Summer 2010 / No. 84

Product Trends in the Voluntary Market

By Bonnie Brazzell

In our recent bi-annual Product Trends Frontline Report, carriers indicated that the most pronounced product trends were liberalization of underwriting guidelines. Specifically, the responding carriers believe there is a trend towards more guaranteed issue and lower participation requirements. Respondents also mentioned seeing a tendency towards more features and options in voluntary plans. The following chart gives the full results.

Most Pronounced Product Trends

Respondents also indicated similar feelings when asked about the greatest pressures concerning voluntary products. Pressure to liberalize guaranteed issue guidelines was the most common response. In fact, 43 percent of the carriers felt this was the area of the greatest pressure. Most (65 percent) indicated that the pressure is coming primarily from brokers/producers as opposed to customers or the company’s field staff.

The following chart shows the full results.

Areas of Greatest Pressure

Other key findings of the Product Trends survey include:

• Sixty-six (66) percent of the respondents plan to introduce new products in 2010.

• When asked if the volume of takeover business in the voluntary market has changed, 61 percent said it has increased (with five percent saying it has increased significantly).

• The three products with the highest percentage of carriers rating them as “very profitable” included AD&D, accident, and universal or whole life.

• The top three growth products (over the next 2-3 years) that carriers expect for their own companies were accident, short-term disability, and critical illness insurance.

• At the industry level, the expected growth products included accident and critical illness as above but tied for third was supplemental medical plans and universal life.

The Product Trends Frontline Report is conducted bi-annually by Eastbridge. The report is only available to Information Partner companies and participants. Call us to get on the list.

What Differentiates Us?

By Gil Lowerre

One critical aspect of strategy creation is the identification and development of meaningful differentiation. What makes us different? What compelling reasons do brokers have for switching carriers and bringing their voluntary/worksite business to us?

Our clients know that our research efforts were founded at their request, designed to support our strategy and operational consulting efforts. And as you’d expect, differentiation has been a recurring topic of our studies. At a high level, here’s the scorecard.

What doesn’t differentiate us?

Basic administration. Basic functions, like underwriting, issue, billing and claims, all qualify as hygiene factors. They are expected by producers. No one will switch to your company because you’re good at them; brokers will leave you if you aren’t.

However, the quality of a carrier’s administration is a delicate issue. Competence at performing the basic functions is expected, and therefore, not differentiating. And yet, adding exceptional functions: broker business data, re-enrollment processes, payroll and HRIS capabilities, can be. The key issue is straightforward: do not spend more on basic administration than required. It won’t get you anything. The challenge is more subtle: which enhancements are worth investment because they are truly differentiating?

Commissions. Leadership in this area is only differentiating to a minority of producers. Other issues trump commissions. And for those who look at compensation first, you’re either a “high” commission company or you are not. If you are, you’re in the running, but brokers will still weigh other issues before selecting the high commission company they’ll use. In other words, if you pay high commissions in order to compete for the minority of producers for whom that is a key in their decision-making, it still is the other things that will drive their final decision.

What does differentiate us?

Services. Service to employers, employees, and especially to brokers is key. This includes job aids, personalized support, responsiveness, resources (like web access to tools and data), etc.

People. Higher quality staff builds higher quality relationships. And relationships build business. We all know about a major carrier who went through a wrenching two-year downgrade but barely lost momentum. And they lost few staff—and fewer brokers—and have since picked up right where they left off. Relationships rule.

What about products?

Products. These can have differentiating power, but only for a few carriers and only for a limited period of time. If you want to be an industry leader in a product line, you can attract production, but consistent product leadership is expensive.

One goal of strategy creation is to design a services platform that is exceptional in ways that are meaningful to producers, while building the highest quality staff possible. And if there are real product design or compensation opportunities, that’s a bonus. The creative part is defining what these mean in operational terms.
For more information on Eastbridge’s strategy creation process, email us at info@eastbridge.com.

Voluntary Sales Grew In 2009

Eastbridge’s annual U.S. Worksite Sales Report for 2009 was released several weeks ago and, despite the recession, the results show that the voluntary market continues to grow.

