Fall 2006 / No. 69
The Evolving Voluntary Broker
by Bonnie Brazzell
Who is selling voluntary products today? How have the sellers
changed over the last few years?
Many
years ago, producers who were either agents for a worksite
company or a broker that specialized in worksite sales made
most of the voluntary/worksite sales in the market. In 2000,
Eastbridge conducted a study that identified a definite evolution
among worksite producers. That study identified five broker
segments selling voluntary (in addition to the career agent).
Earlier this year, we conducted another study to see what has
changed and found that many facets are both the same and different!
What is the same is there are still many types of brokers
in the voluntary market, each type with different needs and
expectations. But the segments themselves have changed from
the 2000 results. Our latest study identified seven different
broker segments that sell voluntary products (at least some
of the time). With the addition of the career agent (which
is not included in the study), there are now eight different
producer segments in the worksite market. Interestingly, while
there are eight distinct segments, we found that, in many ways,
the segments are coalescing. That is, the number of differences
between the segments is fewer than in the past. So what are
the 2006 segments?
Three of these segments specialize in voluntary product sales
and include:
- Specialists Brokers
- Classic Brokers
- Career Agents
As noted earlier, many years ago, the vast majority of voluntary/worksite
sales came from these three segments. But in today’s
market, these segments together accounted for about 47 percent
of the sales in 2005. And, their share of the market is decreasing—not
rapidly but still decreasing. Clearly, the voluntary market
is becoming “main stream,” with more and more producers
introducing voluntary products to their accounts.
The next broad grouping is the benefits broker. This group
separates into four different segments, which are the fastest
growing segments. Previously considered just one segment, the
employee benefit broker segment has splintered into two different
segments (Large Benefit brokers and Small Benefit brokers),
and we found two related segments (Large Commercial Lines and
Small Commercial Lines brokers). These latter two segments
are the benefits departments of commercial P&C agencies.
The “Multi-Line Agency” segment from 2000 has also
been absorbed by these segments (primarily the Large Commercial
Lines).
While all of these producers are all “benefits-oriented,” the
current study revealed some important differences between them.
In addition to the size difference, Large Benefit brokers have
been selling voluntary longer and like to experiment more with
various products, enrollment methods, and platforms. This segment
also “actively” sells voluntary as an add-on to
core coverages. Small Benefit brokers, on the other hand, tend
to offer voluntary much less often and usually only on a defensive
basis. They are much less experienced and more conservative
in their approach. The segment also requires more carrier support.
The Large Commercial Lines brokers most often offer voluntary
term and dental, but also offer STD, LTD, and prescription
drug coverage. These brokers frequently use only one or two
different carriers in an account. They are most concerned about
a carrier’s ratings and responsiveness.
The Small Commercial Lines brokers are the “new comers” to
voluntary. When they sell voluntary, they are most likely to
offer term, STD, LTD, cancer, vision, drug, or long-term care.
While some of these are simply variations on their true group
(employer-paid) products, others reflect that they are teaming
up with worksite/voluntary specialists to bring products to
their cases.
The remaining segment is a “carryover” from 2000
and is the Occasional Producer. This is the catch-all category
for brokers who bring carriers voluntary cases but who are
not in the benefits business. These brokers may be life insurance
agents, pension representatives, or any other professional
who has relationships with the HR or executive staff in an
account. These people have little understanding of the voluntary
business and rely heavily on carriers or other brokers to handle
the case details. As a result, the case dynamics for these
brokers mimic the other brokers with which they team. Occasional
Producers have little in their profile that is unique.
In summary, the landscape is changing quickly. As more and
more producers enter the voluntary market and gain experience,
we believe the landscape will continue to change. To be successful,
carriers will need to stay close to their producers in order
to keep up with these changes and their needs. And, strategies
will need to change to stay competitive—both with existing
segments as well as new segments. Carriers should not expect
that just because a strategy has worked in the past, it will
work forever. Distributor research is a critical tool that
helps keep carriers informed about what's happening in the
industry and, more specifically, the distributors' satisfaction
(or dissatisfaction) with the company’s services and
offering. Having this information and knowledge allows carriers
to make more informed business decisions and to act proactively
(rather than reactively) when things change.
The Evolving Voluntary Broker: A Look at Who is Selling
Voluntary in 2006 is a recent Eastbridge Spotlight report.
