Many Health Insurance CEOs Do Not Feel Well Prepared to Meet Industry Challenges, According to New Tillinghast - Towers Perrin Survey.

Business Editors/Health & Medical Writers

NEW YORK--(BW HealthWire)--November 28, 2001

-- But Study Finds That CEOs Expect Increased Profits Through

Technology, Medical Management and Improved Customer Service --

Fewer than a third of health insurance executives say that their companies are well prepared to meet a range of near-term challenges.

That is one result that emerges from the 2001 CEO Survey of the U.S. Health Insurance Industry, recently conducted by Tillinghast - Towers Perrin.

In addition, the study pinpoints five key strategic areas in which CEOs believe their companies must excel to prevail over the next few years. Over half of the CEOs surveyed specified medical management, including prescription drugs, as a top issue. The other four issues were provider relations (identified as key by 43%,) changing market/customer demands (40%), legislative/regulatory issues (36%) and technology management (34%).

Although many feel somewhat prepared to deal with these issues, it is clear that the industry faces some significant challenges in addressing these key strategic areas.

CEOs Beset by "Uncertainty and Unrest"

"With rising costs, increased consumerism, regulatory pressure and the need to keep up with technological advances, these are proving to be difficult times for health plans," said Ken Tannenbaum, a principal at Tillinghast - Towers Perrin and director of the survey.

Brad Fluegel, the leader of Tillinghast - Towers Perrin's North American health practice, explains the importance of the survey in this context: "Our survey findings show that health insurers' difficulties will only be exacerbated by their reported lack of preparation to meet what they themselves identify as key challenges." In no instance, indeed, did more than one-third of the executives say that their companies were "well prepared" to meet the challenge. "For example," Fluegel notes, "more than half of our respondents named medical management as a major concern, yet only 13% said they were well prepared to meet it. That gap is just the most dramatic illustration of the uncertainty and unrest the CEOs are feeling as they try to deal with this array of enormously challenging undertakings." The task can only be more difficult in the wake of the September 11 terrorist attacks.

Executives View Regulatory Environment as Key Obstacle

The most significant obstacles to success, as identified by the CEOs, include: the restrictive regulatory environment (specified by 47%), technology limitations (38%), resistant internal culture (34%), poor provider relations (23%) and difficulty integrating resources (23%). "This was another important finding," Fluegel says. "The regulatory environment, which health insurance executives are identifying as their strongest challenge, is the only obstacle beyond their direct control. They can achieve significant improvement by focusing on areas within their control, such as medical management; market analysis and planning, including product development and strategy; and provider relations, including provider payment structures and network strategies."

The CEOs' Action Plan

"In spite of their uncertainty, the CEOs have specific plans to differentiate themselves in the marketplace," Tannenbaum notes. "One favorite strategy is an increase in product offerings." For example, only 10% of the companies surveyed presently offer defined contribution products, but 47% more plan to do so by 2005. Tannenbaum elaborates: "Many of these new products will be aimed at aging baby boomers. 21% of respondents plan to add long-term care to their product mix and 18% more will offer Medicare Supplemental products."

Tannenbaum sums it up: "Respondents' favored steps to improve their competitive position are investing in technology (43%), improving customer service (33%) and enhancing medical management (28%)." The great majority of them--78%--expect that these changes and product diversification will increase industry profitability, which is currently a major sore point, with almost a full third--31%--expressing dissatisfaction with current profitability. There are tensions in the CEOs' thinking here too, Fluegel observes: "They want to cut costs, but 39% of the senior executives surveyed, feel that they need to increase compensation for their employees."

Fluegel concludes: "Industry leaders think these steps will help them weather the significant changes to the competitive structure of the industry expected by 75% of them. But with 65% expecting significant sector activity in terms of mergers and acquisitions, there's sure to be changes in the cast of characters."

"Our survey shows that CEOs are at a critical point as the health insurance industry continues to evolve and meet ever-changing market demands," Tannenbaum concludes. "What they may need most of all is bold leadership."

The Respondents

The study polled 88 CEOs representing the four primary health insurance industry segments: health maintenance organizations, Blue Cross and Blue Shield plans, health insurance companies with significant group health business and preferred provider organizations. A broad range of entities responded: 45% local organizations, 40% regional and 15% national. The response rate was a significant 18%.

About Tillinghast-Towers Perrin

Tillinghast - Towers Perrin provides management consulting to financial services companies worldwide. In addition, our health sector practice consults to organizations that finance and manage health care risks. Our consultants help clients improve business performance through quantitative analysis, insight and execution. Tillinghast - Towers Perrin is part of Towers Perrin, one of the world's largest independent consulting firms, with nearly 9,000 employees and 78 offices in 74 cities worldwide. Additional information is available at www.tillinghast.com.