Worksite Competition Gets More Intense New entrants and changing distribution patterns heat up market
By Gil Lowerre and Bonnie BrazzelL
Change is constant in the worksite marketand thats probably a good thing.
Were seeing more group companies making a serious effort to penetrate this market and fewer differences between group and individual plans. Were also noticing brokers selling a broader array of voluntary products. Product competition is increasing (which is beginning to threaten profitability), and the old-timers that first entered the market years ago are being forced to rethink their strategy.
More group carriers are coming into the market, and many of those that have had voluntary programs are getting more serious about pursuing that line of business. Many are putting more emphasis on voluntary products and encouraging, or even requiring, their sales reps to sell voluntary products in addition to the core plans.
In our recent study, “The Future of Worksite Marketing: An Executive Perspective,” worksite executives said they anticipate seeing large group companies and medical insurance carriers begin to dominate the middle and large voluntary markets. We already are seeing large group companies making investments in their voluntary programs, and there is increased interest from the medical side of the house.
Meanwhile, more “traditional” worksite carriers are moving products to a group platform. These companies cite ease of filing and pricing as key reasons for making this change. In fact, today, much of the growth in the market is coming from group products and, for the last few years, sales of group products have outpaced individual products significantly.
We expect this trend toward group products to continue and for both types of products to evolve and develop similar characteristics. In fact, in the not-so-distant future it will be more difficult to tell (without examining the actual contract) whether a plan is group or individual: Either type of product may have shelf rates or be portable, and the carrier will set up individual records on employees who buy.
Another trend is that more brokers who once sold only traditional employee benefits also are selling voluntary these days. Employee benefits brokers are seeing that they must include voluntary as an option as employers are forced to look for alternatives to control their overall benefit costs.
In fact, according to our study, most worksite executives believe much of the industrys growth will come from these “new” producers entering the market. They expect continued emphasis by employee benefits brokers on selling voluntary products and expect to see many more medical brokers tapping into the market.
But attracting quality brokers is no easy task, according to worksite executives. We are hearing companies of all sizes say the competition for brokers is intensifying, which also adds to the profitability dilemma. Indeed, most in the industry acknowledge that the pool of experienced worksite-voluntary brokers is not growing quickly enough and that new distribution is needed. And executives recognize that growing new distribution is expensive and difficult.
As competition for brokers intensifies, so does the competition for new and better products. Carriers in years past were concerned about irrational pricing by new, inexperienced entrants. Although this still concerns executives, they are more uneasy about the impact product competition is having on profitability.
Carriers also are paying more attention to product quality. Gone are the days when any product would sell in the worksite arena. With more carriers in the market, carriers must pay closer attention to the competitiveness of their products. When they are not able to manufacture a quality product that their producersand customersneed, more carriers are looking at joint ventures. They are looking to partner with a provider that has a solid reputation in the market for the products they need.
Like last year, worksite executives say the biggest obstacle facing their company is the ability to write profitable business. Over 60% of the executives interviewed said this was one of their most formidable obstacles, especially given the level of competition in the market. For years, the industry counted sales as the primary (or even only) measure of success. But thats changing. Executives are concerned that carriers are cutting their margins and compromising their pricing daily in search of increased sales.
But these executives still believe there is too much irrational pricing in the market. In addition, they claim that employers and brokers are pushing them to eliminate or reduce traditional risk management tools such as guaranteed issue limits, enrollment period limits and medical underwriting on voluntary in order to simplify the plan designs and communications. All this is seen as a real threat to profitability.