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The Caesars Palace, Las Vegas

www.EmployerHealthcareCongress.com

The use, disclosure, reproduction, modification, transfer, or transmittal of this presentation with out the written permission of the Employer Healthcare & Benefits Congress is strictly prohibited.

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GUARDIANLIFE.COM

The Impact of Changing

Benefit Distribution Models

Michael Martocci

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_{Vice President}

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Key Environmental Risks to the Voluntary Benefits Business

Group Voluntary Benefits business faces much external uncertainty in the

wake of health care reform

Health carrier competition

Increased focus on non-medical and bundling opportunities

Regulatory uncertainties

Definition of pediatric dental, acceptance of stand-alone dental outside of the

Exchange and Exchange role for non-medical products

Employer disengagement

Reform to accelerate an ongoing trend; reducing total employer-based market

Reduced broker influence

New channels and changing compensation altering the distribution landscape

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Worksite Market Trends

Rising Cost of Healthcare Benefits Increased “Consumerism” (personal responsibility) Widening gap between upper and middle income markets Low Personal Savings / Un-met needs Employer Disengagement from traditional Benefit programs

• Carriers and Distributors focusing on the worksite

as a marketplace for insurance sales has resulted

in consistent growth of the segment over the past

10+ years

• This same increased focus on the worksite

marketing process has broken down many of the

attributes that have separated historical business

models

• Worksite Marketing is an efficient way to access

middle-market customers ($35K - $85K of

household income)

Fewer Traditional Insurance Agents $Billions

Worksite Market Segment Insights

New Distribution Outlets - Direct, Internet, Affinity,

Exchanges

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Worksite Sales Trends

Source: Eastbridge U.S. Worksite/Voluntary Sales Report – Carrier Results for 2011 (April 2012)

Total Worksite sales have shown consistent growth. However, Group products/carriers have fueled

the growth, while individual products/carriers have been flat or declining for the past five years.

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Worksite Agents

• Career Agents of AFLAC, Colonial and other traditional

worksite carriers.

• Have seen significant market sales share contraction over

the past 5 years, from 29% to 23%

Specialists

• Generally not the retail broker, but the expert / enrollment

firm brought in to assist the retail broker.

• Estimated 5% - 10% sales share (split of commissions)

Classic Worksite Brokers

• Retail brokers that generate

more than 50%

of their revenue from voluntary/worksite.

• Often are former AFLAC or Colonial career agents.

• They may have enrollment capabilities or they may use Specialists to support them.

Benefit Brokers

• Retail brokers that generate

less than 50%

of their revenue from voluntary/worksite.

• Further segmented by both size of agency and level of “worksite sophistication”

− Comfort level recommending “best in class” products vs bundling approach

− Worksite is important part of business with a “practice leader” to drive results

− Producing agents have worksite goals and objectives

− Brokers are comfortable recommending products from multiple carriers

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Summary

of Broker Segments & Market Share

Broker Segment

Broker Profile

2011

Sales

Share

Sales

Growth

Basic Benefits Broker

• Small average case size • Short sales cycle

• Bundled Sales Approach

• Traditional Group Product set

Evolving Benefits

Broker

• Small & Large cases

• Likely have WS Practice leader & WS Goals • Longer sales cycle

• Enrollment / Implementation focus

• Comfortable using multiple carriers

Worksite Focused w/o

Enrollment Capabilities

• Small case focus

• Often an former career agent

• Expanding product offering to Group • Likes bundling with single carrier • Utilizes partners for enrollment services • Process vs. Rate focus

Worksite Focused w/

Enrollment Capabilities

• Small & Large cases

• Expanding product offering to Group • Often uses multiple carriers per account

• May also “sell” enrollment capabilities (via commission split) to other brokers in need of enrollment capabilities

• Integration w/ their enrollment offering is important

Career Agents

• Mostly small, with some large “anchor tenants”

• Producers are the enrollers

• Can use non-affiliated carriers not provided by their primary carrier

Enrollment Firms

• Not the retail broker

• The “Expert” and the “Enroller/Administrator” • Have their own technology

$777 $1,149 $440 14% 21% 9% $1,120 20%

36%

10%+

-3% 2% 4% $1,992

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Summary of Required Capabilities by Broker Segment

Broker Segment

Sales Support Enrollment Product

Admin. Capabilities (Billing) Compensation Basic Benefits Broker

• Value rep relationship over expertise

• Bundled offer

• Utilizes carriers or Career Agents

• Voluntary versions of traditional Group products

• Expect carriers to do billing

• Prefer single bill

• Level Commissions

Evolving Benefits Broker

• Require Rep Expertise • Rep has u/w influence • Seeking advise from

carrier

• More likely to have enrollers in-house • May have existing

partnerships

• Traditional Group products +

Permanent life and supplemental medical

• Carriers to be able to integrate into their platform

• Choice of level and heaped

Worksite Focused w/o Enrollment Capabilities

• Requires rep expertise • Desire implementation

coordinator

• Utilize carriers or enrollment firms • Prefer 1-on-1

• STD, Accident, Cancer and CI • Expanding to core

group products

• Integrate with enrollment entity • Consolidated billing • Individual billing

• Choice of level and heaped, based on how they handle enrollments

Worksite Focused w/ Enrollment Capabilities

• Requires rep expertise • Want broker based u/w

offers

• A key differentiator for them

• 1-on-1, in addition to other methods

• Permanent Life (UL/ISWL) • STD, Accident,

Cancer, CI

• Demanding of carrier billing capabilities – arrears, individual reconciliation

• Choice of level and heaped, based on their cost structure

Career Agents

• Attracted to products outside of their carrier contracts

• Generally utilize 1-on-1

• Trending towards use of self-service

• Accident, Cancer, CI

• STD

• Some Group products

• Carrier provides payroll deduction billing

• Choice of level or heaped

Enrollment Firms

• Expect carrier to drive brokers and business to them

• 1-on-1 • Call Centers • Investing in

self-service technology

• Permanent Life (UL/ISWL) • STD, Accident,

Cancer, CI

• May offer

consolidated billing services

• Individual, heaped commissions

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Characteristics of Best-in-Class Voluntary/Worksite Carriers

