Winter 2010 / No. 82

Strategic Advantage, Part I

Voluntary strategy, at its most fundamental level, is about achieving sustainable competitive advantage within targeted producer segments. To the degree a carrier can achieve this goal, it can drive its performance at will, or at least until the segment is fully captured.

Sustainable competitive advantage is about building walls around the target population to, first, take business from competitors and, ultimately, preclude competitors from choosing to do battle within that producer population.

Competitive advantage is the incorporation of differentiating features that are highly valued by your targets, within the value proposition offered to your producers. Whether that feature is product range, product design, enrollment tools, or sales support depends on three characteristics of the feature.

First, it needs to offer the targeted producers a meaningful business advantage in their world. In other words, the more competitive you can make them, the more competitive you will be. Carriers need to understand the customers their targets are pursuing and ask, “What do these customers need and want that we can supply?”

Second, the feature needs to be relatively scarce. Copying a service or product already common in the market may eliminate barriers to selling your products, but it does not offer competitive advantage. “What do our target producers need to more effectively meet their customers’ needs?”

Third, the feature should be sustainable. It should possess qualities that are hard to copy due to specialized expertise, cost, or time to develop. Most sustainable advantages involve some combination of brand, technology, and people. “Why are we uniquely positioned to offer this feature?”

Of the three, “people” is probably the hardest for competitors to replicate, whether it is comprehensive sales support, enrollment support, or customer service. Superior field and home office staff create high barriers for competitors.

As a part of annual planning, carriers should review their value proposition in detail and answer these fundamental strategy questions:

• What are all of the elements that are offered to targets?
• Which ones offer us sustainable competitive advantage?
• How do we improve on the ability of those features to preclude competitors?
• How do we add new ones?

A Rose by Any Other Name

Sustainable competitive advantage is what every carrier is after (or should be after) when developing their voluntary business strategy. One area in which many carriers often differentiate is on product. These carriers often look at competitors’ products and then decide to improve on their existing products. The typical approach is to use one or more of the following levers:

• Add some bells and whistles to the product
• Change the underwriting
• Increase the commissions
• Reduce the pricing

But the results are often unsuccessful at achieving any true competitive advantage. Why is this?

First, the tendency is to add bells or whistles that really don’t have that much to do with the product. In other words, the product benefits or features added aren’t ones that people really care that much about. We saw this a lot in the early days of critical illness where carriers were adding more and more covered conditions that did not enhance the product. After all, how many people actually get Mad Cow disease?

Second, changing the underwriting may give you some short-term competitive advantage if you are liberalizing the “common” practices. But these advantages are typically very short-lived as brokers make sure that every carrier knows about the more liberal guidelines and pushes for everyone to ante up.

The third enhancement, increasing the commissions, is also short-term. We’ve seen the tendency of commissions to trend up when carriers are trying to compete based on this.

Lastly, pricing is the most dangerous approach unless there is a true reason for the pricing advantage. Too often the price reduction ends up being unsustainable or, again, something everyone copies.

The real problem with using any of these is that they are not really product differentiators. After all, a cancer plan with a new feature or an accident plan with benefits packaged as riders instead of in the base plan are still just an accident plan or just a cancer plan or just a whatever. (A rose by any other name.....)

True product differentiation usually comes about through either meeting a need not met generally or by meeting an established need in an entirely new way. In our consulting work, we see very few carriers taking a risk and truly differentiating. It’s understandable because a new product or approach often has a long period before sales are significant. And the newer the product/approach, the longer the lead time required. Brokers have to change their behaviors, and we know that’s difficult to do.

But there are opportunities out there to differentiate with product. Just be sure you’re building in the education and promotions needed to be successful. If you can’t commit to that and are only going to tweak an existing product, then don’t fool yourself into thinking that another disability plan with slightly different features or pricing is going to give you sustainable competitive advantage.

For information on how Eastbridge can help you develop true competitive advantage, give us a call.

Strategic Advantage, Part II

It’s all about sales. So anything that increases sales is good. Right? Maybe.

One of your staff brings you a new opportunity, well thought out, and including all of your required components. The opportunity is described, the costs are defined, and the payback calculated as per your process. It meets your hurdle requirements and budget parameters, and your team believes the projections and analysis are realistic. Sales will increase.

But the most important criteria have not yet been addressed. You have a well thought out strategy with value propositions you believe can be built out to give you a sustainable competitive advantage. Before looking at new opportunities, ask two more questions.

Does the opportunity drain resources (time, manpower or money) from advancing the core competitive advantages of your current strategy? You gain far more leverage by being dominant in your chosen segment than by being pretty good in two segments. Is this opportunity, in fact, a trade off?

Does this opportunity create confusion about your strategy? Are you risking sending mixed signals to your producers or even to your staff?

There’s nothing inherently wrong with having multiple targets, or even multiple strategies. But if your real criterion is the pursuit of sales regardless of strategy, you risk falling into the trap of being the carrier who does a lot of deals, and does some of them pretty well. You are better off doing a few less things, in a coherent, integrated manner, and doing each one excellently.

