Up until now, there hasn't been much difference in the value propositions offered by benefits producers. Whether they work for a large national brokerage or a small independent agency, benefits producers have used the same basic approach and value proposition.
See if this sounds familiar:
A producer shows up at a prospect's office and starts telling his story. He brags about the number of years the agency has been in business, the "super premium" status it has with carriers, the great service his team will provide, and how they will be an extension of the prospect's HR department.
From there, the producer all but begs for the opportunity to work for free by asking for a chance to provide a quote with the hope and promise of trying to save the client a little money. And knowing that the eventual spreadsheets will all look the same, the producer recites his list of free stuff (some call it value-added services) in the hope that it will seal the deal.
Okay, maybe I'm overplaying it a bit, but this is probably closer to reality than most would like to admit.
Money drives behaviors
Their value propositions may be so similar because benefits producers typically share the same skills and traits. They tend to be likable people with decent technical skills and an ability to fix the inevitable problems an employer encounters. They accumulate a decent book of business (with a lot of it referred from the P-C side of the house) and then, because of growing employer head count, rising premiums, and percentage-based commission schedules, they watch their income go up every year. And it worked (past tense).
Let's talk about income for a moment. Most producers believe they get paid for the value they bring to the client. (And as brokers, technically that's who they work for.) To a degree this is true, and ultimately it's the client who determines who gets paid. But broker compensation has been overly generous because of the value they bring to the carrier, not the client. The carrier pays for the value of the distribution network and the first-line service capability that the agency or brokerage brings to the relationship.
If producer compensation truly were determined by clients based on the value they received from the agency, I think producers' W-2s might look a lot different.
Follow the money
If you have any confusion as to why benefits producers' value propositions have been the same, just follow the money. Because everyone is paid the same way (again, by the carrier), benefits producers have tended to deliver the same solutions to their employer clients.
But the world of benefits is changing. In many ways it has already changed, especially as you follow the money. Commissions are being cut and moved to a per-employee-per-month schedule.
Health insurance exchanges are (supposedly) on their way, transforming the benefits market. Carriers are starting to restrict the number of agencies they allow to sell on their behalf. And head counts for existing clients no longer go up automatically—assuming the clients are still in business and offering benefits.
While it's impossible to predict exactly how the benefits world will look as a result of these changes, one likely scenario is the end of producers' one-size-fits-all value proposition. I think two drastically different approaches will emerge.
First, let's go back to the look-alike value propositions. Basically it has been about finding a product, servicing that product, and handing out free stuff. Because different producers' products and solutions have been virtually identical, employers have often made their broker choice based on who would give away the most free stuff. This is a commoditized approach wrapped in a thin veil of potential value.
Here's the unfortunate reality of that broker selection process: While all of this free stuff has immense potential value, clients rarely recognize this value. Why? Because, after the client's initial interest, the "value-added services" are rarely given more than brief consideration—the proverbial "toy in the cereal box." These services may help the client make his or her decision, but they are quickly forgotten. Why? Because many producers don't take the time to align their value proposition with a real need, nor do they take the time to ensure its implementation for the client.
Agencies and brokerages offer these "value-added services" because they are bright and shiny; they show promise of helping the client with communication, compliance, attraction/retention, etc. So all producers compete on the spreadsheet, but they miss the opportunity to truly differentiate themselves by effectively implementing the additional resources for the employer. In the future, this is precisely where the separation of producers' value proposition models will take place.
One value proposition will gravitate to the spreadsheet, while others will gravitate to the consultative potential of implementing the additional resources.
Not only do I predict a separation in value propositions, I also believe that, depending on which way an agency/brokerage goes, it will have to reevaluate its internal business model, especially with respect to the kind of producers it hires.
On one side will be producers who continue to approach the sale of benefits as a commodity and focus on the value they can bring to the carrier. They will accept a smaller margin on each account and unabashedly compete on product and price. For them, volume will be more important than ever before.
What will it take for these producers to be successful?
- A significant investment in technology
- A value proposition focused on their ability to get the best price
- The ability to prove to carriers that they can handle the distribution and problem solving better than anyone else
- A more aggressive sales force than ever before; think of successful life producers. Complacency will have no place in this model.
- Leaner internal processes/procedures
- A focus on constant new business production
On the other side will be producers who take a more consultative approach, focusing on the value they can bring to their employer clients. These producers and their agencies/brokerages will compete on their ideas, consulting skills, understanding of HR issues, and their ability to drive bottom-line results in their clients' businesses. They will build models that unleash the potential value in each service they offer and make that the focus of their value proposition.
What will it take for these producers to be successful?
- A willingness to compete based on their ability to create plans of improvement rather than on a spreadsheet
- A sales process that is educational and uncovers needs in all areas related to HR and employee management
- An agency-wide focus on constant learning
- An assertive (much different than aggressive) sales force: think of a teacher determined to make a new idea understandable to students
- A focus on constant improvement of the client's business
It likely will be the large national brokers, along with technology-focused competitors, that take the commoditized approach. We're starting to see some new tech competitors entering the market, and I'm sure there are many yet to come.
Here is why I believe that major brokers and tech-focused companies will use the commodity model to sell benefits. First, they are able to make significant investments in technology. Second, they have the volume to satisfy carriers. Third, they will be able to survive the inevitable churn/burn of producers. Finally, it would be too difficult to have such large sales forces focusing on anything but the commoditized segment of the business.
All things considered, I believe the advantage will go to the smaller agencies and brokerages that use the consultative model. Why? First, they really will have no choice—"boutique shops" just can't compete in a "big box" world. Second, because they have a smaller sales force, they can afford to educate their producers to focus on the needs and desires of the client. Third, they will want to embrace the consultative model because of the untold potential it offers.
When the commoditized side abandons the charade of "free stuff" to focus on the product and price, a huge void will be created in the area where employers are going to need the most help. Employers may not recognize this void on their own, but it will be undeniable when the new, more consultative producer points it out.
Soon it will be time for you to choose. Can you compete in a big box world of commoditization, or does your future success lie in your consultative offerings?
"Commoditization or consultation" was originally published in Rough Notes Magazine November 2013
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