Winter 2007 / No. 70
For almost a decade, we have published annual industry voluntary
sales by carrier (The U.S. Worksite Sales Report), the
definitive ranking of all voluntary (employee-paid) sales. The
total number of companies has remained relatively stable, but
individual company results have jumped around over the years.
But throughout that period, roughly 40 percent of all sales have
come from a small group of leading companies.
When we started the survey, the leaders were the traditional
worksite companies: Aflac, Colonial, Allstate (American Heritage),
AIG (American General), and American Fidelity. Today, three of
those companies remain among the leaders (Aflac, Colonial, and
Allstate) while others (MetLife, Hartford, and Unum) have entered
this elite tier of carriers.
Why have some been able to remain leaders year after year while
others have slipped down in the rankings? The first answers that
come to mind don’t really explain their success.
Agency Force Distribution
It’s easy to point at Aflac and Colonial and declare that
an agency force guarantees success. But a more thoughtful reaction
is that there are plusses and minuses to an agency force, and
the ability to leverage an agency force is more important than
simply possessing one. During the period, one agency force company
fell out of the leadership rankings and several non-agency companies
entered. An agency force offers great advantages, but it has
drawbacks and is no guarantee of long-term success.
High Compensation and/or Product Excellence
You would think that a perennial leader would need excellent
products and/or high compensation. And yet, only one leader is
a top commission company while few are product leaders.
Portfolio Breadth
It is true that most leaders offer a broad voluntary portfolio
of products, which no doubt helps them retain their ranking.
But there are dozens of companies with broad portfolios that
are not leaders.
While all three characteristics are important and helpful, they
do not explain the ability to remain sales leaders. So what do
they have in common?
Clarity
Everyone knows Aflac, Colonial, and Allstate. Some producers
love them; some don’t. But no one is unsure about who they
are and what they stand for. Perennial leaders understand themselves,
their strengths and weaknesses, and their position in the marketplace.
And based on that, they offer clear value propositions to producers.
You know what you’re getting. Looking at all of the current
leaders, some offer high touch, complete packages, while others
offer limited services. They focus on different types of brokers
and different size cases and have different product and operational
philosophies. But the offering is clear, the “deal” is
reasonable for some producers (and not for others), and there
are few surprises once you’re doing business with them.
Consistency
The second key is that the offering remains relatively stable
over time. Aflac, Colonial, and Allstate may change tomorrow,
but to date, their basic value proposition has not changed much
over the years. Products and services evolve, but the value proposition
remains stable. Producers know what to expect of these carriers
today and, historically, could expect to receive the same tomorrow.
These seem to be the commonalities of the perennial leaders.
And conversely, you can see that companies that have dropped
out have had problems with clarity, or consistency, or both.
Product leadership, high commissions, and career agents are important
strategic elements, but producers select carriers whose value
proposition meets their needs, whose deal is
“fair,” and who they believe will stay the course
as they go forward.
For information on how Eastbridge can help you develop clarity
and consistency, call us at (860) 676-9633.
MarketVision™
2006—The employer perspective
by Bonnie Brazzell
Competition has been intense in the worksite market for a number
of years and shows no signs of letting up. More and more carriers,
as well as distributors, are entering the market with a wide
variety of products. To stay ahead of the game, it is important
that carriers really understand their customers. In worksite,
this includes three separate “customer” or “stakeholder”
groups—the broker or producer, the employer, and the employee.
Carriers that wish to succeed in the worksite market must consider
the needs, wants, and expectations of all three groups when developing
their marketing plans and strategies.
Eastbridge recently completed a new study of employer attitudes
towards benefits, in general, as well as towards voluntary benefits.
The study results are based on interviews with over 500 benefits
managers in accounts ranging from 10 to more than 5,000 employees.
The report updates our landmark MarketVision™ study of
2002 as well as several other employer studies conducted over
the last three years. Interestingly, we learned that some things
have changed over the last several years while others have remained
the same.
