As life insurers know all too well, overall levels of life insurance ownership are down in the United States. The problem is particularly pronounced in the middle market — the 52 million households with annual incomes between $35,000 and $100,000. In this segment, only 23 million households, or 44 percent, have life insurance. Yet, despite all of the debate and attention focused on this issue over many years, the industry has made little progress.
Making the most of this opportunity requires a top to bottom realignment of the value chain, as well as products that are built for the unique needs (and the more limited spending power) of the middle market. Insurers enjoying success in this area are, for the most part, focusing on the workplace, which, to paraphrase Willie Sutton, is where the middle market is.
With its lower distribution costs, the workplace is becoming increasingly compelling as a channel for reaching middle market consumers. Employers are rapidly making voluntary benefits a significant part of benefits strategy, and, in fact, we have seen that a large majority of employees say they value the ability to buy voluntary benefits at work.
There are five key elements to successful participation in the voluntary benefits market:
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Develop a clear and focused strategy. Each employer market segment behaves uniquely, requiring different strategies, capabilities and competencies. Carriers trying to be all things to all employers often sub-optimize their voluntary benefits value proposition.
They need, instead, to identify their most easily leveraged assets, and then develop a clear and focused segment, channel and positioning strategy around them. For example, if the target segment is largely white-collar, multi-national companies attempting to leverage an independent agent distribution model will not work.
Such a segment will need a highly complex inside sales force that partners with clients and their consultants to offer the appropriate product choices, enrollment and service experience.
Offer a broad portfolio. Studies show that almost half of employers that currently offer voluntary benefits say they are likely to increase the number of products offered in the next two years. That’s because employee interest in receiving more voluntary benefits through their employer continues to grow.
Having a broad portfolio of voluntary products will be a competitive advantage, and can lead to deeper relationships with employers and employees alike. Offering nontraditional voluntary benefits, such as auto and homeowners’ insurance, can also increase employee interest and provide competitive differentiation. New entrants to the voluntary market have sometimes launched one or two products, trying to dip their toes. Unless that one product is a game-changer, there is little probability of sustained results.
Just because critical illness has been the fastest growing product, launching critical illness and hoping for success is not a viable strategy. Carriers will need to deliver a broad portfolio that includes a range of supplemental health products, life insurance and other protection products, and, potentially, disability, dental and vision insurance to satisfy the needs of their target segments.