For more information on tapping your company’s strategic advantage, contact an Eastbridge consultant today!

The Small Case Market

An increasing number of carriers are eyeing the under-fifty-life market with envy. It’s vast, under-penetrated, with relatively short sales cycles, little customization, and less competition. Sounds great.

The difficulty is finding producers who focus on that market. Two types dominate the space: the property and casualty producer and the small-case medical broker. Both have been difficult to attract to our business. Each is financially dependent on providing one key product line to a significant number of small cases, typically in a limited geographic area. Reputation, referrals, and high rates of repeat (continuing) business are vital to survival. The risks of adding a new, confusing and potentially dangerous line of business often outweigh the possible rewards.

Traditional voluntary carriers often treat these producers in the same way as their mainstream voluntary brokers, with bleak results. But there is renewed interest in this segment, and new carriers are bringing a new attitude to the challenge. Those new carriers include some traditional players, but the majority are the medical companies, seeking to piggyback on the relationships they already have with small-case medical brokers. There are several keys to working with these producers.

The first key is to recognize the unique perspective and concerns of these brokers. They have legitimate anxiety about voluntary coverages and their concerns must be addressed.

Second is to appreciate that these producers already have done the most difficult part of the job. They have built strong, trusted relationships with the people who make decisions about adding new benefits. For now, that’s enough. They will become more comfortable and confident with our products, but for the near future, we have to meet them where they are.

So the third key is to build processes and systems that take over the process from that point of introduction, and also provide a flow of reassurances and information during the process.

This third key means that, compared with other segments, the small case producer is probably more expensive to serve. And that means that we need to streamline, automate, and standardize our model to the degree possible. The remaining increased cost is spread over the far larger population of producers and cases. The potential rewards for carriers are tremendous.

For more information on the small case market, contact Eastbridge at 860-676-9633 or email info@eastbridge.com.

Are You Tweeting Yet?

Does your company use social networking sites to connect with brokers and/or customers? If so, you are among the relatively small percentage who do. Eastbridge recently conducted a Frontline survey on the use of social networking sites by voluntary players.

As a group, only about one-quarter of those in the voluntary market (brokers, carriers, and others) say they currently use a social networking site. For those that do, Twitter and Facebook are most often utilized. In addition to those already using these sites, nearly half of all the survey respondents are considering one in the near future (with 64 percent of those expecting to in the next 12 months).

Most of those using social networking sites do so to promote their name and to attract new brokers and customers. Some also provide information or promote products and/or use the site to communicate with their brokers (70% of the respondents’ sites target current brokers). Only 30 percent of the respondents target employees with their social networking sites.

In terms of effectiveness, the majority (83 percent) believe that social networking sites do an average job of communicating with their target audience. Just 42 percent, however, said that their sites are effective in marketing the company’s brand and products, with 58 percent rating it “below average” for this category. No respondent ranked the effectiveness of these sites as above average.

Other interesting survey findings include:

• Most companies measure the success of their social networking sites by tracking site visits, messages, and the total number of followers or friends.
• Seventeen (17) percent of those currently using these sites admit that they do not really have a method for judging the performance of the site.
• Most companies using social networking sites have current employees monitor activity and comments posted on the site. The largest percentage, 58 percent, said the employee typically has marketing experience.
• Only eight (8) percent use an outside specialist to monitor the site.
• Seventeen (17) percent admit that they are currently doing little to no monitoring.

The study, Social Networking Websites and Voluntary Companies, is an Eastbridge Frontline Report. Frontline Reports provide timely data on hot or new topics. This report explores the use of social networking sites as a means for marketing and brand promotion in the voluntary market. Copies of the reports are only available to participants and Eastbridge Information Partner companies.

For information on how you can become an Information Partner, check out the article in this issue of Outside Input or give us a call.

Let’s Buy a Voluntary Insurance Company

Looking in from the outside, acquisition often looks very appealing. Assuming a strategic rather than a purely financial transaction, you get an ongoing business, resident expertise, and the ability to leverage your resources. Immediately!

Then why aren’t there more examples of very successful acquisitions? Think about the last three significant acquisitions and look at what has happened. By and large, either the result has been to diminish the acquired company’s effectiveness, or the two companies have wound up just about where they were before the transaction. The key to avoiding these fates is to begin the M&A process with two fundamental questions.

What do we want to buy and why?

This requires an in-depth understanding of the industry as well as the target company’s strengths and weaknesses. We need to be able to define the resources we lack that our strategy requires. At least fifty percent of the time, that simple question demonstrates that acquiring an existing, successful voluntary carrier is an inefficient way to reach our goal.

What are we going to do with it afterwards?

