As business disruption caused by the pandemic began in early 2020, there was an almost immediate negative impact to the demand for new group (employer-sponsored) insurance benefits. Economically, small and midsize businesses felt the most acute impact and their demand for insurance products reflect this disruption. Insurance companies were left in a state of uncertainty as to when, and how quickly, demand would return.

 

In April 2020, ZS began the Project for Activity & COVID-19 Tracking with the aim of reducing uncertainty and improving decision-making among insurers by aggregating and sharing industry wide sales activity (quoting) data. ZS partnered with 10 of the top 15 writers of group disability premiums to collect business-to-business quoting activity data for 2019 and 2020, summarized by employer size, state, product and industry sector. From this data, we were able to observe trends in how small and midsize business buying activity did—or did not—bounce back as 2020 progressed.

The overall change in quotes for employers was down 13% in 2020 compared to 2019. The decline was not a surprise, nor was the pattern of the decline, with the steepest decreases seen as the pandemic unfolded in April and May 2020, then again as the second wave of lockdowns swept across the country in August and September of that year.

 

What was most interesting was that the decline in demand wasn’t uniform across segments. For example, demand among small employers dropped at nearly double (-17%) the rate of the largest employers (-9%). Certain industries saw steeper declines in demand than others; demand among construction companies (-19%) fell by eight times the rate of the demand among public institutions and transit authorities (-2%).

 

We believe there were two reasons for these differences: First, the pandemic had more of an impact on smaller employers and select industries, causing them to either shut their doors or shift financial priorities away from benefits buying. Second, many brokers reduced their market-testing activities, focusing on larger businesses and organizations with a strong intent to buy or switch providers. To this second point, many of the insurers in our study saw increases in win rates per quote, suggesting that there were fewer “casual shoppers” on the market.

The types of insurance products that were in demand changed through the pandemic. Voluntary hospital indemnity plans saw an uptick in demand, with 6% more quotes than in 2020, while group dental insurance saw the steepest decline at -17%. These product demand changes follow patterns seen before in insurance. Demand is affected by recency bias, so top-of-mind products like hospital indemnity plans become popular, while businesses put off buying products with limited immediate value like dental insurance (because many dental practices were inaccessible in early 2020).

 

This graphic summarizes the full-year trends observed in our study.

Our study showed that not all insurance carriers were affected equally. While six of the 10 insurers in our study saw their sales quoting activity decline by more than 10%, three saw only modest declines and one experienced growth. These results in part speak to how carriers adapted and navigated the crisis. Overall, we found three relevant takeaways insurance companies should consider applying now to help them remain resilient.

  1. Diversification matters. With product preferences and customer engagement models changing rapidly, those carriers with more-diverse portfolios generally performed better. For example, insurers with broad voluntary product offerings were able to capitalize on the relatively high demand for those products, whereas insurers whose portfolios depended heavily on group dental were hit hardest.


    Diversification of distribution methods matters, too. Our study was focused on group products, which are most often distributed through third-party brokers and consultants. But many insurers (including some in the study) also sell direct, with field-based, face-to-face sellers. It’s well publicized that insurers with face-to-face selling were hit even harder than those selling through intermediaries, with many seeing declines of 25% or more in sales year-over-year. Insurers with a portfolio of distribution methods (through brokers, direct-to-consumer and field agents) were better hedged against the COVID-19 upheaval.

  2. Agility matters. It’s one thing to have a diverse portfolio of offerings and something else to be able to adjust your sales focus to take advantage of this portfolio. Through our conversations, we learned that many insurers couldn’t shift their sales focus rapidly enough to emerging opportunities, such as toward voluntary products or larger employers.

    An agile distribution organization would launch short-term programs to redirect efforts as demand evolved. This type of organization should be able to quickly (and temporarily) redeploy resources among territories. Instead, most insurers we spoke with found themselves offering guarantees to smooth over their inflexible, annual incentive programs—taking a “wait until next year” approach on their sales efforts.
  3. Geography doesn’t matter … or does it? Much to our surprise, we did not find meaningful differences in group sales quoting by geography, despite the very different ways that various regions experienced the pandemic across the U.S. We did not see different patterns in quote volume by state or region, nor did we find any strong correlations with varying local COVID-19 regulations. It seems group insurance demand was more sensitive to the employer’s industry and size than its geography.

    But separate ZS studies have found strong correlations between business mobility and face-to-face selling, so those carriers in our study who also sell face-to-face would have seen their greatest declines in face-to-face sales in those counties and regions that went into longer, more strict lockdowns. All of this is important for an insurer working to assess its sales performance, make sense of results and prepare for the future. 

Our takeaway regarding geography, as with the rest of the study, is that it depends on how you sell, on what you sell and on how agile you are at adapting the way you sell. Those insurers with diverse portfolios, multiple routes to market and agile cultures and systems are poised to take advantage as communities reopen and demand for insurance products spikes. Insurers constrained in these areas have work to do to ready themselves for the future—not only to prepare for crises (which are uncertain) but also to prepare for any changes in the competitive or customer landscape (which are more certain). Resiliency in this environment relies on flexibility and may very well be what define the winners moving forward.