By Trevor Thomas

Voluntary employee benefits are developing into a distinct market of their own, shaped by employers’ need to be creative in recruiting and retaining workers while holding down costs by asking workers to take more responsibility for their own benefits, note specialists in the field.

“For employers, good customer service and quality control are a function of morale,” observes Lance Osborne, vice president, field force development for AFLAC Inc., Columbus, Ga. “The more a company can do for its employees, the more employees want to do for the company.”

Demands of small to midsized employers are moving the industry to adopt new competitive practices, including introducing more bundled products and making heavier use of the Internet for enrollment and administration, experts say.

John Brady, northeast regional disability insurance sales manager, Massachusetts Mutual Life Insurance Company, Springfield, says another recent change has been a more aggressive pursuit of employees who decline a benefit in the first open enrollment. Now more insurers are taking a second and third shot at employees who do not initially sign up, particularly for disability products, he says.

A key to this development has been the growing use of preexisting-condition clauses, Brady says. This specifies that if someone signing up for a DI policy had been treated for an ailment within, say, 12 months before enrollment, that individual can’t make a claim for that ailment in the policy’s first year.

This limitation actually encourages employees who declined a policy during initial enrollment to sign up later.

Often, employees who pass on a disability product when it’s first offered have to submit an extensive medical history if they later change their mind and decide to sign up, because the product would no be available on a guaranteed-issue basis.

But because a preexisting-condition clause can eliminate or reduce the need for health histories and medical exams, they can make DI more attractive to employees who passed up the policies during the initial enrollment, Brady points out.

“A preexisting-condition clause allows employees with changing needs to have access to underwriting, and that’s a major change for the industry,” says Brady. “It makes DI a major benefit program rather than a one-time enrollment. Now we can offer it to employees who have already bought but want more, as well as to new hires and to employees who had declined it on the first opportunity.”

Product bundling has always been around, but carriers are using it more often to attract employees by offering them a better deal.

In fact, supplemental insurance products are typically sold in integrated packages, according to a recent UnumProvident survey on worksite benefits (see sidebar). Stand-alone sales occur only about 20% of the time, the survey found.

“We’re big on dental and vision and tend to bundle those a lot,” says Steve Toby, head of the worksite business unit for Guardian Life Insurance Company of America, New York.

The big attraction to employees is the discount they get when they buy more than one kind of coverage, he notes.

“Bundling also appeals to small to midsized employers who don’t want to increase the number of carriers on the same case,” Toby says.

Bundling of hospital intensive care and critical illness at a discount is popular among AFLAC customers, says Osborne.

“You’ll see brokers and other producers who are offering worksite products go in to an employer and do a good analysis of existing benefits and then bundle some products to cover gaps,” he says.

For example, if an employer has to raise its health care plan deductible, the broker can offer voluntary critical illness and hospitalization products to take the edge off those changes.

The addition of employee assistance programs to individual policies, usually health-related, is another development being used to spur sales.

MassMutual, for instance, is offering Guidance Resources, which gives employees a range of services from fitness and nutrition counseling to financial assistance, help with writing wills and debt-reduction services.

Offered at no extra cost with certain policies, the program has already served 5,000 beneficiaries in the year since it was introduced, says MassMutual’s Brady.

The growth of the Internet in marketing and dispensing worksite products is partly spurred by employers and benefits managers trying to simplify their jobs. A provider that offers Internet-based enrollment, administration and employee information can make a compelling case to employers to do business with it, notes AFLAC’s Osborne.

“Web-based enrollments are becoming much richer in content,” adds Alan Barthelman, president, AB & Associates, a worksite marketing consulting firm in Cape Elizabeth, Maine. “You see enrollment Web sites customized with voice-over presentations as well as visuals.”

Web technology is also useful in linking salespeople to the enrollment process, he adds.

“You can have a customized enrollment presentation created for the employer where the employee can watch and hear a presentation, then transfer to a salesperson, all online,” Barthelman says.

Carriers have been getting more astute at using the Internet, adds MassMutual’s Brady.

“Prior to June 2002, we had enrollments by way of paper, meaning paper would go to the employees’ home, where they would have to complete the application and return it to the insurance company,” Brady says. “It was a static, one-size-fits-all enrollment process, with no ability to customize benefits and premiums.”

Now the vast majority of MassMutual enrollments are done online. Putting enrollments on the Web also opens up opportunities for online education of employees, which in turn unlocks more opportunities to customize benefits to fit all needs and pocketbooks, Brady says.

“I think technology really has had a huge impact in our ability to market, communicate and enroll voluntary benefits,” adds Neicee Durrence, vice president, UnumProvident Inc., Chattanooga, Tenn. “It really has changed participation levels tremendously over the past five years because of its impact on our ability to collect data and communicate about benefits.”

A major reason for the continuing growth of online enrollment is that it minimizes disruptions of the workplace, compared to face-to-face enrollments, Durrence says. It’s also advantageous when employees are in diverse locations, she points out.

“The most immediate opportunities for Internet use are in service and administration between the employer and carrier. For ongoing administration, it’s a much more efficient use of time and provides more effective accounting,” she says

Durrence believes, however, that carriers have just begun to tap the possibilities of the Internet in building worksite sales.

“I wouldn’t say there are any clear winners yet relative to the Internet for benefit communications and enrollment,” she says. “I think there’s a lot of opportunities but can’t say any carrier or provider has really fully leveraged this capability. So many of our products still need a communications element to position them, so there’s an education curve needed there that I think the Internet will provide.”