Spring 2011 / No. 87

Speed vs. Innovation

Carriers entering the voluntary market face a conundrum. On the one hand, it is common for new entrants to try to quickly offer a package of products and services that match their chosen distribution strategy. For example, a carrier pursuing a sub-segment of the Employee Benefit Broker channel would probably try to enter with a Term product, maybe STD and dental, and maybe a pre-populated application process, etc. But the more they try to match the market, the more the new carrier becomes an undifferentiated competitor. The old saying, “Why should that broker do business with you?” was aimed at this situation. If you’re basically the same as everyone else, why should the broker switch? You’re just a riskier version of what they have now.

On the other hand, being innovative, by matching different offerings with the channel served or inventing entirely new offerings, brings its own difficulties. Long term, the benefits of a truly differentiated offering, if it meets the needs of the market, are undeniable. But the first risk is that the match isn’t compelling, or it’s incorrect, or the brokers don’t recognize it. The second risk is that, even if the match is successful, it will take significant time to allow brokers to recognize the offering and become comfortable with it—and with you.

Do you want to get there quickly with an undifferentiated offering or have a unique offering that is unproven and will take far longer to become established? Should you go for speed or for innovation? Should you risk it all by playing it safe or risk it all by taking a flyer?

The correct answer, of course, is to balance both. You want an offering your target producers will recognize and feel comfortable about, while weaving in enough innovation to attract attention and encourage trial. The key is two-fold.

First, know how much to innovate. Different types of brokers are more or less conservative. Or said another way, different brokers will demand a basic, recognizable package of products and services. Mid-size Employee Benefit Brokers are conservative in their product selection and processes, while Classic Worksite Brokers are always looking for new products and services.

Second, know where to innovate. Again, mid-size Employee Benefit Brokers are famous for their reliance on four key voluntary products, so offering only other products may cause them to cross you off the list. But they are open to new enrollment possibilities. Specialist enrollment firms are interested in product and compensation alternatives, but enrollment methodologies won’t get positive attention.

The key for a carrier defining a new strategy, or entering the market for the first time, is balance. So seek a balance between speed and innovation. And in your innovative elements, match the channel you are targeting to the innovations you are creating.

For information on how we can help you develop or fine-tune your strategy, give us a call at (860) 676-9633 or email info@eastbridge.com.

Lost Ground in 2010 

Voluntary new business annualized premium declined by several percentage points in 2010, the first time we’ve recorded a decline (see the 2010 U.S. Worksite Sales Report). Even though we had more sales gainers than losers, the rest of the industry could not overcome the slippage by the largest player in the market. The economy certainly played a part.

Also in 2010, employee penetration continued to slide. Fewer Americans owned at least one voluntary product than in the 2006 Worksite MarketVisionTM–The Employee Viewpoint Revisited survey. Again, the economy played a part. But, with the exception of 2010, overall industry sales have increased each year. So, is lapsation the culprit? It probably is, to a degree. But another major factor is the skyrocketing increase in takeover sales. Takeovers have always been a small part of the equation, but starting about five years ago, they have grown into a major part, soaring through [Bonnie: to?] 30 percent of new business in 2009. The 2010 numbers are about to be released, and we expect the trend to continue.

Some observers have linked the rise in takeovers to the surge in the number of Employee Benefit Brokers (EBBs) selling voluntary. They say that the EBBs are simply bringing their selling process over from the employer-paid side of the benefits world. And while true, it’s only part of the story. Takeovers are becoming more common for all brokers.

As account penetration increases, virgin account opportunities must necessarily decline. While we argue that the opportunity is still tremendous, locally, takeovers may also seem to hold tremendous opportunity. In 2009, 66 percent of employers offered at least one voluntary product. While that means there are still a lot of accounts without voluntary, the opportunity is beginning to be concentrated at the small account end of the employer spectrum. In some larger account segments, penetration rates approach 87 percent.

There are two conclusions here. First, producers must be on guard to not bypass virgin territory and the activities needed to grow existing accounts in favor of takeover activity. But second, we need to understand that this is a natural sign of an industry maturing before our eyes.

The 2010 U.S. Worksite Sales Report will be released soon and includes takeover and new business data (among other items). And for release later this year, we are working on a new structure for industry performance data, one that will rationalize sales, takeovers, lapses, and penetration data. Stay tuned!

Winter Quiz Winner   

The Winter Quiz focused on distribution planning and determining the needed time and number of hires to reach a given size field force. The winner was Jeff Grabiak, president of Worksite Benefits, Inc. Congratulations Jeff!

Will Employer-Sponsored Benefits Survive?     

One of the most frequent questions we have gotten over the last few months is our opinion on the future of employer-based benefits and, more specifically, the future viability of voluntary benefits. We remain convinced that the employer will remain the primary “delivery vehicle” for serving the insurance needs of the vast majority of individuals.  

