During an open enrollment meeting conducted last year on behalf of a client, one of our advisers began talking about the value of accident insurance to supplement the employer’s high deductible health insurance. Unprompted, one participant’s hand shot into the air. Her arm was encased in a cast. The adviser acknowledged her, and she enthusiastically explained how a policy she’d purchased through the company paid all of her injury-related expenses. Without it, she would have had to come up with the money herself.
“Buy the accident insurance,” she urged her co-workers. “It’s worth it.” The group—which totaled more than 100 employees—had 100 percent participation.
While we are delighted when serendipity delivers an unexpected boost to the sales process, here’s an even more startling statistic. This same consultant—Eric Haglund, a principal in Digital Benefit Advisors’ Atlanta office—enrolls 75 percent of employees in this voluntary benefit when no broken-limbed employees are present to illustrate his point. In addition, about half sign up for the critical illness insurance he now offers. Although Haglund has been selling health insurance for 24 years, he only began selling these additional policies in 2010. His success is indicative of a huge shift occurring as voluntary benefits evolve and become mainstream.
Check out "Top 100 sales and marketing ideas"
Once upon a time, voluntary benefits were the Rodney Dangerfield of the insurance industry: They got little, if no, respect. But suddenly, this neglected niche has achieved a trifecta of appeal: Brokers, employers and employees all want them. Because this is new territory for many of us, it’s crucial to explore how we reached the current state of affairs, identify areas for improvement to overcome sales objections, and explore how to create better, more meaningful products. We’ll also take a look at commission structures, examine opportunities for growth and even share advice from our own top producers.
Room for improvement
Let’s begin with a candid look at the compensation structure of many voluntary benefits. On the surface, commissions appear to be out of kilter. An accident policy that pays a 60 percent commission up front (dropping to 10 percent in subsequent years) seems unfathomable when compared to the 3- to 7 percent health plans pay today. There’s a good reason for these lopsided ratios, however, because the enrollment process is tremendously expensive.
It’s not unusual to offer employers multiple onsite group sessions, followed by individual meetings with each employee. And much of the remuneration disappears when agencies pay up to 80 percent of their compensation to outside enrollment firms. To eliminate misunderstanding, carriers might consider new terminology that distinguishes commissions from enrollment expenses. Semantics aside, there is a bigger issue to address and, frankly, not much is said aloud about the topic.
Until recently, the design of many voluntary products made it difficult for individuals to receive commensurate value for the premium they paid. The underwriting process eliminated those with a higher propensity for claims from obtaining coverage, and the product design made the claims process confusing and clumsy. Those dynamics are changing. Rapidly.
Changing market forces
In the past, many voluntary benefits were sold directly by the carrier to the employee. There were few intermediaries to compare plans from a variety of insurers or to help discern what type of coverage dovetailed with the health plan offered by an employer. Other factors also were at play. Health insurance was less expensive, and deductibles were lower. Higher-compensated employees often were able to self-fund unexpected medical expenses, and voluntary benefits were primarily the province of the working class and underinsured who wanted to protect themselves from financial ruin if a health crisis occurred.
Numerous forces recently have coalesced, completely changing the marketplace. The cost of health insurance has skyrocketed, and the economy tanked. Businesses reduced benefits, raised deductibles and out-of-pocket limits, and dropped certain coverage altogether.
Costs shifted from employers to employees. Suddenly huge gaps exist, and the average family can no longer afford to pay out-of-pockets, particularly if the policyholder can no longer work. Today, supplemental plans—such as accident and critical illness—as well as gap plans, disability and life insurance have more relevance than ever before.
Time for new nomenclature
With the increase in financial exposure created by medical plan design changes, employees are demanding more choice in their benefit plan options.
Employers now see the value in providing a combination of coverage—particularly when there is no cost to them, or if they can fund policies for a reasonable sum. In fact, while many companies continue to reduce health benefits, an increasing number are paying for additional forms of coverage. Which brings us to an interesting discussion point. In this changing environment, the term “voluntary” serves no one well. Our own firm has switched to “integrated benefits,” which better describes a holistic approach—and helps justify our role in the process.
With managed loss ratios and other changes dictated by health care reform, there will be less room for creativity in the design of future health plans. As medical insurance becomes a commodity, brokers and employers will have to differentiate their offerings based on their ability to deliver a benefits portfolio that artfully incorporates other lines of coverage. With “integrated benefits,” the positioning is strategic and comprehensive, not optional—as “voluntary” implies.
Creating better products
Like us, other agencies may discover a hidden advantage as they sell more of these policies. We currently have the leverage to motivate carriers to design exclusive plans for our clients.
