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ALVIN H. CLEMENS - HEALTH BENEFITS DIRECT ORPORATION (HBDT)
CEO Interview - published 08/20/2007
ALVIN H. CLEMENS has served as a Director of Health Benefits Direct Corporation
since November 2005, as Executive Chairman of the company's Board of Directors
since January 2006, and as its Chairman and Chief Executive Officer since
December 2006. From 2001 until 2005, Mr. Clemens performed business and
insurance industry consulting services in addition to managing his private
investments. In 1998, he founded HealthAxis Inc., a publicly traded company
specializing in direct sales of insurance products utilizing the Internet, as a
subsidiary of Provident American Corporation. In 1989, Mr. Clemens acquired a
controlling interest in Provident American Corporation, an insurance holding
company, and he served as its Chairman and Chief Executive Officer until 2001.
In 1970, Mr. Clemens founded Academy Insurance Group, a company specializing in
direct marketing of life and health insurance products. He currently serves on
the Board of Trustees and the Building, Finance and Executive Committees of The
Pennsylvania State University.
SECTOR - HEALTH CARE PLANS
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: Are there any cost benefits to the customer through this system? Are there
savings to be had or is it more the efficiencies and the broader access that
ultimately mean some lower cost?
Mr. Clemens: At this point it's much more the efficiency, but the cost factor is
going to be a major factor in the future because we're reducing the insurance
carrier's cost by processing the underwriting and completing the application at
point-of-sale. If the government gets involved along the way in what they call
"Universal Health" and eventually makes insurance mandatory, there will be more
efficiency in our system by moving the process to point-of-sale and acting as
the gateway to all major carriers via our real time technology. Health Benefits
Direct offers coverage through six major carriers that include: Golden Rule
(which is a United Healthcare company), Aetna, Humana, Assurant Health and
UniCare (which is a WellPoint company), as well as PacifiCare in California,
which is a subsidiary of United Healthcare. The individual will be able to
select the carrier with the best plan and cost for him or her, depending on
his/her condition and his/her geography, and he/she will be able to see that at
the point of sale. Our system compares the available products for all of these
carriers and gives the agent the information needed to best meet the needs of
the applicant.
TWST: What's been your funding history? At this point do you need additional
funds to meet your goals?
Mr. Clemens: We completed a private placement earlier this year and raised an
additional $11 million. As of June 30, 2007, we had over $10 million in cash. I
feel that we're properly funded at this point. In the future, if we decided to
go into different marketing areas, our cash needs might change. We continue to
expect operating cash flows to fluctuate and we remain focused on strategies to
reduce cash burn as we grow into our infrastructure and increase our operating
leverage.
TWST: Do you anticipate the next two years or so being an organic story growing
with the resources and the strategy you have in place or are there ways to
supplement that growth through mergers and acquisitions?
Mr. Clemens: Most of our growth will be organic. We're viewed as a sales
operation but our real driving force is technology. We are always looking at the
possibility of supplementing each of these two areas with acquisitions and/or
starting a new division. One of our main focuses is responding to Internet
inquiries at our call center, which are made from leads generated. We obtain
these leads from people going on the Internet looking for information or quotes
for medical insurance, whether that's on the Health Benefits Direct Website or
several other Sites from which we purchase leads. We're on the phone with the
consumer within about 30 seconds after getting the lead real time. We're now
working on establishing our presence in the affiliate network area and we
recently issued a press release announcing our first major affiliate
arrangement, Healthcare.com. By partnering with affiliate groups, the cost of
each inbound lead is considerably lower and the closing ratio tends to be
higher.
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,
www.healthbenefitsdirect.com. 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: Introduce us to your top-level management team, two or three of your key
individuals.
Mr. Clemens: I've had 40 years of experience in the industry. I worked with
three other public companies, one being Academy Insurance Group that I founded
in the 1970s and early 1980s which initiated selling health insurance over the
television with celebrities. I started that idea from scratch and eventually the
company had a market value over $600 million. Then I purchased control of a
company called Provident American Corporation, which was a carrier that utilized
independent agents. Then we developed a subsidiary called HealthAxis in 1998,
which was an online marketplace for the carriers in the health insurance
industry. It was very early in the Internet boom, similar to eHealth, Inc., in
that it was an online marketplace for the consumers and had a joint arrangement
with AOL, which eventually had a market value in excess of $2 billion.
Our CFO, Anthony Verdi was with me through all of these ventures and has a
background of being a CFO plus a Chief Operating Officer. He has 35 years of
insurance industry experience in finance and operations executive management.
