Winter 2008 / No. 74
Unintentional Damage
By Gil Lowerre
Market research is a delicate art. Raw data from customers must be tempered first by interpretation and then by contextual knowledge. Only after both steps does research become information.
As an industry, we are the beneficiaries of active research programs by consulting houses (such as ours), research trade associations, and carriers. And most studies include the author’s interpretations and conclusions. But authors do not always provide the full context that enables readers to use the research as action-oriented information. A classic example includes “intentional” data, a notoriously unreliable category of market research. Intentional data is created when consumers are asked under what conditions they would change their behavior. “Under which of the following conditions would you be more likely to buy...?” Consumers usually have no problem answering these types of questions, but far too often, actual behavior has no relationship to their stated intentions. Where there is no alternative (in purchasing a product that has not yet been manufactured, for example), intentional data is the best that can be developed, and the researcher’s responsibility is to simply warn the reader that intent often is different than behavior. But where empirical data is available, intent is not only a bad substitute, it can be downright misleading. Don’t ask whether consumers would prefer buying a product in a red or blue box. Conduct a controlled experiment offering each and see which they actually pick.
A recent article quoting a research trade association study said, “When choosing voluntary benefits, 65% of businesses prefer to deal with carriers that are providing at least some of their existing, employer-paid benefits. Only 15% chose voluntary benefit carriers they were not already dealing with for company-paid benefits.” The key word here is “prefer,” although the article did not explain that this is intentional data and may or may not have any relationship to actual behavior. Those statements are not information; they are dangerous data.
In this case, there is no relationship between the data and behavior. The fact is that carriers that do not offer employer-paid benefits made well over 50 percent of the new voluntary sales last year. And among brokers selling employer-paid benefits, less than 20 percent felt that it was very or extremely important to use the same carrier that provided group benefits.
If they had been asked, employers would probably have preferred to buy their voluntary coverages through a close relative, for free, or from a carrier that never makes mistakes. But that’s not information either. Until researchers do a better job of providing appropriate context to help their audiences understand (or ignore) their findings, bad information will continue to lead to bad decision-making. Caveat emptor.
Check out a sample of Eastbridge’s published research on our website at www.eastbridge.com.
The Growing Role of VLTD in the Voluntary Market
By Bonnie Brazzell
Ten years ago – even five years ago – it was rare to find a voluntary long-term disability (VLTD) product in a carrier’s portfolio. Sure, there were companies offering VLTD, but it was a very small part of the industry’s total sales because most long-term disability coverages were at least partially employer paid. In 2001, voluntary disability sales were about $714 million. Of this, long-term disability accounted for just $119 million or 17 percent of all disability sales. Fast forward to 2006 and we find $1.1 billion in disability sales with VLTD at $287 million or 26 percent of all disability sales. Sales more than doubled in that five-year period. But will this trend continue looking forward?
Our answer is: yes! In the face of increasing costs on the medical side, employers are struggling to control their overall benefit costs. Some employers have moved non-medical benefits to employee paid. (Long-term disability and dental insurance are most likely to be moved from employer paid to 100% employee paid, according to Eastbridge research.) Others have moved to a defined contribution approach to benefits. This action by an employer moves most or all benefits to “voluntary” status as employees get to pick and choose the benefits they want to buy. Another factor that will cause increased VLTD sales is the move by smaller employers to offer long-term disability plans for their employees. Thirty-six (36) percent of small employers (those with 100 or fewer employees) do not currently offer long-term disability for their employees. (This compares to just one percent of employers with over 2,000 employees or nine percent for the employer with 500-2,000 employees.) These employers are good prospects for VLTD plans.
We also think that the product will evolve over the next few years. In fact, we have already seen some changes. Several years ago, VLTD plans looked just like the traditional employer-funded LTD plans but with higher premiums. Over the past few years, however, we’ve seen VLTD plans take on some of the characteristics of “traditional” worksite or voluntary products. In our 2007 Spotlight Report, Voluntary Long-Term Disability Insurance, we found three factors that follow the traditional worksite approach:
- Employee choice has increased. Employers are not making all the decisions. About half of the carriers in the study say they allow employees to select their benefit level, up to the maximum amount for which they qualify.
