Spring 2008 / No. 75

Medical Brokers Begin to Explore the Voluntary Market

By Bonnie Brazzell

The latest entrants (from both a carrier and broker perspective) into the voluntary marketplace are group medical insurance companies and group health brokers. Both have long resisted entering this market space. But all that is changing.

Last quarter in OutsideInput, we talked about some of the findings in our recent Eastbridge Frontline Report, Medical Companies and Voluntary Products. In this issue, we will explore the results of our medical broker survey.

Ninety-four (94) percent of the medical brokers surveyed by Eastbridge in a new (soon to be published) study sell at least some voluntary business. Most (37 percent) tend to sell voluntary only when a case comes to them (incidental). Another 21 percent are occasional producers, using voluntary as a cross sell to existing clients. While this is almost 60 percent of all medical brokers only dabbling in the market, the fact is that this is where most voluntary producers started!

Today, the amount of voluntary business the medical broker sells is still somewhat small. Twenty (20) percent of those in our survey sell under $10,000 a year in voluntary new business annualized premium. Another 24 percent sell between $10,000 and $35,000. Just 12 percent said they had over $500,000 in NBAP in 2006.

While the sales are still small, these brokers already have strong thoughts about voluntary. Sixty-one (61) percent prefer group platform products. Twenty-five (25) percent said it doesn’t matter and only 13 percent prefer individual platform plans (sometimes called traditional worksite plans).

In terms of the types of products most frequently sold, medical brokers tend towards selling voluntary versions of traditional ancillary benefits. The top three most frequently sold voluntary products were:

• Short-term disability
• Dental
• Long-term disability

Term life and vision insurance were also popular. Somewhat surprisingly, however, these traditional ancillary plans were followed by cancer and accident. Both of these products are traditional “worksite” products.

Carriers wanting to attract the medical broker to their voluntary products need to understand that these brokers need/want more support (for voluntary) from carriers. These medical brokers are not as experienced as other voluntary producers and, because of this, the knowledge of the carrier’s sales rep (about voluntary), the enrollment materials, and carrier enrollment support are all much more important to medical brokers when selecting a voluntary carrier. This type of broker is also more likely to use carrier enrollers than many other brokers.

For any carrier to take advantage of this developing distribution channel, a good strategy focused around meeting the needs of the medical brokers is imperative. We believe that medical brokers will increase their voluntary sales as they lose medical client revenues and/or discover that voluntary products allow them to develop new ways of helping their clients address their benefits issues. The carrier that understands the unique needs of the medical broker and that builds the products and services designed to help this broker gain experience and sales, will win out.

 Look for the new Spotlight Report with full details on the findings of our Medical Brokers and Voluntary study. The report will be available in May. For information on how Eastbridge can help you attract medical brokers, give us a call.

Products and Penetration Rates

By Gil Lowerre

We have regularly published results showing that participation varies dramatically (although within ranges) based on the enrollment process used. But there are always outliers, usually involving low-participation methods yielding very high participation results in specific circumstances. There are two probable reasons for such discrepancies: differences in how any one enrollment method is actually implemented and the product(s) that are enrolled.

Attempting to quantify the impact of these two forces on participation rates is difficult for a variety of reasons. Specifically:

• Most carriers do not keep track of these types of variables.
• Different combinations of products are enrolled, sometimes without the carrier knowing it (a broker who enrolls two products from two different carriers).
• Product definitions, platforms and forms make clean distinctions difficult.
• Enrollment methodologies are rough approximations. There are wide differences between the way enrollment is done (even within a method): mandatory vs. voluntary meetings, amount/type of pre-enrollment marketing and communication, contract vs. in-house enrollers, enrolled with core or through a separate process, on- vs. off-cycle, company locations, etc., etc.

But there is a body of anecdotal evidence from carriers, brokers, and enrollers that can be used to propose a few theories.

• With high-demand products (dental, vision), we expect relatively high participation regardless of the method, suggesting that a group or distance method is most efficient.  
• Low-demand products (HI, cancer, accident) would likely show that a high-touch method would be most successful (face-to-face/one-on-one, outbound telephonic).
• Complex products (LBMP, critical illness) benefit from a more extensive communications process, either delivered through a high-touch method and/or, (in specific situations) through a very well organized communications campaign.
• Products ranging in the middle of the demand priorities list (STD, LTD, VTL) will probably reach higher participation levels with a high-touch enrollment method, but the differential will be less than with the low-demand products.

If we want the highest participation rate at the most efficient cost, we need to look at method, product, and the way both will be implemented before deciding on the “right” way to proceed.

Contact Eastbridge for more information on evaluating your company’s products and processes relative to participation rates.

Variable Deduction Loads

We’ve seen an impressive evolution in voluntary billing capabilities by carriers and TPAs over the last ten years. Today, single slot systems and combined billing processes (with common remitter services) are widely available and are becoming table stakes for the voluntary game.

