In simple terms, a zero-sum game is one in which the victories of one competitor are exactly matched by the losses of another. The total market changes very little, while the competitors trade business and shares of the market.
Is the benefits marketplace a zero-sum game? There is evidence that it is. Look at the compound annual growth rate (CAGR) for several ancillary benefit products. The 10-year CAGR for life insurance sales based on premiums sold was 1 percent. For short- and long-term disability income products, it was zero. For dental insurance, the sales CAGR based on numbers of subscribers was actually negative, at minus 3 percent. The only products showing positive CAGRs were the relatively new lines of critical illness (+17 percent) and accident (+11 percent).
We see this reflected in certain market trends. There's a great deal of takeover business in the benefits market. For years, this has been true in the employer paid market and now, even in the voluntary market, takeovers are over 50 percent of sales. In a zero-sum game, product differentiation begins to wane, commoditization increases and there's competitive pressure on both pricing and underwriting to make concessions.
Let's ask how we can achieve real growth, and break out of the zero-sum trap. The two basic strategies are to grow value within the market and to grow the market itself.
Growing value inside the market is a matter of increasing frequency—the number of products offered to a group—and amplitude—the participation on voluntary products. The fact that critical illness and accident products have a significantly positive CAGR over the past 10 years reflects the value of increasing product breadth. Other growth product lines include supplemental medical products and ID theft protection. Participation also matters a lot in the voluntary market. This means there needs to be a campaign built around enrollment communications. If the plan is a takeover, there needs to be a goal of increasing participation by at least 10 percent on every line of business. That creates business value as opposed to simple zero-sum value trading.
Second, in terms of growing the market itself, there's still plenty of room for real growth in the benefits marketplace. Yes, most large businesses offer a broad range of employee benefits, but many still may not be offering newer lines of protection like accident and critical illness. Smaller businesses may have sent their employees to a medical insurance exchange, leaving employees with no employer-supported options for life, disability and so on. Let's not stay stuck in the zero-sum game. Let's create value by increasing benefit sales both by building success inside the market and by developing new markets.
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