Fall 2007 / No. 73

What are the hot voluntary products today? Well, if you believe much of what has been written in the trade press lately about voluntary, you would think it is legal insurance, pet insurance, long-term care, or concierge services. Not to disparage any of these products (because they do serve legitimate needs), but we don’t think that portraying these products as the latest and greatest voluntary products does the industry any favors. Instead, it seems to portray the industry (to those not actively involved it is) as on the “fringes” of the benefits world.

We think it’s important to make sure that those looking at our industry know that the voluntary market is primarily about selling “mainstream” products such as disability, life, and dental insurance. In fact, almost half (44 percent) of the voluntary sales in 2006 were for life or disability insurance.

Voluntary Product Mix for 2006

And the industry is actively marketing products to assist employees and employers in dealing with healthcare costs. In fact, one of the fastest growing product lines over the past three to four years has been the “voluntary medical” product line (hospital indemnity, supplemental medical, and limited benefit medical plans).

Yes, there is a place for non-traditional voluntary products like legal or pet insurance (as well as for a whole range of non-insurance products), but let’s not let our enthusiasm over an ever-broadening array of options paint a misleading picture about the role of voluntary products in meeting the most basic of employee benefit needs.

Why aren’t we selling more?

By Gil Lowerre

We hear this question several times each year. Typically, we are told that the Company researches their customers, knows what is needed, and works diligently to meet those expectations. The two most common disappointments are:

• We designed, built, and implemented a new (choose one: client Internet portal, enrollment process, enrollment coordinator position, billing system), but sales haven’t budged.
• We built the product, including the features we were told were important, but sales of the new product have been far below expectations.

The first thing we always want is the same: “Show us the data.” And almost always, the answer is the same: “Well, there really isn’t any data. Our marketing officer polled our sales reps and that’s how we determined what was needed.” That may work in an agency situation or in the employer-paid benefits business that changes relatively slowly, but it doesn’t work in the voluntary world. Things are changing too quickly, expectations are on the move, and competitors are constantly innovating.

Don’t rely only on your sales reps, and employees haven’t proved able to predict changes or suggest improvements not available to them. The first audience to survey is your brokers—current, past, and potential. That data should be validated by employer surveys, and fine-tuned by your sales staff.

The keys to quality broker research revolve around three principles.

Ask multi-layered questions.

Avoid getting the answers to high-level questions only to find you need to repeat the survey with a second layer of more focused questions. Design the survey to anticipate the answers you might receive to your higher-level questions. Think about other issues you can include while you’re surveying.

Have a basis for comparison.

Decide, in advance, how you will evaluate the answers you receive. Brokers will always want more—more products, more features, lower prices, more services, and more compensation. Collect comparative data or enlist the services of someone who does these types of surveys and has an external database.

Have the right people doing the asking.

Brokers’ responses will be skewed if collected by you or your reps. Before developing new offerings or revamping your existing offerings, make sure you know what brokers are interested in and what you’ll do with the data, and then take the steps to ensure the data is as valid as possible.

Contact us at info@eastbridge.com if you’d like more information about our broker survey and business line assessment processes.

Pieces and parts do make a difference

By Guest Contributor, William M. (Bill) Bennett, CFP, CFCI

It is interesting how many pieces and parts there are in the insurance business and how different the culture is with each of them. The industry has evolved, grown, and contorted into so many segments – each with their own products, processes and delivery methods. Take the medical/health side of the business and the voluntary market, for example.

Both of these segments have their own idiosyncrasies and require a great deal of expertise. Both of these segments have the ability to significantly impact the employer and employee in a very positive manner. Both of these segments could work together much better than they do as pieces and parts.

There is a real need today for the group medical and voluntary segments to come together for an acceptable and financially efficient solution to the issues with both the employer and the employees. It’s like someone is focusing on the fuel intake area of an automobile and someone on the electrical part without consulting the other. A coordinated effort would yield a huge impact for the consumer as well as the providers of product. It is proof of the old saying about the sum of the parts being greater than the whole. Here’s what needs to happen:

Integration – This is a crucial area where everyone looks at the holes and discusses the role each can play in the process of delivering products and services. It is an opportunity to present a unified front to the workforce so that it is seamless and perceived to be a well thought out process with the employee in mind. For instance, it is looking at deductibles and co-pays as well as out-of-pocket expenses to see what fits best, looking at long-term disability and waiting periods as well as sick pay to see what is a logical fit, and looking at plan provisions for limited benefits to see where there are holes.

