Tuning In To Our Annual Dental Survey
Welcome to Part I of California Broker’s 2012 Dental Survey. We’ve asked the top dental providers in California to answer 28 crucial questions to better help you, the agent, understand their benefits, features, and services. Look for Part II in the August issue. Read the responses and sell accordingly.
Preparing For the Real Cost of Critical Care
by Chris Covill • In today’s environment, brokers play a key role in helping their clients understand the high medical costs that go along with unforeseen accidents and illnesses. Brokers should advise companies that voluntary insurance like critical illness policies are valuable and needed, rather simply being nice-to-have benefit options.
Self-Funding– The Truth Behind Self-Insurance Expenses
by Eric Egeland, CPCU, AU • When it comes to individual and group self-insurance, the main lure is saving money. Self-insured workers’ compensation and health insurance are the most popular with the majority of states having regulations that allow their formation.
Self-Funding – Making Good on a Bad Decision
by David Zanze • Even the best brokers can misadvise clients, even through no fault of their own. After all, every business — even the insurance business — has its moments. And although some situations are unavoidable, there are some steps you can take to remove the politics out of decisions and keep clients when things don’t work out well.
Employee Assistance Programs–How they fit into the Benefit Portfolio for a New Sales Strategy
by Deidra Finney Bausano • As a broker/consultant, a good employee assistance program will add another arrow to your portfolio quiver and a new revenue source for your agency. For your clients, it can be a miracle in today’s stress-filled world. Bear in mind that not all EAPs are the same.
Making LTC Insurance Work for Retired Clients by Steve Cain • Too many producers over-emphasize the financial benefits of LTC insurance, forgetting that the notion of managing an LTC need (selecting facilities and choosing providers) can be every bit as intimidating as meeting the financial challenge.
Voluntary Benefits View From The Top by Leila Morris • If this year’s survey of executives is any indication, voluntary benefits are becoming more relevant and popular than ever. With consumer driven plans becoming prevalent, consumers are left with higher out-of-pocket costs. That’s where voluntary benefits can come to the rescue.
Is The Timing Right for Fixed Index Annuities? by Eric Taylor • These products may be of particular interest to those who are within 10 years of retirement and recent retirees since many have been hit particularly hard by the economic downturn. Unfortunately, this group has fewer years to rebuild their shrunken portfolios and cannot be assured of a market recovery to save the day.
Look Beyond the Price of Life Policy Guarantees To Assess Strength of The Company That Backs Them by Alan (Al) Lurty • Many brokers who sell life insurance today are getting puzzling and conflicting signals from insurers in regard to a range of guarantee-driven product offerings. In the current environment, many carriers are adjusting pricing, indicating a reduced appetite for taking on new business or shying away from selling certain guarantees altogether. What’s driving this behavior? In short: interest rates.
Preparing For the Real Cost of Critical Care
by Chris Covill
Many people are overly optimistic that they won’t get a serious accident or illness. But no one is immune to life-altering events, such as heart attacks, strokes, or cancer. As if the physical recovery isn’t enough, the out-of-pocket expenses of these illnesses are often beyond what many are prepared to deal with. Employers and HR managers should be aware of how a critical illness can affect their employees financially. Five million Americans are admitted to intensive care units each year, with the total costs of critical care services exceeding $80 billion annually. The average total cost to the patient of a severe heart attack is about $1 million, including direct and indirect costs, according to the Roundtable on Critical Care Policy. With these staggering costs, it’s alarming that not many employers offer critical care insurance to help their employees with unexpected out-of-pocket costs. Only 13% of U.S. workers have a critical illness insurance policy, according to the 2012 Aflac WorkForces Report, an online survey of nearly 1,900 benefit decision-makers and more than 6,100 U.S. workers. This is an opportunity for brokers to educate business decision-makers on the many advantages of offering voluntary critical care policies to their workforce.
Seize the Opportunity to Inform
Brokers should inform current or potential clients about the need for policies, such as critical care insurance, that safeguard workers against the high cost of out-of-pocket expenses. Brokers should educate employers about the real costs of critical care and the fact that many employees are not prepared to pay out-of-pocket health care expenses. An unexpected hospital bill will certainly throw most consumers further into the red. Brokers should take on the dual role of benefit advocate and educator to help protect employees and their families. Voluntary lump sum critical illness policies can help by providing cash benefits to policyholders for many covered critical illnesses, such as comas, heart attacks, or strokes. The cash benefit can be used beyond medical expenses to help with gas, travel, mortgage payments, rent payments, or even groceries. Brokers can guide their clients on marketing and benefit communications strategies. HR managers can implement online surveys, workshops, and continued conversations to gauge workers’ views about their benefit options; educate workers on available policies; and make changes to benefit offerings. Ensuring that employees have benefit choices, including supplemental insurance, will help provide a safety net so policyholders can focus on recovery, not financial stress. Employers that offer solid, substantial benefit options and communicate effectively will enhance employee satisfaction, loyalty, productivity, and retention. More than half of all employees say voluntary insurance plans affect their job satisfaction and 48% say they affect their productivity, according to the survey. In other words, overall happiness and productivity increases when voluntary benefit options are offered.
The Appeal of Critical Care Policies
While being diagnosed with cancer or a heart condition may seem many years away for young workers, it is a health risk they should keep in mind early in life. These are the facts:
• In the United States, men have slightly less than a one-in-two lifetime risk of developing cancer; for women, the risk is a little more than one-in-three, according to the American Cancer Society.
• One American has a heart attack about every 34 seconds and one suffers a stroke about every 40 seconds, according to the American Heart Assn.
