Summer 2006 / No. 68

Managing worksite persistency

By Gil Lowerre

Accounts with superior persistency are everyone’s goal, but results still vary dramatically from case to case. And while hard persistency data and analyses are hard to come by, our experience suggests that there are four keys to achieving great performance. Persistent (and hopefully profitable) accounts typically pass four tests.

Select Correctly

The process starts with account approval and underwriting. Two areas in which carriers have recently been drifting into troubled water involve broker underwriting and takeover accounts.

Carriers need to have clear and open discussions with brokers about business quality and then set unambiguous rewards and penalties for case submission quality. A broker who occasionally brings a substandard case for consideration—and clearly identifies it as such—is certainly welcome. A broker who routinely brings bad cases, or tries to “sneak” the occasional case through, is a liability. As a carrier, you need to examine business by broker blocks, looking carefully at the profitability of each broker. And unprofitable brokers need to be put on a short leash (i.e., improve now or be set free). While business can change and accounts evolve, these leopards rarely change their spots.

Takeover business is becoming much more common as group products and employee benefit brokers grab larger shares of the business. Carriers need to develop takeover guidelines and procedures, both of which are different from, and tailored to, takeover business. This type of business requires its own rules by account size, industry, etc., starting from the premise that it is a different business line from “virgin” case business. Our July 2006 report, Takeover Business in the Worksite/Voluntary Market, outlines current practices and rules used by carriers in the industry.

Enroll Correctly

Experienced people using tested tools have typically enrolled persistent business. The pre-enrollment education and marketing campaign of quality enrollers is usually standardized and well thought out, and the results are predictable in terms of participation as well as ultimate profitability. Conversely, neophytes, trainees, sloppy or poorly structured processes, enrollment experiments, and last-minute enrollments are all predictors of future persistency problems.

Sell Correctly

As explained in a companion article in this issue, we expect improved persistency when people buy the “right” coverage in the appropriate amount. Good participation often (although not always) suggests healthy persistency. One exception is “hard selling,” which can boost participation while damaging ultimate persistency.

The “right” type of coverage refers to both product selection and product quality. In other words, the best sales process takes the individual's needs and priorities into account, matching them with a superior product solution (quality and quantity).

Service Correctly

Finally, both the home office and field need to provide appropriate service levels, from billing and claims to problem solving and reenrollment.

Accounts that have persistency problems have probably failed one or more of these tests. Stated another way, these four tests provide carriers with a framework for examining persistency and developing programs and policies to improve results. The starting point for such an effort is a complete review of lapse experience as well as customer-contact policies and procedures. The experience helps point to “soft” or malfunctioning areas among the tests, while the procedural review identifies areas for improvement.

A thorough persistency procedural review answers the question, “Is there any way we can practically exercise more control over the results of each of these tests?” The selection and servicing tests are obvious focal points, and carriers need to be confident of their procedures in these areas. But there is a growing belief that the enrollment and sales tests may hold the keys to ultimate profitability. So how can carriers control the enrollment and sales process so as to steer cases towards better persistency? What are the practices that support improving results and, conversely, which practices flash a danger sign? And ultimately, how do we structure our program to encourage the former and discourage the latter? These issues will be examined in the next issue of Outside Input.

For more information about Eastbridge’s persistency audit, contact us at (860) 676-9633.

Voluntary participation rates—are they too low? (Part 2)

By Bonnie Brazzell

In our last issue of Outside Input, we examined the issue of participation levels for voluntary products and whether they are too low (as found by a study of a generalist consulting house). In this issue, we address the second conclusion from the study—that too many choices for employees are the cause of low participation.

While we agree that too many choices are confusing, we think that the conclusion masks a couple of very different questions that, unfortunately, get merged together in many circles. We should ask ourselves:

• Are choices a good or bad thing for employees?
• Is confusion on the part of employees the result of having choices or a failed process?

As regular readers of Outside Input well know, we believe that having choices can be a positive for employees. We believe that “one size fits all” does not meet employee needs and that a single product offering closely mimics this approach (since it assumes that everyone has the same product need and only the amount of the benefit may vary). So, our belief is that the “problem” really isn’t choice. Instead, it’s the lack of an efficient enrollment process that helps employees easily sort through choices and make decisions. Sure, one solution/choice simplifies the employee’s decision with a single “yes” or “no,” but that is somewhat like cutting off your arm to get rid of a hangnail. Although this may be an exaggeration, it makes a good point: the “simple” decision may solve the problem of the hangnail but it’s not in your best interest to get rid of the arm!

Multiple choices (within reason) can be offered without employees becoming so confused that they simply make no decision. But it takes some work and requires that we change some long-held beliefs of some carriers and brokers. As an industry, we have to develop the capabilities that help employees assess and prioritize their needs and choose solutions based on this process (as well as on the employee’s ability to pay for the solutions). This probably won’t be possible using passive enrollment methods like self-enroll or large group meetings with generic materials.

