1GUARDIANLIFE.COMAgency Survival“Post Reform Practice Strategiesfor Benefit Professionals”Michael A. MartocciVice President, Worksite Markets2013 Workplace Benefits Selling ConferenceApril 29, 2013
2Key Environmental Risks to the Voluntary Benefits BusinessGroup Voluntary Benefits business faces much external uncertainty in thewake of health care reformHealth carrier competitionIncreased focus on non-medical and bundling opportunitiesRegulatory uncertaintiesExchanges and Exchange role for non-medical productsEmployer disengagementReform to accelerate an ongoing trend; reducing total employer-based marketReduced broker influenceNew channels and changing compensation altering the distribution landscape1423
3Worksite Market TrendsRising Cost ofHealthcareBenefitsIncreased“Consumerism”(personalresponsibility)Widening gapbetween upperand middleincomemarketsLow PersonalSavings /Un-met needsEmployerDisengagementfrom traditionalBenefitprograms• Carriers and Distributors focusing on the worksiteas a marketplace for insurance sales has resultedin consistent growth of the segment over the past10+ years• This same increased focus on the worksitemarketing process has broken down many of theattributes that have separated historical businessmodels• Worksite Marketing is an efficient way to accessmiddle-market customers ($35K - $85K ofhousehold income)FewerTraditionalInsuranceAgents$BillionsWorksite Market Segment InsightsNew DistributionOutlets - Direct,Internet, Affinity,ExchangesWorksite Estimate
4Worksite Sales TrendsSource: Eastbridge U.S. Worksite/Voluntary Sales Report – Carrier Results for 2011 (April 2012)Total Worksite sales have shown consistent growth. However, Group products/carriers have fueledthe growth, while individual products/carriers have been flat or declining for the past five years.In particular, a single company comprises approximately 50% of Individual platform sales.
5Worksite Agents• Career Agents of AFLAC, Colonial and other traditionalworksite carriers.• Have seen significant market sales share contraction overthe past 5 years, from 29% to 23%Specialists• Generally not the retail broker, but the expert / enrollmentfirm brought in to assist the retail broker.• Estimated 5% - 10% sales share (split of commissions)Classic Worksite Brokers• Retail brokers that generate more than 50% of their revenue from voluntary/worksite.• Often are former AFLAC or Colonial career agents.• They may have enrollment capabilities or they may use Specialists to support them.Benefit Brokers• Retail brokers that generate less than 50% of their revenue from voluntary/worksite.• Further segmented by both size of agency and level of “worksite sophistication”− Comfort level recommending “best in class” products vs bundling approach− Worksite is important part of business with a “practice leader” to drive results− Producing agents have worksite goals and objectives− Brokers are comfortable recommending products from multiple carriersA View of Worksite Distribution Prior to Healthcare ReformSource: Eastbridge U.S. Worksite/Voluntary Sales Report
6Summary of Broker Segments & Market ShareBroker Segment Broker Profile2011SalesSalesShareSalesGrowthBasic Benefits Broker• Small average case size• Short sales cycle• Bundled Sales Approach• Traditional Group Product setEvolving BenefitsBroker• Small & Large cases• Likely have WS Practice leader & WS Goals• Longer sales cycle• Enrollment / Implementation focus• Comfortable using multiple carriersWorksite Focused w/oEnrollment Capabilities• Small case focus• Often an former career agent• Expanding product offering to Group• Likes bundling with single carrier• Utilizes partners for enrollment services• Process vs. Rate focusWorksite Focused w/Enrollment Capabilities• Small & Large cases• Expanding product offering to Group• Often uses multiple carriers per account• May also “sell” enrollment capabilities (via commission split) toother brokers in need of enrollment capabilities• Integration w/ their enrollment offering is importantCareer Agents• Mostly small, with some large “anchor tenants”• Producers are the enrollers• Can use non-affiliated carriers not provided by their primarycarrierEnrollment Firms• Not the retail broker• The “Expert” and the “Enroller/Administrator”• Have their own technology$777$1,149$44014%21%9%$1,120 20%36%10%+-3%2%4%$1,992
7Summary of Required Capabilities by Broker SegmentBroker SegmentSales Support Enrollment ProductAdmin.Capabilities(Billing)CompensationBasic BenefitsBroker• Value rep relationshipover expertise• Bundled offer• Utilizes carriers orCareer Agents• Voluntary versionsof traditional Groupproducts• Expect carriers todo billing• Prefer single bill• Level CommissionsEvolving BenefitsBroker• Require Rep Expertise• Rep has u/w influence• Seeking advise fromcarrier• More likely to haveenrollers in-house• May have existingpartnerships• Traditional Groupproducts +Permanent life andsupplementalmedical• Carriers to be ableto integrate intotheir platform• Choice of level andheapedWorksite Focusedw/o EnrollmentCapabilities• Requires rep expertise• Desire implementationcoordinator• Utilize carriers orenrollment firms• Prefer 1-on-1• STD, Accident,Cancer and CI• Expanding to coregroup products• Integrate withenrollment entity• Consolidated billing• Individual billing• Choice of level andheaped, based onhow they handleenrollmentsWorksite Focusedw/ EnrollmentCapabilities• Requires rep expertise• Want broker based u/woffers• A key differentiator forthem• 1-on-1, in addition toother methods• Permanent Life(UL/ISWL)• STD, Accident,Cancer, CI• Demanding ofcarrier billingcapabilities –arrears, individualreconciliation• Choice of level andheaped, based ontheir cost structureCareer Agents• Attracted to productsoutside of their carriercontracts• Generally utilize 1-on-1• Trending towards useof self-service• Accident, Cancer,CI• STD• Some Groupproducts• Carrier providespayroll deductionbilling• Choice of level orheapedEnrollment Firms• Expect carrier to drivebrokers and business tothem• 1-on-1• Call Centers• Investing in self-service technology• Permanent Life(UL/ISWL)• STD, Accident,Cancer, CI• May offerconsolidated billingservices• Individual, heapedcommissions
