American health insurance firms may now be in just such a situation. Health reform threatens to wipe out traditional sources of profit – Medicare Advantage, individual policies, and small group insurance – while imposing many restraints on pricing and plan design. Moreover, it may lead to commoditization of these payers’ offerings, and do little to address the long-term cost increases which have employers aggressively cutting back on the coverage they provide. To add to these challenges, in just four years the law will push insurers to become far more consumer-centric than ever before if they are to compete effectively on the forthcoming health insurance exchanges. American consumers report that health insurers are the third least-trusted industry they deal with, just behind tobacco and oil companies. It’s bleak.
In this environment, I spent the day at a large healthcare conference full of insurance executives. One might expect a brew of intense discussion and deep reflection. Not so. An example of innovation lauded in the conference was how one firm re-designed their forms to have more plain English. This is of course a good thing, but not much of a new business model.
We often see denial in the face of fundamental industry change. Pharmaceutical firms understood a long time ago that they would face a cliff of patent expiries around 2010, yet took years to charter new drug discovery programs, resulting in a substantial gap in their development pipelines. Oil companies are just now coming around to the realization that the electric vehicle is a major threat to their business. It is easy to find comfort in what our peer firms are doing, even when a gnawing feeling grows that we are all marching together to doom.
When change agents need to build the case for radical thinking, three tactics prove especially useful.
- First, they should look not just to what their familiar peers are doing, but at what is happening overseas. For instance, our work has found some of the most innovative financial service and health businesses in South Africa, and some of the most unusual consumer products in Japan
- Second, do some math. For a publicly-traded firm, the share price will reflect assumptions about revenue and earnings growth a few years out. Compare those figures to what you know about the growth of the core business, and your success rate in launching new projects. What does this say about the pipeline that you need?
- Last, consider what your customers are looking to get done in their lives, rather than what you sell. For health insurers, this might include things like avoiding discontinuities due to illness, tending to a child’s health while doing 30 other errands, or looking fit. Create the full map, and then step back to ask what could be your business. Obviously not all offerings will be viable, but this approach can open up a world of new opportunities
This post was written by Steve Wunker. For more of New Markets Advisors' thinking on healthcare, click here.