Prior to Health Benefits Direct, Anthony was COO of Provident American
Corporation and CFO of HealthAxis, a Web-based direct insurance marketing
subsidiary of Provident, from 1998 to 2001. He was also Chief Financial Officer
of Provident American Corporation from 1990 to 1998. Anthony has been with me
and has been a crucial part of the strategy that we developed here.
Charles A. Eissa is our President and Chief Operating Officer. Charlie co-
founded the company and developed the technology that fit our strategy. Prior to
Health Benefits Direct, Charlie founded InTransit Media in April 2004, which is
a specialized advertising and marketing services company, controlling all
advertising on commuter trains operated by the Port Authority of NY and NJ. He
served as its President and Chief Executive Officer until the sale of the
company in February 2006. He was also involved in the 1998 inception of Seisint
Inc., a leading database and technology services company subsequently acquired
by LexisNexis. While at Seisint from 2000 until 2004, Mr. Eissa was part of the
team at Seisint Inc. that co-founded and spun off a division named eDirect.com,
which went on to make several key mergers and acquisitions consolidating under
the name of Naviant, a company specializing in permission-based Internet
marketing that was subsequently acquired by Equifax. From 1990 until 1997, Mr.
Eissa served as Vice President Sales for Lens Express Inc.
Then we have Ivan Spinner, who is in charge of our sales operation and carrier
relations and has had a number of years as a managing general agent. He
understands the whole field operations outside and inside and has 10 years of
experience managing agents.
Then we have Pete Zografakis, who is our in-house legal counsel who we hired
from Morgan Lewis. He oversees all legal matters affecting our company,
including most importantly the area of insurance compliance. We are very well
staffed, which is very unusual for a company of this size and have an
outstanding Board.
On our Board we have Pete Musser, who is currently Chairman and co-Chief
Executive Office of Epitome Systems; and the Managing Director of the Musser
Group, in Wayne, Pennsylvania, a financial consulting company. Pete helped the
formation and success of many Fortune 500 companies, including QVC, Comcast,
Novell, Inc. among others. He has recently been involved in NutriSystem, which
as you know has been extremely successful.
Charlie Eissa is also on the Board and he really was the original co-founder of
our company. He was the one who founded what we call Click-to-Call and that's
how we originally discovered the company. The company came across Pete Musser's
radar, and he found the Click-to-Call technology interesting. This technology
was developed to get to the individual on the Internet quickly.
TWST: What historically has been the shareholder base with HBDT? Has that
shareholder base undergone any recent changes?
Mr. Clemens: Pete Musser and myself put the original shareholder base together
after Pete discovered this opportunity. I have known Pete for years and he was
on my Board at Academy Insurance Group. Pete and I saw that the technology that
Charlie developed was the missing piece within the HealthAxis system; we got
plenty of clicks but we couldn't close them. Here was the ability to be able to
close the sale.
Within a couple of weeks we raised $14.7 million through a private placement
with investors from around Philadelphia and the Northeast US. Then the second
financing brought in major institutions such as Emerald Asset Management,
Crestview, Cumberland Associates and Cross Atlantic from Philadelphia. With
these major institutional investors, we feel that we have a lot of really good
backing at this point.
TWST: In your discussions with the investment community, are there any recurring
questions or misperceptions that you encounter? Is the Health Benefits Direct
story understood?
Mr. Clemens: Most people are looking at the sales operation and don't realize
that a major part of our operation is really technology. We have filed major
patent applications on the processes that we are developing. That includes the
underwriting through to tele-application and voice signature and the carriers'
acceptance of the tele-application. Our whole strategy is really to develop the
gateway to these major carriers through technology, fully insuring the
individual and enabling the agents. The sales end, in the long run, will be one
part of this operation. In addition to sales, the technology will be a major
growth driver as we start to roll it out to independent agents.
TWST: As investors track and assess your performance over the next 12-24 months.
What are the key metrics, events or combinations that they should be focused on?
What should matter to investors? What matters to you?
Mr. Clemens: I think everybody is tracking our sales right now, which is going
to be a continuing process. I think what they should focus on is the
introduction of our different stages of the technology. Our process is going to
be the gateway for the individual market.
Our end goal is to have the whole Insurint system finished where the independent
agents can utilize this tool and we can start generating revenues from monthly
access fees and override from such agent's business submitted through Insurint.
This technology is where we think our major revenues are going to come from.
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.
TWST: Thank you.
ALVIN H. CLEMENS
Chairman & CEO
Health Benefits Direct Corporation
150 North Radnor-Chester Road
Radnor Financial Center
Suite B-101
Radnor, PA 19087
(484) 654-2200
(484) 944-4010 FAX
www.healthbenifitsdirect.com
e-mail: info@hbdc.com
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