Brokers should reiterate to employers that average premium will be lower the younger the applicant is at the time of purchase. Regardless of a company’s demographic, critical care policies can help protect families’ finances when they need it most. Employees are concerned about their financial security and they’re distracted by fears that they’re underinsured, under-protected, and vulnerable to costly unexpected expenses due to an injury or illness. They want added protection and they’re relying on their employers to provide access to better insurance coverage. Brokers may have to overcome purchasing hesitation from misinformed HR managers and business decision-makers who use cost as an excuse to not offer critical care insurance to their workers. But employers are often unaware that voluntary insurance policies are available at no direct cost to the company. Another advantage is that many critical care insurance policies can be expanded to include coverage for immediate family members. Similar to other voluntary insurance policies, critical care cash benefits can be used how the insured sees fit, such as helping to pay car payments or travel and lodging expenses. Brokers can help businesses give employees the tools they need to prepare for rising health care costs, especially year-round out-of-pocket and unexpected medical expenses. It’s essential for brokers to educate employers on how the right coverage can help safeguard their employees’ finances.
In today’s environment, brokers play a key role in helping their clients understand the high medical costs that go along with unforeseen accidents and illnesses. Brokers should advise companies that voluntary insurance like critical illness policies are valuable and needed, rather than simply being nice-to-have benefit options. Voluntary insurance helps fill coverage needs for employers and employees alike. It solves challenges on both sides of the benefit equation by providing a no-direct-cost solution for employers while giving employees the choice in additional coverage that best suits their needs.
In short, voluntary insurance allows companies to enhance their benefit offerings, differentiate themselves from competitors and provide the added protection and peace of mind employees seek.
Chris Covill, a 25-year insurance industry veteran, is Aflac’s President of Aflac Benefits Solution. He leads strategic planning and direction as Aflac works with the largest national and regional brokerage firms in the nation. Visit aflacforbrokers.com, call 1888-861-0251, or send an email to firstname.lastname@example.org to learn more.
Self Funding–The Truth Behind Self-Insurance Expenses
by Eric Egeland, CPCU, AU When it comes to individual and group self-insurance, the main lure is saving money. Self-insured workers’ compensation and health insurance are the most popular with the majority of states having regulations that allow their formation. Third-party administrators (TPAs) and even regulators, in some of these states, perpetuate the belief that money will be saved on lower administrative expenses and/or better experience (less claims). You may be expecting me to throw TPAs or regulators under the bus right about now, but most have their hearts and expertise in the right place. They truly believe that self-insuring is a better option and it sometimes certainly is. Further, most regulations require a feasibility study showing that a self-insured program will work before the state will allow its formation. But, let’s examine what actually makes up the expenses and why they can be lower, but aren’t guaranteed to be lower.
Lower Administrative Expenses
Insurance premiums consist of two pieces: claims expenses and underwriting expenses. Claims expenses are the dollars used to pay a claim and the expenses directly attributed to the claim. For a workers’ compensation claim these expenses might include independent medical exams or surveillance on an injured worker who is suspected of committing fraud. The other half of the premium includes the underwriting expenses. This is the insurance company’s operational expense, which includes things like the building expense; reinsurance; and salaries for the underwriters, claims adjusters, loss control, administrative, and executives.
The theory is that a self-insured entity will have lower underwriting (operating) expenses than the big insurance company even if they have to pay a TPA to do all the insurance stuff. The problem is that the TPA has the same kinds of expenses as does an insurance company. Even if the self-insured decides to self-administer, it still has to hire people and buy or build systems to handle billing and claims, just like an insurance company or TPA would. The self-insured also has to pay the same types of outside expenses. That includes regulatory fees/taxes, excess insurance (improperly called reinsurance), actuarial rate studies, and collateral, which is typically satisfied by a bond or letter of credit.
The collateral mirrors an insurance company’s surplus requirements. The other marketing sizzle that is often used is that self-insurance excludes the profit layer that insurance companies have built into their pricing. That theory gets shot down when you look at the facts. NCCI looked at the combined ratio (profit) statistics for private carriers and found that only two in the past 21 years (up to 2010) were profitable. The year 1995 had a ratio of 97, meaning that private carriers made three cents on every dollar of premium charged; the year 2006 had a ratio of 93. If you do a simple average for those 21 years you get 109, which means that the industry has lost an average of 9% a year for the past 21 years. Oh, and your TPA is absolutely making a profit. Many argue that self-insuring is actually more expensive because of the lack of economies of scale. On the other end of the spectrum, a large group that shares these expenses has the potential to save money as does a large individual self-insured with its own building, risk management team, and tons of cash.
I don’t intend to debate whether it’s possible for operating costs to be less for a self-insurance plan. But when it comes to a blanket statement, let’s call operational expenses a draw between standard insurance and self-insurance. Every individual and group self-insured is different; a proper third party feasibility study can help predict profitability.
Lower Claims Expenses
This is where things get interesting. I will ruin the build up and get right to the point: An insured can absolutely lower its claims expense by getting employees to get hurt less often or make smaller and less frequent claims. But that’s easier said than done. Many regulators actually focus on this area as the main place to save money by self-insuring. The self-insured workers’ compensation group regulation in Georgia and Hawaii, for instance, requires all members to be part of one association. The theory is that, since the members are all in the same club, the group will pressure individual members with poor claims history to institute a better safety or return-to- work program. This is a fantastic theory and it does work for smaller associations. But most large associations have little influence over their members. They don’t have the resources or wherewithal to identify the perpetrators of high rates anyway. With all that said, it works if an association can herd the cats (members) to care about their safety and losses.
Adverse Loss Experience
We discussed the potential to lower your claims from what might normally be expected or what has occurred. But those who are not in the industry need to understand that claims can spike above what is expected. Self-insurance means what it says – you are responsible for those expenses, whatever they may be. If losses are above what is expected in a self-insured group, members can be assessed the difference. Groups are typically “joint and severally liable.” This means that all members are responsible for an assessment even one that was caused largely by a small sub-group. Protective caps can limit the damage, but the potential still exists.
