It’s sometimes difficult to tell whether something is a Really Big Deal (RBD) in the insurance industry, or only an RBD in insurance trade publications. Work-Site Marketing seems to be the Really Big Deal in the real world.
There are several reasons for the increasing use of Work-Site Marketing (sometimes known as payroll deduction life insurance). The Life Insurance Management Research Association (LIMRA) does surveys of issues of interest in marketing life insurance. For quite some time, LIMRA has been saying that the marketing of life insurance to families is, at best, flat. In fact, for 20 years, the number of families contacted by a life insurance agent is trending down. Families who have what might be called ‘their’ life insurance agent are declining. My brethren who are interested in making house calls and working evenings in what is known as ‘kitchen table business’ are also fewer. Inevitably, the result is that the proportion of families protected by life insurance, in addition to their employer’s benefits, is down.
Nature abhors a vacuum and so do salesmen. The under-served market in family insurance is being addressed by Work-Site Marketing.
How does it work and what are the advantages? For the agent, the advantage is that the presentation is during normal business hours and he can see prospects by the dozen, rather than one at a time. Companies who do Work-Site Marketing can sell to large numbers of people and their families, in addition to the business market which seems to attract most agents today.
Painless via payroll
Employees have the distinct advantage of using the payroll deduction method of paying for insurance. It is hard to overstate the advantage of this method. Those of you who recall buying savings bonds where you work—the military—will remember being annoyed at having to finance whichever war you were fighting (Wasn’t it somebody else’s idea?) and will also remember that it didn’t hurt all that much.
In my own case, I have a substantial universal life policy on which I paid for a score of years by payroll deduction. For some reason I can’t recall, I had come to the conclusion that $174 a month was the right number to pay. And through fat times and lean (twins in college) that money kept coming out of my pay. We never thought, “Maybe if we drop the payment and let the policy pay for itself for a bit…” In retrospect, it made so little difference that I wish I’d had more taken out and paid into my universal life policy. The accumulation has in recent years been remarkably useful.
Employers will reap benefits which are probably not reducible to some predictable number of dollars and cents. There is one waythat I’ll get to later, in which it could save you an unpredictable but probably quite large amount of money.
Most obviously, the advantage for the employer is in improved employee relations. The employer is providing a service which is considerably more than merely a payroll deduction. Employees have access to a good agent and a good insurance company on a basis which is favorable to them, as a service provided by their employer.
Break the stereotype
There may be some apprehension among a good many people when the subject of contacting a life insurance agent comes up. Or, perhaps, in accepting a cold-call invitation that the agent come over and ‘just talk’.
A good many people are reluctant to open up a relationship with a life agent because they don’t know what will happen. Perhaps they’ll be descended upon by a guy in a thousand-dollar suit with 437 internally illuminated teeth, after which they’ll be broke, he’ll be rich and they’ll have no clue how it happened. A vague sense of apprehension can lead to procrastination; in fact, it is probably the major cause thereof.
For an employer to provide a situation where the employee is in charge is a major benefit. The pressure to buy is minimal and so the employee’s defensiveness is reduced. He or she can listen and ask questions. This may not sound important, but there is a result which is both astonishing and annoying to life agents. Most agents, in the usual way of doing business, think that getting a sale about once in three interviews—arranged after careful prospecting—is pretty good. Work-Site Marketing frequently signs up half of the people who come to the informational meeting, after a short, sometimes canned, presentation. Why the difference? As far as I can tell, the dynamics of the meeting are so low-key that the employees are easily encouraged to sign up.
Pressure on the employer to pay for benefits is reduced when the benefits are made available. Employees would like benefits to be free, but more than that, they’d like benefits conviently available even if they have to pay a bit for them. Free benefits are nice but not portable; employees know that they can take the work-site product with them as their own policy when they change jobs or retire.
An employee who is having a problem is a problem for the employer. The situation may not be entirely financial, but there’s likely to be a financial aspect to it. If the financial aspect is managed, the employee and the employee’s colleagues are less likely to be looking to the employer for a break, or inordinate compensation. Resentment on the part of an employee with a run of bad luck and on the part of his concerned colleagues can adversely affect morale.
To address the matter of employee relations, or out of generosity, the employer may be tempted to do something outside the normal employment/compensation arrangements. And here’s where the employer could find trouble. As a general rule, if you go outside the normal arrangements, you have created an ad hoc benefits program.
You won’t know it until the second employee with a problem wants a break like the first employee got. Then you’ll find out that you are covering practically everybody and the limits of coverage may be unaffordably high. Ad hoc plans, which are legally enforceable, are characterized both by being a surprise to the employer and sometimes lacking in any reasonable limits.
Of the universal life policies I’ve sold in work-site programs, probably a third now have or have had policy loans taken out. I am usually not told what difficulty or opportunity is the cause for the loan request, but among those mentioned are celebrations, medical expenses and tuition costs. It is unlikely that most employees have the financial discipline to put aside the same amount of money in a conventional savings account. Not only does the employee have the resources, but the employee has the resources because, in large part, the employer provided the opportunity.
How does Work-Site Marketing work?
