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John Thornton

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John Thornton is executive vice president, Sales and Marketing, at Amalgamated Life Insurance Company, White Plains, NY. In this role, Thornton applies over 30 years of insurance industry experience to lead the sales and marketing functions of Amalgamated Life Insurance and other entities within the Amalgamated family of companies. His effective strategies have led to Amalgamated Life’s steady growth of its voluntary portfolio and related sales. As a member of the senior executive team, he is actively involved in the operations, oversight and direction of the organization. Thornton can be reached by email at: [email protected]. Web: www.amalgamatedbenefits.com.

Helping Clients Ease The Pain Of High-Cost Specialty Drugs

John Thornton
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Helping Clients Ease The Pain Of High-Cost Specialty Drugs

There is no denying the pain high-cost specialty drugs are inflicting on employers and employees alike. The 24th Annual Willis Towers Watson Best Practices in Health Care Employer Survey found that “increasing health care affordability for employees, while controlling costs for the organization” was cited by 93 percent of employers surveyed. When cast against the projection that employers’ savings and pharmacy benefit managers’ (PBMs) profits are declining, the need to effectively address the high costs of specialty drugs becomes even more evident. This is particularly true since these costs have continued to increase.

In its analysis of IQVIA National Sales Perspective Data, the Assistant Secretary for Planning and Evaluation (ASPE, the principal advisor to the Secretary of the U.S. Department) found that the percent of spending for retail specialty drugs had increased by 22 percent and the percent of spending for non-retail specialty drugs had increased by 20 percent over the period from 2016-2021. While helpful in leveraging their purchasing power gained through extensive pharmacy networks, PBMs have not been able to drive a solution to this problem. There are, however, some strategies and technologies that are making a difference. A look at these solutions in the context of today’s specialty drug landscape is a sound step toward achieving lower costs. For insurance brokers and agents, learning about these strategies and solutions and sharing them with clients is another way to demonstrate your value as a trusted advisor.

Today’s Specialty Drug Landscape
To gain perspective on just how high specialty drug costs are, consider the following:

  • The ASPE reported that the cost of specialty drugs has increased by 43 percent from 2016 to 2021 climbing to $301 billion in 2021.
  • The ASPE’s analysis of IQVIA National Sales Perspective Data also found that by 2021, specialty drugs represented over 40 percent of all retail drug spending and almost 70 percent of non-retail drug spending.
  • According to GoodRx research, the top three most expensive specialty drugs, Zokinvy, Myalept, and Mavenclad, all cost over $60,000 for the typical monthly supply. AARP’s Public Policy Institute’s Rx Price Watch noted that the most expensive specialty drugs have annual costs as high as $750,000 annually.
  • Cited by the AARP Public Policy Institute, which has been reporting on prescription drug price changes since 2004, in its latest Rx Price Watch was that between 2019-2020, the average annual increase on specialty drugs was 4.8 percent or over three-and-a-half times higher than that period’s general inflation rate which was 1.3 percent.

The lack of competition among specialty drug manufacturers is one reason they have been able to continuously raise their prices. This has caused employer groups, the AARP, and other public groups to lobby Congress to develop new legislation. Those efforts have been productive in part and have prompted the inclusion of new requirements on manufacturers imposed by the Inflation Reduction act of 2022 and signed into law by President Biden August 16, 2022. This legislation includes provisions that:

  • Lower prescription drug costs for people covered by Medicare that would cap out-of-pocket costs incurred by older adults, enable Medicare to negotiate the prices of brand name and biologic drugs without generic counterparts, as well as biosimilar equivalents covered under Medicare Part D,which are among the highest-spending Medicare covered drugs and are nine or more years for small molecule drugs, or 13 or more years for biologicals from receiving FDA approval.
  • Require drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries.
  • Cap Medicare beneficiaries’ out-of-pocket spending under the Medicare D benefit by eliminating coinsurance above the catastrophic threshold in 2024 and then by adding a $2,000 cap on spending in 2025.

Employers Take Additional Measures
To address the high costs, employers/plan sponsors and their covered employees/members are pressuring PBMs to be more transparent by providing reports detailing their pharmacy expenses and employees/members utilization. They are more readily contracting with medical case management firms for their utilization management services. The utilization management services encompass the review of individual employees/members’ treatment plans to determine the medical appropriateness of those plans by applying evidence-based data reflecting URAC standards pertaining to different protocols. Where specialty drugs are deemed unnecessary or not appropriately utilized, the case manager will flag that transaction enabling their costs to be eliminated or reduced.

What many employers/plan sponsors may not be as familiar with are newer ways that can help them contain and reduce their specialty drug costs. Among these are:

  • Alternative funding, which 14 percent of employers and seven percent of health plans currently use, according to PSG Consulting, but which many regard as not being sustainable.
  • Value-based contracting, a performance-based reimbursement agreement which, to date, has not been validated by enough evidence, and is associated with various obstacles including difficulty agreeing on and tracking outcomes, lack of resources, and low buy-in.
  • Specialty rebates which PSG Consulting reported that 66 percent of health plans currently receive for specialty drugs, but only 27 percent of employers receive.
  • Patient assistance programs which enable patients to receive their drugs even if alternative funding is not available by tapping into drug manufacturers assistance dollars for patients in need on a case-by-case basis. Providers of these services leverage their negotiating strength, as well as clinical expertise, to provide a patient-centered service.
  • Advanced pharmacy benefit administrative (PBA) services which enables plan sponsors to better manage their specialty drug costs by giving patients access to a national network of at a minimum 68,000 retail pharmacies with mail order capabilities. Additionally, these PBA services leverage online technologies featuring easy-to-use and navigate online platforms with intuitive functionality. Through a user-friendly dashboard, PBA service portals provide 24/7, real-time access to drug and other health care information including educational videos on various drugs, along with patient alerts regarding prescription refill reminders. PBA services, used in concert with utilization management, specialty drug rebates and reimbursement cost management programs, can achieve drug costs savings of up to 40 percent and also lower medical stop loss insurance costs.

Taking the Right Steps Now
Helping clients tackle the high costs of specialty drugs demands a strategic and integrated approach which utilizes all viable measures. Critical to this approach is a completely transparent contract with a PBM with comprehensive reporting which highlights those specialty drugs being used by covered individuals and their associated costs. Employers/plan sponsors should also be confident that their PBM is applying any and all manufacturer rebates, reimbursements, and drug discounts. Also important are utilization management services to ensure that specialty drugs are being used in accordance with clinical evidence and proper protocols. PBA services too should be given serious consideration for use along with these and other measures suitable to the employer/plan sponsor, based on the extent to which they are insuring individuals with chronic and/or catastrophic illnesses requiring specialty drugs.

The Peterson KFF Health System Tracker found in 2019 that almost 50 percent of all health spending was attributed to just five percent of the U.S. population. This five percent group averaged $61,000 in annual expenses with the top one percent averaging over $130,000 annually. The double-digit growth trend in specialty drug utilization is a function of both the increased incidence of complex, chronic conditions like cancer, rheumatoid arthritis, multiple sclerosis, cystic fibrosis, Chron’s and hepatitis C virus, coupled with new, expensive therapies for prevalent conditions such as migraines and asthma. Formulary Watch reported that inflammatory disorders rank first in health plan costs at 35 percent of the 2021 specialty drug expense followed by oncology at 26 percent and multiple sclerosis at seven percent. Biosimilar drug use accounted for 22.5 percent of the 2021 specialty drug spend and is expected to have a significant impact on lowering costs in the years ahead as more of them are introduced. In 2023 alone, an estimated 12 biosimilars could become available. Staying informed on the latest developments in specialty drugs, biosimilars and related trends is also important for employers and plan sponsors striving to control their costs particularly those related to specialty drugs.

Closing Remarks
High-cost specialty drugs are an integral element in today’s healthcare landscape, and there has been some progress toward controlling their rising costs. By raising clients’ awareness of new strategies and technologies available to them and helping them access and screen qualified providers of related services and technologies, insurance brokers are themselves becoming part of a much needed multi-prong approach to gaining control over specialty drug costs and their effect on both employers/plan sponsors and their employees/members.