Attracting and retaining employees and increasing employee job
satisfaction continue to be the two most important goals of benefit
plans, according to benefits managers. Helping employees plan
for their financial future is also key. Noteworthy is the fact
that “helping employees balance work/family life” increased
in importance compared to the 2002 study. Still, employers are
most influenced by cost issues when making benefit decisions,
which can often undermine these goals.
Not surprisingly, 90 percent of the benefit managers surveyed
rated “controlling costs of both health and welfare benefits”
as the most important factor they consider in making benefit
decisions. Reducing HR administrative costs was significantly
lower in importance this year as compared to a similar study
conducted by our company in 2002, perhaps indicating that cost
increases in medical plans are taking precedence over reducing
administrative costs.
Like in past studies, the most popular approach to controlling
costs is to increase employee contributions toward benefits.
Interestingly, though, significantly fewer said they were likely
to do this now as compared to in 2002 (39% today versus 47% in
2002). Thirty-two (32) percent said that they would most likely
increase deductibles, co-payments, or other features of their
plans to control costs. More importantly, however, is the fact
that most employers favor these methods rather than opting for
more drastic measures like dropping benefits, moving benefits
to an employee-pay-all basis, or even moving to a defined contribution
approach.
Another somewhat surprising finding was that, despite all the
press coverage about employers wanting to reduce their benefit
costs, employees still have access to a significant range of
insurance coverage, and employers seem committed to continuing
to offer this range. More than nine out of ten employers offer
medical, prescription drug, and dental insurance. About 80 percent
offer term life, accidental death and dismemberment, and short-term
and long-term disability coverage to employees (either as employer-paid,
employee-paid, or on a cost-sharing basis). Few employers are
looking to reduce the number of benefits or cut benefit amounts.
The percentage of U.S. employers offering at least one voluntary
product today declined slightly to 54 percent. However, the decrease
was primarily due to a decrease in the percentage of small employers
(10 to 100 employees) offering voluntary (just 50 percent of
the small employers offer at least one voluntary product). Because
of the large percentage of small employers, the overall percent
(based on a weighted average reflecting the actual composition
of U.S. business) did, in fact, go down. However, most of the
other employer size categories saw increases in the percentage
offering voluntary (especially in the 101 to 500 employee size
category). These changes more than likely reflect the fact that
brokers are focusing more on larger cases than on smaller ones.
On the positive side, since there are more employees in the larger
businesses, the percentage of employees in the U.S. that have
access to voluntary benefits through their employer increased
to 70 percent, the highest level ever.
A factor that has not changed is the reason that employers offer
voluntary. Most employers said that their company offers voluntary
products because of employee interest as well as cost savings
to the company. They also believe that voluntary benefits help
enhance their overall benefits package which, in turn, helps
the business attract and retain employees. Those that don’t
currently offer voluntary feel that their program is adequate
without these benefits.
Cancer/critical illness and short-term disability insurance
are the most commonly offered voluntary products. Health savings
accounts, high deductible health plans, and long-term care insurance
rated the highest in terms of future voluntary product sales
potential, according to the benefit managers surveyed. These
products are related to helping employees with health-care expenses
and helping employers control costs. There is some concern, though,
with moving towards these types of plans given the need for educating
employees well enough to make sound benefit decisions.
Most of the employers in our study use multiple carriers for
their voluntary products. The most common answer was
“two or three carriers,” but one-third of the respondents
use more than three voluntary carriers. Also, the study showed
an increase in the percentage using more than five carriers.
When considering which carrier to use for their voluntary products,
most benefit managers look primarily at the price of the product,
the carrier’s reputation, and the administrative and technical
support offered. These were the same top three factors as in
the previous study. However, the reputation of the carrier went
up significantly in importance (from 82 to 91 percent).
Several new factors were included in this year’s study.
In looking at product issues, it appears that having “best
of breed” products is more important than offering a range
of products. The availability of personalized enrollment materials
and carrier help with the enrollment were also new factors that
were rated fairly important.
Clearly, voluntary benefits have become a mainstay in almost
every employer’s benefit program and their importance is
here to stay.