The research was conducted in 2006 with over 500 brokers
known to sell at least some voluntary products.
For more information about the report or how Eastbridge
can help your company, call us at (806) 676-9633.
Improving Worksite Persistency (Part II)
by Gil Lowerre
In the last issue, we discussed persistency and the four
keys to managing the persistency of voluntary/worksite business.
Two of those keys are within the company’s control,
but the other two are more difficult to impact. This article
discusses those latter keys, enrollment and sales, and lays
out a roadmap for increasing management’s leverage
in the effort to improve persistency.
Enrolling
The third key is enrollment, a process the company can impact,
if not directly control. We know from our research that enrollment
is not seen as very satisfying by employees. They complain
that it is primarily a bureaucratic exercise, filling out forms,
and is designed to aid the insurance company, not the customer.
Also, depending on the methodology, enrollment can be quite
expensive, involving investments in technology, staff or contractor
expenses, or both. Clearly, a function that is unsatisfying
and expensive is an appropriate focal point for innovation.
Customers know what they want from the process. It’s
certainly more than completing forms. It’s more than
information or knowledge, or even calculations. As an ideal,
they want personal advice, delivered by a human being in a
supportive environment; they want a “high touch” process.
And while we probably can’t yet afford to deliver exactly
what they want, there are clear benefits to moving in that
direction. After all, the better we succeed, the more our brokers
are going to want to use our process, and the more we get to
directly impact persistency.
Selling
Selling, the fourth key, can be imbedded within the enrollment
tool (as with most web enrollments), but more commonly, an
enroller is selling, either in conjunction with an enrollment
tool or without a tool (with a brochure and an application).
As with all forms of sales, prospects are quick to pick up
on the underlying messages. Is the salesperson selling me a
product because he needs to sell it—a “hard”
sell? Or is he selling me a product because I need it?
The process of moving towards a needs-based sale involves
several steps:
- Recognizing that this person (customer) is unique
- Uncovering and defining needs
- Prioritizing needs
- Quantifying needs
- Determining solutions
- Managing trade-offs
While it is very unlikely that any sales system in an enrollment
environment will be able to do all of this, directionally the
message is clear. And if we can imbed some of it in our enrollment
tools, so much the better. If not, we need to determine how
to develop the skills in others and then reward their usage
in the enrollment process.
Implementation
Overall, it is clear that persistency impacts much more than
our internal processes and customer service procedures. Managing
persistency impacts the way the broker behaves, the way the
enroller behaves, and the tools they use. It impacts the way
the customer is treated and perceives us and our business processes. In
total, managing persistency is the act of reshaping our value
proposition to all of our external audiences. They will
be treated differently, they will feel differently, and we
will get different results.
There are three broad steps in taking control of persistency,
and they should be done in the following order. (Too often,
companies reverse the order resulting in dysfunctional systems
and confusing messages to brokers and customers.)
- Define (or design) the persistency measures, measurement
tools, and standards and objectives desired.
- Design and test the enrollment and selling tools and their
ability to deliver the results sought.
- Create the incentives and disincentives for compliance
(compensation and otherwise).
Improving persistency is obviously good business, despite
the fact that most companies do very little to manage their
results. Persistency is a measure that can be understood, impacted,
and improved. Even if some of this is a bit out of our grasp,
we can still help others to use them on our behalf.
For information about Eastbridge’s Persistency Audit,
contact us at (860) 676-9633.
Discount Research Programs
It’s time to sign up for the 2007 Eastbridge research
discount programs. Insight Companies receive
a 20% discount on all reports purchased, and Information
Partners receive all Eastbridge reports, past
and throughout 2007, for one low fee. If your company hasn’t
signed up or you need more information, contact us at info@eastbridge.com or
(860) 676-9633.
Voluntary is Becoming the Primary
Delivery System for Financial Services
That statement always gets people’s attention (and usually
gets a few looks of astonishment). But we do believe it is
happening, and further, is inevitable. Follow our logic and
see where you come out.
- Employers are moving towards a defined contribution
approach to benefits.
More and more, employers are moving to limit their exposure
to rising benefits costs, sometimes capping their contributions
and sometimes through formal cafeteria-plan mechanisms. But
regardless of the mechanics, the move towards defined contribution
benefit programs is unstoppable.
