Get a Soft-Market Boost

By: williamjones
March 1, 2011

By: Dave Evans

These days, it’s probably difficult for principals to determine if their firm is an insurance agency
or a marketing and sales organization that sells insurance. As operational issues such as providing automated certificates of insurances and other transactional capabilities have become a priority, an agency’s sales culture can take a back seat to operational objectives. While offering additional service capabilities is certainly part of the value proposition, as the old adage goes, “Building a better mousetrap does not mean that customers will beat a path to your door.” In this extremely competitive environment, growing organically requires a strategic sales plan.

But how do you create a viable plan in a perplexing business environment? The mantra, “Another year, another soft market,” looks like it will probably hold true for property-casualty pricing, which will continue to put pressure on operating margins. Agents with a significant medical insurance book of business may have already experienced a reduction in their commission levels depending on their niche and where they do business. Major long-term care insurers John Hancock and MetLife have raised rates on most of their existing policyholders and will cease writing new business beginning Jan. 1, 2011. Lastly, the SEC is finalizing regulations pertaining to the “fiduciary” status of registered representatives, which will affect how agents who sell mutual funds, variable life and variable annuities will be regulated in 2011 and beyond.

Against this backdrop, what are the viable products that independent agencies can look to for revenue opportunities through cross-selling their current client list? One avenue that continues to flourish—even in a difficult economy—is worksite marketing.

Sales Tick Up
Worksite sales—offering voluntary insurance products through payroll deduction at the employee’s place of business—were up again in 2009 despite the recession, according to a recent LIMRA sales study. In-force premium increased less than 8% in 2009, bringing the estimated total inforce premium for worksite products somewhere between $18.8 and $24.7 billion. Life insurance held the top spot for the year at 24% of total worksite sales. New life insurance premium volume was $1.3 billion, up about 14% over 2008. Term life accounted for $940 million of the total, with universal life and whole life making up the difference. Term life sales were up almost 21% over 2008.

Disability insurance sales ranked second in workplace marketing products, accounting for $1.1 billion in sales but down 6% compared to 2008. Short-term disability sales accounted for 73% of the disability totals. Accident insurance accounted for 13% of total voluntary sales, as did the
hospital indemnity/supplemental medical line. These segments were followed by cancer and critical illness coverage, with a combined market share of 12%. Interestingly, the trend toward group platforms increased. In 2009, the growth rate for group product sales was 6.7%, significantly higher than the almost flat individual sales, which were up by just 0.2%.

Also, some agents partner with property-casualty carriers to offer group personal lines such as automobile and homeowners coverage in addition to life-health insurance worksite products. The size of the employer affects the scope of the products offered. Employers like offering flexible spending accounts (FSAs) in conjunction with life-health products because it enables employees to set aside money on a pre-tax basis. It saves both the employer and the employee a meaningful amount of money on their net out-of-pocket costs by having Uncle Sam subsidize the cost by the amount of the person’s tax bracket, which can run as high as 45% depending on the state.

Carriers Take Notice
Insurance companies are recognizing the profitability of the worksite marketing distribution channel. According to consulting firm McKinsey, one p-c carrier found that its worksite sales are 50% more profitable than those generated by its traditional channels, and a regional bank discovered that its worksite branches were the most profitable in its network. McKinsey also points out that employers want to offer more benefits but can’t pay for them. Not surprisingly, most human resources executives have little or no money for new benefits, and no staff to administer extra offerings. However, they recognize that benefits can help in some small way to attract, excite and retain employees, so they are eager to find new ones that incur little cost.

Companies would like to offer additional benefits to their employees as well as the expertise to help employees understand the benefits and make wise choices. Worksite marketing is a very suitable way to accomplish this objective as most companies offer some guaranteed issue and/or simplified underwriting (depending on the size of the employer) for most products, which the employees can pay for through the ease of payroll deduction. And of equal importance, having an onsite presence to help employees understand their choices relieves the burden on the human resources staff.

Consider Enrollment Logistics
One related decision that independent agents need to consider in offering worksite marketing is whether to handle the enrollments themselves or partner with an enrollment firm to meet with the employees. Agents might be nervous about inviting in outsiders to an existing client, so they will need to do due diligence on the enrollment team, including checking client references. In some cases, the insurance company has enrollment employees that can come to client meetings.

Alternatively, most worksite marketing insurance companies have relationships with outside enrollment firms. Of course, the agent’s commission will be affected by engaging an enrollment firm, as they will share commissions. Enrollment firms contend that the overall sales results for a worksite engagement will increase by using an outside firm, so that ultimately the agent will be sharing a bigger pie than if he performed the enrollment alone. The size of the employer and the number and sophistication of the offerings will typically drive the decision of whether to have enrollments handled by a third party. Some carriers focus greatly on supporting agents. For example, Aflac supports large accounts with a team that receives no commission or compensation related to the case.

Develop a Plan
So what is the starting point for independent agents to develop a strategic sales plan to offer worksite marketing? First, review your client roster to determine what size of client you plan to target. Next, create a list of insurance companies that offer worksite products for your target market. Then, begin discussions with carriers to determine how much assistance they will provide, the revenue potential and which agency personnel will oversee the worksite marketing effort. Also make sure your website and social media presence complement the initiative so that commercial clients and their employees will be aware that the agency offers worksite product services. Finally, determine what the commission sharing will be for producers and for the relationship managers to ensure that they will help with the effort and be compensated for it.

While some agencies try the “dip a toe in the water” approach to worksite marketing, they can be quickly disappointed in the results because they did not devote enough resources to vet the concept properly.

Don’t let 2011 slip by without planning for new opportunities. Taking a critical look at worksite marketing is one attractive avenue to explore.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and an IA contributing editor.

Look to Independent Agent Segment
More and more, insurance companies—even those that historically sold their products through career agents—have looked to independent agents and brokers to increase worksite marketing sales.

The career agent segment decreased its share of worksite marketing product sales from 31% to 22% in recent years. This segment has seen mixed results recently as more voluntary benefits have been sold by benefit brokers and independent insurance agents. Typical worksite products offered by agents include: