A recent disruption in the force requires re-examination of a long-standing debate. An ancient rivalry has just stepped back into the spotlight: true group (em-ployer owned) versus multi-life (list bill individual policies). Of course there are multiple structural differences; thus, conversations about who has the biggest dog in the fight are patently absurd.
Bottom line: It is never about what you sell; it is always about how you sell.
Unfortunately we are dragging a large bag of tradition, inertia and sales practice forward. Benefit specialists and wholesale brokerage have struggled for worksite hegemony for as far as I can look back.
The conflict begins with control of the decision maker: Is that privileged access the domain of the supplemental worksite benefit specialist or the broker with the “juice” to influence the outcome of the buying decision?
When you overlay the enrollment requirements of voluntary benefits, historically brokerage has had to “give ground” to worksite expertise. Yet smaller groups are an entirely different conversation. As the size of a true group diminishes, options with structured enrollments begin to lose their profitability. Strategies that include list billing individual policies to increase commissions or attempts to reduce underwriting requirements have remained a viable market for brokerage (e.g., payroll deduction life).
The wonderful world of worksite LTC insurance has shattered all of the older artificial barriers. It is different because benefits are not subject to immediate claims like health, dental, vision, disability or pet insurance.
Traditional supplemental benefits are great and, whether paid for or voluntary, the decision to offer has remained solely in the hands of business owners or human resources managers.
All standard benefits enrollments have been the same from the beginning. The need for the benefit is a given, and the decision is more financial than anything else—i.e., how much benefit for how many dollars out of my paycheck.
On the other hand, LTC insurance requires a focused mandatory educational campaign. Every employee must thoroughly understand the ramifications of not buying a policy. Long term care insurance cannot be added to a list of Section 125 benefits and offered at the same annual benefit fair. It requires a separate conversation ending in a one-on-one customization of the best benefit structure for each individual.
We are now down to a very few true group product alternatives. These choices are available to only the largest, most desirable groups, with the “desirability” based on a thorough evaluation of the potential for sales success.
A prospective client cannot just call and say he has had some sort of epiphany and wants to explore LTC insurance as a benefit option. A client must have a thorough understanding of what he needs to contribute to a marketing plan and he must be willing to allow a benefits specialist to actually help his employees.
There are a number of prerequisites to evaluate large group opportunities: sufficient discretionary income, ratio of male/female employees, access to employees, geography and Standard Industrial Codes (SIC). The bottom line is that this process is a very selective one and many will not make the cut.
When compared to the precise dissection of risk and the application of therapeutic remedies required by multi-life, true group LTC insurance could be considered surgery with a blunt instrument—only successful on a grand scale.
The most obvious scenario is the executive carve-out. This often includes multiple classes, richer benefits and individual buy-up customization. Often the most desirable groups demand the greatest benefit flexibility.
Perhaps the best method to illustrate the pricing differences between true group and multi-life is to examine the cost of buy-up benefits (which include inflation protection) and then analyze the cost difference over time. True group rates represent an aggregation of all the underwriting variables; the rates can easily be skewed to younger ages and more aggressive underwriting strategies. The classic situation would be the offer of core benefits without inflation protection.
Traditional benefit spreadsheeting involves a comparison of the employer contribution toward the benefit. This is absolutely the wrong way to make a comparison in the case of a carve-out, since there will most likely be a substantial number of buy-ups. In other words the comparison should not be about what the employer pays but, more importantly: What will the employee pay for the buy-up? What will the long term savings be to the best employees? How much long term damage would be created if “cheap” core benefits are provided?
I recently evaluated a large medical clinic carve-out where substantial benefits were being bought for all. This case clearly demonstrates the cost of buying meaningful levels of benefits regardless of who is paying. When you spreadsheet core benefit costs for the entire group, true group in this case was 8 percent cheaper than the multi-life aggregate rates. However, when richer benefits were compared (including inflation protection), the multi-life totals were 20 percent less than the true group option. This would have generated hundreds of thousands in premium cost over 25 years. What happens when the employee is paying the difference between the core benefit and the richer buy-up benefit? The employer may be paying a little more for the core benefit; however, the difference in buying up to meaningful benefit levels can make a huge difference to the employee. The question is where should you make the sale?
True group options for smaller employers are disappearing before our eyes. LTC insurance is unlike other benefits; perhaps it should never have been enrolled on an easy issue vanishing (no inflation) benefits basis. LTC insurance must be explained, and its sales applications require careful counseling and individualization. Maybe it was never meant to be just another supplemental addition to a benefit portfolio. Maybe it always needed its own separate spotlight at center stage!
Other than that I have no opinion on the subject.
