Top Challenges Facing The Insurance Industry

Challenges in the insurance industry for insurance companies, insurance agents, healthcare providers and consumers - Benefytt Technologies

Whether it’s technological innovations, new insurance products, or regulatory updates, the insurance industry faces a diverse mix of challenges on a daily basis. 

That’s why insurance companies, insurance agents, and healthcare providers need to embrace the new wave of doing business. After all, the race to acquire and retain customers is on.

This holds especially true for the health insurance industry: A 1.1 trillion-dollar industry that has more than 5,800 active companies in the United States.

In this article, we’ll mainly focus on health insurance industry challenges and the key players involved, including:

  • Insurance Companies
  • Insurance/Medicare Agents
  • Providers (Doctors, Hospitals, Healthcare Systems), and
  • Consumers/Policyholders

Challenges Facing Insurance Companies

As an overall observation, we’ve seen 4 main challenges that health insurance companies face: 

  1. Keeping up with insurance technology
  2. Maximizing big data for insurance
  3. Customer acquisition and retention
  4. Keeping up with regulatory changes

Challenge #1: Keeping Up With Insurance Technology

We’ve covered how innovative technology like big data, artificial intelligence (A.I.), and other insurtech solutions have helped insurance carriers to be more agile, efficient and intuitive organizations.  And there’s proof: A survey from Accenture shows 71% of insurers agree that emerging technologies will bring extensive change to their business.

Yet, the insurance industry is still keeping its old systems and old ways of handling business. In fact, more than 50% of insurance executives recognize they’re behind other industries with the implementation of new technology.

Still, it’s a huge undertaking for insurance companies to keep pace with the ever-changing technology landscape.

For example, some insurance companies may lack resources to upgrade their commissioning, new business, underwriting, policy administration and more. And updating core information technology (IT) systems can be risky and costly. 

It could also be difficult to get senior level “buy in” for such a complex and expensive project when the return on investment can’t be quantified.

3 Technology Solutions for Insurance Companies

Modernizing Legacy Systems

Legacy modernization refers to updating all or some IT systems to better support business goals, processes, and operational efficiencies.

But insurance companies don’t have to build a new insurance system from scratch.

Let’s look at an example:
One European property & casualty insurance company faced a claims system that was outdated and incapable of supporting advanced digital technology. So the company decided to “refactor” its technology. This method allowed the P&C to upgrade to modern technology while keeping the key features that matter to its specific business needs. In other words, it didn’t reinvent the wheel.

Building Proprietary Platforms

Insurance companies that have sufficient in-house resources can invest in developing its own proprietary platform to keep up with technology.

Proprietary technology is software or platforms that are owned by an individual or company with strict usage rights. This type of technology cannot be modified by users or other companies.

At Benefytt, our insurance agent software, ARIES, puts quotes, plans, reports and carrier-approved materials all in one place so licensed insurance agents can deliver quality service in an efficient, profitable manner.

On a larger scale, examples of proprietary software also include Adobe Flash Player, iTunes, Google Earth and Skype.

Buying Standard Software Packages

Insurance companies that have limited internal IT resources can use already-made packages. Most insurers who use this method also benefit from:

  • Faster and less risky implementation
  • Access to external talents
  • Regular upgrades and new functionalities

Lemonade Insurance Company, for example, developed an open source renters insurance policy, “Policy 2.0,” for other insurers and consumers to use and update based on their coverage needs.

Challenge #2: Maximizing Big Data

Insurance companies have access to data from a large stream of sources, such as big data.

Big data is a complex volume of data and a set of technologies used to analyze and manage that data. If applied correctly, big data could provide insight into insurance policy underwriting, customer behaviors, marketing, claims and much more.

But figuring out how to use big data comes with its challenges, including:

  • Handling the storage of data
  • Keeping up with the data, which is constantly growing at a rapid pace
  • Generating data insights in a timely manner
  • Ever-changing compliance and security measures

Big Data Solution: Data Centralization and Analytics

There are a number of software vendors that offer big data integration technology to businesses. Insurance companies can partner with businesses to get the most out of their big data sets.

Vendors that provide data centralization solutions may offer data-driven analytics and insurtech solutions to solve pain points in the insurance industry – everything from quoting policies and filing claims to customer engagement and fraud detection.

Cloudera, an enterprise data cloud company, helped Markerstudy Group increase company growth through its big data storage solution and analytics. Clouder’s solutions enabled Markerstudy Group to provide a better car insurance quoting experience and use big data analytics to price its insurance products.