The Worksite MarketVision™ 2006—The Employer
Viewpoint will be available for purchase in February.
The study results are based on quantitative interviews conducted
with 504 benefit managers during June and July of 2006. The
interviews include roughly the same number of employers from
each of four different size categories (10-100 employees; 101-500;
501-2,000; 2,000+). Qualitative interviews were conducted with
an additional 31 plan administrators.
For more information on this report or to pre-order it,
give us a call at (860) 676-9633 or email us at info@eastbridge.com.
Confidence in the voluntary market
is up!
Eastbridge has just finished analyzing the results of the latest Voluntary
Industry Confidence Index survey and found that you are
more positive about the future for the industry in 2007 than
you were in 2006. According to the latest survey, the index
is at 102.3, which is an increase over the mid-year results.
We completed our first Confidence Index survey in December
of 2005 and conduct it twice each year. The results from last
December serve as our “base” year (meaning the index
was at 100 for that year). For mid-year 2006, the index was at
101.2.
The increase in the index to 102.3 today is largely due to the
more positive results (based on means) for the industry’s
sales expectations for the next 12 months, as well as slightly
higher expectations for profitability. Employee enthusiasm regarding
voluntary (another component of the index) was stable and showed
no significant change in the most recent survey.
Survey respondents were very positive about the outlook for
voluntary product sales with over 98 percent expecting sales
to increase over the next 12 months. Twenty-eight (28) percent
believe that sales will “increase a lot.” We also
saw fewer respondents saying that sales would either
“stay the same” or decrease in 2007.
When asked if voluntary carriers (as a group) will be more profitable
12 months from now, 43 percent of the respondents answered “a
little more” profitable. This was slightly higher than
the 40 percent from the mid-year survey. Another 10 percent expect
the industry to be “much more” profitable. The total
percentage of respondents expecting higher profitability was
53 percent, the highest percentage of any of our surveys. (In
July of 2006 the percentage expecting higher profitability was
49 percent and in December 2005 it was 50 percent).
Respondents also expect premium rates for voluntary to either
stay the same (50 percent) or even decrease (12 percent) in 2007.
In the most recent survey, we saw a decrease in the percent of
respondents believing that premium rates for voluntary lines
will increase in the next 12 months. Today, only 36 percent believe
that increases are likely compared to 44 percent mid-year 2006
and 51 percent December of 2005.
The Voluntary Industry Confidence Index report is free of
charge to all Eastbridge Insight and Information Partner Companies
as well as to participants. The survey will be conducted again
in July of 2007. To make sure your company is invited to participate,
send your contact information to info@eastbridge.com.
Who can we buy?
This is easily the question we are asked most frequently by
new entrants in the voluntary business. And the answer stays
the same. There are a few companies available, but the asking
prices tend to be unrealistic. There are a group of companies
that are positively not for sale, a couple that can be approached,
and a lot you wouldn’t want to buy.
There has been relatively little consolidation in the voluntary
industry in the last two or three years and that points to one
of our weaknesses as an industry. The few carriers that are available
are in the “everything has a price” category: public
companies that are always interested in maximizing shareholder
value (translates to “high price”), mutual companies
that are struggling with their core business, etc. There aren’t
any bargains in this small group. Another 20 or so companies
have freestanding voluntary business units but as a generalization,
they are either performing well or are key strategic parts of
the overall business. Thus, they are not for sale.
But most (more than 50 percent) of the carriers can’t
be acquired, even if the carrier wanted to sell them. And that’s
because they still have not developed a true voluntary business
and strategy. In other words, voluntary is considered a product
line extension or an accommodation. Simply, there is nothing
to buy. An inquirer wouldn’t get distribution. And the
products are probably not all that attractive.
In most of the situations where an acquisition has been a possibility,
the purchase comes down to two elements: the inforce block and
the distribution. The block can be valued (not always easily),
but the distribution valuation is always a problem. We have yet
to see a case where it was undervalued. Distribution is fleeting,
especially after an acquisition. And so, most of what passes
for merger/acquisition activity is simply a block purchase.
