Insurers in the Swiss health insurance market must systematically review and sharpen their strategic positioning. Then they have to realign their business models accordingly.
That is their only chance to stay competitive in the medium to long term, in view of the transformation of the healthcare sector driven by government policy, regulation, demographics and medical technology.
Dying, Surviving or Thriving
Health insurers have a choice between three fundamental strategic options:
- They can choose to do nothing, endangering their existence and the current health insurance sector in the medium to long run – and die.
- They can optimize and evolve their established business models – and survive.
- They can fundamentally transform and revolutionize their business models, tapping into new potential revenue pools – and thrive.
Cutthroat competition, limited innovation scope and few options for creating value
Switzerland‘s health insurance sector is highly regulated, limiting health insurers‘ scope for innovation and entrepreneurial activity. In addition, it is not permitted to make a profit from the basic insurance business, and allowed only within a narrow margin in the supplemental insurance business. At the same time, health insurers are engaging in cutthroat competition. And finally, health insurance premiums primarily cover the still extensive catalog of basic healthcare benefits. In order to grow profitably in this challenging environment in the long term, carriers need to innovate and be clear about their intent and mission.
The cost and premium explosion threatens the healthcare sector
Innovation is also urgently needed in view of the unbridled increase in healthcare costs. Between 2014 and 2030, healthcare costs in Switzerland are expected to increase by 60% to CHF 116b. That would mean that health insurance premiums would rise from the current CHF 396 on average per person and month to CHF 826 by 2030. Primary cost drivers are advances in medical technology, an increasing incidence of chronic diseases and an aging society. This significantly lowers the purchasing power of private households. A large portion of the population will no longer be able to afford compulsory health insurance. The federal government and the cantons – ultimately, the taxpayer – have to plug these holes.
Centering on the basic needs of the insured
It is in the interests of all stakeholders in the Swiss healthcare system to ensure its high quality while keeping the cost increase in check. If health insurers rigorously center on the basic needs of the insured (living healthy, getting healthy and living with a medical condition) they can adequately address this symmetry of interests. Failure to do so would signal the end to the health insurance system, as it would become unaffordable.
Digital healthcare data and technologies enable new potential offerings
Entirely new opportunities are emerging for such an alignment toward the basic needs of the insured thanks to technological innovation: for instance, wearables for measuring health data, apps and sensors exponentially increase the volume of usable healthcare data. Almost half of the insured in Switzerland already record health data, according to an EY survey. Of the survey respondents, 60% are willing to share their data with health insurers, provided they get financial or other advantages in exchange. This would allow the development of innovative preventative care and treatment. Those are appealing incentives for companies from other industries to enter the health insurance sector; such disruptors increase pressure on established health insurers to take strategic action.
Evolution or revolution of the business model?
Health insurers have to decide whether they intend to remain active in their established market or completely realign their business model. In the first case, they can aim to become cost leaders or to differentiate themselves with innovative services (evolution). In the second case, they can draw on their existing strengths to create new products and services or enter into new business segments (revolution). Four strategic options are conceivable:
- Extend the range of insurance to other lines of business such as non-life or life insurance
- Aggregate, analyze, process and offer health data
- Specialize in selected medical conditions
- Accompany the insured throughout their lives as their health partner
Now is the time to act
Irrespective of the option selected, health insurers need a coherent and consistent strategy, and they need to operationalize it quickly and rigorously. Smart alliances with service providers or technology corporations can accelerate the operationalization of such strategies. Despite unrelenting political and regulatory pressure, health insurers have enough leeway to enhance their business models and products. But speed is of the essence: at present, insurers still control customer touchpoints and have extensive healthcare data available. Drawing on advanced technology, players should actively benefit from this starting position and the first-mover advantage.