Photo by Julie Viken

2023 Life Insurance Industry Trends

John Thornton
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2023 Life Insurance Industry Trends

The Latest Data, Evolving Business Models, Challenges And Opportunities

To borrow from Bob Dylan, for life insurance carriers, brokerage general agencies (BGAs), brokers and agents, The times, they are a-changin. Based on the research and findings of leading business consulting groups, research firms, industry associations and insiders, the past few years have ushered in new industry dynamics reflected in many trends already underway in 2022 and will impact the industry in 2023 and beyond. According to S&P Global Market Intelligence’s US life outlook 2023, last year the U.S. life industry experienced a 3.4 percent increase in combined individual and group life insurance premiums year over year for the first nine months of 2022. In fact, LIMRA and the National Association of Independent Life Brokerage Agencies (NAILBA) reported that BGAs and independent marketing organizations (IMOs) had increased revenues in 2022 over 2021, with 50 percent of these intermediaries reporting 2022 revenues of $5 million or more compared to 35 percent in 2021.

While LIMRA’s Corporate Vice President and Director of Insurance Product Research, Elaine Tumicki, projected 2023 life insurance sales to be “flat to down,” the year ahead is not without its opportunities for insurance professionals. Beyond those introduced through digital transformation, consumers’ awareness of the need to take greater responsibility for their financial security and not rely on government programs is growing. There are strategies that can be deployed to capture new markets, extend sales with existing customers, and leverage industry partners, resulting in increased revenue. Gaining greater insight into today’s market will help BGAs, brokers and agents position themselves for a strong 2023.

Navigating Today’s Life Insurance Landscape
Consider what has not materially changed within the life insurance industry over the past year. McKinsey & Company reports that:

  • Nominal GDP growth at a Compound Annual Growth Rate (CAGR) of four percent continues to outpace premium growth with its CAGR of two percent.
  • The industry continues to struggle to generate returns in excess of the cost of capital, as well as to revise their performance in order to lift themselves out of the bottom performance quintile where many have languished for a decade.
  • Carriers have not yet addressed their cost base from a structural standpoint such that, since 2003, their costs as a share of revenues have increased.

The industry is feeling the effects of the pandemic, not to mention rising inflation and related inflation-driven pressures on disposable income as well as rising interest rates. With that said, there are expectations that there will be a turnaround in 2023 assuming easing of inflation and interest rate pressures. In its Sigma 4/2022 World insurance inflation risk, front and centre, Swiss Re predicted global life insurance premiums to increase an estimated 1.9 percent.

The Haves and Have Nots
Currently in the U.S., an estimated 106 million Americans lack life insurance or have inadequate life insurance coverage according to LIMRA’s and Life Happens’ 2022 Insurance Barometer Study. That same study found that 68 percent of life insurance owners said they would be financially secure if their households’ primary wage earner was to suddenly pass away. This is in contrast to just 47 percent of non-life insurance owners who felt this way. LIMRA’s 2022 data shows the life individual market share breaking down as follows:

  • Brokers, broker-dealers, personal producing general agents, and registered investment advisers: 50 percent.
  • Agency building, multiline exclusive and home service agents: 39 percent.
  • Remaining 11 percent of market share going to direct response marketing efforts with no agent involvement, and financial institutions, worksite, and other channels.

Gaps in insurance are evident in two distinct markets—women and black Americans. Notably, LIMRA reports that the life insurance ownership rate for women is actually declining, having dropped 10 points to 47 percent. This is due largely to their lack of knowledge and related misconceptions (e.g., that it is too expensive) about life insurance when compared to men. LIMRA’s studies also found that 56 percent of black Americans own life insurance and that many of these individuals recognize its valuable role in protecting their families. Still 46 percent of black Americans also realize they need to purchase life insurance or buy more coverage. Like many women, a majority (75 percent according to LIMRA) of black Americans overestimate the cost of life insurance and also hold the misconception that they would not qualify for coverage. Clearly, each of these markets where insurance coverage is lacking represent opportunities for insurance professionals.

From a geographic perspective, there are some states in the nation where life insurance sales are particularly low compared to other states. According to the American Council of Life Insurers, the states/district with the lowest individual life insurance ownership include Alaska, Delaware, the District of Columbia, Hawaii, Idaho, and Maine. Those with the lowest group life insurance ownership include Alaska, Arkansas, Hawaii, Idaho, Iowa, and Maine. For insurance professionals serving these regions, there are untapped market opportunities to capture.

A survey by Forbes found that less than one in five U.S. adults is covered by both an employer-based life insurance policy and a personal life insurance policy. Approximately one in four American adults are covered only by an employer-based life insurance policy. Therefore, selling voluntary life insurance policies at the worksite presents another sales opportunity for insurance professionals.

Opportunities and Challenges
In addition to capturing untapped or underserved markets, insurance professionals have an opportunity to leverage current market trends. Chief among these are:

  • Utilizing advanced digital and online capabilities to increase productivity and improve customer engagement and service. Digitalization is also effective in capturing sales with the younger “digital native” generations who value online capabilities in their product/service providers.
  • Partnering with professionals in aligned fields (e.g., estate planning attorneys, wealth managers, financial planners, bankers, other insurance professionals) to expand one’s network.
  • Considering creating partnerships whereby life insurance products can be embedded in other product/service sales such as opening a bank account.
  • Anticipating Environmental, Social and Governance (ESG) to win over socially conscious consumers who value doing business with organizations that show a commitment to protecting the planet, social causes, and workforce diversity and inclusion.

Along with leveraging these market opportunities, insurance professionals will need to be proactive in order to mitigate ongoing challenges that include:

  • Capturing and converting sales leads not only by targeting underserved markets, but also by following best practices in sales follow-up, customer engagement and ongoing communications.
  • Overcoming consumers’ lack of financial literacy, specifically as it relates to life insurance misconceptions, by being fully transparent with them and taking the time to educate them on policy features and terms, both during in-person meetings as well as through online information and product videos.
  • Mitigating increasing cybersecurity threats by ensuring that your information technology systems and customers’ sensitive personal data are fully-protected by contracting with a third-party cybersecurity service provider that can provide cyber threat penetration testing, vulnerability assessments, remedial measures for detected threats, advanced technologies, employee education and training on best practices, review of incident response and business continuity plans, and ongoing information and monitoring for the latest threats.

Final Thoughts
While it is true that marketing life insurance today in an environment of shifting models, increasing economic pressures, the demand for digitalization, and an underlying lack of consumer understanding of life insurance and its value proposition is not for the faint-hearted, those with the inclination to evolve along with the industry are most likely to succeed.

Advising Plan Sponsors On Third Party Administrators

John Thornton
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Advising Plan Sponsors On Third Party Administrators

Administering health and welfare, pensions, 401k and annuities funds is a complex and challenging task. These plans are governed by various federal laws which frequently change, requiring plan sponsors to remain vigilant and up to date on their compliance requirements. For the self-insured, single-employer, multi-employer and Taft-Hartley plans that do not have personnel with adequate experience and knowledge of employee benefit plan administration and regulations, a viable option is to outsource this function to a Third Party Administrator (TPA). For brokers, being able to guide their clients in understanding the role and value of a TPA, and how to select one, is a service that positions them as trusted, knowledgeable advisors.

TPA Overview
Some believe the TPA industry was established with the codification of the 1947 Taft-Hartley Act, also known as the Labor Management Relations Act. This legislation primarily restricted the activities and power of labor unions, prohibiting certain practices and requiring their disclosure of financial and political activities. Today, IBISWorld estimates that there are 129,348 TPAs and insurance claims adjusters in the United States; a 0.4 percent increase over 2021 figures. From 2017 to 2022 the industry has achieved this 0.4 percent annual growth rate with continued growth projected.

Simply stated, a TPA works on behalf of a fund providing oversight and management of its pension, 401k and annuity plans as well as health and welfare plans including health, dental, disability and paid family leave claims processing. Many also provide other related services such as payroll auditing, medical stop loss and medical care and utilization management. Depending on the plan sponsor and the contracted service, the TPA will provide a customized offering.

