Health insurers are entering a new world where individuals, not groups, are the decision makers. In essence, US health care is going retail, from the growing interest in health savings accounts (HSAs) to the proliferation of minute clinics and other convenient settings for delivering care. Yet many insurers are ignoring the transformation of their industry and the opportunities and challenges it presents.

The change is manifesting itself in several ways. Traditionally, employers selected health care products for their workers and paid for most of the services and other costs. Increasingly, however, those costs are being passed on to individuals, who now decide what products to buy, as well as where, when, and how to buy them. Individual consumers are also demanding first-rate service from their payers—service in line with what they expect from other consumer industries, such as banking or retailing—along with nearly 100 percent accuracy and the convenience of interacting at any time through a number of channels. And given the complexity of health insurance products and of the health care system, consumers want more advice and support than ever.

But health insurers, or payers, have grown up as wholesale enterprises, and their competencies, organizational structures, and mind-sets are...