So Is There a Benefit?
The entire purpose of this article is to create realistic expectations about self-insurance expenses. A company that chooses to self-insure is choosing to retain their risk of loss, which is inherently, well – risky. There is no guarantee that it will cost less in the long run. Employers should not go into it assuming that they will save money without any extra effort. They should go into it knowing they are now responsible for their own destiny. They should take extra measures to ensure that they fare better than if they were insured by a standard insurance company; make sure that management is involved in safety and wellness from the top down; and pay attention to their losses. A business that is in a self-insured group needs to be responsible for itself as well as other members. The business should question the TPA and have it reviewed. (The good ones like this being done). And the business should take the time to understand its state’s self-insurance regulations or hire a third party to explain them. An employer that does all of this might just see the real benefit of self-insurance – consistent and predictable insurance costs.
Eric Egeland, CPCU, AU is the president of Capacity Consulting Inc. who provides consulting for multiple industries including insurance, real estate, education, energy, and internet. He has personally created 10 successful start-ups, including seven insurance groups, and has consulted on hundreds of projects, closures, startups, plans, assessments, turnarounds, and reorganizations. He can be reached at email@example.com and by phone at 845-430-1347.
Self Funding: Making Good on a Bad Decision
by David Zanze
Even the best brokers can misadvise clients through no fault of their own. After all, every business – even the insurance business – has its moments. Recently, a client of one California broker demanded a change to their third-party administrator. The client asked the broker to prepare a request for proposal to bring in alternatives. Of three potential candidates, the client selected a third-party administrator based on pricing and the impression it made at its onsite visit. Ultimately, the decision to change to the new administrator resulted in more problems for the client. Even though the broker didn’t make the decision, he still felt responsible for bringing the administrator to the table. Situations like these aren’t uncommon, whether there’s an issue with a benefit plan change or a suggestion to change vendors, third-party administrators, medical networks, or stop-loss carriers. It’s called “the politics of decision-making.” Although some situations are unavoidable, there are some steps you can take to remove the politics from decisions and keep your clients when things don’t work out well.
Do Your Homework
Dennis Lee, a broker who serves clientele out of his own shop, Lee Insurance Services, always errs on the side of caution. “I see my role as an advisor more than anything,” he says. “It’s my job to make sure my clients have all of the information they need to fit their situation. I do my best to stay out of the decision-making process.” He does his homework. He reviews the legal implications, researching possible discrimination issues and whether the advice he is planning to give his client adheres to federal and state law. Before making any recommendations about changing some facet of the self-funded program, he confides in various vendors and business partners for advice and looks at trends in the marketplace to determine if the client’s benefit plan is competitive in the industry.
Remember, a Number of Variables Are Outside Your Control
There may be implementation problems or the vendor may not be meeting the client’s expectations based on what it initially delivered to win the business. You and your client may have swooned over the presentation, seeing dollar signs and savings, not realizing that there would be a downgrade in customer service, reporting, functionality, or any number of services that made up an integral part of the client’s health plan administration. If there has been a network change, provider disruptions may upset the ongoing health related services of the employee population or the savings aren’t what you or the client expected. In any event, you advised your client and your client made a decision.
Avoid the Blame Game
Whether the vendor misguided you; you misunderstood the data that supported the final decision; or you didn’t ask enough questions in the beginning, someone will be pointing fingers and someone will be held responsible for the perceived lapse in judgment. Employees are upset; the client’s HR department is flooded with complaints; the TPA is getting an excessive number of customer service calls; and your client is frustrated. Whether things actually went awry or it’s just the pains of change, spreading blame, expressing denial, or trying to force things to work will only make a bad situation worse. For example, an implementation issue is usually first blamed on the previous vendor, then on the current vendor, and then on you. But it doesn’t matter whose fault it is; if you assisted with the decision-making, expect to be held accountable.
Don’t Act Based On Assumptions, Reactions, or Opinions Alone
Take the politics out of decision making and avoid the blame game by sticking to the facts. How much would it affect the client financially to make it work? How significant would it be financially to turn back? Survey the customer satisfaction of your client and its employees. What is the feedback? All of these things can and should be measured to determine next steps and control the damage. You can help reverse a bad decision and put the client back on track by offering the following: • A cost-benefit analysis that examines the bottom line and reviews the decision in terms of dollars and cents. • A customer service and satisfaction survey. • A strategy to align the client with their ultimate goals.
Keep Your Client’s Business
The broker who assisted his client with the third-party administrator change realized that he would have lost the client’s business if he had been defensive about his involvement. He knew enough to remain humble and to try and rectify the decision on their behalf. By reviewing the third-party administrator’s performance metrics, he advised the client to wait out the year to allow the business relationship to fully develop. If it didn’t improve, he would help the client to leave. At the end of the contract year, the broker went back to the bargaining table with the previous third-party administrator; ironed out performance guarantees; and moved the client back. It was a good decision for everyone and things are going well for the client.
Honesty Is the Best Policy
Lee advises that, if there is ever a time when you may have misled a client, it’s always best to be honest. “Don’t ever hide that you may have misguided the client,” he says. “The last thing you want to do is besmirch your reputation, or worse, have someone come along and do it for you.” Whether a mistake was perceived in the decision-making process or the end result wasn’t what you or your client expected, you can’t offer a pragmatic solution until you admit that things didn’t go as planned. Not every decision that you or the client make is going to work out. Yes, there will be consequences to face, but unless you advised your client based on some personal incentive, blamed others for your own actions, or have been forcing it to work because your pride will not allow you to turn back, there is an upside to being honest and working it out for your client’s best interest. It retains your dignity and dignity, above all else, helps you remain credible with the client.