Traditionally, the face-to-face, one-on-one meeting has (at least in some cases) come close to this. But there are also other alternatives/models being tried today to achieve maximum participation while meeting consumer needs. Whatever the method or tools, however, the process needs to:

• Educate the consumer
• Identify an individual employee’s needs and priorities
• Propose solutions
• Offer advice on the best solution given the employee’s situation

With the right enrollment environment, employees will be able to sort through their choices quickly and make decisions—and help participation levels for voluntary products. However, as we wrote in our last issue, we may also need a new perspective on participation as well as what is considered “good” or “bad.”

For information on how Eastbridge can help you develop or fine-tune your enrollment approach, give us a call at (860) 676-9633.

2005 worksite sales results

For the past nine years, Eastbridge Consulting Group has been tracking worksite sales/inforce premium data with the goal of creating a comprehensive, reliable, and current source of data regarding the industry. This year’s study includes data on 60 carriers (both group and individual), representing more than 85 percent of the total worksite sales volume for 2005. [Note: As in most Eastbridge reports, worksite is defined as employee-paid products, either individual or group.]

Sales results

The worksite market has shown steady growth over the past several years, often at a double-digit rate. From 1997 (the first year our company has tracked this data) until 2002, the growth rate has ranged from 10 percent to just over 19 percent. Beyond that, sales have continued to increase but at a slightly slower pace (1.8 percent in 2003 to 3.4 percent in 2005) as seen in the following chart.

New worksite sales for 2005 totaled an estimated $4.366 billion, a 3.4 percent increase over 2004 sales. This was the third year in a row that the industry did not realize double-digit growth. However, 68 percent of the reporting companies experienced sales increases in 2005. And of these, 70 percent achieved double-digit sales growth (with an average of about 11 percent). Only a handful of companies had decreases, and five companies accounted for 78 percent of the decrease. Thus, the data reinforces that there’s no real fundamental changes taking place in the worksite market and that the future outlook for voluntary sales is still positive.

Inforce premium

Inforce premium increased by about seven percent in 2005, which is in line with historical averages (but a decrease over the last two years—11 percent in 2004 and 13 percent in 2003). We estimate the total market of inforce premium is between $13.4 billion and $17.7 billion.

Product and platform results

Sales results by product platform did not change much from 2004. In 2005, individual sales slightly led group sales (57 percent compared to 43 percent) although the growth rates were almost identical. In the past, group sales have grown at a much faster pace than individual. But this year, the growth rate of group products really leveled. The following graph shows the mix by product platform for the last four years.

When looking at sales results by product line, life insurance (mostly term) again accounted for the largest share with 24 percent. Disability came in second at 20 percent, followed by hospital income and accident. The following graph shows the mix of sales by product line.

Voluntary disability sales were again weighted towards short-term products in 2005, with long-term disability actually showing a decrease in sales (29 percent). Hospital indemnity and limited benefit medical plans both grew at just over 15 percent. Cancer sales in 2005 were over double the critical illness sales, although critical illness showed a more impressive growth rate (13 percent compared to 4 percent). Dental sales were down again last year, but less than the prior year, and long-term care sales were again flat in terms of new sales. Voluntary vision sales, albeit small, showed a solid increase in 2005 (46 percent).

Based on this year’s survey results and previous studies/results, we continue to believe that the voluntary market will grow, though at rates lower than the double-digits of the past. Specifically, we expect the industry to grow in the five to seven percent range in the foreseeable future.

Parties interested in participating in next year’s study are advised to email Eastbridge at info@eastbridge.com. All participants receive a free copy of the complete findings, including company-specific results.

Product trends in worksite

What are the product trends in the voluntary market? This is a question we get asked regularly. And here’s what we’re seeing based on our recent research:

• Continued blurring of the lines between group and individual platform.
  This is an ongoing trend although we are close to the point where platform is almost immaterial. Still, some carriers and producers cling to the old definitions and distinctions.
  
• More interest in term life products.
  While we still see a lot of universal and whole life being sold, the trend seems to be towards term products. Certainly, much of this is due to the increasing number of group carriers and employee benefit brokers, but even individual carriers are looking at developing (or updating) term products for the worksite.
  
• Increased interest in accident products.
  Over the past few years, we have seen several new introductions of accident plans by worksite carriers. Many of these carriers have said that accident fits well with the move towards higher deductibles and other out-of-pocket expenses.
  
• Increased interest in developing products to align with the move toward consumer-driven health plans.
  This is probably the “hottest” trend with numerous carriers looking at developing HSA-compliant products, like hospital indemnity, to help employees cover the gap between their high deductible health plan (HDHP) and their medical expenses. In fact, as noted in another article in this issue of Outside Input, hospital indemnity and limited benefit medical plans were the highest growth products for the industry in 2005.