If you decide to go ahead with it, the agent will want the employer to provide notification to the employees that there will be a meeting on this important subject in two weeks or so. The agent will provide materials for distribution. The meeting will have to be on the employer’s time, or nobody will show up. Most initial employee meetings run 20 minutes, that being about as long as people can absorb the material. Adding the time to gather and to return to work, the employees are likely to be off work about 45 minutes. The agent will provide the employees with worksheets including the amount of coverage available by age and amount of deduction.
The agent will then want the employer to provide a sign-up process and schedule for each employee who wants to talk to the agent one-on-one. The agent will need the use of an office at the work-site so as to conduct the one-on-one meetings during the workday. These usually take 20 to 40 minutes and should begin within a couple of days of the general meeting. For smaller companies, the agent will do the interviews and take the applications. For larger ones, the company will use professional enrollers. The agent will also want to talk to the payroll department.
The employer’s responsibility after that will be to manage the payroll deduction process. The company will bill the firm monthly and the bill is arranged so that changes can be made with little difficulty. The administrative cost for this is negligible.
Work-Site Marketing insurance is designed to take care of as many people as possible with as little administrative and procedural difficulty as possible. To that end, the application process is either simplified (almost everybody qualifies) or guaranteed (everybody qualifies) depending on the number of employees. Normal underwriting requirements are reduced and people who would ordinarily have a hard time getting insurance may well be issued a policy. This is a terrific benefit to those who have health issues, which could include the firm’s principals.
Generally, most Work-Site Marketing companies will provide universal life, whole life (both of which accumulate cash value) and possibly disability income coverage. These are offered through a dedicated portfolio of insurance products. They differ from the conventional or ‘ratebook’ policies, which is the usual kind of insurance when the information and rates were in a ratebook which some of the older guys may recall was actually printed on paper and bound.
Because the company is being generous in its underwriting in order to facilitate issuing a large number of policies quickly, it is absorbing a bit of extra risk. Companies address that by requiring a minimum number of employees to apply to qualify for simplified or guaranteed issue products—to spread the risk—and the products have a bit of extra protection built into the premium.
The obvious question is why people should pay for the extra risk in extra premium if they’re healthy. Can’t they do better with a fully-underwritten policy? Yes and no. Yes, but the minimum premium amount for the fully-underwritten policies with good rates is considerably higher than many people are willing to purchase. Smaller policies, even if they are underwritten ratebook policies, have higher unit costs and so it would look the same.
However, it would be useful if the insurance company would allow the employee to buy the larger, fully-underwritten ratebook policy and pay through the salary deduction process if that proves the best option.
This takes us to the question of what the agent or enroller does in the one-on-one interview. At a minimum, they ask what the employee wants, or wants to spend, explain the contract the employee has in mind and fill out some simple forms. Some agents, especially in smaller cases, will make the meeting more like a conventional sales interview. In this case, the employee and agent would be beginning their customer/agent relationship.
Selecting a company
Unfortunately, companies have made attempts to get into Work-Site Marketing and decided it’s not as much fun as they thought. It’s an entirely new set of questions for contract design, marketing support, customer service and agent relations and some companies have dropped out. It would be a good idea to make sure that the company you are thinking of using has been in the business for some time.
The employees, just as those purchasing their life insurance through conventional means, will have questions and require changes and will want to purchase additional coverage. The agent should be available just as if he were their life insurance agent in the usual sense. The company should also have a responsive customer service department. As it happens, the life insurance industry is aware that life policies can easily last longer than an agent’s career or even the agent’s life. I’ve written policies on young folks recently who will, I am confident, carry the policies until they’re 80 or 100 or so, which in some cases would make me about a 140 years old. So the companies, knowing they won’t be able to depend on the agents forever, have good customer service departments who can handle any administrative matter.
I’m showing a sample premium sheet from Cincinnati Life, a fine insurance company with a terrific Work-Site Marketing program. An employee would find his or her age, read across the columns to the weekly deduction they would prefer and find the amount of insurance that deduction would buy. Since we’re operating in whole dollars per week, the amount of insurance is going to be uneven.
As one of the important issues here is the cash value accumulation in universal life or whole life, the projected cash value at given intervals is also provided. The figures for universal life cash values are based on current interest rates and current mortality charges. Either could change, as could the employee’s choice of premium—in universal life you can change the premium at will—so the figures shown are projections, not guarantees. They could be better, or worse. In my experience, whether the results are better or worse, the accumulation will eventually amount to considerably more money than the employee would have otherwise accumulated.
This might be a good time to issue a warning from the if-you-pay-for-it-you’ll-probably-get-it department. Some Work-Site Marketing programs include disability income coverage, or medical supplemental payments for losses, including days off or even doctor visits, even for the first day. They have no waiting period. The contracts pay for people to be off work. Not surprisingly, according to some of our corporate clients, absenteeism increases amazingly. An employer can tell the agent that this kind of contract is not to be offered. Or the employer can use a company which does not offer that kind of contract in the first place.
I strongly recommend that any employer with more than five employees look into the subject of Work-Site Marketing. The advantages are numerous and the administrative costs are minimal. Your property and casualty agent ought to be able to connect you with a good company.
About the author
Richard A. Aubrey CLU has been in the life insurance business for more than 30 years. His interest is in individual insurance, both life insurance and disability income coverage. A graduate of Michigan State University, Aubrey is at Piper McCredie Agency, Inc., and can be reached at [email protected]