TWST: What is Health Benefits Direct Corporation?
Mr. Clemens: Health Benefits Direct Corporation is basically two businesses. On the one hand, we're a sales agency that sells major medical insurance online and from online leads to individuals. Our first full year of operation selling major medical, we submitted 129 million to our major carriers. We are also a technology company that is developing the technology of the future, or a gateway for the individuals and eventually the insurance agents to the major insurance carriers, to apply for not only individual major medical, but also other types of insurance on our platform. Individuals are able to apply for major medical, life, and critical illness but at the moment we are specializing in major medical because it has the greatest market potential. As quoted in a research report published by The McKinsey Quarterly in March 2007, "The Retail Revolution in Health Insurance," the market of individuals seeking to purchase their own health insurance, which means individuals not participating in a group or government plan, will be a $600 billion market in 2011.
TWST: Who do you see as your customers and your clients within that broad market? What mainly differentiates your company within the competitive landscape?
Mr. Clemens: Our client is the individual consumer looking for an insurance plan that fits their specific needs. Most likely you've read lately that there are 45 million individuals uninsured at this point, and our market is approximately half of that number. Plus, our market is the individuals who are presently insured, which is around 20 million, and then another 18 million who are private entrepreneurial businesses. In addition, the market is moving from group to individual coverage. There is a very strong migration at the group coverage because employers are at the point now where they are moving away from offering group plans and are leaning more toward offering individuals monthly stipends for them to find their own insurance plans. The group market has moved from about 65% in 2002 being insured under their employers' plans, to now less than 60%. Statistics from the U.S. Census Bureau, Bureau of Labor Statistics, have the total individual market to be around 90 million potential consumers looking for individual health insurance. The McKinsey report is zeroing in on how the medical insurance market is going from what they call wholesale, which is group, to retail, which is the individual. That is our market and we are developing the technology to penetrate this market. The major carriers have primarily been focused on group coverage and not on the individual. As far as the distribution force out there, it's all falling on the individual agents. The individual agents have a long process that includes: prospecting, setting up appointments, filling out the application and then submitting applications to the carriers. Often, the carriers have to send back applications to the agents because they are filled out incorrectly, slowing down the whole process as the carriers wait for the agents to send back the revised paper application before writing up the policy. Through our largely paperless system, we can process the entire application in as little as one hour. This system allows for the faster processing of more policies. Eventually, our goal is to get that to a point where we can accelerate the carriers' underwriting processes on a larger percentage of applications. The technology is the real driving force behind this. We have developed a system, which we call "Insurint?", that aggregates the rates from all the major carriers and also the underwriting rules that our agent is able to look at up front and in real time. With the launch of Insurint, the percentage of applications processed and submitted is increasing. This technology will eventually be offered throughout the market and to the independent agent.
TWST: What is the agenda for the company over the next 12 to 24 months? What are your priorities? What would make that time frame a success?
Mr. Clemens: Knowing the ins and outs of the industry helped in developing a long-term plan, which is to control this individual market and be the gateway to the major carriers. I think the discussion of universal health as a major social and political issue really plays into our hands. The feeling that I've had for a while is that eventually the government will set up a fund for individuals who normally wouldn't be able to afford health insurance, which is suggested in the Massachusetts plan. This should lower the rates for the rest of the consumers who buy insurance. At this time, people who are uninsured and can't afford the high cost of health insurance can use the emergency room. The people who are paying for insurance currently pay for this service. By the government handling this process, it should reduce the normal rates of the paying population. I think the legislature will probably make the premiums to the individual deductible, as is the present case in group insurance and eventually declare medical insurance mandatory, which is similar to what is being suggested by Massachusetts. The major carriers have networks of hospitals and doctors established throughout the country and I believe that this will be the backbone of the future health insurance system. For the government to get involved any other way would be very burdensome to the government cost-wise because at this point Medicare, according to the McKinsey report, is now $30 trillion under funded. You can view these stats in the McKinsey Report by visiting our Website. There are other firms out there that are estimating that this number is closer to $50 trillion. For the government to try to change this whole system would be extremely difficult. I think they are going to work within the system as it is, which makes a lot of sense because it has already been established. The carriers that Health Benefits Direct represents are the ones that have these major national networks - United Health Care, Humana, Assurant Health, Aetna and UniCare. Cigna is one of the major carriers, but they haven't really entered the individual market yet. We have a unique strategy in the market. I think it's going to be a long time and a very hard mission for our competitors to compete with what we're doing, because not only do we have the knowledge of the industry and the contacts with the insurance carriers, the carriers have the confidence in our company based on all the experience the management team has in the industry. In April, we instituted the quote engine component of our patent-pending online quote agent called Insurint. We believe Insurint has the potential to become the leading agent platform in the evolving health insurance industry.
TWST: What compels investors today to include HBDT as part of their current portfolios and part of their longer-term strategies?
Mr. Clemens: Our market is a $600 billion market with a very inefficient distribution system. Independent agents are doing the major distribution, which has proven to be inefficient. We are developing a process that could and should become the major distributor for this entire market. We are a small company, which, through its model and systems that we developed, we believe will be the dominating force in this market. With our stock price selling around $2 and in a position to be a major force in this huge market, there is a tremendous upside.
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