Employee benefits insurance distribution is stuck in the past. It’s time to modernize it
In the age of big data, most employee benefits are still bought and sold in a painfully antiquated mode that levies undue costs on everyone involved.
The process is powered by onerous email exchanges, dense PDF documents and numerous layers of manual transcription. It’s a system plagued by inefficiency and human error, where transactions bog down brokers and carriers alike. Even worse, the outdated methods frequently fail to deliver employers and employees the insurance coverage that best fits their needs — an unacceptable outcome.
The good news is that it doesn’t have to be this way.
The time has come to overhaul the employee insurance sales process to one based in modern technology, freeing brokers to advise adroitly and carriers to sell efficiently. The tools exist to replace outdated methods, and the brokers and carriers who adapt quickly stand to win big in a new normal powered by data and the insights it unlocks.
Today, the snail’s pace of manual information exchanges forces brokers to spend 20 to 40 hours to complete a single request for proposal on behalf of an employer. Meanwhile, insurance carriers typically spend nearly 8% of a given plan’s insurance premium simply to land a new customer — a hefty price tag that causes most employee benefit coverages to remain unprofitable for carriers until the policy’s second year.
The problem lies chiefly in a simple fact: Every piece of relevant data that helps brokers and carriers transact is trapped inside multitudes of separate documents, and it takes hours upon hours just to send those documents back in forth, analyze them and extract the pertinent information so that all parties involved know what’s being sought and proposed. The resulting transactions frequently play out like a bad game of telephone, where errors find their way into request for proposals, proposals and eventually into the benefit coverage itself, sometimes causing adverse results for the insured employees.
In one case that I witnessed, miscommunication and confusion during the benefit distribution process caused an employer to unknowingly purchase a voluntary life insurance that didn’t cover spouses over 70-years-old. When an employee’s 72-year-old husband died, his widow was unexpectedly denied the $50,000 insurance payout. The worker was understandably livid; the employer was left scrambling, furious with its broker. The broker stood to lose a client, and the carrier was pressured to cover a claim that they didn’t price into their risk assessment. When there’s confusion about what’s being bought and sold, everyone is at risk of losing out.
Unfortunately, brokers’ manually burdensome job of fielding and comparing coverage proposals often leaves them with little time or bandwidth to appropriately compare competing insurance offers for clients. While brokers using a digitized workflow can compare upwards of 50 facets across dozens of coverage proposals, brokers who don’t use those tools typically condense sweeping insurance plans to an average of seven points of comparison, mostly having to do with the price and size of the benefits.
With limited information to go on, employers frequently pick the cheapest insurance plans, leaving the subtle details of the coverage lost in translation. Down the road, those particulars can have outsized effects on employees. In long-term disability coverage, for instance, changing even a single word of fine print can determine whether an employee claim is paid or denied.
Meanwhile, on the carrier side, companies have come to accept that they can’t fully trust the information used to calculate the risk they’ve been tasked with assessing — an expectation that would be unacceptable in any other financial instrument.
I don’t blame the brokers or carriers for these problems. Instead, I believe they’ve become victims of decades-old legacy systems that have failed to change with the times, cementing its actors in manual workflows.
But a change is coming.
Every broker and carrier knows that the days of transacting deals via emails and PDFs are numbered. There’s an opportunity to do this the right way. When data is digitized instead of being trapped inside slews of documents, it can be communicated efficiently and accurately in ways that save everyone involved time and money.
Brokers who embrace the modern way of working with clients and carriers will begin to outflank their competition by advising in truly profound ways. For them, the question will shift from, “How do I sift through this mountain of information?” to “How do I use this data to ensure employers and employees get the best possible coverage?” What’s more, early evidence indicates that new digitized processes can allow brokers to complete RFPs in a quarter of the time, essentially increasing their capacity fourfold.
For carriers, the ability to assess risk more quickly, efficiently and accurately will improve their bottom line. The data reaped from a digitized workflow will make insurance companies nimbler in communicating with brokers and expedite the process of bringing new insurance products to market. With a looming generational workforce shift as boomers continue to retire, that sort of agility could prove extremely advantageous.
Most importantly, modernizing RFP distribution process will empower carriers and brokers to get the right insurance to employees and employers when they need it.
Employee benefit distribution doesn’t have to be stuck in the past. Technology and data can set it free.