Ease of accounting – This is an area that has prevented too many sales – ones that are logical and meaningful to the employer and the employee, but not the accounting or human resource department. Discussions ahead of time with all the service and product providers to develop an acceptable approach are critical. Whether it is a common bill or coordination for eligibility, everything should be addressed before the presentation to the employer so a solution is already in hand and not struggled for at the last minute, showing confusion.

Possible single service point – This is done well by only a few firms. It is simply an extension of the human resource department that can handle issues with the various plans. This not only relieves the HR department of problems they have struggled with in the past, but ends up being another revenue stream for the provider.

Communication – Everyone knows this one, and it has become the mantra of many in the business. At the same time, everyone is rarely at the table when it is being planned. Most of the communication efforts take place after everything else is done and needs to be discussed with the employees in some manner. Integration of these efforts can yield a better process, be more effective and, frankly, increase retention.

While it is great to have a “barrier to entry” with your competitors, the strongest position is to have a “barrier to exit” with the employer. Being able to bring these two worlds together certainly is a strong first step to accomplishing that very thing. It is a bit like the procreation of porcupines – certainly a tedious process but one that is very successful in the long run.

Bill Bennett is the CEO/Principal of WORKsiteRx, a firm that delivers an integrated medical plan administration and clinical process to the worksite. The firm focuses on employers and employees and the urgency to find new ways to address the escalating costs of medical care. WORKsiteRx integrates a web-enabled system with its strategic partners, which allows costs to be better managed and employers and employees to be better educated and informed on a 24/7 basis. He can be reached at BillBennett@worksiterx.com.

The real pioneers – the mid-size employee benefit brokers

We have been intensively studying Employee Benefit Brokers for the last 18 months. Our first studies allowed us to segment them into two size groups, each sub-segmented by the type of organization they represented (see the Spotlight Report, The Evolving Benefit Broker). These data have been widely distributed. As we have collected additional data in 2007, we can now segment them into multiple size cohorts with type-of-business sub-segments. Many behavioral and demographic factors can be represented by a continuum, progressing in a linear fashion as broker size increases. But a range of items did not fit the pattern.

As has been previously reported, the smallest Employee Benefit Brokers were the least sophisticated about the voluntary business. They sell less, have sold for less time, are most in need of support and training, etc.

The largest brokers looked very different, selling far more cases, selling for more years, selling more non-traditional worksite products, using a wider variety of enrollment methods, etc. Based on that study, our large broker research this year looked more closely at the largest brokers and found that they often relied on worksite carriers to sell and implement their voluntary cases (see the Spotlight Report, Large Commercial Lines Brokers and Voluntary Benefits). When asked which voluntary carriers they use most often, they listed Aflac, Colonial, and Unum. A subsequent study showed that these agencies were unlikely to have a distinct voluntary strategy or dedicated voluntary sales personnel. Based on this, the reliance on the carrier and the product and enrollment mix made sense.

As we collected more data, we began looking at finer cuts by broker size. Looking at it at a high level, several surprises jumped out. Some items, like case size, remained on a continuum (small brokers write the smallest cases, etc.) but others did not. In particular, the mid-size brokers rated much higher on independence factors. They needed far less training and less carrier support than either the small or the large Employee Benefit Brokers. They had been writing voluntary for longer periods of time and were more likely to enroll their own cases, usually through group meetings. They were most likely to use the traditional group voluntary products (dental, VSTD, and VTL) and least likely to use individual platform products.

In summary, these mid-size Employee Benefit Brokers were the early adapters, adding voluntary products earlier than other Employee Benefit Brokers and becoming more self-sufficient as they learned the business. They were more likely to use products offered by the carrier that supplied their employer-paid coverages. On the flip side, they are the least likely to experiment with new products, enrollment systems, etc. They got a head start, but they may now be stuck in their old ways.

As has always been the case, carrier strategies have to begin with identifying and targeting the specific type of brokers the carrier wants to attract. Because, as the latest data show, different types of brokers behave differently, need different types of support, and value different qualities in their carrier partners.

For more information on Eastbridge’s broker strategy services, contact us at info@eastbridge.com.

