Voluntary is the hottest thing in the insurance market rightnow. Problem is a lot of people don't know it yet.

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But they should, experts in the benefits industry say. The factis times are tougher than ever; the economy's taking its toll onemployers and employees. Americans are skeptical about their401(k)s and investing less than they used to, they don't have faith in Social Security or Medicare being availableto them as they grow older. And the economy and health care reformare threatening employer-sponsored care. In fact, the most recentstudy coming from Towers Watson finds nearly one of every 10midsized or big employers expects to stop offering health coverageto workers once federal insurance exchanges begin in 2014.

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Voluntary is the new fallback, it's the new supplement (or evenreplacement) to important benefits plans, so the experts say. Or,at least it can be.

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“Workers will begin to look for permanent type solutions,” saysJohn Penko, senior vice president of sales for Benefit Solutions, awdivision of American General Life Companies. “[Employees] are moreprone to getting those voluntary services than they would have beenmaybe two, three years ago.”

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Traditional and non-traditional voluntary benefits are seen as“valuable new alternatives enabling employees to meet life needs nolonger met by core employee benefits plans,” explains Donna Joseph,CEO of Rhodes-Joseph & Tobiason Advisors, an independentemployee benefits advisory firm in Stamford, Conn.

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“Today's growing menu of voluntary benefits bridges importantcoverage gaps in core health and wellness, retirement security andfinancial protection benefits,” Joseph says. “These gaps widened asthe economy stalled and further reductions in employer support forcore benefits are likely in the face of predicted health care costincreases.”

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But do all employees, and employers, think they need them? Notexactly, as surveys reveal.

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Aflac and MetLife reported on voluntary benefits trends thisyear, finding the “dramatic need” to reach out to many moreemployers to educate them on voluntary benefits and theiradvantages for both employers and their employees, Joseph explains.MetLife shows 58 percent of brokers think selling voluntaryproducts will be the best way to increase their firm'sprofitability and/or sustainability.

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With employers reducing support for core benefits voluntarybenefits can be key to enhancing the way employees perceive theiremployers. “A comprehensive offering of voluntary benefits helpsattract new employees, retain critical talent and promote employeeengagement. Employees can choose the benefits which address theirfinancial and family concerns, resulting in less distraction on thejob,” Joseph says. The new generations in the workplace appreciateemployers who provide access to a selection of voluntary benefits,moving away from the benefits-as-entitlement mindset of theirparents.

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Unfortunately, there's a disconnect between the perceptions ofvoluntary benefits held by employers and employees. According toMetLife's survey released earlier in the year, about 52 percent ofemployees said they were interested in a wider array of voluntarybenefits, but only 43 percent of employers believed their employeesfelt that way, says Ronald Leopold, national medical director andvice president of U.S. business at MetLife.

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And perhaps more importantly, numbers aren't reflecting growthin the market, despite what analysts say about its importance. Atbest, the surveys show stability in the voluntary market.

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As reported in our July issue, voluntary sales for the year weredown, the first time there's been a decrease from the prior year'sresults since Eastbridge Consulting Group began tracking voluntarysales. New voluntary sales totaled an estimated $5.243 billion,down from $5.397 billion in 2009. Yet again, unemployment and theeconomy are to blame for those numbers, Eastbridge says.

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“Tracking voluntary has been pretty much on the flat side,” saysRon Neyer, lead researcher at LIMRA. “They aren't surging but atthe same time they've been able to tread water.” And treading waterin a down economy is still a feat, he says.

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Plus, you need to keep the decrease in perspective, Neyer urges.Since 2009 was the biggest year yet for voluntary benefits,everything after isn't going to look as spectacular.  “Ifit's flat compared to 2009 that number can still look pretty goodcompared to 2006,” he says.

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Just thirty percent of U.S. employers (10 employees or more) saythey are considering  adding a new voluntary option withinthe next two years, according to LIMRA's  report,Voluntary Worksite Benefits: Penetration and Market Potential. Thesurvey interviewed about 1,200 employers across the country. Still,more than half (57 percent) of U.S. employers already offervoluntary benefits, and the rate rises quickly as employer sizeincreases. 

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Mixed results

Plus, things look a little murky at first glance of Eastbridge'sVoluntary Industry Confidence Index survey. Overall confidence index dipped to 98.4 percent after reachinga high of 102.1 at the end of 2010, the group found. But it may notmean confidence is dipping too much.

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“The results of the survey are interesting,” says Gil Lowerre,Eastbridge president. “In the survey, more participants reportedthat 2011 sales had thus far exceeded their expectations, makingthe negative predictions difficult to understand.”

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Almost 40 percent of participants said year-to-date salesexceeded expectations, 39 percent said they were in line withexpectations and only 22 percent said they were belowexpectations.

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Yet despite the optimistic report, all three components of theindex declined compared to the year-end 2010 results. The index iscalculated using three key expectation measures about the voluntaryindustry: sales growth, profitability of the industry and employeeenthusiasm about voluntary products.

