Thoughts on Group Insurance - a wholesale model in a retail world
You hear about it all the time – the focus of the group insurance market is shifting from the employer to the employee/consumer. We’ve also been hearing about it for a long time; I remember being part of a large carrier initiative on the “retail” market back in 1995. Early versions of the first “voluntary” life and disability products have been around since the late 1980s. Back in those days, we were first recognizing the “defined benefit to defined contribution” trend that was sweeping the retirement products market and starting to impact the group medical market as well – anybody remember “flex credits”?
I’ve often thought about why it’s taken so long for voluntary and worksite products – let’s define them as employer-sponsored, employee-purchased and paid for through payroll deduction – to become the major force many predicted twenty years ago. Is it because employers turned out to be much more paternalistic than we imagined? Because employees haven’t been ready – from either an awareness or education perspective – to accept responsibility for buying their own benefits?
It’s probably a little of both, but I think there’s also a third reason: the manufacturers of the products (group insurers) and the primary distribution channel (employee benefits brokers) have not been ready to offer these products in a way that will get consumers to buy them. We are operating a wholesale model in what is quickly becoming a retail world (or, as the U2 song says, we’re “stuck in a moment, and we can’t get out of it”).
Even after more than 25 years of effort – the first “data capture” project I remember started in 1987 – group insurers still have very little information about the individuals they are insuring. Even if they do have this data somewhere in their legacy systems, they can’t access it to use it for pricing, service offerings, billing, communications, etc. Brokers aren’t much better – many of them don’t even want to ask their employer clients for updated census information for fear of inconveniencing them, or worse, bringing up the possibility that the coverage will be shopped using a different broker. In these days of HR information systems (e.g. PeopleSoft), how hard can it be to run a census once a year? Related to this is what I’ll call “the portability problem.” As people move from employer to employer during their careers, they also move from one group insurance plan to another; most group products aren’t portable, so employees change carriers and products – and relationships – as often as they change jobs.
So, in a wholesale, business-to-business model, group brokers and insurers are flying blind. How can they build lasting relationships with people if they don’t know who they are, or how to reach them, or how to follow them throughout their careers? There are enrollment and communications specialists emerging in this market, but in my view there are too few to really move the needle. There are also insurers who are using an individual product model to break into the worksite retail market. Because they have been dealing with individual insureds for decades, they have the administrative, risk management and communication skills and tools to do what the group insurers can’t, and I think they have a big advantage going forward.
Gen Re and Spring Group partnered on new research into this market in late 2011 with the release of the first phase of our Voluntary Pulse study. Some of the major findings are summarized in the diagram below.
As consumer needs and expectations evolve and become better understood, it will be incumbent upon group insurers and brokers to develop better models and tools to take advantage of this trend, which is finally arriving after all these years.
We are accepting participants for the second phase of Voluntary Pulse right now. If you are interested, please contact Marcy Updike, VP Market Research, at email@example.com.