What’s next? For years, we’ve been discussing the evolution of benefit plan designs and the opening up of those plans to new types of products. To date, most of those products are insured, discount, or fee-based products. Our current capabilities handle these well, eliminating payroll limitations (through a single slot system) and complexity resulting from having ever-larger numbers of vendors (handled by combined billing). But as an industry, we still aren’t ready to handle the next type of product: the variable deduction product. For most employers, a payroll deducted product whose deduction amount changed often (maybe even with each payroll) sounds like a nightmare. But the technology to automate the deduction loading is available today. Third-party billing companies can interface with payroll administrators or with the employer’s payroll system itself to automate the deduction loading process and set up business rules for deduction amounts, uses, etc.

Once set up, the process is fully automated and requires no HR or IT intervention. Each deduction is set, based on the business rules, and is documented through a paper stub and/or through a dedicated, secure web portal.

With this capability, think of the products and services that can be offered: reimbursement for out-of-pocket medical expenses, variable savings plans, credit card payments, automatic bill payment for recurring expenses, etc.

This next phase in billing evolution will take the final shackles off our ability to develop innovative products and better serve the needs of our employer and employee clients.

Incremental vs. Exponential Growth

Every company plans for growth in their voluntary business and for most, the more the better. Strategies for growing the business range all over the board, but most can be boiled down into eight categories: four that promise incremental growth and four that promise exponential growth. Which categories are you pursuing?

Incremental Growth

The vast majority of companies pursue incremental strategies, those that promise less but also risk less. The major categories are:

Product Changes: growing by adding a compatible product or updating an existing product line (e.g.: adding a STD product to a traditional worksite portfolio or upgrading a UL policy)

Distributor Recruitment: growing by finding new brokers like the ones we serve today (e.g.: adding field reps or providing extra compensation for new distributors)

Services Build Out: growing by adding a service that current distributors and clients might need (e.g.: adding free POP support)

Administration Upgrade: growing by improving general billing, underwriting, and claims capabilities; experience shows that this strategy can help companies with systems markedly inferior to the market standard, but beyond that standard, improvements seem to have only a modest impact

Exponential Growth

Far fewer companies pursue exponential growth strategies. These efforts require greater resources (and therefore risk) but hold out the prospect of far greater growth.

Change/Add Markets: growing by shifting or expanding markets, bringing in new types of distributors and customers (e.g.: adding a new focus on credit union or educator business)

Add a New Channel: growing by appealing to a new type of distributor (e.g.: building a business to appeal to traditional employee benefit brokers in addition to traditional worksite brokers)

Change the Value Proposition: growing by expanding the basic business offering (e.g.: adding a free enrollment or call center service)

Portfolio Conversion: growing by overhauling the entire portfolio or adding a new slate of products aimed at a different audience (e.g.: adding a group or hybrid platform line of products to a traditional individual worksite portfolio)

Most companies opt for the incremental strategies, and most of the slow growth companies are in this group. Our discussions with companies are not disappointing because so many choose the slower growth path. They are disappointing because so many do not realize that slow growth is the most their chosen strategies can deliver.

To evaluate your growth strategy, contact Eastbridge at 860-676-9633 or info@eastbridge.com.

Voluntary Sales and the “R” Word

What impact will slower economic growth (or recession) have on voluntary sales? That’s a hot topic in boardrooms and on convention floors. No one knows, but we’ve often said that voluntary products are a safe haven for employees: products they need, can “own,” and can tailor to their situations. And if rough economic times restrict spending on core coverages, voluntary products become even more important. We believe that voluntary growth is impacted by, and correlates with, other factors entirely.

The chart below shows three columns for the years 1999 through 2007. The first shows Gross Domestic Product (GDP) growth in current dollars, the second in constant 2000 dollars, and the third shows the percentage growth in voluntary sales in nominal dollars.

* Preliminary estimate

The GDP dip in the early part of the decade was matched by explosive growth in voluntary sales. Sales cooled off as the economy entered a strong run in the middle of the decade.

We believe that, thus far, voluntary sales are more a function of distribution breadth than they are of general economic trends. While this will change at some point, voluntary sales have been most influenced by the entry of traditional employee benefit brokers and by the rapid career building efforts of Aflac and others.

No one can predict tomorrow’s results, and we remember an officer of a major industry trade association predicting a few years ago that voluntary’s growth days were behind it. If you want to look at the future (at least for the near term), you’re better off studying the expansion of our distribution capability, both through new converts and those who are still coming up the learning curve. We are fortunate to be in an industry with high, sustained consumer demand. Our greatest limitation is our ability to reach them.

Call an Eastbridge consultant for further discussion on voluntary distribution and your company’s distribution strategy.

Who is Minding the Customer?

We often hear carriers talk about the broker being their primary customer. That’s understandable considering that distribution is what drives the market and it is the scarcest commodity. Many carriers say they consider the employer and the employee to be secondary customers. Unfortunately, being secondary often means being all but ignored!