This lack of acquisition activity does not indicate strength;
it highlights our weakness. When we have more companies with
sustainable voluntary business models, there will be more to
sell and more to buy.
So bring on the acquisitions! We look forward to that day and
the vitality and strength it will demonstrate.
ROP products in the voluntary market
Return of premium products are not (at this point) a mainstay
in the voluntary market. Just 29 percent of the respondents in
a recent Eastbridge Frontline study said that their company currently
offers a return of premium (ROP) product. For many of these,
the ROP is typically included with either their cancer or critical
illness products. Term life, the product that is creating most
of the “press” today regarding ROP, was a distant
third. Individual carriers are the most likely to offer an ROP
product of any type. Interestingly, both group and individual
carriers say they are considering an ROP product and are most
likely to add a return of premium feature to a term life plan.
Enrollment practices in the voluntary
market
Enrollment is considered by most carriers to be an important
part of the company’s voluntary business strategy, yet
not much has changed since 2000. This was one of the findings
of the latest Eastbridge Spotlight Report, Enrollment Practices
for Voluntary Products. Among the findings in the report
are:
- Enrollment is key to ensuring good participation and high
employee satisfaction. Yet, there have been few innovations
or changes over the last five to six years.
- Despite the fact that carriers believe enrollment should
be an area of differentiation, few carriers do anything truly
unique from an enrollment standpoint.
- “Control” over the enrollment process is still
more or less in the broker’s hands, though many carriers
have tried to offer support and/or incentives to encourage
brokers to use the carrier’s processes.
- Carriers believe enrollment is something brokers consider
when choosing a carrier for their voluntary products. However,
carriers recognize that not all brokers want the same thing
when it comes to enrollment.
- About half of all carriers surveyed offer and/or allow web
and telephonic enrollments (the same percentage as in 2000),
but most say it is used in less than ten percent of all cases.
The report looks at market trends in enrollment from four different
perspectives: employers, employees, producers, and carriers.
With data from 27 different carriers, the report provides insight
on the following issues:
- Enrollment set-up and management
- Enrollment methods
- Enroller type
- Enrollment support, including use of laptop, web, and telephonic
enrollments
- Post-enrollment services, including re-enrollments
- Broker attitudes and opinions on enrollment
- Consumer enrollment preferences (both employer and employee)
With this information, carriers can compare their own enrollment
practices to those of competitors and make enhancements, as needed.
The report is now available for purchase for $1,500. Buyers of
either of our past two enrollment reports receive a discount
and can purchase the new report for just $1,000.
For more information or to purchase the report, call (860)
676-9633 or email us at info@eastbridge.com.
Enrollment: selling vs. advising
The evidence clearly indicates that American workers want more
than a sales pitch; they want advice about their voluntary choices
and options.
At a simplistic level, the “selling” function includes
presenting, closing, applying, and completing related forms.
And as we’ve discussed in previous issues, advising involves
understanding the needs of the buyer and tailoring solutions
that respond to those needs. Again, we now know that buyers understand
the need for the first, but want the second. They want more than
data, more than descriptions, more than calculations. They want
to be heard and understood.
We also know that there has been a lot of progress on the selling
function with call center, Internet, and laptop systems while
there has been relatively little movement on developing better
advisory services, even though there is a strong theoretical
advantage to building such capabilities. Experimentation with
advice remains the playground of some forward-thinking brokers
and a couple of enlightened carriers. But in general, little
has happened.
At the least, we should recognize that advice is desired, even
if we are not going to fulfill that desire. And as we think about
enrollment, we should ask about both functions: selling and advising.
They don’t have to be done by the same methodology or at
the same time. Advice can be delivered face-to-face while the
selling can be done on-line (or vice versa).
But over time, ignoring the need for advice will only increase
the business risks we face.
To see how Eastbridge can help you build an effective and
differentiating enrollment strategy, call us at (860) 676-9633.
It’s almost time to see how
your 2006 sales measured up!
