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Growing Choices Present Challenges In The Voluntary Market

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Insurers and producers selling voluntary employee benefits need to find ways to help employees understand an increasing array of products, says a new study.

As employers cut back on company-paid benefits, insurers have responded by introducing more voluntary benefits, notes the study, “Changing Products for Worksite Marketing,” produced by Conning Research & Consulting Inc., Hartford. It points out that increased choice is creating confusion and a need for more information among workers.

Conning also sees portability as growing in importance for employees, noting the increased job mobility of the U.S. work force. Just as the shift toward defined contribution plans made retirement benefits portable, employees will be taking new defined contribution products, such as consumer-directed health care plans, with them when they change jobs.

The report also suggests the voluntary market could be moving toward a kind of unified defined contribution plan for all benefits, much like 401(k) retirement plans. Health care savings accounts, linked to consumer-directed health care plans, are a case in point, explains Conning analyst Terence Martin.

“Health insurance is not portable,” Martin points out. “However, HSAs are portable.”

This could ultimately boost sales of other insurance products as insurers try to capture this rollover market, the study observes.

As employees move to other jobs and take their defined contribution products with them, many could place those funds in annuities or mutual funds. Insurers have responded by increasing the variety of individual annuities available, to try to capture some of this rollover market, the study notes.

The study also sees the possible growth of portable group life insurance policies, now relatively rare.

The flexibility afforded to employees by portable group life products would make them attractive. Such policies also offer a safety net when workers are between jobs, especially for individuals who otherwise could not obtain or afford coverage.

These developments will also carry challenges for insurers, Conning warns. Among them is the anti-selection issue.

Anti-selection means healthier employees would decline to continue coverage when they leave a job, while less healthy employees, who otherwise could not obtain or afford coverage, would keep the insurance.

Another challenge is that defined contribution plans, whether for retirement or health care, increase the complexity of available choices as they add to the employee’s costs, the study notes.

For those reasons, they add to the chance employees will decline to sign up, leading to low penetration for voluntary worksite products.

Producers are the logical choice to handle the education function, Conning suggests.

“Brokers and benefit counselors, by focusing solely on distribution and the education-advisory role that facilitates it, are more likely to have the in-depth knowledge of the full range of benefits and voluntary products than an employer’s human resources staff,” Conning states.

Technology will be an important ally for producers in this type of environment, the report concludes.

“That’s the most important aspect [of the study] for marketers to grasp,” Martin emphasizes. “They need to make greater use of technology not only for online enrollment but also online education, such as Webcasts.”

Portability is growing in importance for employees as the job mobility of the U.S. work force increases


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