David Zanze has nearly 30 years of experience serving as a leader and innovator in the health care industry. He joined Pinnacle Claims Management, Inc. as president in 1996. Pinnacle Claims Management, Inc. (Pinnacle) is an all-inclusive health benefits third party administrator (TPA) that offers competitive, cost efficient claims management in tandem with the latest technology. Pinnacle administers benefits for a diverse range of small to large sized employer groups from all business sectors of the marketplace. For more information call 866- 930-7264 or visit them online at www.pinnacletpa.com.
Employee Assistance Programs – How they fit into the Benefit Portfolio for a New Sales Strategy
by Deidra Finney Bausano
Today’s broker has evolved from salesperson to benefit consultant, with more and more products and services being added to the sales portfolio. However, the area of mental health has been largely overlooked with the exception of larger employers. Health and productivity programs or “employee assistance programs,” fall under the behavioral health label as part of a sound mental health plan. Most brokers are familiar with free employee assistance program (EAP) riders in some medical plans. These are typically pared down benefits for phone or online counseling on a limited number of topics; they are not promoted by the carriers or the client companies whose employees could use them. Stand-alone employee assistance programs are available to groups from two to 10,000+ employees for relatively inexpensive monthly premiums. For the new benefit consultant, they offer an integral piece to the benefits and insurance puzzle.
Take a look at these very common examples: Joe’s teenage son has been driving him up the wall lately, hanging out with the wrong crowd, with failing grades and curfew infractions. Joe has come to suspect that his son is experimenting with drugs. The stress at home is pretty unbearable. He and his wife, Rose, can’t see eye to eye on much of anything lately. To top it off, his elderly father has just been diagnosed with cancer and now Joe needs to spend time caring for his father and mother as the disease progresses. Going to work has become a mixed blessing. It’s a reprieve from the stresses at home. Terry works for a well-known cabinetmaker. Business was booming until the downturn in the housing market.
Over the past few years, the company has had to downsize and everyone is nervous about their future. Terry hasn’t had a raise in three years and with a mortgage, car payments and a daughter going off to college, he’s stressed. He’s so stressed and distracted that he doesn’t have his mind on his work. The unthinkable happens and Terry is suddenly on his way into surgery to repair the damage a skill saw has done to his hand. Diane needs some legal advice about child support, but she can’t afford to retain an attorney on an administrative assistant’s salary. This situation is weighing heavily on her mind and she knows her job performance is suffering, but what can she do? The people in these all-too-familiar scenarios could use some help.
Counseling could work miracles for Joe, his wife, and his son. Substance abuse treatment for the son could halt a fledgling drug habit. Referrals to senior services and hospice could greatly ease the added stress of dealing with his father’s illness and his aging mother’s ability to cope. For Terry, financial counseling could help the family set a new budget and learn to live within their income until business picks up; it would help ease the burden and alleviate the stress financial shortages bring. For Diane, a free legal consultation may be just what she needs to learn her rights under the law and set a course of action. Each of these employees, their families, and their employers would be well served by a comprehensive, hands-on employee assistance program. In today’s stress filled world, a good EAP pays for itself in greater employee productivity, a happier workplace, and a confidential place to find solutions to stressful problems. It can also curb workplace accidents, which greatly affect Workers Comp premiums.
Depression is the most common mental health disorder in the workplace – affecting about one in 10 employees, according to a January 2010 newsletter article Mental Illness in the Workplace by the National Alliance on Mental Illness (NAMI). When untreated or under-treated, mild or severe mental illness often manifests as a performance issue, such as absenteeism or compromised productivity. Mental illness causes more lost work days and work impairment than do chronic health conditions, such as diabetes, asthma, arthritis, back pain, hypertension, and heart disease. The same article states that employee assistance programs produce direct cost savings for employers in the form of reduced medical, disability, and workers’ compensation claims and improved work performance. EAPs increase worker productivity and decrease absenteeism.
The return on investment of EAP services is about a $2 to $4 savings for every dollar invested. Work loss was avoided in 60% of cases, in which EAP services were provided, with an average savings of 17 hours per case, according to a 2008 report the National Business Group on Health. Furthermore, 72% of the people represented by these cases also showed improved work productivity, with an average gain of 43%. An additional study found that when legal/financial, work/life services were included as part of the EAP, work loss was avoided in 39% of cases and work productivity improved in 36% of cases.
How many of your clients have experienced the following:
• Death of an employee or employee loved one.
• Employee alcoholism or drug use.
• Company downsizing.
• Violence or threats of violence in the workplace.
• Increased customer/client complaints.
• Drop in employee productivity.
• Increased absenteeism.
• Increased company interpersonal conflicts.
• Increased employee stress.
• Increase in medical or disability claims.
• Increase in workers’ compensation claims.
• Accidents on the job.
• High employee turnover.
• Increase in employee counseling needs from management.
• Organizational restructuring.
If you checked off three or more on this list, your client could benefit greatly from an employee assistance program. A good, comprehensive EAP will help a company address and find solutions to all these issues. As a broker/consultant, a good employee assistance program will add another arrow to your portfolio quiver and a new revenue source for your agency. For your clients, it can be a miracle in today’s stress-filled world. Bear in mind that not all EAPs are the same. Shop around; make inquiries; and find the one that best suits the needs of you and your clients. Make an employee assistance program a vital component of every benefit proposal for both new and renewing business.
Deidra Finney Bausano is a member of the Business Development team for Avante Behavioral Health. She is responsible for broker relations and client sales from Central to Southern California and the Central Coast. A founding member of Kern AHU, Deidra has served the chapter in every office and has also served CAHU as VP of Communications. She has worked in the broker, carrier and General Agency areas of the health insurance industry. For more information about Avante visit www.avantebehavioral.com or contact Deidra at firstname.lastname@example.org.
