Is Medicare Supplement Insurance a Natural Fit for Your Portfolio?
In an effort to increase sales, insurance carriers often debate whether they should update their existing product portfolio, add a new product to the portfolio, or do a combination of both. Specific reasons may vary, but carriers of all sizes generally want their product portfolio to be appealing, not only to potential customers but also to the agents selling their products.
At a recent meeting with Final Expense (FE ) carriers, I was amazed to learn of the challenges these particular companies deal with, most of which were capital-related. The high First Year Commission - as high as 160+% - combined with lapse concerns, have led some of these companies to limit the amount of FE business they write. In my 20+ years in the insurance business, this was the first time I ever heard a carrier say it had to stop writing new business during the course of the year because of the capital strain on the company. Given the challenges faced by these carriers, it struck me that diversification of their product portfolios could be an effective strategy for them to consider.
In my opinion, a natural fit for an FE carrier may be Medicare Supplement insurance. The Medicare Supplement market is in a long-term growth phase. The Medicare Supplement market is close to a $25 billion dollar business today with new sales in 2014 of $3.6 billion and projected to reach $6.9 billion by 2023.1 Consider this: over the next 15 years, 10,000 people a day will be turning age 65 and therefore will be potential clients for Medicare Supplement.2 As shown in Exhibit 1, the demographic impact on this market is projected to drive enrollment through 2023.
Beyond the demographics and growing market size, Medicare Supplement is an opportunity that FE carriers - or any carrier focused on the individual market - should consider. Here are a few benefits:
- Portfolio diversification: Expanding your product portfolio will allow you to complement your existing product offering, potentially enter a new market and show that your company is being proactive to address the current and future market conditions.
- Attracting and retaining clients: For carriers serving a large block of clients that are reaching retirement age, having a product that addresses the needs for their next stage in life will potentially retain them as a client and make the relationship stickier.
- Expanding distribution reach: Depending on who distributes your FE, adding Med Supp may allow you to expand the number of agents selling your products. Even if you are using a captive sales force, expanding your product offering means the agents are going “outside” less often to meet their client’s needs.
- Financial benefits: On the surface it provides an additional opportunity to grow both your top line and bottom line. Digging deeper, Med Supp is a product that is not as capital intensive as FE and has premiums that are predominately based on attained age and are annually renewable.
Making the case for Medicare Supplement with Final Expense carriers has been the focus of this blog; however, the reality is that Med Supp is a product that could enhance portfolios at all types of life/health insurance carriers. To learn more about this opportunity read my article Medicare Supplement and the Market Opportunity.
1. NAIC Medicare Supplement Date and other CSG Actuarial Data, 2014.
2. “Baby Boomers Retire”, Pew Research Center, December 29, 2010.