For example, a TPA contracted for its pension, 401k and annuity plan administration will maintain records of participant benefits, eligibility and payment history; maintain full financial records; process pension and 401k applications in compliance with fund benefit rules; work with plan professionals; process annuity plan distributions and loan applications; assist in preparing government filings; and prepare and issue 1099s as well as administer fiduciary liability and fidelity bond insurance. Additionally, the TPA’s role will extend to attending and reporting at trustee meetings; assisting with annual audits; managing billing, collection and reconciliation of monthly employer contributions or withdrawal liability payments; data maintenance; and delinquency and standard reporting. Other functions include handling plan member inquiries, managing appeals, maintaining plan records, and providing the general administration, coordination and communications with plan professionals such as the accountant, auditor, attorney and actuary.

TPAs providing health, dental, paid family leave and disability claims processing are responsible for the complete administration and processing of these claims and their accurate adjudication in compliance with benefit rules. Detailed claims reporting is also provided along with a medical management partner for the clinical review and analysis of high dollar claims. As part of the claims processing service, the TPA will also respond to member inquiries regarding their eligibility and claims status, along with providing member-friendly communications designed to promote responsible benefits utilization.

Plan sponsors who enter into a TPA agreement for health and welfare fund administration can expect a focus on due diligence, fiscal prudence, and the fund’s fiduciary responsibilities. Towards achieving these objectives, and as with pension, 401k and annuity administration services, the TPA maintains records of employer contributions and participants’ benefits, eligibility and payment history, as well as full financial records. The TPA will assist with annual reports; distribution of Summary Annual Reports; attend and report at trustee meetings; assist in the preparation of government filings; administer fiduciary liability and fidelity bond insurance; manage appeals; maintain records; and provide for the general administration, coordination and communications with other plan/fund professionals.

In all of these service areas, the TPA strives to help plan sponsors meet their fiduciary responsibilities, maintain regulatory compliance, optimize their benefits administration, achieve more cost-efficient benefit programs, and support a positive employee/plan member experience.

TPA Selection Criteria

  • Brokers advising their clients on the selection of a TPA should focus on several key criteria. Besides seeking out a TPA that has years of experience and a proven track record serving your client’s business/plan model (i.e., self-insured, single-employer, multi-employer, Taft-Hartley plan), seek out a TPA that has:
  • A highly qualified and credentialed team of experienced benefits administrators, claims analysts, finance and eligibility processors, and payroll auditors;
  • A broad portfolio of solutions which, in addition to pension and annuity administration; health, dental and disability claims processing; and health and welfare fund administration; includes medical stop loss coverage, payroll auditing and medical care and utilization management;
  • Experience working with a broad network of HMOs, PPOs, and other managed care providers;
  • Advanced information technologies designed to support employee benefits administration processes;
  • The willingness to be flexible and customize services to meet each client’s needs;
  • A strong focus on regulatory compliance, fiduciary responsibility, and risk mitigation;
  • Stringent quality controls backed by regular performance benchmarking; and,
  • High standards of customer service including courteous, responsive customer service representatives to address both plan sponsors and members inquiries promptly as well as plan participants’ education via online information and/or live/virtual seminars to raise awareness of how their benefit decisions and health and lifestyle choices influence a plan’s fiscal condition.

The TPA’s Value Proposition
In addition to helping address tasks for which many organizations are not qualified to perform, TPAs deliver a strong value proposition across the entire employee benefits continuum. For funds, alleviating a cumbersome burden and replacing it with a seamless, high quality plan administrator cannot be underestimated. Neither can the financial benefits received when potential litigation and related fines for non-compliance are reduced, health plan utilization optimized, and employee retention improved for lower recruitment costs. Plan members gain a competent, fully-engaged resource to address their questions, protect their benefits, and facilitate their claim payments.

For brokers and other benefit consultants, TPAs deliver both soft and hard benefits. There is the peace of mind gained in knowing they have steered a client to a reliable, valuable resource to manage a complex area of their operations, and the enhanced client trust and loyalty that elicits. There are also the financial opportunities that can stem from aligning with a reputable TPA, which can refer clients to the broker or consultant. Additionally, through the TPA relationship, brokers and consultants can gain greater insight into their clients’ claims history which can be leveraged to present other products such as voluntary benefits, to help shift benefit costs from plan sponsors to members, and medical stop loss to address high medical claims.

When discussing a TPA with a client, it is important that brokers and consultants also remind their clients that they still must recognize their fiduciary and recordkeeping responsibilities. An agreement with a TPA does not constitute a plan sponsors’ complete abdication of their responsibilities in accordance with government regulations including those imposed by the IRS.

Capture Higher Life And Benefit Sales

John Thornton
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Capture Higher Life And Benefit Sales

Life insurance sales have inherent challenges regardless of market conditions or consumer trends. First, many people simply do not understand insurance or its value proposition. If they do, its association with end of life or illness causes many individuals to keep putting off a purchase. With that said, the pandemic did heighten awareness of the importance of life insurance and did, in fact, increase its sales. LIMRA reported that the number of life insurance policies increased two percent in 2020, largely in the whole life and term categories. Do not, however, count on this trend persisting as industry data suggests that concern over the mortality risk has been steadily declining over the past years and likely to continue. To overcome these and other challenges associated with life insurance sales, brokers will need to leverage market conditions, consumer trends, new technologies and best practices to expand their insurance and benefit sales.

Current Challenges and Market Conditions
Its unpopular purpose and the declining concern over mortality risk notwithstanding, brokers face other challenges in selling life and other insurance products. Getting back to the perception issues, a major one relates to price. In the LIMRA 2021 Barometer Study, it was found that over half of Americans overestimate the cost of insurance by as much as three-fold. Erroneous cost values were more pronounced among the younger generations with 44 percent of Millennials incorrectly estimated the annual cost of a 20-year term life insurance policy for a healthy 30-year-old at over $1,000 per year versus the actual average cost of approximately $165 per year. The good news is that many consumers admit to not understanding life insurance basics with the Barometer Study finding that less than one third said they were “very” or “extremely knowledgeable” about life insurance.

Another challenge brokers need to overcome is the heavy reliance on employer-sponsored coverage. U.S. Bureau of Labor Statistics found the median life insurance coverage offered at the workplace to be either a flat sum of $20,000 or an employee’s one year salary. This is hardly sufficient to cover the expenses of an individual, two-income household or a family. LIMRA’s data suggests that there are an estimated 60 million uninsured and underinsured American households with an average coverage gap of $200,000.

Industry Measures
Recognizing the need to build greater financial literacy specifically where life insurance is concerned, the industry has taken measures to address the problem. LIMRA and LOMA, the American Council of Life Insurers, Finseca, the Million Dollar Round Table, the National Association of Insurance and Financial Advisors, the National Association of Independent Life Brokerage Agencies, and Life Happens, a nonprofit whose mission is to help consumers take personal financial responsibility through their purchase of life insurance and related products, have joined forces and launched the Help Protect Our Families campaign. As part of this campaign, these associations will be developing consumer insights and industry best practices to help insurance professionals reach those families with inadequate coverage.

Apart from this initiative, another measure being applied is that of automated underwriting. It is believed that more consumers would purchase coverage if underwriting procedures were simplified; for example, if they could avoid a medical exam. There is also a growing trend toward continuous underwriting, which applies data and digital connectivity to personalize underwriting based on a customer’s personal data and engagement with the insurer. This process also will help insurers to direct leads to their sales channel to better meet a customer’s needs. A multichannel approach which reflects a higher degree of customer personalization will be used to increase life insurance sales, as well as extend the relationship to encompass the sale of other products. McKinsey & Company’s The Future of life insurance: Reimaging the industry for the decade ahead projects that this approach will not only help reduce the cost of acquiring a customer by up to 50 percent, but will also increase new premiums by five to 10 percent, and lower customer turnover by up to 30 percent.

Another example of how the insurance industry is transforming is the so-called “engaged wellness ecosystems” and “pay as you live” systems. Reflecting a shared-value economic approach, these systems reward customers who follow healthy behaviors (e.g., annual check-ups, exercise, healthy eating, etc.) with lower premiums.

