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The voluntary benefits industry has a client retention problem. The Bureau of Labor Statistics reported in 2020 that the average tenure for an employee is only 4.2 years. Over the course of their life, they will likely have to cobble together a wide variety of products from different providers to ensure they don't have any gaps in coverage.
As a result, benefits providers must contend with significant client turnover that is ultimately contingent upon the employees and employers they serve. This creates a perfect storm of unsatisfied participants and customer retention issues for providers. So, what can be done to address this? To fully understand the situation and find a solution, it's important to look past increasing employee mobility and investigate the nature of the products being offered to those employees.
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Traditionally, most benefits offerings have been reactive (think life insurance, health insurance etc.) and not proactive. While they certainly provide significant value, these products don't engage with people in the same way as a truly proactive offering that they can utilize on a weekly or monthly basis. When a customer goes through an open enrollment at their new job, they are presented with a variety of options that will mostly only be available to them for the duration of their tenure at that company. Consider that these benefits are oftentimes only useful to employees in the case of an emergency or negative event.
Because those solutions don't have legs outside of the workplace—or offer any significant value that they won't be able to get at their next career stop—people are unlikely to be fully engaged with what's being offered to them during an enrollment. This has far reaching consequences within the industry.
Another trend that voluntary benefits organizations should not ignore is the issue of commoditization. Benefits offerings are increasingly subject to the problem of being indistinguishable from their competition, which means that the only differentiator between two competing offerings could simply boil down to price.
One way to tackle these growing problems is to rethink the products being offered to employees to increase persistency. Benefits organizations need to be focused on providing their customers with consistent, portable, and meaningful services that make a difference in their life well outside of the workplace. In a 2018 Financial Analysts Briefing, AFLAC estimated that just a 2% increase in persistency would grow their earned premium by $55-$60 million.
Two areas that offer significant opportunity for innovation are retirement and financial wellness. MetLife found that in 2020, as many as 73% of employees expected to postpone their retirement due to their financial situation. With economic and financial disruption due to COVID-19 continuing into 2021, that number could be even higher today. This represents both a chance to make a difference in the lives of participants and a compelling growth opportunity for organizations looking to capitalize on this (shocking) trend.
The reason this offers such a large opportunity for benefits organizations is due in large part to what's happening in the financial advisory industry. Firms are running up against steep competition from innovative fin-techs that are providing comprehensive, digital client experiences. These firms are snapping up business left and right by providing participants with a lifetime benefit that is provider agnostic and portable. For the most part, this fits how consumers behave in other markets. People want brand loyalty and predictability. Particularly when it comes to their money.
There are three primary ways that companies are starting to access participants through the workplace:
- Acquisition – Acquiring certain companies and/or technologies to leverage their existing customer base. A great example of this strategy is Empower's recent acquisition of Personal Capital, a D2C fintech firm specializing in retirement planning and defined contribution account management.
- Realignment – Strategically realign existing divisions internally. For instance, they might move their retirement division under their voluntary benefits division to access a greater share of the financial wallet through the workplace.
- Strategic Partnerships – Choosing to partner with a specialized solution that doesn't require buying or building a recordkeeper or managed account firm is in many ways the best of both worlds. It allows access to the infrastructure required to quickly start generating revenue from defined contribution accounts without the tech lift.
The demand for financial wellness benefits continues to grow among employees. If offered a "financial advice benefit" at work, 84% of employees said they would consider it valuable. 1 in 2 said it would make them more likely to stay with their employer. The second data point alone makes this an attractive opportunity for voluntary benefits providers. They can offer a product with a long lifecycle that extends beyond the workplace while simultaneously increasing the lifespan of their other offerings.
Financial wellness is the number one benefit employers are looking to add in the next 1-2 years. Of those who currently offer a financial wellness benefit, 90% say it is one of the most impactful benefits to their employees.
Obviously, this is just the tip of the iceberg. Many benefits organizations will need to continue to innovate in the next decade to stay competitive in a business landscape that has shown increasing tendencies towards commoditization. Organizations that don't work to increase their persistency may continue to see their business models disrupted by smaller, scrappier startups focused on breaking that trend.
The companies that come out on top will be the ones who forge strategic partnerships that put them ahead of the curve.
Jay Jumper is the CEO of Future Capital, an investment firm founded to help Americans plan and invest for retirement. They partner with benefits providers and financial professionals to unlock access to client defined contribution accounts through a scalable, compliant platform that requires no recordkeeper integrations or plan sponsor relationships. For more information, please visit www.futurecapital.com.
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