September 2, 2014 by Tony Novak
We’ve all heard the quotation “imitation is the sincerest form of flattery” from Charles Caleb Colton. Yet in business, imitation means increased competition and the risks associated with it. That can be especially scary for a small business niche being invaded by the industry giants. It seems that this year many large health insurance companies, brokers and new entrants are clamoring to build an online insurance exchange focusing on supplemental health insurance for individual consumers. The model was originally launched by Freedom Benefits in 1995. It grew to a $1.6 million business before we spun off and sold our MedSave division in 2008. The rest of the of the operation has struggled, as predicted, during the years of health care reform implementation. Consumers were more in a ‘wait and see’ mode than a solutions purchasing mode. But now that the future looks clear for supplemental insurance, everyone wants in.
Last week the #1 health insurance powerhouse UnitedHealthcare announced the opening of its integrated supplemental insurance exchange. Many more have already opened or will open soon. The supplemental insurance market looks like the mutual funds industry in the sense that there are more fund choices than individual securities in the market. There are already many more online insurance exchanges than insurance products. UnitedHealthcare knows that supplemental insurance is a perfect cross-sell platform for its primary insurance coverage and intends to expand in this direction.
I know that the quality of consumer experience provided by seasoned insurance professionals can not be imitated by a big company using remote telephone call centers. Yet that doesn’t mean that call centers won’t gobble up huge amounts of market share. We’ve seen this over the past 5-6 years and the huge increase in consumer complaints about supplemental insurance being sold inappropriately as a result of the trend.
In the past it has been relatively simple to build an online business (like we did with Freedom Benefits) based on personal referrals from consumers. But social media and the world of “likes” has changed the way we make personal referrals and endorsements and that way that information is used. In theory, a consumer making a public personal endorsement of a small business could be the worst thing possible for a small firm’s market position. In this world that relies on big data and targeted advertising, a consumer who endorses a product is immediately besieged by big budget advertisers.
I predict that small businesses in this supplemental insurance space will have more trouble differentiating their value from the larger firms that rely on repeat advertising and maximizing the cross-sell value of consumer marketing data. The fact is that the human brain is more likely to respond to repetition in advertised products than the memory or suggestion of a stronger personal experience. Freedom Benefits will continue to grow, but slowly, until joining forces with a larger marketing force in this field.