7 Insurance Challenges & Trends to Watch in 2021
We’re two weeks away from closing out the most tumultuous year in modern history. The health insurance industry faced unprecedented swings and turns with the onset of Covid-19 and the subsequent financial turmoil. As we approach 2021, many of us within the industry are cautious to speculate what is to come. Nonetheless, there are several things that seem to be top of mind for insurance executives and underwriters.
Based on conversations we’ve had with Carriers, MGUs, and Brokers over the last few months, here are the seven most recurring discussion topics, which we’ve broken out into two categories: Covid-19 challenges and industry trends to watch in 2021.
Health insurers, how are you adapting your underwriting strategy for 2021?
Covid-19 Challenges to Watch in 2021
1. The unknowns of Covid-19
On December 9th, the U.S. set its single-day record for Covid-19 hospitalizations with 106,688 patients in U.S. hospitals (NPR). A study done by Kaiser Permanente reported the average hospital stay for survivors to be 10.7 days and 13.7 days for non-survivors and that 42% of Covid-19 patients required care in the ICU. Healthcare Finance estimates an average cost of $38,000 for commercially insured inpatient services, a number that could pierce some specific deductibles, or certainly put a dent into the aggregate claims of a group. As we await the distribution of the vaccine and as doctors explore novel treatment plans, Covid-related claims will continue to be a factor that underwriters must consider.
2. Undiagnosed diseases in 2020 will lead to claims in 2021 (meaning an increase in utilization and severity of claims)
A study by Willis Towers Watson shows a dramatic decrease in healthcare utilization in 2020. Many individuals have postponed elective services such as knee replacements or vaccines. Perhaps more consequential, there has been a significant decrease in cancer screenings (STAT News) and routine check-ups (Scientific American). In a blog post on the challenges of 2020, Voya noted that “delayed care due to the concentration on Covid-19 can lead to more severe claims for some conditions that went months without diagnosis and care.” Insurers have been pressured to provide rebates and/or keep rate increases flat, due to the decrease in 2020 claiming. However, many insurers are concerned about an uptick of claims in 2021. Accounting for undiagnosed diseases is a nearly impossible task, but it’s something that must be accounted for in rate setting. We suspect that these circumstances will result in an increase of employers “going to market” in search of lower rates, which will amplify the competitive environment that we’re already living in.
3. Increased competition due to a decrease in commercial membership
Continuing on the topic of competition, the Kaiser Family Foundation projected an increase in Medicaid and Medicare membership in 2020 and 2021, signaling a decrease in commercial membership due to the financial implications of Covid-19 on the U.S. job market. With a smaller pool of opportunity, carriers are looking for competitive advantages and differentiators in order to achieve revenue and growth goals, while also protecting loss ratios.
Industry Trends to Watch in 2021
1. Health questionnaires are becoming obsolete
We’ve heard from underwriters and brokers across the industry that individual health questionnaires are becoming obsolete. Health questionnaires add little to no value in predicting undiagnosed diseases, and results are inconsistent due to low fill rates and missing information (some intentional, some unintentional). Secondarily, as competition heats up, speed of underwriting is crucial. Health questionnaires significantly slow down the timing from RFP-to-quote. Many brokers we’ve talked to refuse to work with carriers that use questionnaires. Employers dislike administering questionnaires to their employees and it causes an unnecessary delay to the process. Many insurers are looking to predictive risk tools, such as Verikai, as a more efficient and accurate alternative.
2. High-cost pharmaceuticals continue to be prevalent
High-cost pharmaceuticals and the increase of gene therapies continue to keep underwriters up at night. Today, there are already a number of six and seven-figure price tag pharmaceutical drugs and treatments available. In March of this year, it was estimated that there are 362 cell and gene therapies in the U.S. pipeline of therapy developments (BioPharma Reporter). As more and more of these high-cost treatments and drugs come to market, insurers are looking for creative solutions to alleviate the skyrocketing price tags. Solutions include lasers, multi-year payment plans, and specialty Rx carve-outs. Identifying these drugs and treatments during underwriting has never been more crucial.
3. Fully insured carriers launching new products
Since the onset of the Affordable Care Act, net premiums earned in the U.S. Stop Loss market have more than doubled (Reinsurance News). Employers of all sizes have been migrating to self-funding strategies as a means to decrease healthcare spend and to take advantage of tax benefits. MyHealthGuide estimates that 2019 Stop Loss premiums surpassed $23.5B and that 94 payers reported Stop Loss premiums last year. As more and more employer groups elect to self-fund, traditionally fully insured carriers are feeling the pressure to offer a level-funded or self-funded plan option. We have heard from several carriers that this is a key initiative in 2021.
4. Carriers exploring alternative data and machine learning strategies
Almost every Carrier and MGU that we’ve spoken with this year has mentioned evaluating machine learning, alternative data, and predictive risk tools as a priority going into 2021. There has never been more data available than there is today, and insurers realize how vital it is to have a complete view of medical risk and to understand risk at an individual level. At Verikai, we’ve identified and validated a direct correlation between alternative data (demographics, behavioral, financial, healthcare, lifestyle, etc.) and health insurance claims through machine learning. Many insurers believe that accessing this data will lead to writing fewer losses, winning more profitable groups, and accelerating their underwriting process.
It should be a very interesting year for the health insurance market. With a potential significant increase of claiming in 2021, alongside increased competition, there will be more pressure than ever on underwriters to make wise risk selection decisions and achieve underwriting precision. At Verikai, we provide deep insights to our clients to help avoid writing their worst groups and develop discounting strategies to win more profitable business. In such an unpredictable time, the industry cannot rely only on the traditional methods of underwriting. It’s time to evolve and adapt to the future of insurance underwriting.