The U.S. market for voluntary and worksite benefits is like gravity: It's all around us, and it's as obvious as an apple falling on your head, but it's not especially well understood.
Deep Banerjee, an insurance sector rating specialist at S&P Global Ratings, talked about the voluntary and worksite market information gap last week, in New York, at S&P's annual insurance conference.
Banerjee said S&P thinks that the voluntary market is one of the fastest growing parts of the life and health market, and that participating in that market is good for insurers.
"It's a less capital-intensive product," Banerjee said.
What S&P thinks about a product is important, because ratings from S&P and its competitors help determine how much insurers have to pay when they seek capital from Wall Street.
Banerjee said, however, that, even for S&P, getting detailed information about the voluntary market is difficult.
Here are a few glimpses of what's happening in the combined voluntary and worksite products market now, based on reports from Avon, Connecticut-based Eastbridge Consulting Group Inc. and Charleston, South Carolina-based Benefitfocus Inc.
(Image: Bram Janssens/Hemera)
One challenge for supplemental benefits market watchers is that even the terms used to describe the products are confusing.
Some people who create and sell those products hate to call them "ancillary benefits" or "supplemental benefits," because, they argue, products like employee-paid life insurance or employee-paid disability insurance may be critical to protecting employees against financial disaster.
Traditionally, a "voluntary insurance plan" was a group insurance plan set up in such a way that the employees could decide whether or not to pay to participate.
A "worksite marketing product" was an effort to sell individual products to workers at the worksite.
Today, even insurers and the enrollers are somewhat vague about which products are voluntary insurance products and which are individual products sold at the worksite. One thing that's clear is that the combined market for those two types of products is hot.
Workers are more interested in buying the products because increases in group major medical plan deductibles and co-payments amount are increasing their out-of-pocket costs.
Health insurers are interested in selling the products because, today, the rules for the supplemental benefits market are much more clear than the rules for the major medical market.
Insurers that focus on the life and disability markets are interested because supplemental benefits products tend to be much more resistant to low interest rates than traditional life insurance, disability insurance and annuity markets.
Here are what Eastbridge and Benefitfocus are saying about the combined voluntary and worksite products market now.
1. There are opportunities for life and disability issuers as well as for issuers of health insurance gap-fillers.
All of the commotion surrounding the Affordable Care Act and the major medical insurance market has drawn attention to supplemental health insurance products in recent years.
Analysts at Eastbridge, a private firm that has focused on tracking the voluntary/worksite market since 1989, say their industry surveys show that sales have been strong for non-health products in the market as well as for health products.
Overall voluntary/worksite sales increase about 7% in 2016, to $7.6 billion, according to Eastbridge.
Sales of critical illness insurance increased 13%, to $556 million, and sales of several other types of supplemental health products, including hospital indemnity insurance, increased 16%, to $622 million.
Although those health products sold well, life insurance and disability insurance accounted for a bigger slice of the voluntary/worksite sales pie.
Voluntary/worksite disability sales rose about 9%, to $1.5 billion.
Voluntary/worksite life sales increased just 6%, but they accounted for $2.1 billion in sales.
2. The open opportunities appear to be vast.
Analysts at Benefitfocus, a company that runs private benefits exchange and benefits administration systems, recently published a major benefits market analysis based on its own customers' data.
The analysts broke out data for large employers in each region of the United States, and they compared the results for the large employers with the results for all customers.
One implication of the Benefitfocus report is that millions of workers still have no access to voluntary or worksite health benefits, especially in the Midwest and West.
About 47% of all Benefitfocus customer employers offer at least one voluntary/worksite health benefit, and 17% offer three major types.
When workers have access to supplemental health benefits, about 39% participate.
The percentage of employers offering the supplemental health benefits is just 32% in the West, and just 31% in the Midwest. When employers in the West and Midwest do have access to the supplemental health benefits, the participation rate is 38% in the West, and 40% in the Midwest.
The participation rates imply that workers in the Midwest and West are just as eager to buy the benefits as workers in the South and Northeast are, but that they simply lack the opportunity to buy the benefits at work.
3. The big may get bigger.
Eastbridge analysts have sobering data for insurance agents who are hoping they can use a little new voluntary sales revenue to make up for major medical sales lost due to Affordable Care Act turmoil, or annuity sales lost due to fiduciary rule uncertainty.
Organizations that already focus on selling employee benefits appear to be doing a better job of maintaining or increasing voluntary/worksite sales than dabblers.
"Occasional producers" accounted for just 2% of voluntary/worksite sales in 2016, and their sales were 1.5% lower than in 2015, according to Eastbridge data.
Classic worksite brokers' sales fell 0.6%, but they accounted for 12% of the market.
Traditional employee benefit brokers increased their sales 12%, and they had a 62% share of the market.
--- Read 3 Opportunities in the Health Gap Market on ThinkAdvisor.