Here is what you’ll find in this week’s newsletter!

1. Important links 🔗 - the best articles we found this week about the Medicare Market along with links to Jared’s recent LinkedIn posts.

2. Deep Dive 📚 - How to Build a $1 Billion Medicare Supplement Block (PART 1)

3. Compliance Chatter 📢 - Insurance Carrier annual financial reporting.

4. Sponsor Snapshot 🚀 - brought to you by Telos Actuarial.

5. Data Visual of the week 📊 - Data Visual highlighting projected turning 65 and 65+ US population.

It’s only a 5 minute read, but it will make you 10x smarter.

DEEP DIVE 📚

How to Build a $1 Billion Medicare Supplement Block (PART 1) 🏗

Today there are six Medicare Supplement carriers that have grown their blocks to over $1 billion of annual premium.  As you will see in this table, these companies are the ‘Who’s Who’ of the market:

This deep dive is the first of a two part series that will explain how you can build a $1 billion Medicare Supplement program of your own. 

Part 1 will cover the qualitative aspects and what we consider requirements for building a $1 billion block and Part 2 will cover the quantitative aspects. This is where we will show you the math behind it all.

Let’s dive in!

Distribution

As with all insurance products, having a strong group of distribution partners is critical to the success of the program. They serve as the gateway to the customer and are the most important partner when looking to grow a block of business this large.

Many of the large Medicare distributors that are in the market today were instrumental in helping these billion dollar companies build their blocks of business. In addition to granting access to a large number of agents, these distributors can provide valuable insights during the product development process. They can help set the optimal entry point premiums, share knowledge about what level of commissions and other incentives are being offered and help craft the underwriting and policyholder on-boarding process.

When you are choosing a partner, you need to consider how they recruit new agents, how they will pay those agents and how they identify potential customers that will hopefully turn into your future policyholders. 

If you find a distributor that has processes that align with your values, then you have found a good long-term partner!

Multiple Legal Entities

Beginning in the early 1990s Medicare Supplement carriers were required to offer a standardized set of plans, so there are limitations on the methods that can be used to differentiate the product from the competition. 

An easy way to explain the standardization requirements is that the regulations made it so that everyone’s Plan G has exactly the same benefits as every other carrier’s Plan G. You could no longer offer plans with a customized set of benefits.

Because of this standardization, the market has shifted to compete on price. Now it is common for there to be less than a $5 difference in the monthly premium charged by the top 10 carriers. Because of this intense price competition, it can be difficult to maintain a competitive rate over a 3- to 5-year period.

And if your premiums aren’t competitive, your sales to new customers may slow down and you may lose some of your healthiest policyholders.

So, what do you do?

The strategy that many companies have deployed is to offer Medicare Supplement products under different legal entities within their family of carriers. This allows them to write business under “Company A” for a while and then when the premiums have lost their competitive edge, they can close that block to new sales and begin writing new business under “Company B”.

Another approach that companies have used is to offer a product under “Company A” through one distribution system that targets a specific segment of the market and another product under “Company B” that uses a different distribution system and targets a different market segment. Common differences here are: (1) the use of ‘Agent Sold’ vs “Direct to Consumer’ systems; or (2) offering one product that requires certain applicants to go through underwriting and another product that is offered on a guaranteed issue basis.

This approach of using multiple legal entities allows companies to comply with state regulations that prohibit offering multiple versions of the same product under different rate levels while continuing to offer competitively priced products. This strategy ultimately provides the most value to consumers by providing a steady stream of new products to the market at the best possible rate level.

Commitment

Another factor that the billion dollar companies share is an unwavering commitment to the product line.

The Medicare Supplement market is always changing so it can be challenging to stay on top of current trends. There are always new carriers entering the market, companies are constantly making changes to their incentive plans, CMS can change how it covers certain conditions or procedures and states can introduce new regulations that require changes in how the plans are administered.

Then, to top it all off, the early years of a program are expected to generate financial losses. And if experience is bad, then the losses can be heavier than expected and your corrective action plans may take longer than expected to implement.

Needless to say, each of the billion dollar companies have gone through challenging periods. But they stayed committed to the product line and they have weathered the storm.  

Time

The final characteristic that these companies share is that they have been in the market for an extended period of time. Simply put, it takes time to build a $1 billion block of business. Year after year these companies continue to stack on new cohorts of policies. Some of the policies lapse off every year, but if they keep issuing a steady number of new policies every year, then their blocks will continue to grow.

If you are aiming to grow an inforce block of business that covers at least 500,000 lives, then that is going to take time. For example, if a company issues 100,000 policies per year, it will take them 10-12 years to reach 500,000 inforce policies.

One of the benefits of being committed and focused on the market for a 10- to 12-period of time is the knowledge and expertise that will be gained. When you first enter the market, you likely won’t know all of the details that are necessary to be successful. Luckily, there are lots of free resources out there that can help you along the way. Over time you will continue to learn and will eventually become an expert!

Conclusion

The US population currently includes about 36 million people between the ages of 65 and 75, so a company would have needed to capture just 1.5% of the market over the last ten years to build a $1 billion block of business. And the US Census Bureau projects that there will be another 4 million people reaching age 65 over the next six years.

As discussed above, if a company wants to build a $1 billion block of Medicare Supplement business, then there is a clear opportunity in the coming years. If they partner with the right distributors, employ multiple legal entities, and remain committed, then they will likely achieve this goal.

Stay tuned for the next installment in this two part series where we share with you the math behind building a $1 billion Medicare Supplement block of business!

DATA VISUAL of the Week 📊

This week’s data visual shows the projected turning 65 and the total 65+ population in the US over the next ~30 years. The data comes from the US Census Bureau

If you’re ready, here are some ways we can help you:

• Newsletter Sponsorship opportunities: Promote your product or services to leaders in the Medicare space. Let’s discuss. (link)

• Market Research: Reports that help you wrap your arms around the Senior focused insurance markets. (link)

• Consulting: We can help you develop new insurance products for the Medicare market, appraise your books of business, and keep you compliant. Let’s discuss. (link)