Since about 1974, I have sold both individual and group voluntary products and think I can present a reasonably unbiased view of the pros and cons of both.
Assuming the basic benefits of the group and the individual product are the same, the key factor in differentiating selling individual vs. group voluntary products is flexibility.
Below is a quick reference chart to show what the differences are in flexibility between group and individual products.
For purposes of this article, an individual voluntary benefit product is typically guaranteed renewable. Group products are generally more flexible from a sales standpoint than guaranteed renewable products.
Let’s examine each item on which the flexibility advantages are most apparent.
Pricing. Group products generally are filed with the state in a manner that will allow the underwriting company to quote a variable rate at its discretion, based on whether the risk is substandard or better.
Individual guaranteed renewable product rates and premiums often are filed and fixed with each state and cannot be changed easily to meet a special type of risk. Changing a premium on a guaranteed renewable individual product often means the carrier will have to refile the product with the adjusted rates. This limits a carrier’s and producer’s flexibility. This is important for products that often are spreadsheeted and price-sensitive, such as short-term disability, long-term disability, critical illness, vision, dental, accident, term life and hospital-medical supplements.
Since price sensitivity could mean the difference in closing a case or not, this is likely a group product’s biggest advantage over an identical guaranteed renewable product.
Benefits. Often, an employer-HR manager is looking for a special feature or a slight variation in a product for employees. A good example would be where the HR manager wants an STD product with a 10-day elimination period and a four-month benefit to align with the company’s paid time off and sick leave plan. This can be accommodated and priced easily with the group product, whereas the individual product may require refiling.
Underwriting. We all have run into prospective groups that are borderline risks. Underwriters are generally more aggressive in rating these risks if the product is a group rather than an individual product. The reason is that if an underwriter is too aggressive in pricing a guaranteed renewable-type product and the loss ratios are worse than expected, the only options available to the carrier may be to cancel the payroll deduction, accept the losses, or appeal to the states involved for rate increase approval for all of these type policies.
Guaranteed issue or conditional guaranteed issue is more frequently offered with a group product than with an individual product for these same reasons. With a group product, the carrier simply can increase that group’s rates without increasing any other similar groups or insureds’ coverages if the losses are unacceptable.
Takeover. I often have seen cases taken over using a single group application for a group product, whereas an individual product likely may require each insured employee to complete a new application.
Generally, takeover business is simpler using a group vs. an individual product. In addition to the one-app advantage, all the other areas of flexibility can make a takeover possible with group, whereas it might be difficult to impossible with an individual-type product.
General Commissions. Often, large employer group competition can be fierce. Having the ability to reduce premiums via reduced commissions can mean the difference between closing and losing the case.
Lowering commissions to lower premiums is a common group approach. Levelized or heaped commissions are also usually a snap with a group product. Levelizing individual product commissions, however, is much more of a challenge.
Renewal Underwriting. At renewal, a company can be much more flexible with group products. For example, if an individual product sold to an employer group is underperforming in sales and an individual product is involved, the company’s options are limited, short of canceling the payroll deduction and letting the employees pay individually.
With a group product, on the other hand, the carrier has many other options. It may need to increase rates for this particular group, or it can reduce commissions. The company also can tweak the benefits to reflect the risk.
Benefit Broker Acceptability. The voluntary benefit industry has for years struggled to get group benefit brokers to sell more of its products. Much of the resistance is reluctance to try something different. Many of these benefit brokers have looked at our products, our underwriting, commissions, and so on and have concluded that our products are too tough to qualify for, too rich in commissions, too laborious to enroll and to complex to explain.
I think voluntary benefits marketers would be wise to make their products and procedures more closely resemble what the benefit broker is accustomed to. Level commissions, guaranteed issue (with X participation required), no commission advances and no convention are all items that can make a product shine on the benefit broker’s spreadsheet and be easily understood and appreciated. Group products are what they know and therefore are what the voluntary benefits industry needs to offer. Guaranteed renewable individual products are foreign to the typical benefits broker.
Portability. Portability is generally the biggest advantage cited for individual guaranteed renewable products. No doubt this would give an insured an advantage. Offsetting this, however, it has been my experience that, overall, less than 10% of employees who have a portable individual product ever opt actually to port it.
I know there are companies and agents who have had much better results, but barring a good conservation effort, the insureds who retain their individual products when they leave a sponsoring group are the ones most likely to file claims (especially on accident and health products).
Carriers must price individual product to reflect the insureds who will keep their coverage. If less than 10% keep the portable product, this means little to most employees, even though it is a distinct advantage for individual products. Additionally, more group carriers are making provisions for limited portability or continuation.
Renewability. This feature generally guarantees the insured the right to continue the policy as long as premiums are paid. This is a distinct advantage in theory, but in reality, much like the portability feature, renewability is apparently not that important to 90% or more of employees. Again barring a solid conservation effort, the only ones who hold on to their guaranteed renewable products are the ones who have had a claim or plan to make one.
Minimum Group Size. Individual products generally have a much lower minimum group size than group products. This is due to various state group insurance laws. Often, the minimum size by group law is five or 10 lives, whereas the individual product’s minimum group size can be as low as one. This is a big advantage in the small case market. Minimum group size may be both a small employer’s and producer’s only choice when dealing with small (25 lives and under) groups and therefore has a big advantage over the group type of product.
In general, group products can be more easily customized, more aggressively underwritten and more cheaply priced than individual products. As a result of these factors, a salesperson may find it easier to sell group products to groups that have more than 25 eligible employees. Often, an individual product will cost from 10% to 50% more than a similar group product. It has been my experience that most rank-and-file employees would prefer to buy the same general coverage for substantially less premium and lose the portability and guaranteed renewability. Additionally, employers often prefer the “golden handcuffs” aspect of non-portable products to help them attract and retain quality employees.
Getting the employer group as a client and giving the employee more coverage for the same or less cost is often more important than offering a guaranteed renewable and portable product that perhaps only 10% or fewer participants appreciate and desire.
However, the minimum case size of individual products will often dictate that the producer has to use these products with smaller groups.
I feel, therefore, that group products will likely become more the norm in the future for groups with over 25 lives. Our business is unique in that we have to sell the employer on our products, and then we have to sell each individual employee who makes up the group. Whether we sell an individual product or a group product, there is no question they both have a place in our industry.