Long Term Care – Making LTC Insurance Work for Retired Clients
by Steve Cain
People in the 55 to 64 year age group are widely regarded as the sweet spot for long-term care insurance (LTC) because they comprise the majority of LTC insurance purchases. But what about the 65 and over crowd as well as retirees in general? Since they represent about almost 20% of sales, they’re clearly too important to ignore. And while this market holds some distinct challenges, it offers a wealth of opportunity for producers who take the right approach.
Retiree Concerns and LTC
Three concerns weigh heavily on retired Americans: 1. Longevity. Longer lifespans, along with a vulnerable Social Security system and fewer defined benefit pensions, heighten retirees’ concerns about running out of money. At the same time, living longer also heightens the chance of someday needing LTC services. 2. Rising health care costs. Seniors are grappling with ever-costlier health services. They are also wary of a scenario that causes their need for care to grow. 3. Financial insecurity. A faltering economy, low interest rates, and volatile investment markets have left retirees increasingly uncertain about their future. These three concerns leave retired Americans in a defensive state of mind, which makes them far more receptive to recommendations for strategies that address these worries. By offering a way to protect retirement savings from LTC costs, LTC insurance does just that. It can be an important part of a more comprehensive approach to managing retirement risks when embedded in a linked benefit product – that is, incorporated into a life insurance or annuity solution.
Among all your current and prospective clients, retirees are perhaps the most aware of their potential need for LTC. They are also the most anxious about how they would manage it from both a health care and financial perspective. While their position in life may boost their interest in addressing these concerns, you face two challenges in helping them take action with a LTC insurance solution:
• Age. With older ages come not only higher premiums, but also an increasing likelihood of being rejected for coverage. Only 14% of applicants in their 50s are rejected for unacceptable health, but that number leaps to 23% for clients in their 60s and 45% for those in their 70s, according to the American Association for Long-Term Care Insurance.
• Cashflow. With their working years behind them, retirees must live within the confines of their pensions, Social Security income, savings, and investments. Adding a new, ongoing expense to their monthly math isn’t something they relish.
A Shift in Managing LTCI Costs
Fortunately, yielding to the realities of the long-term economic environment and prudent planning, advisors are shifting their approach LTC insurance for retirees and pre-retirees alike. The focus used to be on building a benefit-rich coverage plan that transferred nearly all of the financial risk to the LTC insurer. Today, insurance professionals are taking a more balanced approach, which significantly reduces their clients’ LTC expense exposure, but stops well short of eliminating it altogether. While this approach is broadly applicable to your clients, it’s especially useful for retirees. By choosing longer elimination periods and more modest benefits, you can make LTC insurance solutions more affordable while still securing significant protection. That’s especially true of inflation protection features. By its very nature, inflation is most harmful over longer periods, which is why robust inflation benefits make more sense for a client in their 40s than a client in their 70s. After all, older clients have shorter life expectancies, which means that they don’t have the same exposure to the destructive power of inflation. Given that dynamic, a wise advisor may want to recommend a lower inflation protection option or none at all and perhaps emphasize having a higher daily benefit instead.
A Valuable Benefit You Needn’t Reduce
It’s important to note that, even without full financial coverage, clients still benefit fully from the valuable coordination of care benefits embedded in their policies. Too many producers over-emphasize the financial benefits of LTC insurance, forgetting that the notion of managing a LTC need (selecting facilities and choosing providers) can be every bit as intimidating as meeting the financial challenge. Even with slimmer daily benefits, longer elimination periods, and less inflation protection, your clients can still benefit from geriatric care managers who guide them through the process and the many decisions along the way.
Steve Cain is executive vice president and sales leader at LTCI Partners, a brokerage general agency specializing in long-term care insurance. He can be reached at email@example.com or 877-949-4582 x237.
Voluntary Benefits – A View from the Top
by Leila Morris
If this year’s survey of executives is any indication, voluntary benefits are becoming more relevant and popular than ever. With consumer driven plans becoming prevalent, consumers are left with higher out-of-pocket costs. That’s where voluntary benefits can come to the rescue. Voluntary benefits have also become more attractive to brokers with the advent of higher commissions. When asked which voluntary benefits are becoming more popular, critical illness plans were mentioned over and over. Also on the list are accident insurance, life insurance, disability insurance, hybrid permanent or term life insurance products with an LTC component, as well as LTC insurance. Below, executives give their take on key market trends as well as tips on having a successful enrollment.
1. What’s a compelling argument for employees to have extra money taken out of their paychecks for voluntary benefits when they’re cutting back on all kinds of small expenditures in a tough economy?
Amy Friedrich, vice president of specialty benefits for the Principal Financial Group: Employees who value protection are likely to see the cost of voluntary benefits as a good use of their dollars. According to the Principal Well-Being Index, 74% of employees find it important to be able to buy voluntary benefits at work.
Debbie Cecil, director of Product and Market Development for Unum: Some employers are having to stop contributing for short-term disability. But, employees can purchase this important voluntary benefit to supplement long-term disability. Also, voluntary benefits, such as accident and critical illness insurance, can fill the gap for deductibles, co-insurance, and other needs. The average weekly premium for these benefits is usually only $5 to $8.
Shawn Smith, vice president, western region, for Transamerica worksite marketing: Consumer driven health plans have left most employees and families in a financial void; paying $1,000 or more out-of-pocket medical expenses is simply unaffordable. Voluntary life, disability, critical illness, accident and gap products can provide strong financial benefits at affordable group rates with pre-tax savings through payroll deduction.
Sean Duggan, Territory Sales Manager, Orange County Colonial Life: Voluntary benefits can help employees pay out-of-pocket medical and non-medical expenses that even the best major medical plan won’t cover. Since individual voluntary benefits are portable, employees can keep the coverage if they suffer an interruption in employment.