Armed with data centralization and analytics via Cloudera’s insurtech solutions, MarkerStudy saw a 120% increase in policies in just 18 months.

Challenge #3: Customer Acquisition and Retention

Even the most established insurance companies have challenges with attracting and retaining customers. And there are a number of reasons why, including:  

  • It’s difficult to find new customers.
  • It’s hard to gain consumer trust and loyalty. 
  • Customer Acquisition Cost (CAC) is high.
  • Customers are always looking for the lowest price.

For instance, finding new customers is tricky because most people in the United States are already insured. And for a vertical marketplace, we’ll expect even fewer insurance shoppers in the coming years.

This competitive landscape coupled with customer trust issues presents even bigger challenges. A 2019 survey found that just 23% of consumers trust their insurance company.

Meanwhile, Customer Acquisition Cost (CAC) is expensive. Generally speaking, it costs five times more to attract a customer than it does to retain one.

But within the insurance industry, it can cost 7 to 9 times more to attract a new customer. This means insurance companies can pay between $487 and $900 for each new customer.

While many customers leave their insurers because of poor customer service, others are just seeking for lower rates. And insurance plan comparison sites like Benefytt’s healthinsurance.com make it simple for customers to find and compare the best insurance premiums, copays, and deductibles for their individual needs.

Solution #1: Cross Sell and Upsell

When customers buy insurance products, their journey and experience doesn’t stop there.

Insurance companies must pay attention to what’s important to their existing customers – what are their behaviors? What products do they like? What products could they benefit from?

Put yourself in the shoes of an insurance agent for a moment.

Cross-selling example: Let’s say you have an existing health insurance customer who mentions her son – who is soon turning 26 years old.This means the son is aging off of his parents’ insurance plan and will need his own insurance plan. This is a prime opportunity to cross-sell and present the customer with an insurance option for him.

Upselling example: You have an insurance customer under age 65, and you learn that she needs to see a doctor. But, we’re in the middle of a pandemic. So you might suggest adding on telemedicine services, so your customer could get care from the comfort of her own home.

Solution #2: Partner With Incidental Channels

Insurance companies might consider an incidental channel as a way to attract or retain customers. An incidental channel is a way to add value outside of the existing product offerings because it leads customers to products or services that deliver value beyond insurance and risk management. 

For example, credit unions and car dealerships have partnered with insurance carriers to provide insurance products that may fit the needs of their customers. And adding more value can lead to better relationships with customers.

Solution #3: Find Value in Referrals

Customer acquisition and retention doesn’t always have to be high tech. Word-of-mouth is still a powerful concept.

That’s why insurance companies and insurance sales agents can explore referral programs. For example, companies can give away a $10 gift card through a special refer-a-friend promotion. Just be sure the program is compliant. It can’t be tied to the actual sale of insurance.

Here are 3 interesting stats about referral programs:  

  • Referred customers have the lowest acquisition costs.
  • Referred customers generate five times more revenue than a non-referred customer does.
  • A referred customer has an average 92% retention rate over the first three years versus a 67% rate for a customer from any other marketing source.

Challenge #4: Keeping Up and Complying With Regulations

One of the greatest challenges of insurance companies is keeping up with regulatory changes and trends. Federal government agencies can issue thousands of rules each year.

That said, let’s walk through types of regulations that insurance companies need to understand:

  1. Data and privacy compliance: Insurance companies must have their own cybersecurity and privacy policies in place. And insurance companies have spent a lot of money and energy to comply with laws like the California Consumer Privacy Act (CCPA). However, the CCPA signaled a new wave of accountability and security in the way insurance companies secure and manage customer data.
  2. Geopolitical changes: The insurance industry is impacted by policies and regulations that happen outside of the United States. Insurance companies are tasked with staying abreast of geopolitical changes like monetary policies, trade agreements, and sanctions, which could cause business disruption and risk.
  3. Divergent regulations: Regulator divergence refers to inconsistent regulations between different jurisdictions on a state and federal level. This concept can create lots of confusion and inconsistencies in the insurance market.
  4. Sales standards: The insurance industry constantly faces major changes to its sales standards, which is driven by federal and state insurance regulations. And they all vary in scope.
  5. Third-party risk management: Relationships and reliance on third parties continues to rise across the insurance industry. So insurance companies need to keep up with federal and state regulations related to third-party risk management.

Regulatory Solutions for Insurance Companies

While navigating regulatory changes can always be a challenge in the insurance industry, companies can take steps to keep up.