- A few carriers are beginning to offer portability options with their VLTD plans. Typically, this feature is limited, but this is a significant movement.
- A few carriers are moving to published or “set” rates on their VLTD plans – at least under certain circumstances.
While these changes are small steps when considered alone, we believe it indicates that as the popularity of the benefit grows, it will evolve and take on more “voluntary” features.
For more information on Voluntary Long-Term Disability products, call us or check out our Spotlight Report.
It’s your last chance to take advantage of our 2008 discount research programs: Insight and Information Partners. Companies must sign up by the end of the month. In case you missed it, here are the details:
Insight Subscription Program
With an initial deposit, a new Insight Company can order any number of Spotlight Reports during the year at a significant discount. The first purchases are already paid for through the initial deposit. After the deposit is used, the Insight Company has the option of purchasing other reports at the discount price through year-end. The discount applies to all new 2008 reports and the 40-plus current Spotlight Reports from the recent past. In addition, Insight Companies receive free copies of each Frontline Report published during the year. Details on Eastbridge Spotlight and Frontline Reports can be found by clicking here.
Information Partner Program
Our Information Partner™ program works similarly to a subscription plan whereby you pay a one-time entry fee plus an annual fee for access to all of Eastbridge’s reports—past, present, and future. Members are free to order any report (listed on our website) without charge and receive a PDF version electronically of any report ordered. Additionally, members automatically receive PDF copies of all Spotlight Reports and Frontline Reports published during 2008. All fees under the Information Partner program are considered fully earned when paid and are not prepayments for future services or refundable.
For more information or to sign up, call us at (860) 676-9633.
Success and Strategies
What is the nature of setting strategy for a voluntary business? Is it about study? Writing up plans? Getting home office buy in? Getting budgets approved? All of these are certainly steps associated with strategy development--but we all know the truth. Strategy is about what you do and how you do it. That’s why there are great strategies that have never been put in writing, and well-written three-ring binders full of strategies that have never seen the light of day.
Knowing is key to doing. But they are not interchangeable, and knowing guarantees nothing when it comes to doing. The Holiday Inn Express commercials are effective because they underline this exact point. The person may have key knowledge (mysteriously imparted by staying in the Inn), but we, like the actors in the commercial, are still shocked that he would attempt to “do” anything based on that knowledge. We seem to understand the concept in traditional walks of life. Internships, residencies, apprenticeships, etc., etc. are vehicles for bridging the gap. Knowledge is only useful when tempered by actual experience.
As you work on your voluntary strategy, it’s easy to forget this key ingredient, especially in the heat of battle. So listen around you for these hints that this key has been overlooked:
How different can voluntary be?
It’s just our regular business with a different person paying the premium.
Our brokers will be glad to sell voluntary for us.
The market is wide open.
Our underwriters can handle this, too.
If that company can do it, how can we miss?
In setting voluntary strategy, the same rules apply. First, acquire the knowledge about the voluntary business, strategies, success factors, etc., and then get someone with experience in implementing voluntary strategy to lead or advise your efforts.
Contact an Eastbridge consultant to discuss your company’s current—and future—strategy.
Age Unlimited
The Bureau of Labor Statistics recently reported that 70 percent of workers plan to work beyond their normal retirement age. Many of these people are skilled or professional employees whose contributions cannot be easily replaced. Simply, more people plan to continue working. And more employers want to continue to attract and retain these people.
A recent carrier study confirmed this transition, stating that 89 percent of U.S. employers agree that the aging population will have a moderate or significant impact on their work forces. But when asked whether they’ve done anything to gear their benefits towards their aging workforce, only 18 percent said yes. And far fewer than that in the under 200-life market had taken any action.
Looking at one product’s age guidelines (voluntary term life), three companies only issue to age 65, two more to 70, and two more on a fully underwritten basis only. Eleven have no age limits, which isn’t bad. But for critical illness, the rules are less accommodating. Fourteen carriers have an upper limit between 64 and 69, three are in the 70’s, and only two are higher.