Christopher Covill, president of Aflac Benefits Solution: Unplanned out-of-pockets costs are inevitable when an illness or injury occurs. Voluntary insurance plans pay cash benefits for covered illnesses or injuries. These benefits help with out-of-pocket expenses, such as medical-related travel, food, utilities, and rent or mortgage payments. What’s more, employees can take advantage of payroll or group rates when premiums are deducted directly from their paychecks.
Scott R. Llewellyn, Western Regional sales vice president, Ameritas Group: People re-evaluate their priorities during tough times and personal health and protection of assets are always ranked one and two. With voluntary benefit plans employees usually have a great opportunity to purchase benefits at rates that are normally not possible to the individual. Voluntary dental insurance is a great example. Dental is the second most requested health benefit after medical insurance. Regular cleanings, exams, and X-rays, which are usually covered at 100%, protect people from bigger and more expensive problems down the road
Mark Sylvester, vice president of sales for Assurant Employee Benefits: By spending a little additional money on voluntary benefits, employees can help protect themselves from unforeseen financial risks.
Glenn Petersen, vice president, Voluntary Benefits Sales, MetLife: MetLife’s 10th Annual Study of Employee Benefits Trends found that the economy is causing employees, particularly younger generations, to turn with greater interest to employers for help with establishing financial security. Forty-nine percent of employees surveyed say that because of the economy they are counting on employers’ benefit programs to help with their financial protection needs. That percentage climbs to 55% for Gen X workers and 66% for Gen Y workers. Fifty-seven percent of Gen Y and Gen X employees are interested in a wider array of voluntary benefits offered by their employer.
2. Do Brokers make less commission on voluntary benefits? How can they offer these benefits to clients in an efficient way that provides a good return on investment for their efforts?
Scott R. Llewellyn of Ameritas: At Ameritas, brokers earn the same commission levels on voluntary business as they do on employer-paid benefits. In fact, we continually promote the advantages of selling voluntary offerings alongside the employer-paid offering as a way for the broker to increase their income and provide additional value-added services to the client. A volunary vision benefit alongside an employer-paid dental plan is a perfect pairing. In this tough economy, some employers may be forced to eliminate a benefit or two that it has paid for in full or partially. Employers can lessen the impact by offering the benefits on a voluntary basis and generally at a cost negotiated with the broker that improves the employee’s buying power. Carrier reps should be more than willing to help the broker make the process as smooth as possible for everyone at voluntary enrollment meetings.
Debbie Cecil of Unum: Employee-paid voluntary benefits usually have a higher first year commission than do group benefits. This is necessary to help fund the enrollment of the benefits since a good communication strategy is necessary to ensure that employees are well informed.
Shawn Smith of Transamerica: Lower broker commissions for voluntary products used to be prevalent, but the landscape has changed considerably. It is no longer necessary for the broker to split commissions unless outsourcing is needed for face-to-face or call center enrollment. In the past, with most voluntary worksite products, brokers would pass the servicing and enrollment to the carrier rep. The broker’s commission split was much lower than that of the carrier rep. It was usually 25% of the total commission or roughly 10% to 15% of annualized premium for the first year only, with broker renewals of around 2%. But today, there are many options for the small to mid-size group broker to retain 100% of the voluntary commissions. Comissions usually fall between 20% to 90% for first year commissions and renewal commissions average around 10%. A good example is that many former voluntary-only products are now employer paid and used in conjunction with major medical plans to encompass an overall employer benefits strategy. Products such as gap, critical illness, and accident insurance are being used extensively as employer paid products providing brokers with 100% of the commission. The broker enrollment is simply using a spreadsheet similar to the major medical enrollment without requiring wet signatures from employees.
Sean Duggan of Colonial Life: Adding voluntary benefits to their portfolio helps brokers protect their revenue stream while they may be seeing reduced income from other lines, such as major medical. Brokers don’t have to be experts in voluntary benefits; they just need to partner with a carrier that is. A turnkey voluntary carrier can offer plug and play capabilities including products; benefit communication and education; and enrollment services. The broker doesn’t have to invest in training or time. The voluntary carrier does the work and pays the broker the commissions.
Amy Friedrich of the Principal Financial Group: “Voluntary” doesn’t necessarily have to mean less commission. When voluntary benefits are offered in the right way, it can result in higher participation and more premium per employee than what you typically see across the industry. To get a good return on investment, team with a quality voluntary benefits carrier that not only offers a variety of benefits, but also understands the importance of needs-based education. Look for carrier services, such as pre-meeting promotion, salaried enrollers, one-on-one education/enrollment meetings, and enrollment tools like pre-filled forms and online access that have a positive impact on employee participation.
Mark Sylvester of Assurant: Brokers don’t always make less commission on voluntary benefits. In fact, some providers, like Assurant Employee Benefits, offer a higher commission scale on voluntary benefits because we understand the amount of work that is involved in selling them. Because the brokers’ sales efforts contribute significantly to employee participation in a voluntary benefits plan, we reward producers who follow our process to sell voluntary benefits with participation-based commissions. The higher participation levels they achieve, the more they can earn, particularly during the first year coverage is in place.
hristopher Covill of Aflac: Utilizing enrollment technology and effective communication media that maximizes employee engagement will allow brokers to offer voluntary benefit options to clients efficiently while paving the path to a good return on investment for the broker.
Glenn Petersen of MetLife: For many voluntary benefits, brokers earn a commission based on the premium sold. To maximize their commissions related to voluntary products, brokers are looking to work with carriers or administrative solution providers to help them market the offering, educate the employees about the need and solution, and facilitate the enrollment process. Streamlined enrollment options enable employees to conveniently enroll for multiple benefits, combined with educational information and tools help make enrollment easy for employees. Enrollment support tools, like educational videos, needs calculators and service avatars to guide employees through the process, can help drive employee interest, engagement, and ultimately, participation. Brokers can also maximize their return on investment, in terms of resources, by working with carriers and service providers that can simplify the initial case set-up for the employer and employees so that the ongoing program administration is smooth, requiring minimal broker involvement down the road.