- Employees will be making more and more of the
benefit choices.
As the employer steps back from funding benefits, employees
will be forced to determine how to spend their dollars and
their employers' dollars within the benefit program.
- All benefits are going to be “voluntary.”
Already, employees are choosing between multiple medical plans,
employee-paid products, buy-up plans and contributory coverages,
and the direction is clear. While employer dollars will still
be available (see step #1), all benefits are ultimately voluntary,
meaning the employee is electing whether or not to purchase
them from available funds.
- For most employees, other channels fail to deliver.
The individual insurance agent has all but disappeared from
the middle market, and direct mail and Internet are not succeeding
at filling the void.
- Employees welcome the opportunity to purchase
financial security products through their employer.
Repeated studies have confirmed this fact.
- Therefore, voluntary will become the primary
delivery system for financial services.
Most people will get the majority of their financial security
products through their employer’s benefit program, and
all benefits will be voluntary.
Contact one of our consultants to discuss your company’s
future in the voluntary marketplace.
Beating the Banks to the HSAs
When IRAs were first introduced, insurers seemed to be in
an ideal position to capture much of that business. But we
underestimated its size and the ferocity with which banks and
investment firms would pursue it. A similar story can be told
about 401ks.
We aren’t underestimating the potential of the HSA market,
especially in terms of potential deposits. Press releases have
touted the coming flood of assets, transaction fees, administration
fees, etc. But will insurers get their share? Will they be
competitive at all?
One insurer has decided to waive set-up/admin fees for a brief
period if the client purchases their HDHP from them. This is
an interesting approach.
If the ultimate goal is to gather those assets, aren’t
insurers best able to compete against banks by eliminating
the fees banks must charge (and spreading that cost over additional
products that must be purchased as a part of the package)?
All else being equal, why buy from several institutions and
pay fees when you can get the same funding vehicles from one
institution without the fees? It looks like insurers are in
an ideal position to capture much of that business. But didn’t
I just say that about IRAs and 401ks?
For more information on HSAs and how they might fit in
your business, call Eastbridge today at (860) 676-9633.
The 2020 TPA
Five years ago, we wrote a series of reports on the future
of the benefits industry under the title 2020, A Clearer
Vision of the Future. Those predictions received a lot
of attention, a lot of applause, and a few boos. We predicted
the coming dominance of the employee benefit broker in the
voluntary arena and other changes that are coming to pass.
But consider our predictions about TPAs.
We predicted that by 2020, intermediaries (combining aspects
of the 2001 TPA), the broker/dealer, and the HRIS firm would
dominate the market, replacing many of the services offered
by insurers and pushing them towards retreating into only their
product development and risk management specialties. We foresaw
these new intermediaries offering:
- Full voluntary administration and billing
- Employer and employee level service
- Broker services including training, proposal preparation,
licensing & contracting
- Commission statements and disbursements, etc.
- Web and call center enrollments
- Distribution aggregation and solicitation
- Marketing and sales support
Five years later, there are TPAs that offer all of these services.
Maybe our biggest mistake was in predicting it would take until
2020!
Voluntary Industry Confidence Index
The voluntary/worksite industry confidence index is up, that
according to the mid-year Worksite/Voluntary Industry Confidence
Index survey conducted by Eastbridge. The index for mid-year
was 101.2.
The study includes responses from individuals active in the
market and includes carriers, brokers, and vendors. Like other
confidence indices, the Voluntary Industry Confidence Index is
a single number that compares the current results to a baseline
measure. For our purposes, the December 2005 results are our
baseline. This means that in December of 2005 the Voluntary
Industry Confidence Index was 100.
Overall, prospects for the industry remain positive. In fact,
93 percent of those participating in the Confidence Index survey
expect sales to increase over the next 12 months. Additionally,
70 percent of respondents believe that employees will be more
enthusiastic about voluntary benefits 12 months from now. Expectations
for sales stayed pretty consistent with the December results,
but the results for employee enthusiasm were up slightly from
the 68 percent last time.
The overall increase in the index is largely due to the more
positive results (based on means) for the industry profitability
and employee enthusiasm questions. Seventy-three (73) percent
expect profitability to increase and just two percent expect
profitability to decrease (compared to 10 percent in 2004).
