In the voluntary market, conservation takes many forms. We think about keeping our current accounts, protecting them by selling multiple lines of business in each, and even reclaiming accounts that have gone dormant. But one of the least appreciated forms is conversion: the percentage of employee-customers who come off of list bill who successfully keep their coverage by moving to another payment mechanism.
Five percent (with 10 percent being unusually good) is a common conversion rate among voluntary carriers. Yet one carrier has reached a peak of 28 percent and routinely reached 25 percent. Carriers already conserve many of the worst risks on their books—those are the 5 percent most likely to initiate porting, converting, or simply keeping their individual voluntary product on a direct bill or ACH, or credit card payment basis.
Raising the conversion rate improves the converted pool and some analyses have shown the pool normalizing as soon as 15 percent. While strong conversion rates are good for the carrier, they're important for you, too. Imagine a 500-life account with 50 percent participation across all employee groups and 20 percent annual turnover. One hundred employees leave each year, 50 of whom are owners of voluntary coverage.
If 5 percent convert or port, we conserve three customers and lose 47 per year. Every year. If we enroll 50 percent of the new hires, we have spent all of that time and effort on enrolling just to stay even. If we think of the new hires as our growth, and decide we need to replace the back door loss through new account sales, we need to write a new 94-life voluntary account every year (at 50 percent participation) just to replace the back door loss on that first account.
Now, multiply that by your entire book of business and you find that many brokers spend most (or all) of the year just working to stay even. And this assumes that we get 50 percent participation of new hires the first year and every year thereafter. Or seen another way, at a 5 percent conversion rate, if the above was true for you, 10 percent of your entire voluntary book would be at risk each year, with only .5 percent converting.
If you increased your rate to 25 percent, you'd have 2.5 percent converting. Preventing the loss of 2 percent of your entire book of business every year is a worthy goal. This running to stay even isn't shocking. What astounding is we tend to do so little about the attrition. Brokers place a value on the ability of employees to retain coverage after separation, products that offer portability, etc. But most of us do very little to encourage conversion.
Rather than retain the business, we put all of our efforts into the next new sale. “I didn't know I could continue the coverage” and “I didn't think about it at the time” are not acceptable responses when customers are asked why they didn't keep their voluntary coverage.
We accept that customer-employees needed, wanted, and valued the coverage when they purchased it. Then don't we have an obligation to help them understand their conversion rights? High conversion rates are good for the carrier, good for the customer, and good for us. Let's look at the conversion programs our carriers offer and demand better.
Gil Lowerre can be reached at (860) 676-9633 or [email protected]. Bonnie Brazzell can be reached at (803) 738-1236 or [email protected].
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