Industry confidence in voluntary market remains positive

Last year, the voluntary market grew at the rate of eight percent over 2005. Growth rates (as measured by the percent increase over the prior year) for the market have increased every year since 2003. And, the latest results of Eastbridge Consulting Group’s Voluntary Industry Confidence Index survey show that those in the industry are still positive about the future for the industry. According to the survey, the mid-year 2007 Confidence Index is at 101.0. While this is down somewhat from the 102.3 at then end of 2006, the current index is very similar to what we saw mid-year 2006, which was 101.2.

The decrease in the index is due to slightly lower results for the overall industry profitability and employee enthusiasm questions. Overall, however, survey respondents remain quite positive about the outlook for voluntary product sales over the next 12 months. Over 96 percent expect sales to increase and 34 percent expect sales to “increase a lot.” No one said voluntary sales would decrease over the next 12 months.

Other good news included in the mid-year 2007 results are:

• Forty-four (44) percent of respondents believe that voluntary carriers (as a group) will be more profitable 12 months from now.
• Eighty-two (82) percent said they expect their company to be either “much more” or “a little more” profitable (up from 80 percent in December 2006).
• Almost half (46 percent) of the respondents expect improvements in worksite/voluntary persistency and retention over the next 12 months (up from 36 percent in December 2006).
• Ninety (90) percent of respondents believe their company will acquire more new groups in 2007 as compared to 2006. This was about the same percentage that we saw in December, but significantly better than what we tend to see in our mid-year survey.

The Confidence Index survey is done semi-annually and looks at how those active in the worksite/voluntary market— carriers, brokers, and vendors— feel about the industry’s outlook for the following year. Like other confidence indices, the Voluntary Industry Confidence Index is a single number that compares the current results to a baseline measure. The first Confidence Index survey was completed in December of 2005; the results from that survey serve as our “base” year (meaning the index was at 100 for that year).

The Confidence Index report is available only to Eastbridge Insight and Information Partner companies as well as to participants. The survey will be conducted again in December of 2007. For more information on becoming a participant, contact the company at info@eastbridge.com .

Outsourcing…at your peril

Outsourcing, partnering, or joint venturing? Whatever you call it, more and more carriers are looking at their options in an effort to seize a competitive advantage or increase their speed to market. These arrangements have many advantages and quite a few pitfalls. But for this article, let’s start at the highest level.

The array of functions involved in these arrangements covers the gamut: specific product development and management, distribution, administration, enrollment, claims, and on and on. But a common question carriers ask us is simply, “Which functions should we never outsource?”

The first answer is obvious: you have to be taking a significant part of the risk on your key product(s)/your entire portfolio (whichever is most appropriate). After all, that’s the business you’re in. A little more controversially, we think carriers should maintain control over the underwriting/risk management functions for their core product(s)/entire portfolio. Claims management makes the list, but only with an asterisk. Claims for simple, transaction-oriented products or for non-core products can be outsourced under the right conditions. Almost every other function: marketing and distribution, administration, billing, etc. can be (and often should be) outsourced.

The one function we don’t include until the end of the discussion is enrollment. Today, enrollment is routinely outsourced to the writing broker, Specialist Brokers, enrollment companies, or vendors. Group companies still see enrollment as a part of the implementation process rather than as the key to sales success. And too many individual carriers still think of enrollment as a one-time sales opportunity. Enroll it and move on.

But some carriers are challenging those conventional viewpoints. Some are realizing that for the ultimate buyer (the employee), this is the only experience they may ever have with the carrier. This group of companies believes that outsourcing their customer experience and allowing different customers to have very different experiences is bad business. A second group is beginning to look at employee purchase behavior as, ideally, the beginning of a long-term relationship. They are investigating the possibility of changing the nature of the account relationship, looking at cross selling, repeat contact strategies, etc. Either way, these companies are coming to believe that enrollment may be a function they don’t dare outsource.

The small business market—underserved but how badly?

Several recent articles cite the very poor job we, as an industry, are doing in selling voluntary benefits to small businesses (less than 100 employees). One article said that only 10 percent of small businesses offer a voluntary benefit; another said it was 13 percent. Both Eastbridge and LIMRA have done independent studies over the last two years and arrived at the same results: 50 percent of small employers offer at least one voluntary benefit. There is a big gap between 10 and 50 percent!

Both studies focus on small businesses with at least 10 employees, thereby eliminating sole proprietors, self-employed, and very small business. This may or may not be the reason for the differences in results—we don’t really know. But we do know that the market definitely offers significant opportunity due to the large number of businesses and employees.

