Insurance carriers and brokers continue to be enthusiastic about the future for voluntary worksite benefit sales. While it will be a few more weeks before we have the final results for 2005, many in the market already are looking ahead to positive results in 2006.

In a recent survey conducted by our company, 95% of respondents say they expect voluntary product sales to increase over the next 12 months. Thirty-seven percent believe sales will “increase a lot.” The Voluntary Sales Growth graph shows the specific results.

Companies on both group and individual platforms are upbeat about 2006, as are brokers. There were only minor variations between the different types of respondents (that is, some were more or less positive, but all were positive).

Insurance carriers and brokers also expect to see growth in the number of new groups they acquire in 2006 as compared to 2005. An overwhelming 91% expect the number to increase in 2006, with 43% saying the number will “increase a lot.”

One reason for this optimism is carriers believe employees will be more favorable toward voluntary benefits. In fact, 68% of respondents believe employees will be more enthusiastic about voluntary benefits 12 months from now.

Another reason for the cheerful outlook (especially for carriers) is the increasing number of brokers selling voluntary benefits. Studies by our company show almost all benefits brokers now offer voluntary products–at least some of the time. In fact, the fastest-growing segment of producers selling voluntary is the employee benefits broker, and most voluntary sales now are made by those who do not specialize in voluntary, a big change from 10 years ago.

While important, sales aren’t everything. For our industry to succeed, we must have profitable sales. The carriers in our study do believe the profitability of industry lines as a whole will improve. Forty-five percent expect the voluntary line to be “a little more profitable.” Another 5% expect the industry to be “much more profitable,” while 40% expect profitability to stay the same.

The percentages significantly increase, however, when commenting on their own company’s profitability. Seventy-seven percent of those in our survey expect their company’s voluntary line to be “much more” or “a little more” profitable. This is 27% higher than their outlook for the industry as a whole. Clearly, carriers feel better about their own prospects than those of others in the industry. Our study did show, however, smaller carriers (those with less than $10 million in annualized sales) are less likely to believe their own companies would be more profitable in the next 12 months.

Sixty-three percent of respondents also believe voluntary brokers’ businesses will be more profitable 12 months from now. Among the brokers themselves, 60% believe they will be more profitable in the next 12 months.

Where will the increased profitability come from? One area is in improved persistency. Over half of all the brokers and carriers surveyed believe persistency and retention will improve. Some 44% expect persistency to “increase a little,” while 5% expect it to “increase a lot.” Forty-four percent expect levels to remain the same.

By size, the smallest carriers are more skeptical about seeing any improvements in persistency or retention. Brokers are slightly more optimistic about the possibility of improvements than are carriers.

Another area that will impact profitability is the premium rates on voluntary products. Fifty-one percent of our respondents believe premium rates for voluntary lines will increase in the next 12 months. However, most believe the rates will only “increase a little.”

Only time will tell if this optimism about 2006 is warranted. What is certain, though, is employers will face continuing pressure to control benefit costs. Voluntary benefits are an important tool to control costs while still offering a variety of benefits for employees.

Employees repeatedly say in surveys they want more choice in their benefit program and that they prefer to purchase financial security products at work. Both these factors lead us to conclude that, at some point in the future, virtually all benefits will become “voluntary.” In this new world, we see employers providing a predetermined dollar amount for each employee to use to purchase benefits (defined contribution) as well as providing access to a menu of choices. Employees will select the benefits that suit them and will also pay any costs beyond the employer’s contribution. This day may still be a way off, but we are moving in that direction. So the future is bright for voluntary.

The Voluntary Confidence Index is a survey conducted periodically by Eastbridge Consulting Group to gauge the outlook of the industry based on the attitudes and opinions of those in the market. Respondents represented a cross section of carriers, brokers and third-party administrators. Over half of the respondents in our most recent survey were senior or executive officers in their company, and 59% were directly involved in sales. Among our carrier respondents, we had a mix of company sizes and platforms (group or individual).