8Characteristics of Best-in-Class Voluntary/Worksite CarriersTop-Rated Criteria► Enrollment Process/Systems 66%► Guaranteed Issue 63%► Support of Broker Enrollment Meetings 65%► Simplified Underwriting 60%► Service Reputation (billing, call center) 51%► Commission Structure 46%► Bundled Product Offerings 45%► Product Provisions 40%
9The case for private exchangesAlthough much focus has been placed onState-run exchanges, many feel that privateexchanges will be more impactful andattract a large number of employers.A JD Power survey found that 47% ofemployers are looking towards privateexchanges. A similar study by OliverWyman found between 70% and 80% ofemployers would consider switching to aprivate exchange model.Industry experts are recommendingemployers offer a private exchange toemployees sooner rather than later, so theycan become familiar with offerings and learnbest practices.The industry’s response A number of companies are launchingprivate exchanges, and those companiesalready in the market are revamping theirofferings to appeal to a wider audience. Players in the market include: Full solution exchanges HR / benefits consultancies Insurers / brokers Technology providers Currently there are a variety of modelsfor private exchanges. It is expected thatin the next few years the market willsettle and a clear strategy for privateexchanges will emerge.Making the Case for Private Exchanges
13All OthersCore Medical 72%Traditional Employer Paid Group 67%Individual Life & Supplemental Health 66%Executive Life & DI 43%Pension & Retirement 39%Individual P&C 23%Benefit Consulting Services 23%Commercial P&C 22%Types of Products Sold By Broker Distribution
14Product 100 BrokersSurveyedDental 77%Term 75Short-term disability (2 years duration or less) insurance 73AD&D 61Hospital Indemnity 58Long-term disability insurance 57Vision 55Accident 51Critical illness insurance 47Cancer 47Universal Life 28Whole Life 28Prescription w/out Medical 27ID Theft 5Legal 5Pet Insurance 1Products Offered Most Often
15Administrative ApproachProcess For Many Employers Today:EmployeeEnroll, add,delete or changebenefitEmployerProvide & collectforms, submitchange to carrier“system of record”,update payrollCarrierProcesseschangeEmployerVerify change viaupdated billFuture ProcessEmployeeEnroll, add,delete or changebenefitCarrierProvide & collectforms, determineeligibility, be the“system of record”,calc payroll impactBen Admin/PayrollReceive and process updatedpayroll file and remit premium toCarrierEmployerFYI - Notification of changesmadeAdministrative processes must change to handle disengagement of plan sponsorsfrom administrative tasks. The following example illustrates how Carriers will berequired to work with both employees and Benefit Admin/Payroll companies.
16Enrollment Overview•Enrollment is not a transaction, it’s a sales situation• Process must be engaging, informative and affirming• Availability of products and advice should be continuously available, not point-in-time• Active outbound marketing•Increased competition will require a more cost effective enrollment approach• Additional supply of voluntary products will compress margins available for enrollment• Technology will enable new methods of enrollment to be done at a much lower cost• Face-to-face will not disappear entirely, but usage will decline•As with overall administration, plan sponsors want to limit involvement•The enrollment process will fall under additional regulatory scrutiny• Enrollment, even if on Group products, will be more closely regulated for appropriateness• Thus, carrier control over the enrollment process will increase
17Enrollment – “The Differentiator”Enrollment Capabilities & Process will ultimately determinethe winners and losers in the Worksite MarketplaceEnrollment Beliefs:1. Carrier flexibility to “plug in” to a wide range of enrollment approaches andtechnologies will maximize market opportunity.Implications: A one-size fits all approach will limit market receptivity2. Regulatory scrutiny on point of sale enrollment materials will increase, requiringcarriers to place adequate controls over content used by brokers and enrollers.Implications: Carriers will control content more closely, utilizing technology such as web services toefficiently manage content with multiple vendors3. Increased price competition will be a catalyst for better use of technology andother centralized support systems (ie. call centers) to reduce the cost ofacceptable enrollment results.Implications: 1-on-1 laptop enrollments that have been typical among worksite focused broker willdecline in popularity.4. Enrollment process and associated technology is tightly linked to Administration.Implications: Data intake must somehow be integrated with carrier EDI in-take.