While the emphasis on health management is not new, the approaches coming from insurers directly to consumers, along with the greater emphasis on personalization, increased consumer engagements through mobile devices, and a receptivity to more flexible underwriting are new. There also has been an expansion of value-added services by insurers who realize that helping their customers with challenging insurance-related administrative or health management tasks is advantageous in keeping policies in force and expanding the customer relationships.

Technology
Not to be underestimated is the role of technology in helping increase life insurance and benefit sales. Currently, many brokers rely on outdated information management systems that are not keeping pace with today’s tech-driven communications. Customers, especially the younger generations, rely on their mobile devices heavily to communicate, bank, pay bills, research purchases, and make purchases online. Brokers who leverage new technologies to facilitate customer engagements, as well as to capture more data for better targeting, have a competitive advantage. Today, there are insurance broker-specific platforms that enable a broker to manage a prospect’s entire journey through the sales cycle and beyond to customer status. These platforms optimize prospecting, customer communications, data entry and overall productivity.

Mobile apps have become standard today with carriers providing them to share product information, policy features, pricing, etc., all readily accessible at any time. More and more insurance apps today display features such as AI chatbots to expedite customer and broker/agent communications, as well as push notifications to keep customers updated. There are also apps for broker employees to help them with everything from onboarding a customer to keeping track of important customer data, and accessing policies, quotes, notifications, claims and documents.

Artificial Intelligence (AI) driven solutions will continue to expand with insurance carriers leveraging AI and related technologies such as Machine Learning, Fuzzy Logic and predictive analytics to improve their prospect-to-customer conversion rates, advance their risk assessments and related pricing, and optimize their claims processes. In the most advanced applications, we are now starting to see next-generation digital insurance agents support the role of their human peers. With an Alexa-like approach and human-sounding voice, these digital agents are helping improve broker productivity, answer customer inquiries quickly for faster resolutions, reduce risks, and promote better customer service and satisfaction.

Best Practices and the Human Touch
Digital agents are by no means a replacement for a broker/agent. The best brokers know how to expand their life insurance and benefit sales by tapping into what matters most to prospects and customers. They have not waited for industry initiatives to take a proactive role in educating prospects and customers regarding life insurance; the different types, their roles and how to supplement one sale with other products in order to promote optimum financial protection. They are actively involved in the industry, staying abreast of new laws, regulations and trends affecting carriers, brokers, employers/plan sponsors, employees/plan members and the general public. They are also routinely cultivating new strategic alliances with carriers, accountants, attorneys, investment advisors and other professionals.

To increase sales, successful brokers also are looking at the changing skills needed in their businesses. In addition to having “digital natives” among their staff to navigate new technologies, platforms and apps, it is also important that there be skilled customer-facing professionals able to serve in today’s multicultural, multigenerational marketplace. That requires having some multilingual staff, as well as individuals who can relate to the younger generation and aging baby boomers. In other words, brokers need to future-proof their workforces so that they can succeed into the future. At the core of all these practices should be a focus on personalizing the customer experience and adherence to proven best practices for those selling life insurance and benefits—which are to conduct annual reviews, always introduce new products/solutions and, when selling to employers, unions and/or associations, make sure that the focus is not just on group products, but also on voluntary benefits which continue to show increasing demand.

Differentiation–A Key Strategy To Capturing The Middle Market

John Thornton
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Differentiation–A Key Strategy To Capturing The Middle Market

The past year has impacted businesses like no other preceding year. No sector or industry avoided the disruptions introduced by an unprecedented global pandemic. The middle market, which has often escaped some the tribulations both larger and smaller businesses have faced, too felt the pandemic’s impact as suggested by a HawkPartners survey. It found that unknown risks such as those presented by the pandemic were potentially the most disruptive to the middle market. Their usually active M&A activities were suddenly halted. Readily available financing became constrained, and new issues associated with remote workers now had to be addressed. Insurance brokers might be questioning what this has to do with them. Well, one thing learned from the past year is that the brokers that dared to separate themselves from the pack, especially during dark periods, are the ones that companies most gravitate towards. This is particularly true for the middle market. Knowing what strategies should be deployed and what offerings should be highlighted to differentiate your brokerage from others is a pandemic-oriented strategy that will also serve brokers well into the future.

Why Differentiation is Important Now
Middle market companies traditionally do not have their own full-time risk professionals as larger companies do. As such, they tend to rely heavily on their brokers for advice relating to their employee benefits and P&C lines of coverage. This reliance tends to foster long standing relationships, assuming the broker is proactive in meeting the evolving needs of middle market businesses. Responsiveness, ability to solve problems and being accountable for their products and services are significant attributes needed to build successful relationships. If not, data suggests that middle market firms will switch loyalties.

The market research firm of Greenwich Associates found that at least 20 percent of this market is inclined toward competitive offers. Research suggests that competitors can win over a middle market firm by projecting broader offerings, specific industry knowledge and experience, and broader networks. They also value brokers who are attuned to what is occurring in the market–whether that is good or bad. Two years ago, when U.S. middle market companies were thriving and maintaining revenue growth, but experiencing a tightening talent market, brokers had the opportunities to introduce market-responsive voluntary benefits that helped these companies attract and retain workers. Today, as they grapple with the effects of the pandemic, brokers too can demonstrate extra value and stand apart from an all-too-common transactional approach by advising their clients on other services that can help them reduce risks, contain costs, and enhance employee relations.

The tide is turning again with a more positive outlook ahead. In its Q3 2020 Middle Market Business Sentiment Report for which 400 U.S. middle market leaders of companies with annual revenues between $10 million to $2 billion, KeyBank found that despite COVID-19 having taken its toll on the middle market companies, 70 percent of the survey respondents in June 2020 said the impact has not been as bad as anticipated. In fact, compared with how they felt in March 2020, there was a more positive attitude reflected. Fifty-one percent surveyed in late June were optimistic about their business’ performance. For brokers, there is once again the opportunity to be proactive by adopting new strategies to differentiate themselves from others in order to retain middle market customer loyalty, capture new clients and drive higher sales.

Strategies for Differentiation
Here is something you may know but might not want to hear. When determining whether or not to retain their current broker, many middle market companies will cite price as the determining factor. Whenever a product becomes commoditized and price is a driver of sales, it is essential that other value-added services be introduced. For example, offering financial/insurance education to employees is something the company can leverage in two ways. By demonstrating a concern for its employees’ health and financial well-being, the company increases employee morale, productivity, and retention. There also is a benefit to the company when more employees adopt healthier lifestyles, thereby reducing risks and related insurance costs, and when they begin to understand the value of different voluntary insurance products which they then purchase to reduce their financial risks and the associated stresses that otherwise would interfere with their productivity and well-being.

Product innovation is another way to retain and win over middle market companies. If you are the broker that introduces a leading-edge specialty drug cost management service, you will be recognized as a proactive professional always seeking out new solutions for your clients. If you couple that with informing your clients about other synergistic services that can help them contain healthcare costs or reduce risks such as medical case management services, nurse helplines, telemedicine platforms, etc., you further differentiate yourself from others. Another example of a synergistic offering would be employee benefits third party administrator (TPA) services. High quality TPA services not only alleviate a company’s benefits administration but also improve their regulatory compliance, thereby reducing risks associated with noncompliance and the associated penalties. A Deloitte Center for Financial Services Middle Market Insurance Consumer Survey found that “a significant percentage of respondents were open to the idea of having insurers arrange a much wider array of business services.”

Middle Market Responsive Insurance Solutions
Traditional products too can be leveraged as a way to demonstrate added value. Knowing what products are especially timely to companies can provide a further opportunity to strengthen a client relationship or build a new one. Voluntary products continue to have high value to middle market companies for the reason previously cited–attracting and retaining talent. Study after study has found that employees seek out employers that offer a wide selection of benefits that meet their needs. A study by Corestream found that 68.4 percent of employees said that voluntary benefits have a positive effect on their decision to join or remain with a company. In addition, 71 percent indicated they wanted their employers to offer more of these benefits. For brokers, this is a win-win. They can demonstrate added value to their middle market customer by presenting more, market-responsive voluntary benefits, while at the same time they can capture the high upfront commissions many voluntary products offer. Even after they level off in subsequent years, the approximate 10 percent is still higher than the three to seven percent most health plans provide in commissions.

