Group Brokers Challenged, But Optimistic
How are group benefits brokers reacting to the strong, and often conflicting, pressures on them in their huge market?
Actually, theyre doing pretty well, handling challenges in stride and feeling optimistic about their future role, to judge from their responses to the first online survey into the practices of group employee benefit brokers by National Underwriter and JHA Inc., a Portland, Maine-based disability risk management, consulting and market research firm.
Nearly 500 brokers participated in this survey, which had questions on the insurance quoting process, the importance of client services and relationships, compensation structures, and future goals.
Drew King, president of JHA, says the response shows that brokers “are clearly interested in what their colleagues have to say about the group benefit market.”
The majority of brokers in the survey reported actively selling group medical, life, dental, and disability products. Less than half sell long-term care products.
Nearly 70% of participants say they target companies with fewer than 100 employees, while about 20% target companies with 101-500 employees and 10% target firms with over 500 employees.
Close to 80% of the brokers in the survey indicated they work for an independent brokerage firm.
Respondents were diverse in the amount of business and products sold. Over 40% reported having one to 25 inforce cases per group insurance product, while nearly 60% had 26 or more cases in-force per product.
Over 60% of participants reported having more than 15 years experience selling most employee benefit products.
One of the aims of the survey was to gain a better understanding of brokers key considerations in the insurance quoting process. According to the results, the two main factors that cause brokers to take an in-force clients business out to bid are: the in-force carrier requesting a rate increase and the in-force carrier providing poor customer service.
On average, about 40% of the brokers said a 10%-14% rate increase would cause them to take their clients business out to bid. There was some difference here by product line. The survey showed that for LTC, life and vision, brokers were a little more sensitive to smaller rate increases. However, for medical insurance, they indicated a higher rate increase, 15% or more, would cause them to take the case out to bid.
Commenting on this, JHAs King says, “Given current market conditions, its not surprising that healthcare would have a higher rate increase threshold than other group products, especially for smaller employers.”
When choosing a finalist insurance carrier, a majority of brokers said plan design and underwriting flexibility, as well as the carriers service reputation were very important factors. Availability of product features, the financial rating and security of the carrier, and ease of policyholder administration were close behind.
Interestingly, only 29% of the brokers indicated that having the lowest rate was very important in getting the business, which is somewhat contrary to statements that rate increases are a leading cause of rebidding by brokers.
Participants were asked about the services they offer to customers and receive from carriers. Over three-quarters, 76%, indicated their clients are requesting enrollment support from them as a value-added service.
Other value-added services most commonly requested include personal meetings with employees to review benefits (65%) and analysis of benefit portfolio for cost/benefit savings (62%).
While participating brokers appear to be in agreement regarding the types of services their clients ask them for, their opinions vary on the importance of services offered to brokers by carriers. The survey results show brokers put the greatest importance on the carrier assigning customer service representatives, with 58% stating this is very important. Regular market and product updates, and availability of on-line communications were tied for second with about 45% of the brokers saying these are very important.
According to survey results and consistent with prior research conducted by JHA, participating brokers are interested in product training. Almost 70% indicated they would like carriers to offer more contract and benefit provision training for group products as well as offer legislative updates.
Over 50% of participants indicated their commissions have been reduced over the last year. When asked how satisfied brokers are with their current compensation structure, less than 15% said they were very satisfied and 64% indicated they were only somewhat satisfied.
Broker commissions continue to be paid on either a graded schedule or as a flat fee. For group disability and life products, there was a fairly even split between the kind of compensation brokers are receiving. About 55% of the brokers indicated they are receiving a flat commission percentage while about 42% are receiving a graded commission percentage.
For dental and medical, approximately 65% of brokers receive a flat commission percentage, and for LTC and vision, approximately 70% receive a flat commission percentage.
When asked about their future plans for differentiating the products and services they offer, 70% of participants said they will be making technology advancements to grow their business over the next 12 months.
Participating brokers also view the voluntary/worksite market as a growth opportunity. In addition, brokers plan to add LTC and retirement products to their portfolio.
A majority of brokers feel they can create a niche by focusing on customer service and offering unique services not offered by competitors.
When asked what they feel are the biggest challenges to the employee benefit marketplace, an overwhelming majority of the brokers, 90%, cited increases in medical premiums.
The shifting of costs of coverage to employees by employers was the next most commonly cited concern, with almost 60% indicating this is a challenge.
Overall, 50% or more of the participants felt that employee benefit products will continue to grow in popularity in the future. Most notably, LTC, retirement and life insurance generated the highest percentage, 80% or more, of brokers expecting the product to grow.
About 75% of the brokers surveyed said they feel their role as a group producer will become more important over the next five years. As brokers continue to be the primary distribution channel for group insurance products, JHAs King believes their feedback and insights into the employee benefits market is important to the carriers selling products in this market as well as to the employers who purchase them.
“Given the complexity of employee benefit products, increases in program costs, and the movement toward defined contribution programs, we believe it is very important to solicit and listen to opinions and input from our primary distribution channel,” King says.
Marcy Updike is director of market research at JHA Inc. For further information on the survey she can be reached at Mupdike@jhaweb.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 29, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.