Insurance companies should make it a point to regularly visit government websites and subscribe to news and announcements. The Centers for Medicaid and Medicare Services (CMS), the Department of Labor, and OSHA are just a few to keep track of.

Attending insurance industry training sessions, seminars and conferences is also a smart way to learn about regulatory changes and nuances. As an example, the International Association of Insurance Supervisors (IAIS) organized three forums to discuss the regulatory challenges affecting the insurance industry.

The topic, “Insurtech: rising to the regulatory challenges,” gave an in-depth peek into how regulations can stall insurance innovations. Most importantly, the forums were properly represented by high-ranking individuals from insurance companies, policymakers, digital providers, and regulators. These types of dialogues can significantly bridge the gap between insurance companies and regulators, helping them enact policies that will favor all stakeholders, including the policymakers.

Last but not least, insurance and insurtech companies should also designate a legal team and/or a compliance officer. It’s worth the investment. 

Challenges Faced by Insurance Agents

Challenge #1: Insurance Lead Generation 

Selling  insurance products is a difficult task in itself. Getting insurance leads is another story.  

After all, it can be an obstacle to convince someone they need “luxury” insurance products like life or disability insurance.  

Insurance agents have to be persuasive and creative to overcome this obstacle. But the catch is: They also have to be compliant. No easy task.

And just as the insurance industry as a whole needs to evolve – so does its lead generation channels and technologies.

Lead Generation Solution: Get Creative 

As previously mentioned, it takes time and creativity to overcome insurance lead generation.

Insurance agents have to stay at the forefront of marketing strategies, consider publishing content, and up their social media presence. Certain insurance agents can also launch referral programs – but again, they have to be compliant.

If agents don’t have the time or resources to implement creative marketing solutions, they can tap into marketing partners to help them achieve success in a highly regulated and competitive industry. 

Insurance sales agents can also consider hosting insurance seminars and Q&A sessions to help their clients and prospects better understand insurance products and how those products could fit into their lifestyles. 

Challenge #2: Adopting Agent Technology

Whether you’re a captive insurance agent or independent insurance agent, you have to keep up with advanced technologies like chatbots, ecommerce, and artificial intelligence.

In fact, statistics show that about 68% of insurance agents (ages 18-40) believe the industry is too slow to adopt new technology. And 9 out of 10 insurance companies identified legacy insurance software and systems as a top barrier.

But the time is now for insurance agents to adopt technology. 

Agent Technology Solution: Have A Digital-First Mindset

Consumers expect fast and seamless experiences. And that begins with insurance services that agents provide.

To provide smart, efficient service, insurance agents need to understand up-and-coming tech tools like ecommerce websites, CRM platforms, and partnerships that could help them succeed in their roles.

Understanding the power of digital technology also enables insurance agents to articulate what technologies or platforms benefit their customers and prospects.

For example, Jim, a prospective member, mentions that keeping track of his paper insurance documents and bills became very frustrating in the past. So, because you know your stuff, you tell Jim about  MyBenefitsKeeper  – a solution to his paper and policy woes. (Full disclosure: MyBenefitsKeeper is a tool developed by Benefytt).

MyBenefitsKeeper is a health insurance management system and app used to view insurance policy documents, billing and policy management through one simple dashboard. This means Jim will see everything he needs all in one place after he purchases a plan.

Jim can also manage his policy from a computer or a mobile device. Plus, MyBenefitsKeeper will alert Jim when his plan expires or a payment is confirmed.

No more shuffling around pages to find plan information. And no more digging through stacks of papers.

This is just one example of why insurance agents have to embrace the digital transformation happening across the insurance industry.

Challenge #3: Insurance Agent Compliance 

Insurance agents are tasked with understanding and selling a wide range of insurance products. And learning the details of regulatory changes and compliance is one of the most important things insurance agents can do.

And for an insurance agent and broker, compliance challenges can come in many forms: licensing, certifications, contracting, data protection, TCPA regulations and more.

There’s also a number of marketing dos and don’ts for insurance professionals. For example, Medicare agents cannot send marketing materials that advertise the Medicare Open Enrollment Period (January 1 – March 31 each year) and how to switch plans. And Medicare agents cannot make unsolicited direct contact with prospects as part of their marketing and sales efforts.