Group life insurance, too, is something middle market companies purchase and, for brokers, it is a very “plug and play” product which makes it more profitable than products requiring a lot of details, administration and due diligence. Another example is medical stop loss insurance; a solution that provides value across diverse vertical markets and not all brokers offer. By working with a carrier that provides flexible Specific and Aggregate Stop Loss Options, a broker will be valued by middle market companies. Seek out Specific Stop Loss solutions that offer a wide range of run-in and run-out and paid options, annual limit of liability up to unlimited, aggregate specific deductible and a terminal liability option. As for Aggregate Stop Loss, policies that offer corridors set at 125 percent, as well as other corridors by exception, limit of liability up to $1 million with higher amounts subject to approval, monthly aggregate accommodation, and a terminal liability option will be solutions that appeal to middle market companies.

Being a broker standout in the middle market today requires a bit more strategy, proactivity and responsiveness, an orientation toward value-added consulting, and a portfolio of solutions that meet this lucrative market’s needs.

Leveraging The Latest Trends In Life Insurance

John Thornton
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Leveraging The Latest Trends In Life Insurance

The past year will be remembered for many things, not the least of which is the global pandemic that disrupted life as we knew it. As it persists, but with the vaccines now being distributed, there is reason for optimism. For the life insurance industry, the latest data suggests better days ahead. In its latest research, LIMRA noted that 2020 saw the U.S. life insurance market having contracted three to seven percent compared to 2019. In September 2020, however, LIMRA reported that, in the second quarter of 2020, total individual life insurance new policy sales had increased two percent. LIMRA is now projecting a slow recovery in 2021 and 2022. Cited was LIMRA’s survey result that six in 10 Americans reported having a heightened awareness regarding the need for life insurance stemming from the pandemic. Term life sales, which LIMRA projected to increase as much as seven percent in 2020, is expected to benefit most in 2021. The pandemic, as a driver of developments in the life insurance industry, was not the only one. There were other trends which have introduced new sales and business opportunities for brokers/agents in 2021.

Trends and Developments
The pandemic’s influence
Staying on the pandemic for a moment, in addition to raising awareness of the importance of life insurance, it also brought attention to online sales. With remote working and social distancing in place, many consumers—especially the younger digitally-oriented generations—went online to purchase insurance. The ease in which this can be done with a simple Google Search, coupled with the countless online resources which compare products and costs on single websites, made this option easy. Mobile apps further supported online insurance purchases. Between March and May of 2020, Google Search traffic for “life insurance” products increased 50 percent. It is no surprise that a Deloitte survey found 55 percent of North American insurers are accelerating their digital processes in order to better accommodate the market and remain resilient.

Insurers that empowered their broker/agent networks with online product information and digital solutions have further helped drive more sales. Additionally, many insurers have become more proactive in supporting their sales networks with increased sales management and prospecting support. They have established carrier/broker forums through which brokers can directly convey their market experiences, challenges, and needs. They have launched more aggressive email and social media marketing campaigns. The more relaxed policies some carriers introduced during the pandemic such as eliminating their medical exam requirement also influenced sales. Some of these policies are expected to continue in 2021.

The trusted professional factor
That said, the need to gain advice and reassurance from a real person—an experienced broker/agent—also had many Americans reaching out to an insurance professional in a reversal of roles. Just a decade ago this was not as uncommon, but prior to the pandemic sales were driven predominantly by brokers and agents. This also is a reflection of how life insurance sales have declined over the past ten years with LIMRA reporting that in 2010, 63 percent of Americans had life insurance policies compared to 50 percent in 2020. Today we are now seeing a more focused approach on customer engagement, whether the first call was initiated by a consumer or through a broker’s outreach. In fact, cultivating and nurturing customer engagements has become one of the most significant trends of the past year and projected to have a continued significant role in 2021 and beyond. Despite the influx of digital technologies into the insurance marketplace, consumers are looking for professionals that focus on them, their families and life journeys in the same way that financial planners do. They are starting to expect annual reviews, new product suggestions based on real-time data, and value-added services that demonstrate a broker/agent’s commitment to their specific financial needs. The rewards for this enhanced customer engagement are fewer policy lapses and new up-sell and cross-sell opportunities as consumers are more likely to refer an insurance professional who is more involved with them and serves more like a trusted professional.

Market responsive products
With the spotlight firmly on telemedicine during the pandemic, insurers have harnessed the power of new telehealth solutions. Consumer-friendly, easy-to-use online platforms linking consumers to experienced Registered Nurses and doctors are addressing medical inquiries in a timely manner, while also reducing medical costs associated with unnecessary hospital emergency department, urgent care facility and physician office visits. Other innovative solutions introduced over the past year have included new life stage-oriented products such as new concierge solutions that link baby boomers to community resources, and hybrid products that give them whole life insurance with long term care benefits, as well as policies that can be purchased entirely through digital channels for millennials and Gen-Z buyers.

AI and digital decision making
Over the past year, insurers have embraced advanced technologies such as Artificial Intelligence (AI), machine learning and proprietary algorithms which are giving them new and improved data sources for improved agile decision-making. These range from insights gained from claim reports and patients’ electronic health records to drug databases. By applying this data, insurers are able to streamline their underwriting processes, improve the quality of their risk assessments, be more strategic in their product development, and support a better customer experience. When shared with brokers/agents, this market intelligence is facilitating better sales and marketing strategies that reflect personalized, targeted marketing approaches which help capture greater sales.

Opportunities Ahead with Best Practices
The doom and gloom of the past year might have many thinking 2021 will be an uphill battle. It will not be easy, but there are opportunities for brokers/agents who take advantage of new trends and developments and implement best practices. It is important that they leverage carriers’ websites and mobile apps, participate in their carrier/broker councils and webinars, and apply the market intelligence they share in prospecting. In addition, communicating frequently with customers by sharing customized product information not only positions the broker as a consultative trusted professional, but also for up-sell and cross-sell opportunities. The more personalized the approach, based on an individual’s age, family situation and financial status, the more likely a sale will be captured. Further, recognizing underserved markets and tailoring marketing and sales strategies exclusively for them can help a professional gain traction in a niche that can grow into its own revenue stream. Many insurers still tailor their information to the traditional “head of household”—a male. By being mindful of this and, instead, speaking in a nongender voice, or developing sales strategies that specifically speak to women (single mothers with children, single women, women business owners, etc.), brokers/agents distinguish themselves from many of their competitors. It is also important to recognize our nation’s multicultural demographics and when appropriate provide information in different languages and designed to reflect diversity.

Closing Thoughts
The pandemic may have ushered in a “new normal,” but it also helped the life insurance industry gain greater appreciation for new ways to work, the value in being flexible, and the importance of leveraging technology both to improve their operations and to be a better customer resource. For brokers/agents, this greater clarity too has paved the way for them to evaluate and potentially re-engineer how they have been operating. If it has been a “business as usual” approach, now is the time to consider how the industry has and continues to evolve and implement best practices to garner new opportunities.

For The Un- And Underinsured, Voluntary Benefits Provide Essential Financial Protection

John Thornton
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For The Un- And Underinsured, Voluntary Benefits Provide Essential Financial Protection

While the Affordable Care Act of 2010 (ACA) did reduce the number of uninsured Americans, it did little to help the number of underinsured Americans which has been steadily increasing. ACA reduced the number of uninsured adults by an estimated 17 million according to data from the Urban Institute, however, by 2018, and for the second consecutive year, the number of uninsured people increased by almost 500,000 people (Kaiser Family Foundation). Underinsured U.S. adults ages 19 to 64 also increased from 16 percent in 2010 to 23 percent in 2018 based on findings from the Commonwealth Fund’s Biennial Health Insurance Survey. The Kaiser Family Foundations estimates there are now 31 million underinsured Americans. Rising healthcare costs have been a major contributor to these increases.