Yes, some employers (primarily the small ones) may stop offering healthcare benefits, sending their employees instead to the healthcare exchanges. But we don’t think the majority will. Even those who do will still have to compete for employees, and employees like buying benefits at work. Employees believe this offers significant advantages. As the job market heats up, the pressure to have a large variety of high-quality insurance coverages and non-insurance benefits will once again be a major factor for employers.

The advantages that employees see with voluntary benefits include the payroll deduction feature, de facto budgeting, simplicity, and the belief that the employer and the broker have already vetted the providers and policies. These beliefs should equate to employers continuing to offer voluntary benefits and payroll deduction continuing to be the primary mode of premium payment. Offered the option to not payroll deduct, many employers may be tempted, but the reality is that employees prefer payroll deduction. Benefits offered through individual payment modes (ACH, credit card, and debit cards) – even if offered at work – don’t get the same acceptance rates by employees.  While we expect there will be more experimentation with alternative modes, we think that payroll deduction will survive as the main mode.

The employer’s world is simplified as a result. Benefits are still offered, but now they are offered on a defined-contribution basis. Benefits have finally become controllable costs.

Enrollment Methodology and Participation

In earlier times, voluntary was a producer’s market. We offered the products we were comfortable with and enrolled them in the way we preferred. It was all about us, and the market was wide open. We could demand that customers did it our way. We were satisfying our needs.

But the world has been changing. Competition is increasing. Clients are better educated. The market offers more products and more choices. And our consumers are demanding that we pay more attention to their needs.

When it comes to enrollment, that means selecting the methodologies that work best for the client. And that means three things.

First, have the ability to use multiple enrollment methodologies in an account. Brokers need to master a range of methods and to be able to integrate them into a single, seamless system.

Second, be ready to match the method or methods to the account characteristics. Size, location, and composition of the workforce all will impact methodology selection.

Third, be ready to match the method(s) to the products to be enrolled. You wouldn’t enroll a stand-alone dental plan the way you’d enroll long-term care.

Future issues of Outside/Input will explore these concepts in greater detail.

Confidence in Voluntary Sees Largest Increase Since 2006

Individuals active in the voluntary market continue to have rising confidence in the industry’s future, according to the latest results in our Voluntary Industry Index Confidence survey (year-end 2010). The overall Confidence Index increased to 102.1 up from 99.9 at the mid-year survey. This is the index’s highest level since December 2006, perhaps indicating that the economy is moving back to “normal.”

Just 33 percent of respondents expect any negative economic impact on sales in 2011—and no one thinks the negative impact will be major. Almost half (47 percent) of those surveyed think that the impact will be positive, which is a significant increase from the 30 percent in the last few surveys.

The three key measures used to calculate the index—sales growth, profitability, and employee enthusiasm about voluntary products—are impacted by what is happening in the economy and inside businesses. For this survey, two of the three measures were up: sales and profitability. Eighty-seven (87) percent of respondents believe that voluntary sales will increase over the next 12 months, with a large number indicating sales will increase “a lot.” In terms of profitability, 61 percent said it will improve, up from 50 percent in the mid-year 2010 survey and 44 percent in the year-end 2009 survey.

The percentage of respondents expecting to acquire more new groups in 2011 (as compared to 2010) was 88 percent in the year-end 2010 survey, up from 83 percent. Additionally, the percent believing that new groups will “increase a lot” in 2011 was up to 38 percent, again the highest level since December of 2006. This optimism was true for both brokers and carriers who participated in the survey.

The Voluntary Industry Confidence Index study is conducted semi-annually and includes responses from individuals active in the market—carriers, brokers, and vendors. Like other confidence indices, the 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 report is only available to Information Partner companies as well as participants and serves as a good barometer for trends in the voluntary market. The survey will be conducted again in July 2011.

To become a survey participant in our July survey or to learn more about the Information Partner program, contact Eastbridge at info@eastbridge.com.

Field Structures for Voluntary Carriers

All carriers have to establish a structure for attracting producers to sell their products. For many carriers, this means establishing field offices in communities nationwide. These offices often serve as the carriers’ eyes and ears, keeping close contact with local producers and, in many cases, their accounts.

One of our latest spotlight reports, Field Structures in Voluntary Companies, explores the different positions that are in various companies’ field offices and the roles that individuals in these positions play in providing sales support, enrollment, and service.

Following are a few key findings from the report:

• Most of the companies surveyed have field offices that include both sales and service/support personnel.
• Most of those in field offices are company employees.
• The majority of field office positions are paid a base salary plus a bonus.

A table of contents for the report is by clicking here. For more information on Field Structures in Voluntary Companies or to purchase the report, call us at (860) 676-9633.

Can You PASS the Broker Test?

In the voluntary market, the first (and probably most intense) point of competition is for the broker. We’ve said many times that distribution is the scarce commodity in this market and the place where it is most important for a carrier to differentiate itself.

