The commission conundrum explained
As budget-conscious employers look to trim their healthcare costs, some are looking to voluntary cash plan schemes as an alternative. But what does this mean for intermediaries' income? Sam Barrett reports
Cash plans are becoming a standard part of an adviser’s armoury, enabling employers to offer a low cost, high value benefit. But while all the adviser attention is on the company-paid plans, some of the providers believe that advisers are missing an opportunity by ignoring the voluntary market.
“Advisers often do the difficult bits and then leave the voluntary benefits on the table for someone else to pick up and grow a relationship with their client,” says Brian Hall, sales and marketing director at BHSF. “But there are some large schemes out there, generating significant earnings for their advisers.”
In addition to preventing others from getting a foot in the door, recommending a voluntary cash plan can be a stepping stone to a company-paid scheme.
“We do find that some employers will put a voluntary cash plan in to gauge how much employees value it and, if take-up is good, they’ll switch to a company-paid scheme. We’ve won lots of business this way,” explains Lara Rendell, marketing manager at Health Shield.
Helping to drive this is the fact that cash plans are a highly visible benefit. Employees claim at least once a year, especially when it’s a benefit they pay for themselves. This can help to raise the profile of the benefits package generally as well as of the cash plan.
But, while the cash plan providers are keen to promote the merits of recommending voluntary schemes, there is a key reason behind advisers’ reluctance to explore this area – money.
Commission is not as chunky as it is on a company-paid scheme. For example while Health Shield pays 10% initial and 10% renewal on its company-paid business, voluntary scheme commission drops to 10% initial and 2.5% renewal.
With other providers the remuneration is even more meagre. Howard Hughes, head of employer marketing at Simplyhealth, says there is so little margin in a voluntary cash plan, an adviser can only really expect a one-off payment for introducing the business.
“We might be able to offer more generous commission, say 10% initial and 10% renewal, if it was an SME scheme and the adviser did all the legwork with the client. But this is purely hypothetical as we don’t get advisers bringing this sort of business to us,” he explains.
To put even more of a dampener on voluntary schemes, there is no guarantee of getting the volume of sales with a voluntary scheme. Take-up varies according to the sector and the range of employee benefits that are also in place as well as how the cash plan is positioned and how much it’s promoted.
Mike Blake, compliance director at PMI Health Group, the national advisory firm, does not believe voluntary schemes offer sufficient appeal to advisers.
“You have to really push to get employees to take them out,” he says. “I’ve seen plenty of voluntary schemes where only six or seven employees out of several thousand take them out. They can be virtually invisible. If a client asks about a voluntary cash plan I’ll put them in touch with a cash plan provider and leave it at that.”
BHSF's Hall, however, says that where a voluntary scheme is managed well the take-up can be significant, with the broker benefitting from the commission this generates. As an example he points to a scheme that was set up by employee benefits specialists Team Rewards for nationwide cash and carry company Batleys. This saw more than 300 employees sign up for its voluntary cash plan.
Richard Rankin, managing director of Team Rewards, says he often puts voluntary cash plans in place that get as much as 25% to 30% take-up.
“If you only put details in the brochure or on the intranet you’ll get less than 1% of employees taking it up but if you work with a cash plan provider that’s proactive with communications you can get significant uptake,” he says. “We’re a fee-based business so the commission is immaterial. Instead we recommend voluntary cash plans because they add value to the employee benefits proposition and help to build the relationship with the client.”
Simple to implement
And while the financial reward may be meagre, implementing a voluntary scheme can require very little work from the adviser. Once notified of a company’s desire to introduce a voluntary scheme, cash plan providers will take over and run the account management and communications programmes.
“We’ll go in and run the worksite marketing, visiting the different sites and speaking to employees about the plan. We’ll also provide copy for the intranet as well as other marketing literature to help increase take-up,” says Health Shield's Rendell.
Because cash plan providers will be looking for volume, companies need to be fairly large when it comes to voluntary schemes. Although some providers will entertain smaller companies, Paul Shires, executive director, sales and marketing at Westfield Health, says a company needs at least 1000 employees to make a voluntary plan viable.
“In theory we don’t have a minimum but the margins are so small we do need volume to justify the work involved,” he explains.
Additionally, because the cash plan provider does all the legwork, the choice of provider is important. Hall recommends looking for a provider with national sales force coverage as this can make it easier to service a client, especially those that have sites around the country.
There is also some debate around the best way to get employees to sign up to voluntary schemes, with some providers siding with payroll deduction while others prefer direct debit with the employee. For instance while Shires recommends promoting direct debit so terms can be continued even if the employee leaves the company, Hall says payroll deduction is the better option.
“Only a handful of our 2,800 client organisations use employee direct debit. Payroll deduction is essential for employee buy-in,” says Hall.
Some commentators, however, do not even think advisers should bother with arguments over how to set up payment.
“The voluntary cash plan market is a tough area for advisers,” says Hughes. “Advisers would be better focusing on company-paid schemes. It’s a growing market and it offers many more opportunities for advisers.”
Health Insurance insight - voluntary versus company paid cash plan design
In terms of benefit design, voluntary cash plans look very different to their company-paid peers.
“While the benefits on a company-paid scheme are fairly streamlined, voluntary schemes have a wider range of benefits and look much more like the individual plans,” says Paul Shires, executive director, sales and marketing at Westfield Health.
As an example, for £1 a week, Westfield’s company-paid scheme, Foresight, gives annual benefits of £55 for dental plus a further £110 for dental trauma; £55 for optical; £150 for therapy treatments; £25 for chiropody: £200 for consultation plus cover for scans and an employee assistance programme.
In comparison, its voluntary scheme, Advantage, at £1.06 a week (£4.60 a month) gives lower levels of benefit on the core elements. For instance dental is capped at £28 a year with a further £56 for dental trauma; optical is £39 over a two year benefit period; and consultation has a payback rate of 75%, with a maximum benefit of £70. Additional benefits are included though. These include a maternity/paternity payment of £55 for new parents; £11.50 for each night spent as an inpatient; and £35 towards homeopathy at a payback rate of 75%.
As well as offering benefits that are more focused on the needs of the individual rather than giving a nod to the employer’s requirements, cash plan providers also need to be mindful of the risk that claims will be higher when the policyholder pays for their own cover. Incorporating co-insurance on some benefits helps to reduce this risk but generally, price tags are higher on voluntary schemes.
For example, although straight comparisons are impossible, plumping for a voluntary plan with Westfield giving a similar level of dental cover to its £1 a week Foresight plan would mean going for its level two option at £2.13 a week (£9.25 a month). This gives £67 of dental cover plus a further £134 for dental trauma.