Is the Sky Really Falling on Brokers?

The health insurance brokers we heard from in this year’s survey no longer seem to believe that the Affordable Care Act is an industry death sentence: Only about one-third expect their commissions to fall this year, compared to almost half a year ago.

But in many areas we’re seeing a split between large and small brokers, especially in their optimism (all of the brokers who expected commissions to drop by 50 percent or more came from brokerages of 25 employees and under) and their plans to offer technology solutions to clients. One crisis is past, but another is on the horizon, as tech companies find ways to offer benefit management solutions that threaten to disrupt the business once again.

The Large and Small Benefits of Tech

A solid majority of brokers believe that technology—in the form of enrollment/benefits administration technology or an online solution—is a critical component of their value proposition. But when we segmented their responses by size of brokerage, there was a sharp division between the largest and smallest brokers.

1In last year’s survey, brokers were pretty bleak. Are they more optimistic this year?

I’d say so. Last year, almost half thought that commissions would fall over the course of the year. This time, they’re fairly evenly divided, with a third predicting a decline, a third predicting an increase, and a quarter expecting no change. Last year, there was a sense that the business might be collapsing. This year, the survey seems to be pointing at areas of change but not necessarily failure.
2What’s an example of an area that is seeing change?

Technology is an important one. Brokers increasingly see online enrollment tools and other tech tools as a key part of their offering. But there’s a big difference in their ability to provide these services. Large brokers are both more likely to build their own tools and more likely to partner with outside companies. But I wouldn’t write off small brokers. Some of them have found ways to make exchange-based services profitable. That’s mostly not true of their larger counterparts.
3What do brokers need to do to survive?

There are two main strategies: First, make more revenue from ancillary products. Most brokers are already trying to do that, but most of them are still producing anemic results. And second, make better use of technology to start offering employers a more integrated benefits management solution. That’s going to require significant investment—and insurers aren’t alone in trying to fill the need. The real question is whether pure-play tech companies will beat them to the punch.