3. How can you tell whether a particular voluntary benefit product will provide real value to your clients?
Shawn Smith of Transamerica: Think of how the product would fit with the clients overall benefit strategy. It should complement other core and ancillary products. Or consider creating a new voluntary benefit strategy that’s based on the client’s demographics, logistics, and benefit objectives along with consumerism and wellness education.
Glenn Petersen of MetLife: A benefit provider should carefully match benefit recommendations to the needs of an employer and employees by using tools, such as census and benchmarking data and employee surveys while aligning with an employer’s overall benefits delivery approach. It is important to understand the demographics of a particular workforce.
cott R. Llewellyn of Ameritas: There are dozens of voluntary benefits on the market, but a skilled agent will meet with the group and closely pair up the offerings to the needs of the group’s employee population. A good broker can tailor the offerings, simplify the process; and help the HR department attract and retain high quality employees.
Sean Duggan of Colonial Life: It’s all about choice and personalization. The idea is to offer a variety of products to give employees the choices to meet their different family needs. Nearly every employee can benefit from voluntary coverage because the products are designed to help fill gaps in coverage and add additional protection for financial risks.
Amy Friedrich of the Principal Financial Group: The answer is easy; ask the employees. Whether it is a formal survey or an informal conversation, talking to employees can help determine the benefits that they need and will purchase. Ask questions to uncover their needs. For example, “If you weren’t working, how long could you pay bills before tapping into your retirement? A month? Three months? Six months? A year?”
4. Are there certain types of voluntary benefits that go well with different types of employer groups, such as blue collar vs. white collar?
Mark Sylvester of Assurant: We’re seeing a greater need for accident and short-term disability coverage among blue-collar employees while white-collar employees tend to purchase critical illness and long-term disability coverage. However, it really depends on the employer-paid benefits they’re offered and the products needed to supplement them.
Amy Friedrich of the Principal Financial Group: One-size-fits-all benefits don’t meet the needs of today’s diverse employee groups. For example, a bank with a majority of single, female tellers probably has different benefit needs than a law firm with older, more highly compensated attorneys.
Scott R. Llewellyn of Ameritas: It all boils down to knowing your group. Brokers should tailor voluntary plans to the employees’ needs and their ability to afford the premiums. Benefits would be tailored differently for a company with workers whose average age is 28 than for a company with workers’ whose average age is 40. (By the way, 40 is the average age of a civilian worker in the United States.) For example, it may not make sense to offer a dental plans with orthodontics coverage to a young start up employer with the average worker’s age of 25. But it would make sense to offer the coverage to a employer with an average employee age of 35 since up and coming families need the coverage.
Glenn Petersen of MetLife: MetLife’s 10th Annual Study of Employee Benefits Trends found that an equal percentage of white collar and blue collar workers said that non-medical benefits like dental, disability, and life insurance, were very important influences in their feelings of employer loyalty.
Debbie Cecil of Unum: Most voluntary benefits are designed for a target market of employees earning $20,000 to $75,000 without access to financial planning.
Shawn Smith of Transamerica: The personal insurance needs for all employees are basically the same regardless of class, status or income. However, the benefit amounts will vary based on employees needs and disposable income.
Christopher Covill of Aflac: Voluntary benefit options are more about demographics and out-of-pocket risks than about white-collar versus blue-collar segmentation. Voluntary insurance policies, such as accident, critical illness, hospital indemnity, and disability help people cope with incremental out-of-pocket costs associated with serious accidents or illnesses that major medical insurance does not cover. Comprehensive benefit options, like voluntary insurance that extends beyond major medical insurance, can lead to higher employee satisfaction. Forty-nine percent of employees said “Improve my benefits package” is what current employers could do to keep them in their job, according to the 2012 Aflac WorkForces Report.
5. Which voluntary benefits are becoming more or less popular?
Sean Duggan of Colonial Life: We’re seeing strong interest from employees in supplemental health plans that will help cover their out-of-pocket expenses before major medical kicks in. The benefits from supplemental health plans also can be used to pay non-medical expenses that aren’t covered at all by major medical plans. Clients are very interested in these plans because they can be used along with a higher-deductible major medical plan to drive down their overall benefits costs. Cancer and critical illness plans are also very popular because nearly everyone has a family member or friend who has been touched by these kinds of health problems. They’ve seen the financial burden treating cancer or a stroke can cause for a family.
Debbie Cecil of Unum: Accident and critical illness have been the most popular benefits over the past three years.
Shawn Smith of Transamerica: In the past few years, critical illness and accident insurance appear to be the fastest growing voluntary products. Of course, life and disability insurance remain the most popular voluntary products. Recently, many group LTC carriers have exited the group market, thus hybrid permanent or term life insurance with an LTC component have become more popular as an inexpensive means of purchasing an uncomplicated LTC insurance product. Also, combining life, critical illness and LTC insurance into one product has created a more popular and affordable method of purchasing these three essential products as opposed to purchasing three separate policies.
Amy Friedrich of the Principal Financial Group: Voluntary disability is a product that has increased in popularity. This probably isn’t a result of changing needs, but a result of carriers and brokers doing a better job of simplifying a product that has been seen as complicated.
Christopher Covill of Aflac: Supplemental policies are becoming more popular, such as accident, critical illness, hospital indemnity, and disability. Also, many employers aren’t taking advantage of voluntary products available through group purchasing, which may provide cost savings to their company.