New voluntary sales (U.S.) totaled an estimated $5.397 billion in 2009, an increase of 3.3 percent over 2008 results. The following graph shows the sales results since 1997.

New Business Annualized Premium
(in Millions)

Eighty (80) percent of total voluntary sales were from the industry’s top 15 companies. These 15 companies had an average growth rate of 3.1 percent, slightly below the industry results. However, 10 of the top 15 had sales increases with five of the companies having double-digit increases ranging from 14 percent to 34 percent.

Inforce premium increased just under 8 percent in 2009, bringing the estimated total inforce premium for voluntary between $18.8 and $24.7 billion.

Life insurance sales had the top market share for the year. New life sales were $1.3 billion for the year, up about 14 percent over 2008. Term life generated the most sales premium in 2009 with over $940 million, up almost 21 percent over 2008. Universal life and whole life sales were basically flat with $371 million.

Disability products accounted for the next largest share of voluntary sales, coming in at 20 percent of the total. Sales for disability products were actually down in 2009 as compared to 2008. Total voluntary disability sales were just under $1.1 billion, down six percent.

Accident sales accounted for 13 percent of total voluntary sales as did the hospital indemnity/supplemental medical line. These lines were followed by cancer and critical illness with a combined market share of 12 percent.

By platform, the industry continued to move towards a group platform. In 2009, the growth rate for group product sales was 6.7 percent, significantly higher than the almost flat individual sales that were up by just 0.2 percent. This resulted in group products increasing their share of total voluntary sales to 49 percent, up from 48 percent in 2008.

When looking at voluntary sales by distribution channel, Benefit Brokers again accounted for the largest portion of worksite/voluntary sales. According to the study, this segment generated 52 percent of 2009 sales—over $2.8 billion of the $5.397 billion total.

The following chart shows the share of sales for each distributor segment and the segment’s increase over 2008 results.

The U.S. Worksite Sales Report is an annual study conducted by Eastbridge that tracks sales and inforce premium for the voluntary industry. The report includes detailed sales, inforce premium, distribution, and product data on the performance of 60 carriers, both group (voluntary) and individual (worksite)—the largest number of carriers included in any sales report for the industry. This year’s study includes data from 1997 through 2009.

If your company did not participate this year, call us and we’ll put you on the list for next year.

Strong Response to the new PASS Program

In our last issue of Outside Input we told you about our new service designed to help you find out what your brokers think of your voluntary program.  We have had a very good response to the PASS™ (Producer Attitude Scorecard ServiceTM) program.  As a reminder, the programis an inexpensive and simple way to get information on how you are doing with your brokers.

The PASS Program is designed to offer two advantages over the typical methods of collecting this type of information. First, it allows you to compare what your brokers say about you to what other brokers say about the companies they use.

And second, it allows you to compare your brokers’ current opinions about you with your prior years’ results. In other words, you get two sets of trend information. You can even add customized questions to the survey. And because we are doing it on a large scale, the price is far lower than normal surveys.

In the voluntary market, the first (and probably most intense) point of competition is for the broker.  If you haven’t see information on this new service, give us a call.

Strong Response to the new PASS Program

In our last issue of Outside Input we told you about our new service designed to help you find out what your brokers think of your voluntary program.  We have had a very good response to the PASS™ (Producer Attitude Scorecard ServiceTM) program.  As a reminder, the programis an inexpensive and simple way to get information on how you are doing with your brokers.

The PASS Program is designed to offer two advantages over the typical methods of collecting this type of information. First, it allows you to compare what your brokers say about you to what other brokers say about the companies they use.

And second, it allows you to compare your brokers’ current opinions about you with your prior years’ results. In other words, you get two sets of trend information. You can even add customized questions to the survey. And because we are doing it on a large scale, the price is far lower than normal surveys.

In the voluntary market, the first (and probably most intense) point of competition is for the broker.  If you haven’t see information on this new service, give us a call.

