Cigna V Aetna

Innovation Comparative Analysis: Cigna vs. Aetna

The purpose of this paper is to provide a comparative analysis of two companies within the same industry (Cigna vs. Aetna) and an evaluation of their innovation processes.

Current Situation Analysis

A recent survey of the nation's top CEO's concludes that innovation remains the lifeblood of business. "For CEO's today, it's all about achieving growth and efficiency through innovation. It's not about product innovation so much anymore as about innovating business models, process, culture and management." (April, 2006).

In comparing Aetna and Cigna, it's interesting to note that the companies share a number of important similarities. Both are recognized leaders in the health insurance industry, and both are recent award winners for their innovative processes. Both are led by CEOs who are relatively new in their top positions, and both ascended from leadership positions within their company.

Perhaps most significantly, both are national companies competing for similar books of business. Both sell health insurance benefit plans to employers and single policies to individuals; both offer managed Medicare plans, seeking to capitalize on the opportunities for privatization created by the new Medicare Modernization Act of 2004.

They compete directly against each other in most markets, and both have identified the emerging consumer-directed health plan market as a key target for expansion and growth.

Innovation expert Tom Kelly recently stated "it's not enough to be an innovator anymore. You have to out-innovate the competition." (Kelly, 2006). Interestingly, it would seem that both Aetna and Cigna are adopting pages from Kelly's playbook that says those who succeed will be those who "passionately pursue new ways to serve your customers." (Kelly, 2006).

This paper will examine ways in which both Aetna and Cigna have embraced technology (radical innovation) and a sharpened focus on customer service (architectural innovation) to protect their business and create new appeal for their customers. First, however, a brief profile of each company's current situation:

AETNA

Aetna is the larger of the two players: with 9% of the commercial enrollment market in early 2006 (27.9 million members), it ranked as the nation's third largest provider of employee health insurance products, behind United Health at 19% and Well-Point with 14% (All Business, 2006).

By following a focused business strategy of heavy investment in technology, cost-cutting measures and premium increases, Aetna more than quintupled its stock price over three years. This was a significant financial turnaround, reversing a net loss of $2.5 billion in 2002 to a reported net income of $1.63 billion in 2005 (All Business, 2006).

Like most major health plans, Aetna is looking for growth in the consumer-driven health plan segment. Although the numbers are still small in this emerging market, Aetna is making significant gains. According to president and CEO Ron Williams, "Aetna's Consumer Driven Health Insurance Plan (CDHIP) book was at 614,000 at the end of the first quarter, a 52 percent increase from the year-ago quarter." (DuBose, 2006).

CIGNA

Cigna is a significantly smaller player, with only one-third the enrollment of Aetna (at 9 million members, down from 13 million last year). Unlike Aetna, Cigna is struggling with profits and earnings. In early 2005, Cigna achieved the highest profit margin of the thirteen publicly-held insurance plans profiled by Health Leaders InterStudy (at 8.6%), while Aetna ranked 4th with 6.5% (DuBose, 2006). But 2006 has been more challenging. "Cigna Corp. reported its fourth straight quarterly drop in profit... for the second quarter. Competition with No. 3 health insurer Aetna and Independence Blue Cross and Blue Shield plans in certain U.S. regions hurt Cigna's ability to increase premiums enough to keep pace with rising medical costs." (Rapaport, 2006)

Like Aetna, Cigna is focusing on the consumer-driven market, more than doubling its presence in that segment in the first quarter. Noting that its enrollment in this segment went from 100,000 to 250,000 members, Cigna Health Care president David Cordani said "We are well on our way to achieve our goal of tripling our 2005 membership levels in full year 2006." (DuBose, 2006)

Corporate Innovation Drivers

Aetna and Cigna face similar challenges in today's volatile health insurance market. Industry experts note that "major transformations are under way in health insurance," and cite several major drivers that demand innovation to protect future success: (Singh & Sawhney, 2006)

* Rising healthcare costs are pressuring employers, who are moving toward consumer-directed and defined contribution benefit plan designs. This means that consumers will be challenged at new levels to manage their health costs and benefits, and they'll need unprecedented levels of access to information to manage their decisions. With consumers holding more of the financial responsibility, they'll have new motivation to demand consumer-friendly services and information. (Singh & Sawhney, 2006)

* Competition is forcing consolidation of health insurers. Two years ago, there were fifteen major for-profit insurance plans that controlled the national market. They have consolidated into nine players, and further changes are predicted. (Singh & Sawhney, 2006)

* As a result of changing business models and industry consolidation, fewer companies are competing for fewer covered lives in a stagnant market. In short, "the commercial and group health insurance market in the U.S. is not growing. It is, in fact, shrinking." (Singh & Sawhney, 2006)

Responding to the Drivers

Aetna had a leadership change in early 2006 with President Ronald A. Williams replacing retiring Chief Executive John A. "Jack" Rowe in February 2006. But as new president and CEO, Williams is expected to continue the pace set by Rowe. "When it comes to company strategy, Williams, like Rowe, believes that better profitability will come from improving the quality of Aetna's products rather than increasing the number of subscribers." (Hempel & Brady, 2006). Aetna's innovation strategies seem to focus more on using technology to improve processes and cost efficiencies than on introducing new