Pogo* once famously said, “We have met the enemy and he is us.” And if we didn't know better, we might have thought the author, Walt Kelly, was talking about the broker shakeout in the small and middle markets.
In years past, two types of brokers often coexisted in these cases. The employee benefit brokers (EBBs) handled the medical and employer-paid products, while the classic worksite brokers handled the employee-paid products. In general, these two brokers ignored each other, sold only their own types of products, and rarely came into conflict. They came from different backgrounds in terms of the types of carriers they represented, the products they sold, the filing platform of those products, their compensation, etc.
Over the last 15 years, things have been changing, and employee benefit brokers began adding more and more employee-paid products to their portfolios. In 2000, roughly 40 percent of EBBs sold voluntary/worksite products. That percentage has not dipped below 90 percent in the last several years.
Each group had variations in the ways the members did business, and each should be thought of as a spectrum. For example, some EBBs routinely cross-sold voluntary coverages, while others only sold them defensively (in response to a classic worksite broker coming into the case, for example). The two were distinct in terms of their focus and priorities. But the distinctions have been disappearing.
Most recently, classic worksite brokers have been adding employer-paid products, and almost 50 percent of these brokers now sell traditional group benefits. In addition, 25 percent say they now also offer pension and retirement benefits.
While the two groups are still quite different at the extremes, there is now significant overlap where the two meet. In other words, there is now a sizable group that sell both types of products at a similar rate, and whose backgrounds could be either traditional group or worksite. The most sold employee-paid products for each group are almost identical.
The result of this merging of segments is that cases increasingly have no need for two types of benefit brokers, and the shakeout is underway. More and more, the difference between these brokers isn't the products they offer, but the value-added services and expertise they bring. These parts of the broker's value proposition (i.e., services) do not lend themselves to a commission structure, resulting in increasing use of fees and PEPM types of structures.
The winners in the future will probably not come from either traditional camp, but will emerge from that center, where the two worlds meet. And as they fight it out in the marketplace, the ultimate competitive weapons will not be benefit products, but benefit services. Because on products, we all look the same.
*For younger readers, a generation ago, the comic strip “Pogo” was renowned for political and social satire.
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