That’s why we’ve created a new program called PASS™ (Producer Attitude Scorecard Service™) that tells you how brokers feel about your company. Besides being a simple way to gather broker feedback, the PASS™ programalso offers:

• Unbiased and reliable information from a third-party who knows and works in the market
• Feedback that is tracked over time so you can see any trends that may indicate a future problem
• Comparisons of how brokers rated you as compared to other carriers in the market
• The opportunity to customize survey questions and personalize email text so it won’t sound like a mass mailing

The survey is inexpensive since it’s being offered on a larger scale with standardized instruments. In fact, the cost is less than a third of the price of a typical survey.

If you haven’t seen information on this new service, give us a call at 860-676-9633.

Voluntary Distributors Are Changing

Those who have been reading our materials for years remember that we have identified several different segments or types of producers of voluntary products. The Benefit Broker segment continues to claim the largest percentage (52 percent) of voluntary/worksite sales of any other producer segment. But two other segments—Classic Worksite Brokers and Worksite Specialists—have been of interest to many carriers in the market. Research last year showed that the definitions of “Classics” and “Specialists” are changing.

Classics focus primarily on account-level selling. Most only get about 25 percent of their sales from other brokers. They still are relatively lean on services, relying on their partners for many of their own and their clients’ needs. However, Classics are adding true group products to their portfolio and are becoming more like Employee Benefit Brokers, as Eastbridge predicted. As businesses, they are generally still smaller and slightly younger than the Specialists (although some Classics have many producers).

Specialists perhaps have changed even more than Classics. Today, they focus more on winning business through third-party (unaffiliated) brokers who control the account, some even relying on a patron carrier to funnel business and brokers to them. Specialists have remained more focused on voluntary coverages and have not added lines to the same extent as Classics. They continue to manufacture many of the services (especially enrollment) that they and their clients need. Their success depends on working through non-affiliated brokers, those producers with access to cases but lacking the sophistication or resources to handle voluntary in those cases on their own. The services offered by Specialists (enrollment, etc.) are key to attracting those producers.

Eastbridge’s study, Evolution of the Worksite Broker, takes an in-depth look at the Classic and Specialist segments to learn more about what products they are selling today, which carriers they prefer using and why, and their current needs and expectations regarding voluntary.

The report is now available. To purchase a copy, you can email Eastbridge at info@eastbridge.com or call (860) 676-9633.

Coming Soon – MarketVision™ Employee Viewpoint

Last year we updated our research on employees and what they think about voluntary benefits. The new report will be out soon.  The report will provide up-to-date answers to such questions as:

1. What types of insurance products do employees feel are the most important to own?
2. What types of products do they actually own and how are these funded?
3. How important is choice in benefits?
4. Which voluntary products are most popular with employees?
5. What types of products would employees like to own?
6. Why do employees buy voluntary?
7. What types of communication tools do employees prefer and find most useful?
8. How satisfied are employees with their overall voluntary experience?                     

The study also compares the current results to those in past MarketVision™ studies.

Telephone interviews were used to gather input from over 700 employees nationwide in October and November of 2010. The sample was selected to be representative of six different employer size groups.  Look for more information in the next few weeks.

To pre-order your copy of the report, call us or email info@eastbridge.com.

Is Your Company Really Ready for the Market?

Eastbridge has consulted with voluntary insurance companies for over 22 years now. And because we’ve worked with so many companies in so many different stages (i.e., new entrants to veterans), we’ve developed a tool for assessing a company’s readiness to enter the market. It’s called Readiness Assessment and we like to think of it as the gold standard in evaluating the readiness of voluntary/worksite companies to compete today in our fast-changing and dynamic marketplace. Whether our client is an experienced carrier or new to the marketplace, we make sure their processes, products and services meet the challenge.

The process begins with a meeting between Eastbridge and your team of experts. At this meeting, we conduct in-depth reviews of each key area in order to detail operational and functional capabilities on 125 different variables to compare every relevant capability against your voluntary peers and against the industry. We collect data on you, your customers and producers. Our experts spend three days on site, including a half-day session reviewing your ratings against the competition, pinpointing each function’s rating, highlighting your key competitive advantages, and identifying the priority weaknesses that need to be addressed. Sophisticated voluntary brokers know what to look for in a carrier. That’s why it’s important to make sure that you do too, and that your business processes are prepared to stand up under scrutiny.

As with all Eastbridge services, your team helps shape our investigations and can include specific issues or topics that are important to you. Your results are compared against the findings collected through scores of Readiness Assessments conducted over the recent past. The results are not just high-level status reports of where you are, but detail what needs to be changed and how to change it.

Some vendors rely on surveys and then ask for your data on your customers so they can feed that back to you. The Readiness Assessment isn’t just about where you are; it’s about where you need to go and how to get there. That’s why dozens of your peers use Eastbridge experts to guide the development of their business offerings.

For more information about Eastbridge’s Readiness Assessment program, send us an email at info@eastbridge.com.