Most of the respondents also believe that persistency levels
and retention for voluntary business will either improve slightly
(40 percent) or remain the same (44 percent) over the next
12 months.
Most (79 percent) respondents also believe that their company
will acquire more new groups over the next year than they did
in 2005. This number was down slightly from the December index
primarily because fewer respondents believe that new group
sales will ‘increase a lot’ (43 percent compared
to 30 percent).
We, at Eastbridge, expect sales to continue to grow at the
mid-to-high, single-digit level. Changes in the marketplace,
in consumers, and in the likelihood that most employees look
to the worksite to purchase more of their insurance products
will fuel the movement to more voluntary benefits and to more
producers selling voluntary products.
The Worksite/Voluntary Industry Confidence Index,
a Frontline Report, is published semi-annually by Eastbridge
Consulting Group, Inc. Our next survey will be out in early
December. All participants get a free copy of the report.
Takeovers
– Is this a good or bad thing for the industry?
Carriers agree that takeover business is on the rise in the
voluntary market. That was a finding earlier this summer when
Eastbridge released the Frontline Report, Takeover Business
in the Worksite/Voluntary Market (2006). The report gathered
data from 20 carriers that accept takeover business on voluntary
products. Not surprisingly, the study found that dealing with
takeover business is just a ‘fact of life’ in today’s
world. It also found that employee benefit brokers are most
likely to be involved with takeover business and cases with
over 200 lives are prime candidates for takeovers. Additionally,
carriers feel that the percentage of takeover business is going
to increase in the future. But is this a bad thing?
The answer is that it really depends. Takeover business can
mean that you are taking on more risk (if you are taking over
an account on which another carrier is raising rates) or it
can be motivated by a broker who wants to increase commission
(if the product has heaped commissions). But takeover business
doesn’t have to be bad business. In fact, if takeovers
are a fact of life, the carriers need to have the processes
and procedures in place to ensure that takeover business is
profitable business. Carriers also need to make sure that their
guidelines for handling takeovers are well thought out and
help them control the potential risk of too many takeovers.
They need to ensure that insureds and brokers are not able
to take advantage of a takeover situation. Some of the most
common takeover safeguards include:
- Home office approval of the case before it can be written,
at least for some case sizes
- Matching the prior plan design and only allowing coverage
changes with evidence of insurability
- Requiring evidence of the prior plan
- Requiring loss ratio and premium history on takeover cases
of 200 or more lives
Carriers are also beginning to reduce commissions on takeover
cases. This is relatively new and is not the universal approach
but, especially for carriers with heaped commissions, it may
become a trend. Certainly reducing first-year commissions and/or
requiring levelized commissions on any takeover removes the
revenue incentive for switching carriers. Today, the type and
amount of reduction varies significantly from carrier to carrier,
but we believe that this is a trend that is likely to continue.
Takeover Business in the Worksite/Voluntary Market (2006) is
an Eastbridge Fronline Report. Eastbridge’s Insight and Information
Partner companies received the report free of charge.
For information on these programs, contact Eastbridge at info@eastbridge.com or
call (860) 676-9633.
2006 Industry Snapshot and
Competitor Profiles Now Available
Eastbridge Consulting Group has just released the 2006
Worksite Marketing Industry Snapshot and Competitor Profiles Spotlight
Report. This report examines the worksite marketplace—sales,
inforce premium, leading players, and product trends—and
provides a profile of 14 key players in the worksite market.
Each profile includes a business profile as well as an analysis
of each carrier’s marketing, distribution, product,
and operational capabilities. It also gives a list of the
carrier’s strengths and weaknesses relative to competitors.
Many carriers purchase this report annually. The report is
regarded as the industry’s best source on the worksite
marketplace. Many carriers use it to endoctrinate new employees
on the worksite market and to keep other employees up to date
on:
- Sales and inforce premium growth for the industry
- Voluntary products with the largest share of sales
- The top players in the worksite market
- Products sold by the top players
- Various competitor’s strengths and weaknesses
Companies that purchased the report last year qualify to receive
the updated version for just $300. Others can purchase the
report for just $750 and will then qualify for the discounted
price on the 2007 report.
Click
here to view a table of contents for the report.
To
purchase a copy, email us at info@eastbridge.com or
call (860) 676-9633.
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