Spring 2007 / No. 71

The new Eastbridge Worksite MarketVision™—The Employer Viewpoint Revisited study showed some interesting shifts in market penetration.

First, employer penetration (defined as the percentage of businesses offering at least one voluntary product) has changed. Specifically, it has declined among the smallest U.S. businesses. Fifty (50) percent of the smallest businesses now offer a product as compared with 61.7 percent in 2002.

Second, employer penetration in most other segments increased. For example, employer penetration at U.S. businesses with 101-500 employees increased from 62 percent to 79 percent in the five-year period, and the largest segment reached 80 percent employer penetration in the latest survey.

Third, employee access has increased with 70 percent of U.S. workers now having at least one voluntary product available to them. Additionally, the number of employees who have purchased at least one voluntary product has reached an all time high of 65 percent.

In looking at these three facts, I can’t help but remember the elephant story—what you perceive depends entirely on where you come into contact with the beast. An uninformed reaction, based on only the first fact, might report that voluntary sales have peaked and are slowing down. But as the second and third facts show, that is not the case. Sales are increasing. But they are changing as they increase.

We have several issues at work here, including the old stand bys: a broker’s case size creep (the tendency of a broker’s case sizes to increase over time); account churn (the high turnover of business in the smallest cases); economics (the increasingly common attitude that it’s difficult to serve the smallest cases profitably). These forces doubtlessly propel some of the case size creep.
But the impact of benefit brokers, especially the small group brokers (SGB sub-segment), should not be ignored. These brokers are the last folks on board the voluntary ship—they wrote the smallest cases and the fewest cases and are only just beginning to get comfortable with the voluntary business. Total benefit broker voluntary sales increased by 21 percent and their market share reached 42 percent. That’s a lot of new people coming on board, testing the waters as they enter. And as they become more comfortable, we expect them to begin introducing voluntary to their larger and better cases, accelerating the account size creep we are now seeing.

We expect employer penetration, in terms of average account size, to continue to drift up for several years until all brokers have brought voluntary sales into the mainstream of their business activities.

Worksite executives speak out on their
top concerns and the future of the market

by Bonnie Brazzell

In our most recent survey of top worksite executives, Worksite Marketing: An Executive Perspective 2007, top executives in companies active in the worksite/voluntary market are concerned about their company's ability to attract quality brokers. Seventy-one (71) percent of those surveyed said this is one of their top three most formidable obstacles. The full “top three” list included (in order):

• Attracting quality brokers
• Product competition
• Writing profitable business (tied for third place)
• Enrollment (tied for third place)

In our last survey (2004/2005), writing profitable business was the number one obstacle cited, followed by administration and billing (which fell out of the top three this year). In that study, attracting quality brokers was number three.

Attracting brokers has been a long-standing issue for many companies. The pool of experienced voluntary/worksite-focused producers is not growing. And many carriers are trying to attract the same group of producers. The benefits brokers are the fastest growing segment of voluntary producers, but fully engaging these brokers is a slow process and the competition here is growing rapidly. The majority (81 percent) of respondents to the survey expects their company will see some sort of change in distribution over the next five years. Most believe the changes will be “minor,” usually expanding distribution to a wider range of producer types.

In addition to being the number one issue today, many executives believe that service to the broker will be the key competitive advantage in the future. Most believe that the blending of the right combination of products, services, and tools that match the needs of the company’s targeted distribution and markets will make a difference between the winners and “also rans.”

With product competition being another key concern, it’s probably no surprise that most of our respondents also say they expect to see product and product mix changes over the next five years. About 30 percent describe the changes as “major,” while 70 percent describe these as “minor.” Interestingly, the types of changes expected were fairly similar regardless of whether the change was described as minor or major. Most respondents expect to add products to their portfolio. The entire spectrum of products was mentioned; however, many expect more development and/or focus on health-based products than in the past. Carriers are also expecting changes in product platform (see separate article on “Groupification”).

In addition to product type and platform changes, some respondents foresee more fundamental changes occurring within products over the next few years—changes focused on both the new realities of the market itself and lifestyle/demographic changes occurring among customers. Some expressed the belief that carriers will need to provide a customizable slate of products and services that will enable the employer to develop a benefits strategy and to feel they can 'call it done' rather than subject themselves to an unending stream of solicitations about the latest worksite product. Others said that products will need to be altered to accommodate the underwriting, rate, and commission realties of employee self-election.

Despite obstacles, worksite executives are positive about the growth of the market. The respondents expect sales to grow at an average of 10 percent per year for the industry. (The actual answers ranged from a low of three percent to a high of 25 percent.) But our executives were even more positive about their own companies. The average annual expected growth for the respondents’ own company was 17 percent. Here the range was from a low of two to three percent to a high of 50 percent. In general, executives of medium-sized companies (new business annualized premium of $10- $49) expect the highest growth rates for their company, an average of 19 percent. Small companies aren’t far behind at 16 percent. The lowest estimates for growth of both the industry and their company came from large companies. They expect an eight-percent growth for the industry and 13 percent for their company.