Top-Rated Criteria

► Enrollment Process/Systems

66%

► Guaranteed Issue

63%

► Support of Broker Enrollment Meetings

65%

► Simplified Underwriting

60%

► Service Reputation (billing, call center)

51%

► Commission Structure

46%

► Bundled Product Offerings

45%

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The case for private exchanges

Although much focus has been placed on

State-run exchanges, many feel that private

exchanges will be more impactful and

attract a large number of employers.

A JD Power survey found that 47% of

employers are looking towards private

exchanges. A similar study by Oliver

Wyman found between 70% and 80% of

employers would consider switching to a

private exchange model.

Industry experts are recommending

employers offer a private exchange to

employees sooner rather than later, so they

can become familiar with offerings and learn

best practices.

The industry’s response



A number of companies are launching

private exchanges, and those companies

already in the market are revamping their

offerings to appeal to a wider audience.



Players in the market include:



Full solution exchanges



HR / benefits consultancies



Insurers / brokers



Technology providers



Currently there are a variety of models

for private exchanges. It is expected that

in the next few years the market will

settle and a clear strategy for private

exchanges will emerge.

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Worksite Product Overview

Product

2011 Sales

% Total Sales

2011 vs 2010

Notes

Term Life

$914

17%

-2%

A Focus of Benefit Brokers

STD

$754

14%

-3%

Significant Product differences

by carrier/distribution

Accident

$738

13%

14%

Very little sold by Group

Carriers/ Benefit Brokers

Hospital / Vol Medical

$695

13%

2%

Very little sold by Group

Carriers/ Benefit Brokers

Dental

$610

11%

22%

Met counts anything >50%

employee paid

Permanent Life

$433

8%

Split between UL and WL

Cancer

$409

7%

2%

LTD

$321

6%

19%

Critical Illness

$243

4%

20%

Vision

$231

4%

8%

LTC

$52

1%

-61%

Carriers exiting this market

AD&D

$49

1%

-22%

Predominately tag along to

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All Others

Core Medical

72%

Traditional Employer Paid Group

67%

Individual Life & Supplemental Health

66%

Executive Life & DI

43%

Pension & Retirement

39%

Individual P&C

23%

Benefit Consulting Services

23%

Commercial P&C

22%

Types of Products Sold By Broker Distribution

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Product

100 Brokers

Surveyed

Dental

77%

Term

75 Short-term disability (2 years duration or less) insurance

73 AD&D

61 Hospital Indemnity

58 Long-term disability insurance

57 Vision

55 Accident

51 Critical illness insurance

47 Cancer

47 Universal Life

28 Whole Life

28 Prescription w/out Medical

27 ID Theft

5 Legal

5 Pet Insurance

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Administrative Approach

Process For Many Employers Today:

Employee

Enroll, add,

delete or change

benefit

Employer

Provide & collect

forms, submit

change to carrier

“system of record”,

update payroll

Carrier

Processes

change

Employer

Verify change via

updated bill

Future Process

Employee

Enroll, add,

delete or change

benefit

Carrier

Provide & collect

forms, determine

eligibility, be the

“system of record”,

calc payroll impact

Ben Admin/Payroll

Receive and process updated

payroll file and remit premium

toCarrier

Employer

FYI - Notification of changes

made

Administrative processes must change to handle disengagement of plan sponsors

from administrative tasks. The following example illustrates how Carriers will be

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Enrollment Overview

• Enrollment is not a transaction, it’s a sales situation

• Process must be engaging, informative and affirming

• Availability of products and advice should be continuously available, not point-in-time

• Active outbound marketing

• Increased competition will require a more cost effective enrollment approach

• Additional supply of voluntary products will compress margins available for enrollment

• Technology will enable new methods of enrollment to be done at a much lower cost

• Face-to-face will not disappear entirely, but usage will decline

• As with overall administration, plan sponsors want to limit involvement

• The enrollment process will fall under additional regulatory scrutiny

• Enrollment, even if on Group products, will be more closely regulated for appropriateness

• Thus, carrier control over the enrollment process will increase

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Enrollment – “The Differentiator”

Enrollment Capabilities & Process will ultimately determine

the winners and losers in the Worksite Marketplace

Enrollment Beliefs:

1. Carrier flexibility to “plug in” to a wide range of enrollment approaches and

technologies will maximize market opportunity.

Implications:

A one-size fits all approach will limit market receptivity

2. Regulatory scrutiny on point of sale enrollment materials will increase, requiring

carriers to place adequate controls over content used by brokers and enrollers.

Implications:

Carriers will control content more closely, utilizing technology such as web services to

efficiently manage content with multiple vendors

3. Increased price competition will be a catalyst for better use of technology and

other centralized support systems (ie. call centers) to reduce the cost of

acceptable enrollment results.

Implications:

1-on-1 laptop enrollments that have been typical among worksite focused broker will

decline in popularity.

4. Enrollment process and associated technology is tightly linked to Administration.

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