Benefit plans will increasingly need to accommodate the needs of older workers, including life-stage counseling, age-specific work rules, special ergonomic considerations, tailored time off policies, etc. But our voluntary plans need to change, too. We need to become more accommodating and innovative on guaranteed issue limits, benefit designs, and conversion and portability features.
This is a common-sense issue and gives us the opportunity to do the right thing, while creating some very attractive marketing opportunities.
For more information on how voluntary benefits can meet our aging population, contact our home office at (860) 676-9633.
Persistency and Voluntary Business
Many clients ask us for benchmark persistency measures for their voluntary business. Based on past efforts by Eastbridge, we know that obtaining useable and meaningful data is difficult. We recently completed a Frontline Report on persistency and retention in the voluntary business and discovered the reasons for past difficulties. Among other things, the study found:
- Between 15 and 20 percent of the companies can not measure persistency for their voluntary business.
- There were no less than four different “bases” for calculating persistency. Companies used premium, certificates, insured lives, and face amount as the basis.
- Persistency is measured over different time frames including 3, 6, 7, 12, 15, and 24 months. A few companies use multiple measures.
- Some companies measure persistency based on submitted business and others on a paid business only.
- There were no less than five different formulas used for calculating persistency.
With all the different methods and definitions, it’s no wonder why formulating good benchmarks is difficult. Isn’t it time to set some standards that can be used?
ersistency and Conservation Measures of Voluntary Carriers was one of five Frontline Reports published by Eastbridge in 2007. Frontline Reports provide timely data on important topics. The reports are provided free of charge to Information Partners, Insight Customers, and participants. For more information on becoming an Insight or Information Partner Company, see the related article in this issue of Outside Input or call us.
What Information Lurks in the Minds of our Brokers?
Who knows the markets better? Who knows the competition better? Who knows us better (yes, warts and all)? Our brokers are one of the most valuable sources of information. They help us answer two of the most fundamental questions:
What are we doing well and not so well?
What should we do differently?
Over the years, Eastbridge has conducted over one hundred producer/broker surveys, and they all have one thing in common: the client company was surprised at some or most of the findings. Shocking or sensible? When you ask brokers a question, you are running into formidable obstacles:
I really need that in order to sell. Brokers want everything they don’t have and more of what they do. Ask them if they want it; they’ll say yes. They may prioritize differently, but they all want everything. (Why not?)
It needs a little work. They want to underemphasize the bad news and sometimes even want to say what they suspect you want to hear (what a shock!). Some will have no criticisms of you. Others will offer some. But neither response is totally reliable. Every broker has criticisms and no matter how strong it sounds, it’s really stronger.
My agenda is the right agenda. Regardless of everything else, producers will be sharing their agenda, not necessarily the common agenda of a larger group.
Asking sales reps or regionals for their input is an important first step. But don’t be fooled into thinking you’re hearing what brokers think and believe. You’re hearing what brokers say to sales reps for the reasons described above. It’s not truth; it’s input.
If you’re after truth, go to the brokers themselves and ask them using a third party that will guarantee anonymity. Violate either rule, and the truth will stay where it is…with your brokers.
Contact us at (860) 676-9633 for a complete list of our broker research.
The Perfect Match
Outsourcing has long been embraced by voluntary carriers. Carriers without all of the needed administrative capabilities often look to outsource all or some of the tasks to a company more equipped to support their voluntary program. We often get asked “who” (i.e., who can handle administration efficiently). Unfortunately, there is no easy answer. The “perfect” match is the TPA or group of vendors that best fits the specific needs of the carrier. This article will provide some insight and guidance into this issue.
First, in determining an outsource partner, you have to find the perfect match. That means understanding yourself and what you are really looking for in the partner. So, step one is to have a voluntary strategy and know your own strengths and weaknesses.