OneAmerica: 2009 Growth Company

OneAmerica’s impressive growth rate over the last three years has propelled the Company to become Eastbridge’s 2009 Growth Company winner. The Company exceeded the industry growth rate each of the last three years, including better than a 30 percent growth the last two years. Congratulations to the producers, staff, and leaders at OneAmerica.

Managing in the Dark

Imagine trying to manage a business without knowing how much you’ve sold, how much it cost you to manage the business, or even whether the business was profitable.

Today, almost all voluntary executives understand that their voluntary efforts represent a unique business. It has different distribution requirements, different dynamics, and different costs than the traditional employer-paid business. In recognition of that reality, more group companies, to one degree or another, are placing responsibility for the success of their voluntary initiatives under a dedicated executive.

While this makes business sense, it’s hard to understand that, too often, these executives lack the basic management tools taken for granted in other business lines. A significant portion of group voluntary executives cannot measure:

• Their in-force business. Their administrative systems cannot segregate beyond product type. In other words, employee-paid and employer-paid business cannot be examined separately.

• Their business costs. Because units are organized functionally, costs cannot be measured for the voluntary portion of their business.

• Their profits. And, as a result, these executives have no accurate measure of the profitability of their business.

It’s time to provide voluntary leaders with the basic management tools we take for granted in the rest of our businesses.

For more information on ways to effectively measure voluntary results, contact one of our consultants at (860) 676-9633.

Coming Soon: An Update to Our MarketVision™–Employee Viewpoint

Eastbridge will soon begin solicitations for our new employee research project. Our last full-scale employee research project was completed in 2007. The MarketVision™—Employee Viewpoint research is a companion project to our employer MarketVision study. Both projects provide valuable information on these important customer groups.

We will be looking for sponsors for the employee project beginning in late July or early August. A sponsor helps shape the research and gets exclusive use of the data during the exclusivity period. This year’s study will update our past findings and also attempt to look at the buying habits and attitudes of different segments of employees. Any company sponsoring the study can provide input into the types of segments that they are interested in as well as the questions asked in the survey.

Look for more information on this in a few weeks.

To make sure you get on the list to learn more about this project, call us today.

2020: an Update

In the winter of 2001/2002, Eastbridge wrote a watershed report, 2020: A Clearer Vision of the Future©. This report presented our consultants’ predictions for the future of the benefits industry, a picture of what we would look like in 2020. And as many of you know, most of our predictions are coming true, some quite a bit ahead of schedule. Between that fact, and the reality that the report is now almost nine years old, we have received many requests for an updated version.

Our team has been working on this request and by year-end, we plan to publish an updated version of 2020. At the upcoming VEBB meeting in Las Vegas, our president, Gil Lowerre, will be reviewing the major trends and forces on which the update will focus.

We’ll keep you posted on our progress.

Have Critical Illness Sales Finally started to Gain Ground on Cancer Sales?

For years, people have been predicting that critical illness sales will eventually replace cancer sales in the voluntary market. These critical illness advocates believe that the product covers so much more than cancer and that the total pay-out available is potentially higher. Additionally, in almost every one of our Product Trends surveys, carriers have predicted that critical illness will be a growth product for the industry. Yet, year after year, cancer sales outpace critical illness sales by margins of four to one.

But things seem to have changed—at least a little bit. Voluntary critical illness sales were up in 2009, but cancer sales lagged. In the 2009 U.S. Worksite Sales Report, critical illness sales results were up almost 88 percent between 2008 and 2009 as compared to cancer sales which went down almost 8 percent. This is the second year in a row with significant gains in critical illness. The increase in 2008 (over 2007) was 19 percent.

Cancer sales in 2009 still exceeded critical illness, but the differential was down to two to one from the historical levels of four or more to one. Cancer sales for 2009 were $436 million and accounted for about 8 percent of total voluntary sales. Critical illness sales were $225 million and the line increased its share of total sales from just over 2 percent to slightly more than 4 percent.