The Centers for Medicare and Medicaid Services (CMS) reported that health care spending grew by 4.6 percent in 2018 to a per person cost of $11,172; a 31-fold increase over the last four decades. Hospital spending at 30 percent, physicians/clinics spending at 20 percent and prescription drugs at nine percent represented the largest percentages of overall 2018 health care spending. Ten percent of that spending consisted of out-of-pocket expenses including co-payments, deductibles and other amounts not covered by health insurance. For the underinsured, those out-of-pocket expenses can lead to serious financial consequences, health issues arising from not seeking care when needed due to an inability to pay, and even loss of employment due to resulting absenteeism.

Enter voluntary benefits. Intended to shift the costs of employee benefits from employers to employees, they also have the important role of giving workers a practical, cost-effective way to fill gaps in their employer-sponsored insurance benefits and meet their individual needs. Brokers, who understand the value proposition that voluntary benefits deliver in helping address the needs of America’s un- and underinsured, can incorporate these insights into their sales consulting and realize higher sales of these popular benefits.

The Un- and Underinsured in America
We all know what it means to be uninsured, but how is underinsured defined? A person is considered underinsured when their out-of-pocket healthcare costs exceed 10 percent of their income or five percent if the income is less than 200 percent of the federal poverty level (i.e., $22,980 for an individual and $47,100 for a family of four per The Commonwealth Fund). Of course, the signs of being underinsured are fairly obvious: Individuals have problems paying their medical bills or incur medical debt, they do not seek care or fill prescriptions when needed, and/or their high deductibles lead to medical debt loads in excess of several thousand dollars. From there, their savings are depleted, their credit ratings decline, they may seek new credit cards to pay mounting bills and, before long, they find themselves in a bankruptcy filing. Additionally, their health, neglected due to a lack of funds, may also be deteriorating leading to a serious medical condition. It’s a vicious cycle that affects far too many Americans.

You might be wondering why having employer-based health coverage isn’t adequate. Well, it is often more adequate than individual coverage but, due to rising healthcare costs, many employers are now asking employees to assume a higher share of their costs in the form of higher deductibles—now one of the largest factors in driving up the numbers of employees who are underinsured, which more than doubled over the period from 2003 to 2016. By offering voluntary benefits, many employers have been able to help alleviate the problems of their un- and underinsured employees.

Voluntary Benefits Filling the Gaps
There is a reason why voluntary benefits, and specifically certain voluntary benefits, continue to grow in popularity. They provide a much needed solution to the problems of the un- and underinsured, while also offering employees a way to meet their individual needs. A 2019/2020Voluntary Benefits and Emerging Trends survey found that 79 percent of employers are expanding or enhancing their voluntary benefits portfolio. Among the most popular of the voluntary healthcare related benefits are accident coverage, critical illness insurance and hospital indemnity plans. Employees view these insurance plans as a way to supplement their employer-sponsored health insurance, gain more competitive rates, and customize the additional protection they need based on their life stage, family circumstances, overall health, etc. For employers, offering a comprehensive suite of voluntary benefits—both healthcare-related (e.g., the aforementioned accident, critical illness, hospital indemnity plans, and cancer, short- and long-term disability, dental, vision, etc.), financial protection (i.e., term life insurance), and quality of life offerings (e.g., identity theft, legal services, personal loan debt, pet insurance, gym memberships, etc.) helps them attract and retain employees while shifting benefit costs to their workforce. For brokers, helping employers address their un- and underinsured workers’ needs by offering voluntary benefits is a new strategy for building long-term relationships and increasing revenues.

Leveraging Voluntary Benefits to Help Clients Un- and Underinsured
Armed with more information and insights regarding the un- and underinsured, brokers can more effectively raise this need to their clients and demonstrate how voluntary benefits can help their employees. Key messages that could be conveyed are that, by offering various voluntary benefits, an employer can:

  • Help alleviate employees’ financial stress and support their mental well-being
  • Encourage employees to seek medical care when needed and minimize the risk of a small problem escalating into a very serious medical problem
  • Protect employees’ life savings
  • Prevent employees from ruining their credit ratings and even having to file bankruptcy
  • Give added protection to employees without the business incurring additional costs
  • Improving employees’ perception of the employer leading to higher employee morale, productivity and retention

For brokers who haven’t been selling voluntary benefits, they should know that many of these benefits offer a high upfront commission which, thereafter, levels off to what is still higher than the commissions most health plans offer. For example, a voluntary accident insurance plan could provide a 60 percent commission up front which subsequently drops to approximately 10 percent—which is higher than the three to seven percent most health plans provide in commission.

Closing Remarks
Having another impactful argument in favor of employers broadening their voluntary offerings is in every broker’s best interests. When you can cite a real problem facing millions of un- and underinsured Americans and give employers a way to help them, that’s the best reason of all.

Brokers’ Evolving Role And How Carriers Are Supporting Them

John Thornton
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Brokers’ Evolving Role And How Carriers Are Supporting Them

For insurance brokers and carriers alike, the ground is shifting. Heightened regulations, digitization, new technologies, changing consumer demands, and increased competition require new and better distribution strategies. Most importantly, relationships between brokers and carriers must be sound to effectively address today’s market challenges. To that end, brokers are adapting their business models and carriers are implementing new strategies to help brokers succeed in the face of current market dynamics.

The Changing Landscape
As if insurers and brokers weren’t already grappling with adjusting their business models to drive higher sales and profitability, new regulations have introduced additional challenges. Consumers’ “best interests” are a top priority for regulators. In New York State, for example, the Department of Financial Services (DFS) published its Regulation 187 designed to facilitate best interest insurance and annuity product recommendations on the parts of insurers and brokers. It requires an integrated, end-to-end approach requiring that producers’ recommendations meet best interest standards of care or suitability, cover various disclosures, and meet the consumers’ insurance needs and financial goals.

Also mandated under Regulation 187 is the requirement for insurers to establish and maintain a system of supervision encompassing standards and procedures that facilitate their and the producers’ compliance, as well as audits to assure compliance and diligent recordkeeping of information pertaining to customers’ financial situations and the producers’ recommendations. Regulation 187, which became effective February 1, 2020, for insurance products (August 1, 2019, for annuities), requires insurers to modify their sales process and producer supervision methods, and producers to implement measures to train their staff regarding these heightened best interest standards. Nevada also has passed similar best interest legislation requiring brokers and agents to serve in a fiduciary capacity. It may not be long before these regulations become national as New York State is already urging the National Association of Insurance Commissioners to implement nationwide best interest rules for life insurers.

Consumer privacy is also in the spotlight with states looking at new regulations to protect their residents. In California, the State enacted the California Consumer Privacy Act of 2018 which takes effect July 2020. It will expand consumers’ data protection rights. For example, consumers can opt out of a sale of their personal information by a business which is prohibited from discriminating against them for opting out by charging them a higher price. Under the law, consumers also will have the right to pursue legal action in response to violations of this law and the State’s Attorney General also can pursue civil penalties. Again, insurers and brokers must be diligent in complying with this new legislation.

Besides state regulations, there are new pressures on insurers and brokers coming from the International Association of Insurance Supervisors (IAIS). The IAIS is calling on them to implement measures to become more technologically advanced. These measures can pose challenges and risks to both operations and underwriting. Additionally, with an emphasis on becoming more cyber secure, new operating costs are introduced as companies must take ongoing measures to secure their information technology system and implement new cyber security policies and training programs.

The influx of fin-tech companies has levied new demands on insurers and brokers to digitize their operations. There is little doubt that the younger generations, in particular, expect their digital lifestyles to be accommodated by any company that wants their business. Keep in mind too that these Millennials are not just customers, but many are also decision makers in the companies that employ them. Survey after survey shows that Millennials believe that mobile access is essential. By going digital, offering consumers a seamless, online and 24/7 access to product information, claims status, etc., insurers and brokers better position themselves to compete against the “all-in” digital fin-tech companies.