These findings and more are in the 2007 bi-annual study, Worksite Marketing: An Executive Perspective 2007. Twenty-eight companies participated in the study. The report was provided free of charge to Information Partners, Insight Customers, and participants. To learn how to become an Insight or Information Partner Company, call us.

What’s in a name?

Voluntary medical products are a fast-growing segment of the market. Typically, the category includes hospital indemnity, mini-med, limited benefit medical, and (sometimes) supplemental “gap” plans. We recently interviewed several “thought-leaders” in the market to get their opinions on where the market is and where it is going. One thing we learned early on is that the players in this marketplace can’t agree on the terminology!

Some think that mini-med and limited benefit plans are the same product while others believe they are different. But the once “clean” line of defining a mini-med as an expense-based product and limited benefit plans as indemnity products is no longer there. Carriers who say they offer mini-med plans may offer one that is indemnity-based while limited benefit plans are just as likely to be expense-based as indemnity-based. The only thing that people seem to agree on is that the gap plan is usually sold as an employer-paid benefit and that the whole marketplace is growing and evolving! And, regardless of your definition, it seems that the differences are getting fewer. Just consider the following new designs being considered:

• Incorporating PPO networks into indemnity-based plans
• Adding co-pays to an indemnity plan
• Paying indemnity benefits on an expense-incurred basis (up to the indemnity amount)

The study also found that there are changes occurring in who is selling these products as well as to whom they are being sold.

So, whatever you call them, look for more focus on voluntary medical products.
The Trends in Voluntary Medical Products spotlight report will be available for shipping in April. Call us for details.

Groupification continues

“Groupification: the tendency of voluntary and worksite segments to merge into a single line of business, forcing each to change. The resulting business has an increased number of group insurance industry characteristics.” (© 2007 Eastbridge Consulting Group, Inc.)

Several years ago in this newsletter, we coined the phrase “groupification” to describe a phenomenon we saw unfolding in the world of employee-paid insurance. That phenomenon is described in the definition above.

Today, groupification is “alive and well,” as they say. In our recent Executive Perspective survey, we asked worksite and voluntary executives to agree or disagree with several statements relating to groupificiation. The results show us just how far we have come.

The first statement said: “More of the voluntary industry’s sales will be on a group platform in the future.” Eighty-one (81) percent agreed with this statement; 19 percent were neutral with no one disagreeing.

We then probed a little further by asking for their agreement with the statement: “Group platform products are likely to account for more sales in the market than do individual platform products.” Seventy-one (71) percent of those surveyed agreed with this statement. However, seven percent disagreed and 23 percent were neutral.

Other indicators of continuing groupification are:

• Seventy-four (74) percent of carriers believe that group products must be portable or at least convertible.
• Eighty-eight (88) percent of carriers believe that guaranteed issue is required for most voluntary products.
• Group carriers have relaxed their participation requirements for voluntary.
• Several carriers have come out with products that have a choice of commissions, either heaped or level.
• Group carriers are using “published” rates for some group products and/or accounts.

Indeed, the lines keep getting blurrier and blurrier. The distinctions between group voluntary and individual worksite are disappearing on an industry level. Some companies insist on staying with one of the traditional models, but the marketplace seems to be more or less ignoring the distinctions and matching products to the needs of the customer. Companies that cling to the pure old models may find themselves unable to expand their sales and keep pace with the market.

For more information on how Eastbridge can help your company stay competitive in the voluntary market, call us or email us today.

Sales are accelerating… again

For the prior three years (2002 through 2005), industry voluntary sales have increased an average of 2.7 percent a year. While better than many segments of the insurance industry, that pace was well off of the pre-2002 growth rates. Some observers announced that voluntary sales were flattening and that the strong growth years were over. But that slower growth was clearly attributable to a few large companies. For example, Aflac’s sales growth, often 20 percent or higher in earlier years, slowed to single digits during this period of slower growth. And considering that Aflac has almost a 30 percent market share, its slowing or quickening growth has had a tremendous impact on the rest of the industry’s overall numbers. In 2006, Aflac returned to very positive growth (not 20%, but not 5% either). And the industry as a whole has jumped up in overall sales growth. Seven of the nine largest sellers experienced double-digit sales growth in 2006. Overall, sales growth has rebounded to the historical mean for the entire survey period.

Details on industry sales, by carrier and by product, are included in Eastbridge's annual U.S. Worksite Sale Report. The report is only available to participants. So if you have not responded, call us today to participate and receive your copy of the report.

Don’t miss our new employee study

Carriers who want to succeed in the worksite market must consider the needs, wants, and expectations of brokers, employers, and employees when developing their marketing plans and strategies. The MarketVision™—The Employee Viewpoint Revisited study focuses specifically on one of these customer groups, the employee. This new study provides important information that every carrier can use to understand and improve their employee value proposition.

