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Worksite Competition Gets More Intense

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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.

When asked about the profitability of various voluntary products, the executives listed the following ones as most profitable (as measured by the percentage of carriers indicating the product is “very profitable”):


Hospital supplement-medigap-supplemental medical

Universal or whole life

Term life.

Today, were seeing a trend toward sales of products that help with health-related expenses. In 2003, life insurance accounted for the largest share of sales, but the product lines with the highest growth in 2003 were hospital indemnity-medical supplement plans and long-term disability. Universal-whole life came in third.

Other surveys have shown that the voluntary products most desired by employees include dental, vision, prescription drug, long term care and long-term disability.

Carriers seem to agree with these trends (as shown in their responses to a survey last year). Ninety-seven percent said they are seeing more interest in medical-related products from employers and employees.

There is a good bit of turmoil in the industry, even among players who have been in the market for quite a while. Recently, a few companies have exited the market altogether, while others have increased their commitment and investment. Still others have merged, spun off or acquired worksite operations. Other players are reexamining their strategies and in a few cases, returning to their rootsthe strategies that served them well in the early days.

All of this points to the fact that this is still not a mature market; rather, it is a market continuing to evolve, full of opportunity and danger. We expect to see more changes, including more mergers and acquisitions in the coming months.

The voluntary business continues to change rapidly. New entrants, new forces, new consumer demands and changing distribution patterns all require executives to study constantly the market and trends and do their best to see ahead. More than in most businesses, those who lose focus in the voluntary world will get left behind.

Gil Lowerre is president and Bonnie Brazzell is vice president of Eastbridge Consulting Group Inc., a consulting firm in Avon, Conn., serving the financial services industry. Both Gil and Bonnie can be reached at [email protected].

Reproduced from National Underwriter Edition, March 25, 2005. Copyright 2005 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.


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