A recent review of carrier marketing practices in the voluntary market revealed that many carriers have no contact with their customers (other than sending a bill or processing a claim). In fact, many seem to feel that the employer and the employee are the broker’s customer, and that they (as the carrier) can’t or shouldn’t interact with the customer. Most carriers don’t communicate directly with their customers and actually encourage customers to first go to their broker with questions as opposed to the home office. There is almost no ongoing marketing to existing customers. Because of this, there is little to no chance of the two parties building a relationship. This means the carrier’s relationship with the employer and employee—and possibly the retention of those customers—is left primarily in the broker’s hands.

Indeed, carriers seem to believe that any efforts to talk to the employer or employee would be viewed by the broker as “going direct” and competing with them. While we all need to be sensitive to the broker’s needs and preferences, there is a wide range of possibilities between “replacing” a broker with the customer and putting our heads in the sand and ignoring them. We believe that carriers should not consider any efforts on their part to market to employers and employees in conflict with their commitment to the broker market. Such carrier efforts can be “broker-friendly” and allow the carrier to help themselves and their brokers.

For more information on how to develop programs that enhance the overall relationship between the client, the broker, and the carrier, call us or email us.

How Do Your Web Capabilities Stack Up?

The web is an important tool for many companies today. Use of websites for customer service, marketing, and sales is rising as more and more consumers become accustomed to online resources. The Eastbridge study, Online or Not? Voluntary Carriers’ Use of the Web, reviews the web capabilities of voluntary insurance carriers and answers questions about whether voluntary insurance carriers are staying up to date as well as offering the online capabilities the market needs and wants.

The report looks at the functionality (for voluntary products) that 16 different voluntary carriers offer to:

• Brokers
• Employers
• Employees

Some of the findings of the report include:

• Almost all voluntary carriers have some online capabilities and/or have a website.
• Most voluntary carriers seem to place a priority on providing brokers with online functionality.
• Commission information is one of the most important and most commonly offered functions for brokers.
• Overall, there is more consistency in what is offered to plan administrators (as compared to what is offered to brokers).
• Web billing, account status information, and employee-level data are the most commonly offered functions on plan administrator sites.
• Most voluntary carriers don’t offer much functionality to covered employees.

In addition, the study provides input from brokers as to what they believe is important when it comes to online capabilities. With this information, carriers can assess whether their own web capabilities are in line with the market, ahead of the market, or need some improvement.

 The report is available for purchase for $2,000. More information and a table of contents for the report are available on the company’s website. To order the report, call Eastbridge at 860-676-9633 or email info@eastbridge.com.

Look for our New Spotlight Report on VSTD Products

Short-term disability plans have long been a mainstay of the voluntary product portfolio. In 2006, these plans accounted for the largest percentage of sales of any single product—roughly 17 percent of sales or over $815 million. But competition is tough. Today, there are voluntary group plans, traditional individual worksite plans, and then a hybrid of the two—plans filed on a group platform but administered more like an individual plan. It’s hard to keep up and know how best to position your product!

But coming in May, Eastbridge’s study, Voluntary Short-term Disability Products, will help you compare your product to others in the marketplace. With data from 25 different carriers, this report is the most comprehensive source of data on carrier best practices relative to their short-term disability products.

Here are a few items covered in the report:

• Product features including platform, product type, minimum/ maximum benefits, durations, definition of disability, exclusions, etc.
• Underwriting guidelines used with the plans
• Product results including sales, persistency, and profitability

Look for an e-mail in May regarding the report availability.

 The report will be available for sale for $4,000. To make sure you get your copy, call us today to pre-order.

Specialty Markets – What Works?

Eighty-four (84) percent of the carriers responding to the recent Eastbridge Frontline Report, Specialty Markets and Voluntary/Worksite Carriers, said that their company does some business through specialty markets. The specialty markets included in the survey are:

• Associations of employers
• Associations of individuals
• Banks
• Credit unions
• Employee leasing organizations/PEOs
• Labor unions
• Public sector

According to the carriers responding to the survey, associations of employers was the most commonly pursued of the specialty markets followed by public sector markets. But while there are many carriers pursuing these markets, most do not get significant sales from them. Thirty-eight (38) percent said that the markets account for five percent or less of their voluntary sales. In terms of actual sales or premium, results were mixed. Over half said they generate over $5 million in sales from all specialty markets. However, a quarter gets only $500,000 or less.

While more carriers pursue associations of employers than any other market, it is not the specialty market that accounts for the largest share of sales for most carriers. Public sector won out by a margin of 3 to 1 as the largest specialty market. Not surprisingly, carriers pursuing the public sector market were more likely to get a higher percentage of their total sales from this market than those pursuing the other specialty markets and are much more likely to say that the market is “extremely” or “very” important to their company’s overall marketing efforts. None of the companies that said employer associations were the largest said the market was “extremely” or “very” important to their efforts.

Based on the report, it appears that the public sector market is a specialty market that “works” for many carriers. Additionally, the association market is one that carriers would like to figure out and take more advantage of.

Eastbridge is currently preparing to conduct an in-depth study of the association market. For more information on how you can participate, call us at 860-676-9633.