Compliance Solution: Follow Your Regulators

Just like insurance companies, insurance agents and brokers should be extremely familiar with regulatory bodies and organizations to follow.  Some regulatory bodies agents can put on their watch lists include:

  • The National Association of Insurance Commissioners (NAIC)

In addition to market conduct, the NAIC is concerned with financial regulation standards. Most regulations vary across the different states of the federation. As such, the NAIC partners with various state commissioners to create a coalition of States. This is to streamline the laws and regulations, making it easier for agents to keep tabs with regulatory changes.

  • The Financial Industry Regulatory Authority (FINRA)

FINRA is an independent body that formulates the rules guiding registered brokers and related organizations in the U.S. Over the years, FINRA has continued to effectively broker’ activity for better investor protection.’

  • The Securities and Exchange Commission (SEC)

The SEC provides regulations on products that are concerned with securities. They include different long-term payouts, such as annuities. As an insurance broker, you need to be abreast of the SEC if your organization or client deals with securities.

  • The Centers for Medicare and Medicaid Services (CMS)

CMS is a federal agency within the United States Department of Health and Human Services (HHS). CMS administers our nation’s Medicare program and works with state governments to administer other programs such as Medicaid, the Children’s Health Insurance Program (CHIP) and health insurance portability standards. The CMS website has a wide range of resources including regulatory guidance, marketing guidelines, and a newsroom with the latest announcements.

Insurance agents and brokers should also proactively follow compliance training sessions and use carrier-approved materials.

Challenges Facing Healthcare Providers

Challenge #1: Big data security and privacy

Healthcare organizations like doctors’ offices, health systems and hospitals maintain and transmit huge amounts of data to support the delivery of efficient and proper healthcare.

Not too long ago, providers started to embrace electronic health records (EHR). And now they are being asked to glean insights from them and apply that data to certain initiatives. So, like insurance companies, healthcare providers are now using big data in a number of ways, including monitoring diseases and population health management.

But patient data is highly confidential and sensitive, and unfortunately, healthcare providers can be susceptible to data breaches.

The Department of Health and Human Services (HHS) published year-over-year data breach summaries – and that number continues to increase each year (for the most part).  

healthcare data breaches over the years challenges facing healthcare providers

Source: HIPPAJournal

2019 had the highest breach in history, with 41.4 million records breached, which is more than six years (2009-2014). And now, 2020 is setting the record with phishing campaigns, mishandled health record disposals, and sophisticated cyberattacks.

That’s why data security is a top priority for healthcare organizations. 

Cybersecurity Solution: Authentication 

Authentication is one way to overcome privacy and security concerns. Authentication is the process of verifying the identity of a person or device. 

Several healthcare institutions are using authentication like secret passwords, but they can be vulnerable to hacking.

To reduce the risk, healthcare providers can use Two-Factor authentication (2FA) methods, which require both a password and possession of a specific physical object to gain access to their network.

Token and biometric authentication methods can create a significantly more robust security solution. Tokens required a purpose-built physical device for the 2FAs, while Biometrics requires users’ physical character.

Healthcare providers can also develop security protocols that demand both letters and numbers, upper and lower case, special characters (such as $, %, or &), and words that can’t be found in the dictionary.

The HIPAA Security Rule includes a list of technical safeguards that healthcare providers and organizations should follow – especially if their business stores protected health information (PHI).

Challenge #2: Patient Retention

Healthcare providers like hospitals, diagnostic centers and medical practices often focus on ways to acquire new patients. That means retaining current patients could take a back seat.

But patient retention shouldn’t be ignored. It can increase profits and boost the reputation of the healthcare organization.

Solution #1: Get Patient Feedback

Giving patients a voice makes them feel empowered and appreciated. That’s  why healthcare providers should frequently gather healthcare patient feedback.

One way to do so is to send patient satisfaction surveys after every healthcare visit. Providers can immediately see what’s working and determine how to fix what’s not.

Healthcare providers should also pay attention to online reviews of their practice or organization.

Solution #2:  Prioritize Patient Satisfaction

Several studies have shown that a satisfied patient is more likely to continue to patronize a healthcare provider than an unsatisfied one. After all, satisfied patients are more likely to leave positive reviews or refer their friends and family members.

When patients need healthcare or services, they look beyond the medical diagnosis. It’s also about the experience. So displaying poor bedside manner or a lack of compassion rarely goes unnoticed.

Prioritizing patient satisfaction doesn’t stop once the patient leaves the medical office. Healthcare providers should also consider sending personalized communications, reaching out when it’s time for a follow-up visit, or encouraging them to connect with their organizations on social media.

