Case Detail

Case Summary

Conseco Senior Health Insurance: A Strategic Problem of Reputation and Regulation

Case Number: 5-313-502, Year Published: 2015

HBS Number: KEL898

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Authors: Nicola Persico; C. James Prieur

Key Concepts

Business and Government Relations, General Management, Government Policy, Health Care, Organizational Structure, Regulation

Abstract

In 2007 Conseco’s CEO, C. James Prieur, faced a complicated set of problems with his company’s long-term care (LTC) insurance subsidiary, Conseco Senior Health Insurance (CSHI). CSHI faced the threat of congressional hearings and an investigation by the U.S. Government Accountability Office, triggered by an unflattering New York Times article alleging that CSHI had an unusually large number of customer complaints and was denying legitimate claims. This threat came in addition to broader systemic problems, including the fact that the entire LTC industry was barely profitable. What little profitability existed was dependent on the goodwill of state insurance regulators, to whom the industry was highly beholden for approvals of rate increases to keep it afloat. Furthermore, CSHI had unique strategic challenges that could not be ignored: First, the expense of administering CSHI’s uniquely heterogeneous set of policies put it at a disadvantage relative to the rest of the industry and made rate increases especially necessary. Second, state regulators were negatively predisposed toward Conseco because of its notorious reputation and thus were often unwilling to grant rate increases. Finally, CSHI was dependent on capital infusions totaling more than $1 billion from its parent company, Conseco, for which Conseco had received no dividends in return. Faced with pressure from Conseco shareholders and the looming congressional investigations, what should Prieur do? Students will discuss the available options in the context of a long-term relationship between Conseco and state insurance regulators. Prieur’s solution to this problem proved to be innovative for the industry and to have far-reaching consequences for CSHI’s corporate structure.

Learning Objectives

After reading and analyzing this case, students will be able to:

  • Evaluate the impact of a regulatory environment on business strategy
  • Assess the pros and cons of various market strategies as well as recommend important non-market strategies for a firm in crisis in a highly regulated industry

Number of Pages: 7

Extended Case Information

Teaching Areas: Management

Teaching Note Available: Yes

Geographic: United States

Industry: Insurance

Organization Name: Conseco Senior Health Insurance

Organization Size: Large

Decision Maker Position: CEO

Decision Maker Gender: Male

Year of Case: 2007