New Spotlight Reports

Look for two new spotlight reports from Eastbridge:

TPAs and Voluntary Benefits

As more carriers look to outsource significant elements of their back offices, the role of TPAs and/or Business Process Outsources (BPOs) will increase in importance. This new report looks at the products/services provided by nine TPAs with “full” back office capabilities for voluntary products.

Voluntary Vision Plans

As employers move more costs to employees, products like dental and vision are moving to voluntary. Voluntary dental products have been “big” for years but we are now seeing more and more voluntary vision products. This reports looks at the plans offered by eight vision providers.

To learn more about either report, contact us at info@eastbridge.com.

Who gets to pick?

Distribution is key to success in the voluntary market. In fact, we believe it is the starting point for success. There are plenty of products, plenty of prospects, and many needs to be filled. But there is a limited amount of distribution to marry all of these. In our consulting practice, we advise clients to start their strategy development and business planning by targeting one or a few distributor segments and then focusing their efforts on these. But can you really just choose which distributors you want to do business with and then expect them to do business with your company?

Some carriers seem to think so. We’ve seen carriers decide that they want to target a specific segment (usually because the company believes that the segment is more appealing to them) and then define what they (the carriers) want to sell and how they want to deliver it. When all is done, they then present their offering to the marketplace, expecting results. Sometimes carriers with “big” brands expect that their brand will attract producers. But while brand is important, it is not always strong enough to produce good results.

Reality has shown that carriers really don’t get to pick producers—the producers pick the carriers! So while we say “pick a target,” that’s not all that it takes. Once the producer segments are chosen by the carrier, there is still a lot of work to ensure that your wants (as a carrier) align with those of the producers or brokers. Only when you align with their needs and give them a better solution than others are you picked!

For more information about how to target distribution and succeed in the worksite market, give us a call. (860) 676-9633.

Benefit cost increases continue to moderate

Employers’ benefit costs have been increasing, but at a much slower rate. Benefit costs, increasing at 6.5 percent in 2004, are now increasing at only 3 percent according to the Labor Department. And while benefit elimination is having some impact, BusinessWeek reports that businesses are keeping costs down "mainly by shifting more of the burden of paying (for benefits) to workers." Apparently, voluntary business is both driven by, and is an indicator of, increasing corporate efficiency.

2006 company sales ranking recognition

Sales growth leaders in the “A” category (more than $25 million in voluntary sales in 2005) were:

• Principal Financial Group
• AIG
• Genworth (including PIC)
• Aflac

Sales growth leaders in the “B” category ($5 million to $25 million in voluntary sales in 2005) were:

• Texas Life
• Reliance Standard
• USAble
• Assurity/ASG@Work

Companies eligible for recognition must have exceeded the industry sales growth rate for each of the last three years. [Note: Rankings are based on the company’s 2005 growth rate.]

Congratulations to these fastest growing companies. We are especially proud of these companies as we worked with four of them on their business strategy!

Why is this business so difficult?

Not that long ago, it seemed that everyone considered the worksite/voluntary business to be simple. It was often considered a variation on old, familiar lines of business: a slight variation of our group business or an adjunct to our individual operations. Companies entered right and left, often with badly constructed or poorly thought-out offerings. Companies entered and companies exited, while trade associations hyped the opportunity and were overly optimistic about the ease of entry (and now are overly pessimistic about it). But eventually, the appropriate lessons were learned.

Today, it is much more common to hear people ask why it is so difficult to succeed in the voluntary arena: difficult to differentiate an offering, difficult to attract attention in the marketplace, difficult to find qualified people, and difficult to achieve required levels of profitability. Yes, it is difficult and it’s a sign of progress that we recognize this truth. But it’s also not magic or luck. In total, we are an industry led by people with minimal voluntary experience, often who have other (conflicting) responsibilities and who have most of their voluntary experience with one company. That’s a challenging scenario to say the least.

Knowledge is now readily available. The tremendous growth in Eastbridge’s research program and research discount membership programs attest to the industry’s appetite for knowledge. But no research, regardless of how accurate or timely, can supply experience. Executives need to have experienced counsel in order to avoid the mistakes of others.

We don’t let new medical school graduates perform major surgery or allow those who recently passed the bar exam to manage important cases. Knowledge is essential, but it is not enough. Knowledge and experience are required for success.

Research program update

Eastbridge is publishing ten major Spotlight Reports, two Consortium Studies, and six FrontLine Reports in 2006. We have already distributed Voluntary Dental Plans, Distribution Strategies, Commissions and Compensation, Takeover Business in the Voluntary/Worksite Market, The Voluntary Industry Confidence Index, and the Worksite Distribution 2006 Consortium Study.

Insight members receive all reports at a discount and Information Partners receive all Eastbridge research, past and present, for a single, low fee. FrontLine Reports are only available to contributors and members.

For more information on Eastbridge research and research programs, call us at (860) 676-9633. General information on the 2007 programs will be mailed at the end of August.