Solution #3: Staff Training and Engagement. 

Every healthcare staff member has an impact on patient perceptions and retention. But healthcare jobs come with high-pressure fast-paced environments, which can quickly drain spirits and morale.

Healthcare leaders and executives should always have a long-term strategy in place to maintain their quality staff members for the long term.

Keep staff engaged with empathy training, company outings, and recognition programs for achievements.

Challenges Facing Insurance Customers

Challenge #1: Consumer Confusion

Many Americans avoid understanding how insurance works. And few people want to sit down and try to wrap their heads around terms like deductibles, copays, and premiums.

But fewer than a third of 1,500 people could correctly define these three terms, according to a 2019 survey by Policygenius.

The survey also uncovered that more than one in four people have avoided healthcare or medical treatment because they weren’t sure what their health insurance covered.

So the truth is: Consumers have to understand insurance terminology and policy nuances to make informed choices and avoid unpleasant surprises.

Solution #1: Health Literacy

It may sound obvious but there’s still work to be done on the health literacy front. The entire healthcare ecosystem – insurance companies, doctors, agents – need to use plain language when interacting with customers.

Insurance companies are developing tools like glossaries, simplified language and straightforward guides to help their customers make informed choices or prepare them for any plan changes.

Bottom line: If consumers understand basic insurance concepts, they’ll be more empowered to make sound decisions that will help them take charge of their health and reduce medical expenses.

Solution #2: Simplification Through Digitization

The health insurance landscape is filled with information overload. But the reality is, people don’t need more information about health insurance and Medicare – they need clarity and simplification.

The digital transformation that has swept the insurance industry has helped to simplify the customer experience – whether it’s policy enrollment, claims processing, or plan administration.

Benefytt’s e-commerce sites healthinsurance.com and AgileHealthInsurance.com offer online plan comparison tools with the ability to enroll in a number of products: Medicare Advantage plans, dental plans, telemedicine services, and even pet insurance plans. In just a few clicks, consumers can find plans in their areas with straightforward pricing.

And we’re seeing examples of smart automation technology for claims processing. For instance, Lemonade has redefined the customer experience with a chatbot-based first notice of loss (FNOL) system that automates claim payouts in seconds.

Challenge #2: Consumer Healthcare Costs

No surprises here: Cost can play a major role in the customer experience. Healthcare and medical costs can be at the top of the list for household expenses.

According to a Kaiser Family Foundation poll, 25% of adults with insurance found it difficult to afford the routine costs of health insurance like premiums and deductibles.

These costs can stop people from buying insurance, getting medical care, or filling prescriptions. And that can trigger more healthcare expenses in the long run.

Solution: Take Action To Lower Costs

Though we may not be able to control the costs of our insurance premiums and medical bills, there are 5 actions consumers can take to lower their health and insurance expenses.

  1. Raise Your Deductible: Consumers who choose high-deductible health insurance plans will likely face lower health insurance premiums. But high-deductible health plans are best for those who are primarily in good health.
  2. Stay In-Network: When finding or switching plans, be sure your favorite doctors are in-network with your new insurance company. Many insurance carriers offer provider look-up tools on their company websites. Or, you can just ask your physicians and providers which insurance plans they accept.
  3. Go Generic: Doctors may write prescriptions that have high price tags. It’s OK to question those: Asking for generic drug alternatives could save consumers money in the long-run.
  4. Understand Your Alternatives: Places like in-network radiology centers, outpatient providers, and labs can give you quality healthcare services at a lower cost. Consider researching these types of facilities before seeking care at a hospital.
  5. Comparison Shop: If you’re tasked with finding your own insurance plan, it’s wise to compare insurance plans before enrolling in a plan. Several online sources will give you no-obligation plan quotes for short-term medical plans, ACA/Obamacare plans, and more. Consumers can also use websites like Healthcare Bluebook to look up prices by healthcare providers and procedures.

Challenges in the Insurance Industry Conclusion

Though very different, insurance companies, insurance agents, healthcare providers and consumers each have their fair share of similar obstacles.

Whether it’s navigating plan information or figuring out ways to keep costs down, the insurance industry will always have a problem to solve.

And each year brings a new world, new wave of customers, and new solutions. That’s why it’s important for each industry player to understand the challenges ahead – and stay ahead of them.

If the insurance industry expects and welcomes innovation, insurance businesses can be proactive and agile when things do change (because they will).

“Either disrupt or be disrupted,” is what we like to say.