Whenever an industry faces sweeping changes, players in that industry face both opportunity and risk.
That's certainly the case for health insurance specialists looking to navigate their way through the regulatory changes brought on by President Obama's Affordable Care Act.
One of those specialists,Health Insurance Innovations ( HIIQ ), is an online insurance company that connects insurance carriers, brokers, agents and consumers to its portfolio of health-insurance-related products.
The company specializes in 12-month Short-Term Medical plans, or STMs. These plans serve as an alternative to traditional plans that provide long-term renewable coverage. Health Insurance Innovations looks to serve the segment of the U.S. population that is uninsured or underinsured.
STMs are expected to grow in popularity under ObamaCare because they are cheaper than comprehensive major medical plans, but provide many of the same types of benefits and coverage.
As a general rule, STMs are easier to qualify for than major medical insurance plans. On the downside, short-term medical coverage is not as comprehensive as other types of coverage because it usually doesn't cover prescription drugs or preventive care, says Carl McDonald, an analyst at Citigroup.
"However, it does offer healthy individuals a way to protect against major claims at a fraction of the cost of other insurance alternatives," McDonald noted in a recent report initiating coverage on Health Insurance Innovations.
Those lower costs are expected to be a big selling point for STMs in the changing regulatory environment. As demand for STMs rises, Health Insurance Innovations should see opportunities to grow its business, analysts say.
"The company has a timely opportunity to strengthen and build its network of distributors, while navigating the looming changes from health insurance expansion in 2014," Credit Suisse analyst Glen Santangelo noted in a recent report on the stock.
At the same time, there are numerous challenges. For one thing, there are the unknowns surrounding the new health care legislation.
For another, there are low barriers to entry from an industry that is already chock full of large, well-funded managed care firms such asUnitedHealth Group ( UNH ),WellPoint ( WLP ),Cigna ( CI ),Humana ( HUM ) andAetna (AET) that might decide to make a move into STMs.
One of the keys for Health Insurance Innovations is to create more awareness about its products while it is still in a pretty unique space, analysts say.
"Consumers are generally unaware the short-term medical product exists, and even many insurance brokers aren't all that familiar," Citigroup's McDonald said.
Health Insurance Innovations intends to use part of the proceeds from its February initial public offering to advance commissions to brokers, McDonald said. This will create "a new incentive for agents to learn more and offer the short-term product ..."
The company went public Feb. 8 at an opening price of $14. Shares spent the next few weeks in choppy waters before a recent rally pushed the stock price back above 15.
Health Insurance Innovations raised $61 million its IPO after underwriters' discounts and fees. A portion of the proceeds were used to repay outstanding debt. The remaining proceeds were earmarked to grow the business by adding distribution channels.
Although Health Insurance Innovations was founded only five years ago, its management team, including Chief Executive Mike Kosloske, has decades of experience in the business.
In 1987, Kosloske joined Health Plan Administrators, or HPA, as president. He later bought the company.
"The business at HPA was essentially the same thing as what Health Insurance Innovations does today, with the key difference that HPA was far less technology-focused," McDonald noted. "Much of the current Health Insurance Innovations management team worked with Kosloske at HPA, and the experience running HPA has given them a solid base for understanding what to do and not do."
In addition to experience, the company has a number of other things working in its favor.
Analyst Santangelo cites its "highly scalable" proprietary technology, a competitive edge in pricing and distributor economics, and a low market share of the individual insurance market that allows plenty of room to grow.
The company also has "a large cross-selling opportunity with core customers and ancillary products, and a significant runway to add distributors," Santangelo said.
Health Insurance Innovations' short-term medical enrollment at the end of 2012 was about 23,500 lives, McDonald says. He reckons that figure can grow to 40,000 this year and 55,500 in 2014.
The company had about 58,000 total policies in force at the end of 2012, including those that did not involve STM enrollment. That figure was up from 30,000 the prior year. In a fourth-quarter earnings report, management said its distribution network at the end of the year included 46 licensed agent call centers, 262 wholesalers and more than 8,275 licensed brokers.
Revenue in 2012 rose 40% from the prior year to $42 million. Net income increased 37% to $3.3 million. Health Insurance Innovations' revenue mainly comes from commissions and fees related to the sale of products to its members.
Two analysts polled by Thomson Reuters expect Health Insurance Innovations to report full-year earnings of 58 cents a share in 2013 and $1.22 in 2014.