The Caesars Palace, Las Vegas

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1 The Caesars Palace, Las Vegas November 2 6, 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 Employer Healthcare & Benefits Congress

2 2 GUARDIANLIFE.COM The Impact of Changing Benefit Distribution Models Michael Martocci 2 nd Vice President The Guardian Life Insurance Company of America

3 3 Key Environmental Risks to the Voluntary Benefits Business Group Voluntary Benefits business faces much external uncertainty in the wake of health care reform 1 Health carrier competition Increased focus on non-medical and bundling opportunities 2 Employer disengagement Reform to accelerate an ongoing trend; reducing total employer-based market 3 Reduced broker influence New channels and changing compensation altering the distribution landscape 4 Regulatory uncertainties Definition of pediatric dental, acceptance of stand-alone dental outside of the Exchange and Exchange role for non-medical products

4 4 Worksite Market Trends Rising Cost of Healthcare Benefits Employer Disengagement from traditional Benefit programs Increased Consumerism (personal responsibility) New Distribution Outlets - Direct, Internet, Affinity, Exchanges Widening gap between upper and middle income markets Fewer Traditional Insurance Agents Low Personal Savings / Un-met needs Worksite Market Segment Insights 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 Worksite $Billions Estimate 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)

5 5 Worksite Sales Trends 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. In particular, a single company comprises approximately 50% of Individual platform sales. Source: Eastbridge U.S. Worksite/Voluntary Sales Report Carrier Results for 2011 (April 2012)

6 6 A View of Worksite Distribution Prior to Healthcare Reform 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

7 Summary of Broker Segments & Market Share Broker Segment Broker Profile 2011 Sales Sales Share Sales Growth Basic Benefits Broker Evolving Benefits Broker Small average case size Short sales cycle Bundled Sales Approach Traditional Group Product set Small & Large cases Likely have WS Practice leader & WS Goals Longer sales cycle Enrollment / Implementation focus Comfortable using multiple carriers $1,120 20% $1,992 36% 10%+ Worksite Focused w/o Enrollment Capabilities Worksite Focused w/ 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 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 $777 14% 4% Career Agents Mostly small, with some large anchor tenants Producers are the enrollers Can use non-affiliated carriers not provided by their primary carrier $1,149 21% -3% Enrollment Firms Not the retail broker The Expert and the Enroller/Administrator Have their own technology $440 9% 2% 7

8 Summary of Required Capabilities by Broker Segment Broker Segment Basic Benefits Broker Sales Support Enrollment Product Value rep relationship over expertise Bundled offer Utilizes carriers or Career Agents Voluntary versions of traditional Group products Admin. Capabilities (Billing) Expect carriers to do billing Prefer single bill Compensation 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 selfservice technology Permanent Life (UL/ISWL) STD, Accident, Cancer, CI May offer consolidated billing services Individual, heaped commissions 8

9 9 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% Product Provisions 40%

10 10 Making the Case for Private Exchanges 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.

11 Supply and Demand for Private Exchanges 11

12 Exchanges -- Competitive, Affordable, easy-to-use Marketplaces 12

13 PRODUCT OFFERINGS 13

14 14 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% 8% Split between UL and WL Cancer $409 7% 2% Very little sold by Group Carriers/ Benefit Brokers LTD $321 6% 19% Critical Illness $243 4% 20% Very little sold by Group Carriers/ Benefit Brokers Vision $231 4% 8% LTC $52 1% -61% Carriers exiting this market AD&D $49 1% -22% Predominately tag along to term life

15 15 Types of Products Sold By Broker Distribution 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%

16 16 Products Offered Most Often 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 1

17 ENROLLMENT & ADMINISTRATION 17

18 18 Administrative Approach Administrative processes must change to handle disengagement of plan sponsors from administrative tasks. The following example illustrates how Carriers will be required to work with both employees and Benefit Admin/Payroll companies. Process For Many Employers Today: Employee Enroll, add, delete or change benefit Future Process Employee Enroll, add, delete or change benefit Employer Provide & collect forms, submit change to carrier system of record, update payroll Carrier Provide & collect forms, determine eligibility, be the system of record, calc payroll impact Carrier Processes change Employer Verify change via updated bill Ben Admin/Payroll Receive and process updated payroll file and remit premium tocarrier Employer FYI - Notification of changes made

19 19 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

20 20 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. Implications: Data intake must somehow be integrated with carrier EDI in-take.

21 21 Administration Assist with Employer Disengagement from the Administrative Responsibility commonly associated with Group Benefits Employers are Disengaging from: 1. Selecting Plan Designs Implications: Increasing employee options that are not administered as classes 2. Administrative Responsibilities Implications: Flow of information and points of interaction differ from today (detail to follow). This is particularly important as case size increases (ie. leverage with large case focus). 3. Funding of Benefits Implications: More voluntary, employee pay all benefits.