Some of the key findings of the study include:

• Employees have access to a relatively broad variety of products through their employers.
• Most products are paid for through a combination of employer and employee funds.
• Most employees don’t have a good sense of what they are actually paying for their medical and other benefits.
• Employees value having a choice of benefits although this seems to be somewhat less “critical” today than in the past, and somewhat fewer employees are willing to pay more for benefits to get more choice.
• Ownership of voluntary products has increased substantially since 2002.
• Life, disability, and dental insurance are the most commonly owned voluntary products.
• Over two-thirds of those who own a voluntary product own more than one.
• Satisfaction with the enrollment process has increased significantly since 2002.
• Among those who don’t own a voluntary product but have had an opportunity to buy, cost was the most important reason for not owning a voluntary product.
• Employees are most interested in buying voluntary products that help with the cost of health care expenses.

The survey was based on telephone interviews with over 400 employees from various sizes of employers and addressed such questions as:

• How have employees been impacted by the rising cost of health insurance?
• Has the cost of health insurance (and in particular their own contribution toward health insurance) impacted their voluntary product purchases?
• How do employees decide which benefits/insurance to buy? What are their priorities?
• What changes have occurred in employee attitudes over the past several years (since our 2002 MarketVision™ study and 2004 Rising Costs of Employee Benefits—The Employee Perspective were completed)?

The report will be available for purchase in early May. Reserve your copy now by calling us at (860) 676-9633 or emailing info@eastbridge.com.

Groupification and core benefit carriers

For quite a few years, we’ve been discussing and reporting on groupification—“the tendency of the traditional voluntary and worksite segments to merge into a single line of business, forcing each to change. The resulting business has an increased number of group insurance industry characteristics.” (© 2007 Eastbridge Consulting Group, Inc.)

And during that period, we’ve watched the traditional group brokers (“Benefit Brokers”) and traditional group companies (“Core Benefit Carriers”) enter and begin to dominate the business. In 2005, Benefit Brokers sold 42 percent of the business and Core Benefit Carriers held ten out of the top fifteen spots in the Eastbridge U.S. Worksite Sales Report.

Today, many observers wonder how far the trend will go. Where will it end? Will all others eventually be driven out of the business? And isn’t the growth just a fluke—simply a result of offering voluntary to group brokers who already were positioned to make the sale? So isn’t this just picking the low hanging fruit? Once that is done, the Core Benefit Carriers will find that the going gets much tougher out in the truly competitive marketplace.

There are two problems with these conclusions.

First, Benefit Brokers are already in the voluntary business. Granted that some, especially the Small Group Broker sub-segment, are not major producers yet, but the fact is that 90 percent of Benefit Brokers now offer voluntary products, at least some of the time. And they are selling a wide variety of carriers' products. One survey of a group of sophisticated Benefit Brokers listed Aflac and Unum as their top two voluntary carriers. Competition for their attention is already intense and getting tougher all the time.

And yet, these Core Benefit Carriers are increasing their voluntary sales rapidly. Looking at the 2006 voluntary sales results for the top ten Core Benefit Carriers, their sales results grew seven percent over 2005. And dropping out the highest and lowest growth companies, the average for these companies jumps to 10.3 percent. These companies are growing more rapidly than others in a highly competitive market where winning over brokers is increasingly a zero sum game. Something is working for these companies and “groupification” accounts for a lot of their success.

The next wave is on its way

At Eastbridge, we are in a unique position to monitor who’s interested in voluntary, who wants to play, and who wants to be very serious. Now that most Core Benefit Carriers have entered the business, who’s next? The answer is the Medical Carriers. While several very large companies are still exploring or testing the waters, at least one major company has made the commitment to build a voluntary presence. And once one jumps into the pool, you can bet others will follow. Hold on to your hats!

Look for more information about medical carriers in the voluntary market in an Eastbridge study due to be released this summer.

Enrollment satisfaction doesn’t satisfy

Overall buyer satisfaction with enrollment has increased, with 88 percent of employees saying they were satisfied or very satisfied with their enrollment experience (as compared with 67% in 2002). And in the new Eastbridge study, Worksite MarketVision™—The Employee Viewpoint Revisited, employees rated five different aspects of their enrollment experience, with over 80 percent expressing satisfaction on each measure. Should we feel good about this progress?

Yes, but. While we are doing a better job at the administrative aspects (using pre-populated forms and employee-specific materials, etc.), we are still lagging in supplying advice and taking the individual’s needs into account. Almost 20 percent of employees are less than satisfied with our efforts.

If needs identification, personalization, and advice are the keys to the future of enrollment, we still have miles to go.

To get your copy of the Worksite MarketVision™—The Employee Viewpoint Revisited, call us today at (860) 676-9633.

The boomers are staying at work

The Bureau of Labor Statistics (BLS) has been forecasting an increasing shortage of workers in the U.S., a supply that will far lag demand. And we are already seeing that trend in many professional and blue collar occupations. The BLS also reports that 70 percent of workers now plan on working after their normal retirement age. As the post-age-65 baby boomers make up a growing percentage of the labor force, we need to get ready. Our products need to be underwritten so as to accommodate new entrants in this age cohort, and our enrollment and communications processes need to acknowledge the unique needs of the post-retirement-age worker. The delayed-retirement market segment will grow larger and more vocal and will be more interested in voluntary products than our current approaches assume.