Digitization and the enhanced consumer experience and engagement it delivers notwithstanding, new technologies enable insurers and brokers to build a more resilient infrastructure. They also assist in better access and leverage of “Big Data” and its value proposition in terms of predictive analytics that promote more effective target marketing, personalized customer relationship management (CRM) and sales strategies. For some brokers, data is helping them identify specific niches where they are most likely to be successful, while others are utilizing data-driven market intelligence to advance their expansion plans. Additionally, data is helping insurers gain valuable risk insights that enable them to establish better underwriting and pricing models to address new market influences (i.e., increased competition and regulation, as well as changing consumer demands). A McKinsey survey of middle market brokers found that brokers applying data and related analytics experience faster growth rates and improved competitive edge.

New Broker Strategies
Successfully navigating today’s insurance industry terrain requires brokers to move away from the traditional model of product focus and transactions. Instead, they must move toward a more fiduciary role wherein they emphasize financial wellness in serving their customers. This, of course, requires a more in-depth approach to discovering what each customer needs and wants in terms of financial protection and security.

Borrowing from the financial planners’ model, conducting a thorough discovery and risk assessment to gauge an individual’s and/or organization’s financial situation, risks, and risk tolerance, is essential. Considering the “best interests” regulations now being promulgated, implementing this strategy is becoming less of a choice than a necessity.

Also essential is for brokers to begin adopting new technologies to provide the seamless digital experience more and more consumers expect. Working with a technology solution provider that understands the insurance industry can help a brokerage gain the tools needed to optimize processes and support a best-in-class customer experience. As part of their adoption of advanced technologies, brokers should also strive to maintain cyber safe operations that not only protect their organizations’ data, but also their customers’ sensitive data. In addition to staying abreast of the latest cyber threats and implementing all recommended cyber security measures, brokers should be diligent in raising the awareness of their staff regarding cyber safe practices, ranging from regularly changing passwords to not opening certain type emails associated with malware and phishing attacks.

Applying these strategies, brokers can expect to attract and retain customers most suitable to that broker’s business model. Further, they will be in a better position to build improved relationships with carriers who recognize that their more resilient business practices are likely to contribute to higher product sales. Of course, the carriers are supporting brokers in ways that go beyond providing a robust portfolio of high quality insurance solutions and employee benefits.

Carriers Support Broker Goals
Carriers recognize their responsibility to brokers marketing their products. They too know the value of introducing new digital platforms for easy access to their product information, as well as maintaining a strong cyber security information technology infrastructure. Today’s market-responsive carriers, attuned to consumer needs, are also continually introducing new voluntary products that meet those needs. These range from identity theft and credit monitoring solutions to new portable insurance products that accommodate today’s more mobile workforce. There are also greater measures to support consumers’ greater financial literacy and better understanding the role of each insurance product and/or employee benefit. Carriers are sending product specialists right to the worksite on enrollment days to assist in educating employees about different products, best coverage amounts, and how they will help achieve vital financial protections.

They are also enlisting brokers in new ways such as carrier broker councils designed to extract information and insights from brokers about what they are observing and experiencing in the marketplace. These exchanges provide an opportunity for carriers to better respond to both the market’s needs and those of the brokers to support a stronger distribution channel. Also with this goal in mind, carriers are looking at new and improved ways of managing and reducing risks that impact everyone. They are introducing new risk management solutions, industry-specific risk strategies, and launching solutions that target some of the greatest pain points of customers such as escalating healthcare costs being addressed with medical stop loss insurance and high cost specialty drugs tackled by specialty drug cost management solutions. Their leadership too is becoming more self-reflective, moving away from business as usual and striving to adopt new measures that help it and its broker network succeed. Whereas several decades ago insurers’ profitability rested largely on their positive underwriting, today their relationships with brokers are more important than ever. Some are even going as far as saying that a power shift is occurring that is leveling the playing field among insurers and their brokers. Mergers and acquisitions among the nation’s larger brokers are contributing to this power shift.

In the end, relationships are what still matter most; relationships between brokers and their customers, insurers and customers, and insurers and brokers. Building trust with customers and between themselves is tantamount to success for brokers and insurers regardless of the changing landscape and the new challenges it has introduced.

Amalgamated Life Insurance Company 2020 Carrier Forecast

John Thornton
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Amalgamated Life Insurance Company 2020 Carrier Forecast

Navigating The Industry’s Changing Landscape Demands Foresight And Flexibility

As a legacy industry, the insurance industry has long been associated with providing financial protection and effective risk management. For individuals, the industry delivers financial security and peace of mind for themselves and their families. By insuring companies and Taft-Hartley funds through providing solutions like medical stop loss coverage which protects them in the event of employees’ catastrophic medical conditions, the industry helps drive their growth and enables them to take calculated risks. Legacy industries, however, are not known for bold moves. Unlike, for example, the tech sector marked by rapid change, the insurance industry has been slower to adapt to new business models, technologies and market dynamics. For our industry, the primary drivers of change have been the various challenges we face. To succeed, it’s been necessary for insurance companies and brokerages to adapt and deploy better strategies that enable them to address today’s challenges and benefit from more opportunistic practices.

Regulatory Challenges
For years now, the insurance industry has grappled with increasing legislation on the state and federal levels. Just as the Department of Labor’s fiduciary rule sent a warning to investment advisors and other fiduciaries that they must put the best interests of the investor ahead of their own, the SEC issued a Regulation Best Interest and the New York Department of Financial Services (NYDFS) issued its Insurance Regulation 187–a best interest standard for annuities and life insurance product recommendations. The standard became effective for annuities on August 1, 2019, and will be effective for life insurance products on February 1, 2020.

Regulations relating to protecting customers’ personal data also have intensified. Following in the footsteps of the European Union’s EU General Data Protection Regulation (GDPR), we saw two of the nation’s more progressive states, California and New York, issue new data protection legislation; the California Consumer Privacy Act (CCPA) and the NYDFS’ Cybersecurity Regulation. As large collectors of sensitive data, insurance companies will have to take new measures to assure their compliance with these other state regulations likely to follow.

On a related note, we see the value in having a cyber security solution to offer consumers. At Amalgamated Life, we entered an agreement with CyberScout® in early 2018 to market its LifeStages® identity management services and its FraudScout® credit monitoring and risk minimization services. Not only do these products provide vital consumer protection in the event of a data breach, but also let the market know that we take cyber security very seriously.

Economic Impacts
In addition to these and existing regulations affecting the industry, there’s The Tax Cuts and Jobs Act, which has been affecting insurers’ operations. Specifically, the broad tax rate cut from 35 percent to 21 percent had the effect of reducing cash tax rates over time, as well as reducing deferred taxes recorded on company balance sheets which placed stress on risk-based capital. Economic conditions including the flattening yield curve between short- and long-term interest rates, which historically has predicted a recession, coupled with market volatility and political unrest, have also challenged the industry.

Workforce Development
Another area where the insurance industry is experiencing some difficulty is in workforce development. With the graying of America and many experienced insurance professionals retiring, attracting the younger generation to an industry not associated with youth or high technology so integral to the lives of Generations X, Y and Z is a challenge. Similarly, attracting these younger generations as customers will demand that insurance companies make the necessary investments in technology to distribute product information online and via mobile platforms to deliver a more personalized, seamless customer experience.

Technology
Investing in advanced technologies is not only a challenge, but essential for insurance companies’ future success. Artificial Intelligence (AI), for instance, can be leveraged to facilitate better product marketing, underwriting decisions and more expedient claims handling. Through Big Data, predictive analytics can be applied in micro-target marketing and more tailored customer service. Today’s leading-edge technologies can also be harnessed to support product research and development, and promote increased cost efficiencies and better operational decision-making.

The Road Ahead
In addition to meeting today’s challenges head-on, carriers, brokers and agents will need to focus on capturing the underserved markets; that is the mass market consisting of consumers with $25,000 to $100,000 in investable assets, and the middle market comprised of consumers with $100,000 to $250,000 in investable assets. According to McKinsey research, there are 68 million households which include mass-market millennials (age 18-34), mass-market Generation Xers (age 35-54) and middle-market Baby Boomers (aged 55 and older). Within these households, 57 percent do not own individual life insurance. By targeting each market niche effectively based on their unique characteristics and life stages, and capitalizing on life trigger events (i.e., marriage, babies, new jobs, etc.), carriers, brokers and agents will be better positioned for growth. For instance, many Baby Boomers are brand loyal, have cash on hand, and therefore are prime for up-selling additional insurance products. Millennials value innovation and socially-minded organizations. Marketing products that are differentiated from others and also communicating a company’s philanthropic activities will score points with this sector.

