the market and could severely disrupt
- incumbents must react now to avoid irrelevancy
- VC investment in digital health is 4.5B p.a. (up 400% in 4 years)
Compared to other sectors
- heavy regulation is no protection for incumbents (compare financial sector)
- disruption takes about 5 years from tech innovation to industry change (compare music industry)
- P&C: disruptors lead with a direct-distribution model instead of broker-led sales
Changing customer behavior
- Consumers have become accustomed to online and mobile channels and will expect these from health insurance as well (during purchase and service)
- Incumbents shift IT budgets from core to digital capabilities (50% within 3-5 years)
- Tipping point for market shift when a) consumer change becomes widespread and b) network effects take hold
Digital Impact relies on Four Levers
Four levers
(and their combination) can yield significant improvements to health insurance:
Stronger connectivity: better engagement with all
stakeholders:
- For customers: more frequent interaction on the basis of personalized, omnichannel services that optimize care and allow for better health management.
- For providers: improved collaboration & coordination, optimized care delivery, better health population management.
Greater efficiency and automation:
- radically reimagine workflows to align with the health journeys of customers and other stakeholders
- e.g., a clean-sheet customer-centric online sign-up process with reduced escape rate and cycle time (as done by one health insurer)
Better decision making:
- Analytics helps to better understand customers & risk
- Optimize population health management
- Innovate around payments & products (e.g., customer segment focus)
Business Model and Care Innovation (Examples):
- Wearables monitor patients with chronic conditions
- Telemedicine, “virtual visits”
- Locate nearby providers
- Easy access to medical history
Recommendations
Customer Journey Redesign
- Identify customer journeys around enrollment, billing, claims, submissions/processing and issue resolution; in detail:
- Increase consumer awareness: product education and evaluation
- Enroll customers: inquiry, quote-to-card, billing
- Solve Problems: for customers, brokers and providers
- Pay what’s owed: claims processing, broker commissions
- Analyze and report data: broker reporting, etc.
- Help members take control: care management
- Help providers deliver better care: performance review
- Optimize the provider network: network design, credentialing
- Prioritize and analyze customer journeys; risk and stakeholder assessment
- Redesign and digitize to the fullest extent possible where value is high and risk is low
Organizational Redesign
- Break functional silos by creating cross-functional teams (XFT)
- include multiple business segments, IT and operations (BizDevOps)
- XFT teams work collaboratively on customer journey redesign and bring in different perspectives
- Leaders should set bold quantitative targets (e.g., 50% improvement in cycle time)
Resource Allocation
- Shift budgets from run to change to sustain the digital transformation
- Focus on a small number of high-priority journeys
- Focus on talent in the digital transformation team
Bimodal IT and Decoupling
- Adopt a bimodal IT approach to enable rapid digital innovation
- Integration can decouple the innovation layer (which supports minimum viable products, fail-fast, quick development times) from the stable core
- Integration should standardize around data models and functional services
- Standardize existing data models within the legacy infrastructure
- Create reusable standard service interfaces to avoid point-to-point integration
- Start from the customer: Customer Journey end-to-end digitization
- Break functional silos: cross functional BizDevOps teams with clear mandate
- Create measurable targets for each team
- Resource allocation and budgets: reallocate investments
- Focus on talent: get and retain digital talent
- Maximize value of two-speed IT: digitally enable legacy infrastructure
The ITMC Take
McKinsey describes the business case of digitization for the health
insurance sector in terms of bottom line results and improved customer
satisfaction. The bigger picture however is a win-win situation for health
insurers and their members: Business model innovations have the potential to
improve the quality of care while driving down medical cost. While the details
are not clear yet, the impact of innovations can be enormous. Analytics,
wearables, connectivity work in concert to steer members towards low-cost
prevention and a healthy lifestyle, create awareness and enable them to better
manage their health through personalized recommendations. Some customers and many providers may cringe
at this prospect. But the rapid consumerization in healthcare through wearables
demonstrate that many customers want to take responsibility for their health.
Health insurance must develop the necessary digital capabilities to respond to
future market developments now.