We also recommend starting with the assumption that no TPA does everything well. To find the right one, you need to be savvy enough to assess their strengths and weaknesses and match these with your most important needs. You may find one partner can effectively serve your needs, or you may find that you need more than one partner. You won’t know this until you understand yourself, your needs, and the potential partner’s core competencies.
Another thing to consider is track record. Frankly, there are only a few TPAs that “specialize” in voluntary; others do group and voluntary. There are also those who don’t do voluntary today but say they have the capabilities. (Red flag here!) Be skeptical of any TPA that has never actually administered voluntary products but says it’s an easy transition from what they do today—voluntary is not as easy as it seems. Ask who their voluntary clients are, what services they provide, and what products are handled. TPAs without voluntary experience may underestimate the complexity of this business. While they may still make a good partner long term, you need to make sure you won’t get “burned” in the short term.
Finally, understand that being a good administrator for voluntary products is more than just “systems.” Systems are a facilitator and, indeed, they are critical for things to work properly. But, you certainly need more. It is critical to assess the processes of the partner. Do they really understand the business? Do their processes and procedures take into consideration the unique nuances of this business?
With eyes wide open, a perfect match can be made. But be sure to look beneath the surface and assess the whole “individual.”
For information on how Eastbridge can help you with your voluntary programs and administrative processes, call us or email us at info@eastbridge.com.
Medical Companies and Voluntary – The New Frontier
The latest entrants (from a carrier perspective) into the voluntary marketplace are the group medical insurance companies. In a recent Eastbridge Frontline Report, Medical Companies and Voluntary Products, we surveyed 40-plus medical carriers and found that over 30 already offer some voluntary products. Another five either have access to these products through a subsidiary or are in merger talks with companies that offer voluntary. But, for most of these carriers, voluntary accounts for a very small percentage of overall sales. Even as a percent of ancillary or non-medical sales, the numbers tend to be low. With the vast distribution networks and existing customer relationships, why are the voluntary sales so often disappointing? Our study turned up several factors that may account for the results.
First, for many companies, the voluntary product portfolio is limited. Some of the medical companies offer just dental or vision plans. Others offer these plans along with group term life and disability insurance. Voluntary medical products, such as a limited benefit medical plan, and coverages like critical illness and hospital indemnity, are some of the least offered products. Compare the offering of many medical players to that of a “full service” voluntary carrier and you’ll quickly see some missing products. Those responsible for voluntary sales in medical companies say one thing they face (that is not faced by other voluntary players) is the different risk profiles associated with medical companies and life insurance companies. Specifically, medical companies are more focused on short–term risks, whereas life companies are more comfortable with long-term risk. This makes some medical companies more reluctant to embrace traditional voluntary products.
Similarly, many say that management does not always “get it” (i.e., they don’t see the importance of voluntary). Others say that upper management levels are very supportive, but that the mid and senior operating company personnel do not see the value. Either way, getting resources, support, and cooperation is impaired—in some companies voluntary is just an after-thought or a “nice to do.”
Another issue is that only a few of the medical carriers package voluntary products with their medical plans. Most leave this decision to the broker—and most brokers aren’t yet packaging. (Brokers may introduce voluntary later on but not necessarily along side a medical plan proposal.) Some carriers want to encourage more packaging and cross selling and, thus, offer price discounts to accounts that allow ancillary products, including voluntary. But this is still somewhat limited, and the effectiveness is not yet proven.
Additionally, most medical companies do not have special voluntary sales reps. This is understandable, but because of the mixed messages from management and the perceived complexity of voluntary, sales reps are often reluctant to aggressively promote voluntary. Companies attempting to achieve significant voluntary results say it takes a tremendous amount of work to train sales reps and to get them to take voluntary seriously. Promotion and training must take place continuously over a very long timeframe to get traction.
So what does work? A good strategy is imperative. Strategy must be focused around distribution and meeting the needs of the brokers that the carrier wants to attract. Conducting pilot programs is often a successful way to fine-tune a strategy as well as to get “champions.” Success by other sales reps is a good way to spark the reps’ interest in voluntary.
For more information on how to establish a successful voluntary program in your company, give us a call.
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