We believe that as more and more Benefit Brokers increase the amount of voluntary sales, we will see more of a move to critical illness products. Cancer sales will probably never go completely away as traditional producers will continue to sell the product, but the sales rate for cancer is likely to decline while critical illness improves.

Eastbridge recently updated and released the Critical Illness Spotlight Report. For more information, click here.

Conservation, Part I

It’s time to begin talking seriously about conservation. We allow billions of dollars of business to flow off our collective books every year while ignoring this back-door loss. Our focus on new sales is understandable, but our willingness to let that same business walk out the door over the following years is not. Many of those customers leave us simply because they didn’t know they had an option. And you can do something about it.

But the reality is that most companies do nothing about this issue. Our goal is to change that and this is the first part of a discussion on the topic. This discussion applies to group, as well as individual companies. The trend towards convertibility/portability is now clear, and the use of “port pools” by group companies is becoming more common. Let’s begin with a review of the subtopics involved.

Individual Retention. For our purposes, individual retention can be measured as the percentage of (people, products, or premium) that come off of a list bill that are successfully moved to another form of premium payment. The average voluntary/worksite company retains about five percent, by this measure, with a range from almost nothing to about 10 percent. The five percent that initiates the process is probably a less than balanced population, inviting adverse selection, causing you to retain the worst risks.

During a two-year project for one of the largest companies in the industry, we were able to improve retention to a peak of 28%. You don’t need to check with your CFO to understand what an impact that improvement had on company results. And with every percent improvement in your retention, the pool of converted business moves closer to the risk profile you priced this business for in the beginning.

This type of improvement is available to you now. And it is not the ceiling. Subject to economic issues, only 50 percent of those who came off list bill were unemployed at the time of lapse. These are people who sought your coverage, need your coverage, and probably don’t know they can keep your coverage.

In the next issue, we’ll discuss account-level lapsation and move on to the issues involved in developing an effective conservation program. Call us if you’d like more details.

More Employers Offer Voluntary Products

The percentage of employers (with 10 or more employees) offering at least one voluntary benefit increased by 12 percentage points between 2006 and late 2009. According to MarketVision™—The Employer Viewpoint Update©, 66 percent of employers offer at least one voluntary benefit, up from 54 percent in 2006.

The largest increase occurred in the small employer category (10-100 employees). While still the least likely to offer voluntary, the percentage offering at least one voluntary benefit increased 15 points in the most recent survey. Only the 101-500 employee size group did not show an increase (and the decrease there is probably not statistically significant). Based on a weighted average reflecting the actual composition of businesses in the U.S., 66 percent of employers offer at least one voluntary product. The following chart shows the details by account size.

Employers Offering at Least One Voluntary Product

The recently released study also found that:

• Despite the current economy, some employers are looking to add benefits.

• Web use for “employee self-service” tools continues to increase.

• The influence of the broker seems to be increasing.

• The most common method of enrollment remains self-enrollment on paper, but self-enrollment via a website is gaining ground.

The study results are based on quantitative interviews with plan administrators in accounts ranging from 10 to more than 5,000 employees. Other topics covered include:

• Types of benefits (voluntary and employer-paid) employers offer

• Market penetration of voluntary products by employer size and product

• Factors considered by employers when choosing a voluntary carrier

• Role advisors (i.e., brokers) play in the decision-making process

• Enrollment methods allowed by employers

In addition, the study compares current employer attitudes with those reported in earlier MarketVision™ studies completed in 2002 and 2006.

The report is now available. For more information click here. To purchase the report, call (860) 676-9633 or email info@eastbridge.com.

The New Enrollers

Enrollers are a critical part of the voluntary industry. Independent enrollers work for multiple companies but at each individual location, they are often the face of the carrier to both the employer and the employees. Do you know what these important people think? If not, check out the newest Eastbridge Spotlight report, The New Enrollers: What You Need to Know. The report includes information on:

• How frequently enrollers work

• Who typically contracts the enroller

• What is the typical compensation approach

The report will be released soon and available for purchase for $2,000. Look for an email announcing its availability.

To pre-order the report, call us at (860) 676-9633.