Jobless Recovery, Other Trends
Influence Worksite Market
As agencies, brokers and carriers build their marketing and distribution strategies for the worksite market, they need to anticipate future changes. They need to understand how economic, demographic and industry trends affect the market potential for employee benefits and voluntary products.
While there are indications that the U.S. economy is on the mend, so far it has been a “jobless” recovery. Employers, not yet comfortable enough to hire regular full-time workers, continue to look to part-time, contract and temporary employees. Offshore outsourcing also has become a cost-effective strategy in todays economy. As a result, the pool of benefit-eligible employees has remained flat, limiting short-term growth in the employee benefits market.
As market potential has stagnated, there is less competition in the employee benefits marketplace due to merger and acquisition activity. Key players have been acquired or merged with other firms in a bid to maximize distribution effectiveness and economies of scale.
Driven in part by lower investment returns, carriers are less willing to buy market share. Pricing, profit margins and expense management are overriding concerns when companies develop new products and services.
In addition, there is continuing uncertainty among employers over double-digit medical premium increases. Employers have reacted by increasing deductibles, co-payments and employee premium contributions for medical coverage.
At the same time, employers are hesitant to make drastic changes to benefits because of the effect on employee morale and retention.
Here are 3 scenarios that suggest opportunities for growth in the voluntary benefits market based on the impact of medical increases on employees.
? Replacement. If increases in costs of medical benefits squeeze employees too much, they will cut back or even drop medical. On the flip side, they could pick up other coverages as a stop-gap measure. For example, accident, cancer, critical illness and supplemental medical insurance all provide limited amounts of health coverage. While far from comprehensive, the plans do offer at least some form of coverage as employers cut back on traditional medical plans. Although not a rosy scenario, it does present an opportunity for voluntary carriers marketing these plans.
? Challenges. Medical increases may push some products to the sideline as employers strive to pay the higher costs.
Voluntary life sales have grown at a slower pace than other voluntary products over the past 3 years. The high penetration rate of life insurance, especially among large employers, gives the illusion that there is little opportunity left.
But opportunities do remain. Among larger employers, for instance, carriers and intermediaries can work to boost the participation rates of employees. Among small to midsized businesses, they can step up efforts to demonstrate the benefits of offering coverage to employees.
Group disability is another area where sales have been relatively flat. Since disability is a low-use and hence less visible product, employers often target it as an opportunity for cost savings. But as the average age of the employee population increases, awareness of and interest in disability insurance could grow substantially.
While LIMRA research has not seen many employers dropping the benefit, some are switching to a voluntary buy-up option. For many workers who already are hard pressed absorbing increases in their medical premiums, voluntary long-term disability may be too expensive. Short-term disability, however, would give them a basic level of coverage at a lower cost.
? Opportunities. Despite continued medical increases, some voluntary benefits will be in high demand. Dental coverage, for instance, is a highly regarded benefit. As more people place a greater importance on the care and maintenance of their teeth, dental benefits enjoy a high awareness level among employees, as well as a high utilization rate.
Voluntary dental product sales should remain strong, and discount dental plans may prove to be particularly attractive. These are noninsured arrangements in which a panel of dentists provides care at a discounted price. The plans are one way for employees to keep some dental coverage while lowering their costs.
Voluntary long term care insurance is being offered by a small but growing number of employers. According to LIMRA research, Americans believe a need for long term care is the most likely catastrophic event to happen to them and that it would bring with it the biggest financial impact. Many have seen this need firsthand as they struggle to care for their own parents. This new reality coupled with an aging population and a largely untapped market combine to produce a huge market opportunity.
Another increasingly popular voluntary benefit offering is the Section 529 college savings plan, which was introduced in 1996. Although not an insurance benefit, 5% of employers now offer a 529 plan, and many are looking to add one in the near future. Adding to the plans appeal is their similarity to 401(k) plans and the low initial investment cost, often as little as $50.
It is clear that the employee benefits market is evolving. Closely monitoring changes in the medical insurance market, improving employee participation rates (especially at large accounts) and offering a rich portfolio of voluntary benefits are just 3 actions that carriers and intermediaries should keep in mind as the future unfolds.
Ron Neyer, CLU, CHFC, is an analyst in LIMRA Internationals distribution research area. His e-mail is email@example.com. Jennifer Parmelee-Witt, FLMI, ACS, is an analyst in the employee benefits product research area at LIMRA. She can be reached at firstname.lastname@example.org.
Reproduced from National Underwriter Edition, April 9, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.