The recipe for creating today’s winning health insurance sales repsBy: Marc Metzner Health Insurance
Due to increasing competitive pressure and new distribution technologies (e.g., public and private exchanges), many health insurance carriers expect their customer share to become increasingly volatile. This is particularly true of the Blues, whose high share of the state-level group market potentially gives them a lot to lose as competition heats up.
Some industry sales personnel have reacted to this increasing competitive pressure with a faster discount reflex. Others have resigned themselves to hoping for the best on the new Defined-Contribution Multi-Carrier exchanges. However, many leaders also see value selling as a viable strategy, enabling their company to stand out from the competitive herd and avoid a disruptive share/margin trade-off spiral.
The Alexander Group (AGI) works with carriers to optimize sales strategies and execution and just completed a study of 18 carriers on this topic. We conducted executive interviews and reviewed data on sales productivity, cost, quota and sales comp.
Based on our experience, this blog post describes the emerging recipe for recruiting and developing winning health insurance sales reps today. Specifically, carriers need to transform sales roles on five key dimensions:
1. From Features Focused to Consultative Selling – Today the industry’s reps focus mostly on medical insurance, and only sporadically on ancillaries and non-risk services. This cross-selling gap is due to lack of familiarity with these products, to the time-sinks stemming from their differing back-office systems, and to the low ancillary card-rates in their compensation plan. This transition is crucial, not only to create more value for customers, but also to create more account “stickiness,” and actually make money in the Administrative Services Only (ASO) business.
2. From Focusing on Admin Problems to Business Solutions – Today’s reps typically earn customer loyalty by being good problem solvers. They respond to customer issues and manage the back-office processes necessary to solve the crisis of the moment. This strategy has worked for reps because it helps secure another renewal in the short-term. However, it also puts the account at risk in the medium-term as other carriers increasingly go around traditional buyers to cultivate new influencers with new solution-oriented value propositions. This lack of focus on trusted advisor solutions is also echoed by the industry’s sales reps in AGI’s 2013 Rep Survey findings (Chart 1 below).
3. From Claims Mgt & Network Value to Risk & Cost Management Value — Some local health insurance executives believe their superior service delivery network protects their share. However, this is also what Telecom industry execs believed 10-12 years ago, before they suddenly lost share to wireless, cable and network wholesalers going direct. If health insurance sales reps continue to rely primarily on their network and claims management value proposition, they will expose their carriers to a similar fate (i.e., the number of telecom carriers fell from 60+ to <10 during this period).
4. From Reactive to Proactive Thinking – Health insurance sales personnel have tended to shape their approach to accounts based on broker or customer requests. Unfortunately, these days this approach is vulnerable to more creative competitors who can reframe customer needs around a broader solution set. As a result, reactive reps are often surprised to find out they are still selling apples while the customer is now buying oranges. This lack of pro-active focus on positioning vs competitors is echoed by the industry’s sales reps in AGI’s 2013 Rep Survey findings (Chart 2 below).
5. From a Predictable RFP Sales Cycle/Process to Year-Round Selling – The annual RFP cycle has traditionally driven the rhythm of sales in the industry. However, smart sellers are now moving upstream in the sales cycle. Their goal is to reposition themselves as higher-value partners by discussing a broader product set with new influencers. While this takes more time, it also helps keep the idea of the Defined Contribution Exchange from gaining momentum, and differentiates that carrier from the herd.
Carriers face significant change management hurdles in helping their reps to make the transition described above. AGI’s recent research (below) reveals the depth of the challenge in quantitative terms.
1. Too much time on low-value activities – AGI research shows that today’s typical health insurance (HI) sales rep spends 60% of his or her time on low value activities such as problem resolution and administration. Based on AGI’s experience with successfully transforming sales organizations, this will need to come down to the low 40s.
2. Insufficient Selling Time – AGI research shows that health insurance sales personnel average around only 22% selling time, meaning the other78% of their time is not spent generating revenue. However, to cover their costs in a downward-pricing market, selling time will need to rise to the mid 30% range.
3. Insufficient Time on Growth Products – Within the 22% of their time spent on selling activities, only 23% of it is spent selling ancillaries and non-risk services. This equals only about 1.5 hrs/week. Given that many carriers count on growth products to secure customer share of wallet, increase stickiness and raise profitability in the face of tight ASO price pressure, this current lack of sales focus on growth products represents a key constraint on sustained growth. This lack of process discipline around growth activities is also echoed by the industry’s sales reps in AGI’s 2013 Rep Survey (Chart 3 below).
4. Too Many Reps Making Quota – Although it may sound counter-intuitive to have too many reps performing above quota, a healthy growth-oriented sales organization should have roughly 40% of reps below quota. This ratio is necessary to help the comp plan focus reps on the right growth behaviors and create the right climate of creativity, hunger and learning from peers. With 80-90% of health insurance reps making quota, the result is money left on the table and rep complacency.
5. Actual/Target Incentive ¬ The industry pays out an average of 130% of its comp budget while mostly achieving flat net new account and member growth across its segments. This needs to fall to roughly 105% because it undermines both the impact of the comp plan and the ROI of the overall Sales Organization. Combined with too many reps making quota, this is essentially wasting too many scarce comp dollars across too many reps that are not driving growth.
6. Insufficient Rep Turnover – The industry has been slow to refresh its sales talent in preparation for the coming period of more intense competition. Because reps are making quota, they stay around — even when not executing the behaviors that position the carrier for growth. Based on our experience, winning carriers will manage rep turnover upward, from its current rate of roughly 4% to about 13% annually. This will require investment in a more structured performance management process, sales manager coaching, hiring, on-boarding and new hire ramp-up.
We hope you have found this emerging recipe for winning health insurance sales reps to be useful. The path is clear but not easy. In the best of circumstances, driving organizational change in the face of the above constraints is difficult. And, by breaking this challenge up across too many unaligned pieces and organizational functions (e.g., HR, training, sales leadership, sales ops, finance), many carriers end up struggling to realize a positive impact for years. However, if leadership is willing to invest in a carefully planned and executed change management process, it can be accomplished in an 18-24 month period.
To learn more, consider an Alexander Group in-house briefing on this subject. To schedule please contact Michelle Rittenberg.
You can also learn more by visiting Alexander Group’s Health Insurance Industry Page.