This is the tougher part, because it’s difficult to be realistic about our ability to change the behaviors and habits of other people. “If we had this capability, our producers would jump on the voluntary bandwagon!” Rarely true. People change for a basic reason. They are convinced that the rewards for changing will exceed their current rewards and the penalties for not changing are real and imminent. No acquisition automatically brings those characteristics.

Start with the right questions and you can avoid a costly mistake.

Don’t Go Through 2010 Blind

Information is a critical part of all businesses. As the old adage goes, knowledge is power. Information and knowledge are what you get when you are an Eastbridge Information Partner.

Partner companies have access to all Eastbridge published reports and automatically receive 12-15 (or more) new reports each year. These reports help provide valuable information and competitive intelligence to our clients – information from other carriers, brokers, plan administrators/benefit managers, and employees. Our clients use the information to make informed decisions about their products, marketing efforts, strategies, and more.

Few people would buy stock or make a financial investment without doing research on the soundness of the company or investment. But every day we see companies making decisions about their voluntary business without compiling any research or with only limited input. If you want to make more informed decisions, strongly consider joining our growing list of Information Partners.

Information Partners pay a flat annual fee plus a one-time entry fee in the first year. Program years run from January 1 through December 31 and are not prorated for late entrants. Partners also receive the following:

• A free copy of every Spotlight Report and Frontline Report published during that program year
• The right to order a free copy of any previously published Spotlight Report offered for sale on our web site
• A 20% discount on fees for any consortium study the Information Partner chooses to join
• Access to experts via discussions with Eastbridge consultants about the findings and their implications (within reason)
• An annual State of the Industry presentation, upon request, by Eastbridge consultants (for expenses only)

So act today—and get the information you need.

For more information or to sign up as an Information Partner, give us a call at (860) 676-9633 or email us at info@eastbridge.com.

Enrollment Practices

Enrollments will be the competitive battleground of the future. This is the position that Eastbridge has taken for the past 3-5 years, and we believe it even more today. Enrollments have become so complex for the employee that everyone—the employee, employer, and broker—is looking for a better method. But are companies looking at ways to improve their enrollment process? Have they altered their approach? What methods are they using today?

The answers to these and other questions can be found in our latest Spotlight Report, Enrollment Practices for Voluntary Products. The report covers the practices of 22 carriers. Topics covered include:

• Methods of enrollment
• Frequency of use of different methods
• Enrollment management
• Laptop, website and call center enrollments
• Enroller practices

The report is available for purchase for $2,500. For a complete table of contents for the report, click on the report link on our website.

To order the report, call us or email us at info@eastbridge.com

Is the Worksite Business “Recession Proof”?

For many years, those of us in the industry have seen the worksite/voluntary market weather economic downturns with little or no impact. Recently, however, some are beginning to wonder if the industry’s reputation as “recession proof” will hold up in the worst recession since the 1920s crash.

In 2008, sales increased at a rate of 3.7 percent over 2007. Experts now tell us that we were well into the current recession at that point. This sales increase was lower than what we saw in 2006 and 2007 but higher than 2003, 2004, and 2005.

We don’t have the results yet for 2009, but based on a survey we conducted going into the fourth quarter, we are not counting the industry out. Of the 14 companies responding (which represent 64 percent of 2008 sales):

• 6 companies have had sales increases over 2008, with an average increase of over 19 percent
• 2 companies have had flat sales as compared to 2008
• 6 companies have had decreases over 2008, with an average decrease of 16 percent (although this is heavily influenced by one company whose results are not related to any current economic downturn; without this company, the average decrease is 9 percent)

Using the data provided by these companies, Eastbridge estimates that the industry has realized (at this point) about a 2 percent decrease in sales compared to the 2008 levels. However, since a disproportionate amount of business is written in the fourth quarter, we believe that severe losses among most companies will be rare and that we will end 2009 flat or perhaps with a small increase.

Eastbridge will be conducting our annual sales survey beginning in January. If your company is an insurance carrier and you have not participated in the survey in the past but would like to be included for 2009, please contact Bonnie Brazzell at (803) 738-1236 or at bbrazzell@eastbridge.com. Participation is free and only participants can receive a copy of the report on findings.

A Moving Target

For all successful voluntary carriers, meeting the needs of their brokers is job one. They study their brokers, define their needs, and then build a business model that embodies the appropriate value proposition. The model becomes fixed and the company focuses on getting better and better at executing it.

But for most, there is a long-term danger in an approach that stops there. For the majority of producers, including all types of Employee Benefit Brokers, that target is moving. Eastbridge research has demonstrated that, while there are important differences within sub-segments, these producers are learning the business and becoming more comfortable with voluntary and its importance in a benefit program. As they do, their ability to take on more of the selling and servicing responsibility, and their demands for quality products and services, are changing.

A fixed business model is one that will eventually become ineffective. Carriers need to constantly study their targeted producer segments and adjust the value proposition they offer. Today’s advantages may be irrelevant tomorrow.

Contact one of our Eastbridge consultants to learn more about targeting the right producers for your business.