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The Changing Landscape Of Voluntary Sales

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In 2007, voluntary benefit sales in the worksite industry recorded another year of healthy growth.

A recent study by our company, Eastbridge Consulting Group Inc., estimates new worksite sales in the U.S. for 2007 totaled over $5 billion, an increase of almost 7% over 2006.

(We use the terms worksite and voluntary interchangeably and define them as employee-paid life and health products, either individual or group, sold at the worksite, and paid for by payroll deduction.)

Looking below the surface, Eastbridge’s U.S. Worksite Sales Report finds that this is not your father’s voluntary market any more. The business has evolved from one characterized by a few individual products sold by producers who specialize in voluntary to one with many different players, producers and product types.

Today’s voluntary market includes both individual and group products. Over the last few years, we’ve seen group products growing at a faster pace than individual plans. Indeed, when we look at the top 15 or so carriers in the marketplace, traditional group carriers are well-represented.

In 2007, 9 of the top 15 voluntary carriers by new sales premium were group carriers. And among the other top carriers, all but one offer several group products. Last year, the mix of new sales was 46% group and 54% individual. But this mix of sales is heavily influenced by the industry’s number 1 carrier, Aflac. Currently, Aflac has over a 30% market share and sells individual products. When you remove Aflac’s sales from the industry, the mix changes dramatically: 61% of voluntary sales are on the group platform.

By line of business, we are also seeing changes. In 2007, disability (short- plus long-term) came in ahead of life insurance (term plus universal and whole life) in overall product market share (23% vs. 19%). This is the second year in a row that disability sales premium exceeded life sales premium.

In fact, total life sales for 2007 were down almost 6% over 2006. Disability sales were about even with 2006. Positive sales increases were also seen in the accident (personal injury accident plans, not accidental death and dismemberment), dental and vision lines. These product results seem to indicate a slow but deliberate change in product mix, mostly likely because more and more of the business written is in existing cases (employers that already have voluntary products). We anticipate that both life and disability sales will stabilize, and growth products will be in other lines.

As we have written in other articles, this doesn’t mean that life or disability insurance is less important or less appealing. It just means that more and more employees already have these types of insurance and are spending their dollars on additional types of coverage. This is also evident in the fact that only about 17% of the new sales in 2007 were takeover sales (new sales derived from a carrier taking over or replacing the coverage sold by another carrier). Clearly, brokers are offering more varied types of products in their voluntary accounts, and employers are open to this.

The final change we see in the voluntary market is with distribution. Twenty years ago, the market was dominated by career agents of companies that specialized in voluntary products. For the past several years, however, we’ve seen the benefit broker segment (brokers who primarily sell medical insurance or employer-funded benefits) accounting for the largest percentage of voluntary sales of any single segment. In 2007, these producers accounted for 44% of all voluntary-worksite sales (about the same as in 2006).

Eastbridge has identified 5 distinct segments selling voluntary-worksite products–career agents plus 4 brokerage segments: benefit brokers, classic worksite brokers, worksite specialists and occasional worksite producers.

Chart 3 shows the overall results.

In addition to continued positive sales trends, we see penetration in the market deepening. Today, 54% of employers offer at least one voluntary product. If you look at employers with at least 100 employees, the percentage increases to over 70%. Additionally, 65% of all employed Americans say they own at least one voluntary product. And most of those own more than one. In fact, almost 30% own 4 or more voluntary products. We expect this trend to continue, since voluntary products are an increasingly important tool for helping both employers and employees deal with the costs of providing healthcare and financial security.

There’s no doubt that voluntary sales will continue to grow at a faster rate than most insurance industry segments. And with the sheer volume of sales–most of which are new sales–it’s a very appealing market. We forecast an average compound growth rate of 8% over the next 3 to 5 years, bringing the industry to over $6.3 billion in sales in 2010.