Mark Sylvester of Assurant: Critical illness is one of the fastest growing voluntary benefits in the industry due to growing awareness and availability. Critical illnesses can expose individuals to unexpected gaps in income protection. While health insurance may help cover many of the direct costs associated with an illness, related expenses such as lost income, child care, travel to and from treatment, high deductibles and co-pays may quickly diminish savings.
Scott R. Llewellyn of Ameritas: Many companies struggle to maintain contributions to employee benefits and some are forced to eliminate paid benefits. So voluntary benefits such as dental, vision and disability, have become top picks by employees. To the extent that voluntary benefits are being offered in lieu of employer-paid benefits, they are increasing as a percentage of what is sold today. In this economy, more people may be purchasing additional or incremental benefits above and beyond their employer benefits. Offsetting some of the lack in demand created by the down economy is a host of very new and creative voluntary benefits. Brokers are using these benefits to help increase their income given the new realities of lower commissions from medical carriers. Voluntary benefits will remain strong with dental, vision, life, disability and a host of others leading the way.
Glenn Petersen of MetLife: Voluntary benefits, as a whole, are gaining traction and popularity in the workplace. A decade ago, these benefits were largely confined to larger companies. Now, many smaller employers (fewer than 100 employees) are offering them to build employee loyalty. MetLife’s 10th Annual Study of Employee Benefits Trends found that 41% of employers say voluntary benefits represent a significant benefit strategy, up from 32% a year earlier. Employees like to have choices and popular products include life, auto and home, legal services, disability insurance, critical illness, accident insurance, and vision. Education helps drive popularity, too. One example of this is critical illness insurance, which is growing rapidly. Once the product was explained to them, fully 75% of employees surveyed in MetLife’s 2010 Critical Illness Insurance Awareness Study who did not own CII or had never heard of it found the concept appealing, with most even willing to pay the entire premium.
6. How do you choose a voluntary insurance carrier?
Shawn Smith of Transamerica: Many carrier spreadsheets are surfacing that include side-by-side product feature comparisons. It is difficult for the broker to stay abreast of product information in this manner due to consistent product enhancements and new product offerings that could test the validity of the spreadsheet. Company ratings, product portfolio, features, marketing materials, electronic product delivery systems, claims, billing, commissions, customer service and carrier representatives are important ingredients of choosing the right carrier. More importantly, products and services that provide a strategic needs-based benefit solution may help many employers that are searching for ways to cut benefits and benefit costs. For most employers, the number two operating expense is their employee benefits. If a voluntary benefits carrier can strategically provide a better overall benefit solution for the employer and employees, plus lower or minimize the employer’s overall benefits cost, they would probably be the best carrier choice for that employer.
Glenn Petersen of MetLife: An employer’s choice of benefits providers should include evaluation of financial stability, benefit delivery experience, the quality of administrative and claims capabilities, and breadth of products and solutions. In addition, it makes sense to evaluate the program that the carrier offers to make enrollment a simpler, more helpful process for employees and an efficient, informative and cost-saving solution for employers.
Amy Friedrich of the Principal Financial Group: All carriers have products, but the best carriers also have knowledge, data, and tools that put those products in context and support the customer experience. An example of how a carrier can move beyond product and pricing is to provide benchmarking data to help employers understand how their benefit package compares to that of their peers.
Scott R. Llewellyn of Ameritas: Selecting a carrier on price, alone, is a dangerous proposition because all carriers are not created equal. A carrier recommendation is the most important service a broker can provide to a group. Brokers put their reputation on the line with their recommendations. You wouldn’t select your hospital or doctor on their low price. Some carriers have customer service calls answered in foreign countries to hold down costs while some pay claims in weeks instead of days. Look for reputation, administrative support, ratings, experience and, most of all, the relationship with your agency. The company you select should have a solid history of proven performance. Also look at their relationships with the carrier representative. It is the people behind the company that are the most important.
Christopher Covill of Aflac: Brokers and insurance agents must take on the dual role of benefits advocate and educator to help protect the needs of employees and their families. Find a carrier with the following attributes:
• Financial stability.
• A reputation for high ethical standards.
• Quick claims payment turnaround.
• A great track record of customer satisfaction.
• Strong brand recognition.
Mark Sylvester of Assurant: Brokers should choose a provider based upon the complete package, including products and support.
Sean Duggan of Colonial Life: Some brokers want to default to a spreadsheet approach. But, to really get value for your clients and your agency, it’s important to base your decision on more than just products and price. Your voluntary partner should offer a broad portfolio of products; a variety of enrollment options and services; effective benefit communication and education; a reputation for great service; and proven experience in this market. Low price won’t matter if employees don’t value and understand the coverage or if your client has trouble with billing or claims.
7. When you are presenting voluntary products, do some types of coverage just naturally sell well together?
Shawn Smith of Transamerica: Gap, critical illness, and accident insurance naturally go well together since they can provide important first-dollar benefits for the out-of-pocket medical expenses associated with unpredictable and expensive medical claims. Life, LTC, and critical illness provide living benefits. Also, all three are significant family needs based benefits. Once again, life and disability are the foundation of voluntary benefits
Debbie Cecil of Unum: Life and critical illness products fit well together, as do the accident and critical illness products.
Mark Sylvester of Assurant: Critical illness and accident coverages seem to sell well together because they prepare employees for two very different, unexpected events.
Christopher Covill of Aflac: Voluntary accident, critical illness, hospital indemnity, and disability plans naturally sell well together.
Sean Duggan of Colonial Life: We really recommend taking an individual needs-based approach when presenting voluntary coverage. It’s important to listen to the employee and help identify the gaps in coverage and types of protection that person needs.
Amy Friedrich of the Principal Financial Group: The goal with voluntary benefits should be to help employers offer a more comprehensive benefit package when they can’t afford to pay for all the benefits. Voluntary products fit best when they fill gaps in employer-paid benefit