It’s also important that companies strive to change the public perception of life insurance companies. Currently, industry members are not the first “go to” resource most consumers consider when making financial decisions. By building brand awareness and conveying a company’s value proposition, companies can instill greater consumer confidence in insurers’ and brokers’ vital role in their financial protection and security. In addition to professional marketing and branding, it’s important that product literature and information presented online be fully transparent and easy to understand.

Expanding the Lines of Communication
In 2019, we, at Amalgamated Life Insurance Company, developed a Broker Advisory Council. Our goal was to expand the dialogue between our organization and our broker network. While we have had just one council event to date, it has proven extremely valuable. We are gaining greater insight into what the brokers are hearing from their customers. This feedback includes both general observations relating to what plan sponsors want for their members, and also specific comments pertaining to our various group and voluntary products. We learned from our participating brokers, for instance, that the portable voluntary group level term life insurance product we introduced last March was very well-received by their customers, plan sponsors and members across the country. Having a direct pipeline to a broader cross-section of the marketplace to supplement the input derived from our own sales executives is valuable in our product research and development, underwriting, marketing and customer service.

We’re cautiously optimistic about 2020. Carriers, brokers and agents that adhere to best practices, venture out of their comfort zones with respect to new technologies, and also keep their finger on the pulse of the market can be successful in the year ahead despite the challenges. [JT]

Apply Best Practices To Build Stronger Carrier Relationships

John Thornton
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Apply Best Practices To Build Stronger Carrier Relationships

Today’s insurance brokers face new challenges and market trends that their forerunners did not. To succeed in the 21st century, brokers must adapt to the changing landscape by leveraging best practices across all operational areas. One area of particular importance is their relationships with the carriers. Knowing how to apply best practices to address key industry trends and build strong carrier relationships is essential.

Key Industry Trends and Market Conditions
The insurance marketplace is in a transformative state. The landscape is now marked with new distribution models such as online aggregators and InsurTech firms. Willis Towers Watson-CB Insights’ research found that from 2012 -2017, $312 million was invested in life and health insurance global InsurTechs. There has also been entry into the insurance market by major retailers like Amazon, Walmart and various banks and credit unions, all of which may have more robust e-commerce platforms through which to reach customers. The presence of these new players, coupled with industry consolidation, has introduced new competitive pressures on brokers.

Besides the pain points coming from within the industry, there are higher expectations coming from customers. They expect brokers to have a broader portfolio of products to meet their specific financial wellness goals, have a deeper understanding of their needs, and have product information accessible on a 24/7 basis via their PCs, tablets and cell phones. There is also the ongoing expectation that the broker still will be accessible for in-person meetings. This was confirmed in the LIMRA Insurance Barometer Survey 2018 which found that 69 percent of all respondents and 72 percent of Millennials agree that meeting with an agent/advisor before buying life insurance is important to them. This same survey also noted that customers expect a more seamless, self-service experience when it comes to researching and learning about a broker’s product offerings. Customers expect to continue their relationship with their broker over the life cycle of their experience with any given carrier. In fact, based on a J.D. Power 2018 study, customers go first to their broker or agent for advice or support relating to an insurance matter rather than a carrier’s website or call center. This wasn’t always the case.
Given these factors alone, what worked in the past may not be as effective today. The current insurance distribution environment requires that brokers have a clear value proposition which not only addresses new market conditions, but also requires them to assess their performance and then develop best practices that accommodate their customers as well as the carriers.

What Carriers Want from Brokers
There have been many surveys covering what brokers want from the carriers. For example, a 2017 Cannel Harvest Research Report, focusing on personal lines insurance, found high percentages of brokers to place a high value on these aspects of a carrier’s operation:

  • Competitive pricing (65 percent);
  • Carrier technology (61 percent);
  • Customer service (57 percent);
  • Agency compensation (55 percent); and,
  • Underwriting flexibility (51 percent).

What carriers want from their brokers has not been the subject of as many surveys. What we do know, however, is that carriers want clear and complete communications from brokers, greater access to customers in order to improve the customers’ experience, and less use of them (carriers) for testing quotes against other carriers and/or soliciting lower quotes and then not transferring the business to them.

Regarding communications, both carriers and brokers alike strive for more collaborative, open communications with the other. It’s one of the reasons why carriers are establishing broker advisory councils. These forums are proving very effective in facilitating productive exchanges between these two symbiotic entities. Also relating to communications, there is a heightened expectation by carriers that brokers will embrace more digital communications that help support their mutual customers’ service experience. Further, carriers want brokers to be that “in-the-field” presence in order to remain connected to their customer base. Even with all of the virtual communications through digital platforms, carriers recognize the importance of the human connection and believe brokers need to continue focusing on this.

Carriers also want their brokers to be strong generalists in terms of their product knowledge. If the carrier has a broad suite of solutions, they are more inclined to want to do business with brokers who can master more than just one or two of their products. This requires that brokers remain up-to-date on product developments and how they relate to the marketplace and especially the demographics of the region(s) they serve.

Technology is also a tool carriers hope the brokers will fully leverage. A small broker applying technology, for instance, to target Taft-Hartley multiemployer plan sponsors or middle market companies, can project an “easy-to-do-business with” identity that conveys a strong customer-service orientation more so than a larger, more established brokerage that is not deploying the latest digital technologies.

Along with accommodating the carriers on these factors, brokers can put themselves on a path to greater success by adhering to best practices that are in step with today’s insurance marketplace.

Best Practices Pave the Way to Success
Best practices aren’t confined to areas of carrier communication or customer service. They should envelope all aspects of a broker’s operation. They shouldn’t be static, but rather evolve to reflect changing market developments and customer expectations. Best practices should be a function of the broker’s business value proposition which answers such questions as:

  • What differentiates the broker from others as it pertains to the carrier relationship and the customer relationship?
  • What are the short- and long-term benefits derived by the carrier and the customer when working with this broker?
  • What expectations can the carrier and the customer have of this broker?

In support of their value proposition, brokers should establish best practices that include:

  • Consistent reporting on prospects indicating interest in the carrier’s products;
  • Sharing with the carrier their short- and long-term business goals with respect to increasing their marketing/sales of the carrier’s products;
  • A distribution strategy that embraces both digital technologies as well as the human touch, and keeping the carrier informed about this strategy designed to deliver optimum customer service, attract referrals, and facilitate new customer relationships;
  • Highlighting the carrier’s products in its customer newsletters or on their social media pages;
  • Regular product and industry training of their staff;
  • Marketing and sales initiatives that effectively target industry niches and/or other market sectors on which their business is focused;
  • Continuous benchmarking of sales performance and customer service metrics wherein performance data is regularly analyzed, demonstrating a strong commitment to a high quality operation;
  • A robust cyber security program that encompasses systems vulnerability assessments, penetration testing, data breach prevention/cyber security policies and procedures, employee training and cyber security awareness, maintaining a strong firewall, the deployment of leading-edge technologies (i.e., anti-virus software, encryption software, and key logging software to impede the key logging effect of malware, etc.), and a formal digital governance policy; and,
  • Policies and procedures that support the confidentiality of the carrier and its proprietary information.

Final Thoughts
The end game for brokers and carriers is the same. They both want to see their mutual customers gaining the financial protection insurance provides, and they each want to derive the financial rewards that come with doing business the best way they can. If that means changing with the times as needed, updating internal systems when required, investing in regular staff training, and remaining vigilant and ready to adapt to new market conditions, whether the influx of new players like the InsurTechs or the pervasive presence of cyber criminals, then that is what needs to be done. Above all, the best practices a brokerage can adopt to build stronger carrier relationships will also position it for long-term viability and success.

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