The 2006 sales year is now history, and those of us at Eastbridge
are preparing to launch our annual survey of worksite and voluntary
carriers, U.S. Worksite Sales Report. The study is the
most complete look at how we fared as an industry and is your
most complete view of how you fared as a company.
As in the past, the survey will evaluate sales, inforce premium,
sales by product line, sales by distribution channel, and other
key measures. We anticipate distributing the surveys in late
January. Our study includes more companies than any other industry
sales report card. All participants will receive a free copy
of the study’s findings, including company-specific results.
In fact, the only way you can get a full copy of the report is
to be a participant.
So don’t miss out. To guarantee a spot for your company
on our participant list, send us an email at info@eastbridge.com or
phone the company at (860) 676-9633.
Are voluntary underwriting guidelines
loosening?
It seems that the answer to this question depends on whether
you are a carrier or a producer/broker!
Eastbridge completed a Frontline Report back in the fall on
this very topic. And according to the carriers surveyed, most
claim to be loosening their underwriting for voluntary products.
After the results were released to the press, Employee Benefit
Advisor conducted their own poll and, interesting, only
33 percent of the readers agreed with our findings. Most (40
percent) of the respondents to the Employee Benefit Advisor study
said they
“haven’t noticed any difference” in the underwriting
while 27 percent said that underwriting guidelines for voluntary
have not become more liberal. Since the primary audience of Employee
Benefit Advisor is the broker/producer, the disparity in
the results is especially interesting and points to the varying
perspectives of carriers and producers. We have no way of knowing
who is “right” about the subject, but if you are
a carrier that is loosening (or has loosened) your guidelines
you might want to do more promotion if you want to get “credit” for
the liberalizations from producers.
Company executives vs. company
strategy
It might be the result of a retirement, a promotion or reshuffling,
or just a changing of the guard. But the insurer has appointed
new leaders. We might expect a new sales staff with different
field relationships attracting different types of producers.
We might look for new and revised products, possibly a whole
new emphasis. And the services will probably change, eliminating
some, enhancing others, maybe charging for still others.
But what will probably not change is the result. After watching
more than a few of these, we can expect that business will initially
pick up as new producers enter, then even out (as some old producers
leave) at a new level. From a distance, there was a lot of activity,
but we basically incurred a new set of start-up costs to wind
up roughly where we were.
The company has an offering that is executive-based. The value
offered depends on the executive who is in charge: his background,
preferences, mandate, etc. And yet this approach violates the
principles of clarity and consistency (see the article Sustainable
Industry Leadership elsewhere in this issue).
Companies need to have a firm strategy that dictates their value
proposition and have executives charged with implementing rather
than starting over. Executive success should be measured through
implementation success, not creative destruction. Let’s
get to the point where the value we bring is determined by our
strategy rather than by the executive of the day.
Manufacture and distribute
The current carrier model that predominates has the carrier
manufacturing all (or most) products and building and maintaining
distribution capability, although there are quite a few companies
today that are manufacturers only.
Five years ago, we published our most popular study, 2020,
A Clearer View of the Future, which described our predictions
for the benefit industry by the year 2020. Among the many attention-getting
predictions was that carriers would ultimately compete on product
values alone, getting out of the distribution and even the
administration business. This discussion was predicated on
the rise of new structures that would serve as TPAs and broker-dealers
while aggregating production. These organizations would become
the key clients for the carriers.
Today we are seeing rapid expansion in TPA services and the
beginnings of true voluntary distribution aggregation. From a
carrier’s standpoint, the new aggregators can look mighty
tempting. They promise high levels of production without any
of the headaches of recruiting or cultivating distributors. Maybe
the compensation needs to be a little higher, but look at the
savings!
But there was another half to the prediction. Carriers who follow
this route must be ready to compete on product values, which
today often include administration. Aggregators have to provide
the best products and compensation possible, or they won’t
be aggregating for long. So no matter where the producer came
from, if the carrier can’t be fully competitive on product
values, he’ll eventually lose out. And although 2020 is
coming, distribution is still the key to success. And as we know,
if a carrier gives an aggregator the keys to its business, it
shouldn’t be surprised if it gets locked out!
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