For example, we offer guaranteed issue on disability, life, critical illness and accidental injury policies for small- and medium-sized employers. In addition to no underwriting, we’ve found ways to further extend rate guarantees and add benefits to the plans. For example, many of our integrated plans now offer a benefit that rewards the insured for obtaining certain wellness-related exams.
And as we further employ technology to enhance the efficiency of our enrollment process, we could reduce up-front commissions and transform those savings into additional coverage for employers or a new suite of benefits products. Powerful changes like these help evolve our industry, creating a marketplace where everyone wins.
Enrollment: Grab the reins
Make no mistake; it’s time-consuming to communicate and market benefits. Health plans alone have become more complex. Add other policies to the mix, and brokers have their hands full. Yet a new source of revenue and market demand create indisputable allure to ancillary and voluntary coverage.
Many agencies are turning to outside firms to handle the enrollment process. Yet as these benefits gain popularity, some are trying other methods to retain a greater share of the revenue and maintain control of the process. Rather than outsource to a third-party company, Jeff Schneiderman, principal, Digital Benefit Advisors, is experimenting with a new approach. His St. Louis-based agency hires and trains qualified temporary workers and pays their salary and expenses at per diem rates while they are onsite with clients. In essence, his agency becomes the enrollment firm. There’s a huge payoff with this strategy, which he illustrates using a recent example.
“We had a case with the potential to generate $100,000 in commissions,” Schneiderman says. “If our firm had hired an outside company, they would have received about 70 percent of that. By recruiting and training our own representatives, it only cost us $22,000. Essentially, we reversed the traditional equation, retaining about 80 percent of the compensation.”
For others considering this practice, he offers the following tips:
- Assign a staff member the responsibility to coordinate the enrollment process and training. (Activities in Schneiderman’s office are managed by a senior account manager, who formerly worked as an enroller for a health insurance carrier.)
- Because enrollment engagements typically are set up at least three months in advance, use that period to hire and prepare workers.
- Schneiderman has developed a list of qualified reps, but he suggests working with a staffing firm to recruit temporary workers if you don’t have access to such resources.
- His representatives must be licensed to sell health, life and accident insurance, and some carriers require that each individual is covered by an errors and omissions policy that generally costs about $300 annually.
- Qualities to seek: Prospects who are very organized and conversational. “We find the best representatives are retired client services representatives or former school teachers.”
Educate vs. sell
Whether using an outside firm or hiring his own representatives, Schneiderman has one rule he never breaks. When using outside enrollers, “we never use commissioned representatives. Ever.” For him, it’s a philosophical issue with ethical overtones that can damage cherished relationships.
“We want to use these encounters to educate employees—not sell them,” he explains. “Commissions create pressure. When employees feel pushed into signing up for benefits, ultimately, they become upset, as does their HR department. That’s bad for business.”
Regardless of what approach you take, technology can enhance the process and reduce the time involved for enrollment. While employee benefits still is a very personal business, there is an entire generation of workers—millennials—who grew up with computers. These young adults live and breathe digital communications. In fact, they can be rather suspicious of processes that don’t involve technology. Face-to-face encounters still have their place, but the benefits industry is reaching beyond them. One-day, webinars, social media, online videos, mobile apps and texting may replace annual enrollment meetings; meanwhile, electronic brochures, email, online newsletters and websites may go a long way to help educate and sign up participants.
While our agency has seen phenomenal demand for supplemental health insurance and gap plans, the next wave of growth could be in disability and life insurance—areas where many financial advisers say Americans are underinsured. According to LIMRA, 30 percent of U.S. households have no life insurance. The same study also indicates that the only life insurance for one in four households is provided by employers. These are all-time-high numbers. In addition, eight in 10 U.S. households report they don’t have a life insurance adviser or know where to find one, and even affluent households, with more than $100,000 in annual income, say they lack sufficient life insurance.
The one-two punch
Integrated benefits have one more distinction: It’s necessary to sell to two targets. First, you must sell the employer; then you must sell the employee. Agents are developing a variety of approaches, but it helps to work with clients who see the advantage of a strategic partnership.
Haglund bundles his presentation in an appealing format once he gains an audience with employees. “In virtually all cases,” he says, “I do not market less than seven lines of coverage.” At employee meetings, he starts with health coverage, followed by accident, critical illness, then everything else. Apparently, it’s a technique that works. Haglund is our company’s top integrated benefits producer.
Wayne Mertel is vice president of integrated benefits for Digital Insurance.