According to the U.S. Census, there are about 1.25 million businesses with 10 to 100 employees, and these businesses employ almost 46 million people. That represents a significant opportunity for our industry. Yet, many small businesses do not offer voluntary benefits. Over half (59 percent) of the small employers surveyed said they don’t offer voluntary benefits because the benefits package they provide their employees is adequate. Thirty-one (31) percent said that voluntary benefits are not important to their employees. The following chart shows the percentage of employers who rated each reason as “very important” or “important” in their decision to not offer voluntary:

It is interesting that all of the reasons cited, except never having been approached, are likely erroneous beliefs by the small business owner. We agree that, as an industry, we aren’t serving the small business market well. With this group of employers, we still have a lot of educating to do about voluntary benefits and what role they can play for the small business and its employees.

For more information about the needs of small businesses, call us at (860) 676-9633.

2008 Eastbridge Discount Programs

In 2007, eighty-five insurance companies purchased Eastbridge research reports. Because of the escalating popularity of these studies, Eastbridge is once more offering clients the opportunity to have cutting edge voluntary industry research at discount prices. Again, there are two programs to satisfy different client needs.

Insight Member companies commit to buying a limited number of studies during 2008 in return for receiving a significant discount on every purchase. Information Partners receive all 15 voluntary research reports published during the year, plus they have access to the 40 studies currently available, all for one, steeply discounted fee.

Membership closes December 31. If you haven’t signed up for one of these programs, contact us now at (860) 676-9633 or write us at info@eastbridge.com. Fees can be paid in 2007 or in 2008.

Don’t miss our new Spotlight Reports

We’ve been busy! This summer and fall we updated and released (or will release) a number of Spotlight Reports. Check these out:

Large Commercial Lines Brokers and Voluntary Benefits looks, in detail, at the current state of voluntary with the largest commercial lines agencies in the business. Using quantitative research as well as qualitative interviews with key players in over 20 agencies, the report reviews such topics as the prevalence of voluntary sales, what products are sold, the carriers used most frequently, what these agencies need from carriers, and the typical structure of voluntary benefits in the agency.

Voluntary Long-Term Disability Insurance examines the current state of the voluntary long-term disability (VLTD) market and identifies the market’s top players and competitors. The report looks at the marketplace from the viewpoint of the employer, employee, and broker. It also examines the carrier perspective including the current state of the market and information on results, competitors, persistency, penetration, and product success factors. Finally, the report looks at the VLTD products of 14 carriers including p roduct features, underwriting guidelines, costs, and commissions.

Exploring the Voluntary Market Opportunity for Very Large Cases analyzes carrier opportunities for selling voluntary benefits in the very large employer market (defined as cases with 5,000 or more employees). Specifically, the report looks at the size of the large employer market, what products are sold in this market, what very large employers look for in a voluntary product as well as a carrier, the key players (carriers) in the very large market, and what is needed to compete in the market.

Voluntary Products Regional Rep Compensation 2007 looks at the compensation practices of sales reps in the market. Data was gathered from 38 companies covering such topics as base salary/fixed compensation, variable compensation, expected production levels, and more. The study includes companies that use specialized worksite or voluntary reps as well as those that use generalist reps (promoting both voluntary and other product lines).

For more information on any of these reports, give us a call or click here.

The pros and cons of using specialized voluntary reps

Clients, often those just getting started in the voluntary market, frequently ask us if they should create a separate sales structure for their voluntary products or if they should use existing reps. It’s a logical question but, unfortunately, not one with an easy answer. The most accurate answer is “it depends,” but that’s not very helpful to those struggling to put together a sales process.

There are several factors to consider:

• What type of brokers are you targeting?
• Do your existing sales reps already have relationships with the targeted brokers?
• Can your reps handle more products?
• What are your cost restrictions?

The following table looks at the pros and cons of using specialized reps.

For many companies, a blended approach is the right answer. When the targeted brokers are the same as the existing brokers, a blended approach allows the existing reps to remain the relationship manager but have access to a specialist with extensive voluntary knowledge. Just be sure to align rep compensation appropriately, so you incent the right behaviors of both the sales rep and the specialists!

For more information on designing the best sales structure for your voluntary products, give us a call at (860) 676-9633 or email us.