Types of benefits

The year's studies confirmed life and cancer insurance remain the most commonly offeredvoluntary benefits, with more than 300,000 businesses offering eachproduct type to their workforce. In fact, total individual lifeinsurance new annualized premium increased four percent in thefirst half of 2011, another study released in late Augustrevealed.

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Eastbridge's annual survey of voluntary benefits also reflectsthat significance, finding voluntary life was the only voluntarybenefit to experience an increase in sales. Voluntary life salesaccounted for 25 percent of all voluntary sales, giving lifeinsurance the top market share for the second year in a row. Newlife sales were $1.331 billion for the year, up just slightly (1.5percent) over 2009. Term life generated the most sales premium in2010 with just under $930 million, down one percent from 2009.Universal life and whole life sales had one of the few increaseswith $400 million in new sales, up almost eight percent over2009.

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LIMRA reports voluntary long-term and short-term disabilityinsurance products are also very popular, with more than 20 percentof companies offering these benefits to their employees. Still,sales for both of them were down again this year for the secondyear in a row, Eastbridge found. However, total disability saleswere $1.046 billion despite the three percent decrease. Short-termdisability accounted for 74 percent of all voluntary disabilitysales.

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On the employer radar, vision (20 percent) and dental (19percent) remain the most popular voluntary benefits, according toLIMRA. Interest in most products has risen, at least somewhat, from2006 levels, and is greater at businesses that are not currentworksite marketing clients.

Change is gonna come

Still, outlook on the market is best for future growth. IfLIMRA's numbers are correct, with almost a third of employersconsidering offering new voluntary benefits to replace existingemployer-paid and contributory benefits (where the employer payssome of all of the costs), there could be a significant change innumbers. One-third of employers adding those benefits wouldpotentially affect between 19 million and 45 million employees overthe next two years.  Half of large firms (1,000 or moreemployees) show interest in transitioning their existing benefitsto voluntary, which is significantly higher than smaller-sizedfirms.

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That's significant, too, since an earlier LIMRA study releasedin May reports growth is brighter with mid-sized employers (firmswith 100-999 employees). “Marketing to larger firms is challengingdue to saturation and small firms often are less focused onbenefits and offer a smaller pool of warm prospects. In contrast,mid-size firms, looking to be more competitive, are interested infinding ways to expand their benefit package without adding cost totheir business,” Neyer says.

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The two benefits that are most likely to be shifted to voluntaryarrangement, LIMRA reports, are medical and prescription drugplans. The compounding health care premium increases over the lastseveral years have forced many firms to re-examine their benefitofferings and shift costs to their employees. Of those employersconsidering adding a voluntary major medical or prescriptionbenefit, the study revealed three of four employers may be addingthe voluntary benefit to replace their existing medical orprescription benefits. Employers appear considerably less likely tosimilarly replace other benefits.

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“The workplace has evolved from a niche distribution channelinto a preferred venue for employees to acquire insuranceproducts,” Neyer says. “This is a great opportunity for carriers totake advantage of employers' desire to offer a robust benefitpackage to their employees while still keeping costs in check.”

Employer advantage

In the past, employers offered voluntary worksite benefits toboost morale, attract strong candidates and retain employees. Nowdue to growing economic pressures, nearly 80 percent of employerssay they are interested in using voluntary worksite benefitsbecause these plans carry no direct costs to the business. Andemployers' costs are not the only motivating factor for offeringvoluntary benefits. Two thirds of employers said they offervoluntary benefits because it is more affordable for theiremployees than if they purchased the coverage on their own, and toprovide them with a wider array of benefits.

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LIMRA's study also confirmed that an employer's decision tooffer a particular benefit is largely dependent on the amount ofvalue they anticipate their employees deriving from the plan. Fewof these employers appreciate how important insurance protectioncan be to younger employees. Only two in three employers believe amajor medical plan is less important to employees under age 40 andless than a quarter believes that life insurance is truly valuableto their younger workers. However, this assumption may beunrealistic.

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According to LIMRA research, younger workers are more engaged inlearning about various benefits than in the past and mostemployees—both young and old—value benefits like medical insuranceand dental insurance. This disconnect will likely challengeworksite marketers to get plan sponsors with a younger work forceto expand their benefit offerings.

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The study found that overall voluntary benefits penetrationimproved across the board during the recession. LIMRA also examinedregional trends, and found that the recent recession may have beenthe great leveler. Traditionally, voluntary benefits were morelikely to be offered in the South, with Northeast employersconsidered to be the toughest sells. But differences betweenregions have diminished compared with previous studies. Greateremployer awareness of voluntary worksite programs and strongmarketing efforts played important roles in building employerparticipation in the previously less-welcoming areas.

Numbers looking up

The numbers don't necessarily suggest an exciting short-termoutlook for voluntary benefits. But longer-term, there's hope. Justconsider: Participation rates of voluntary products have heldrelatively steady over the past four years. Employers who currentlysponsor voluntary benefits say they are very satisfied with theirprograms. And half of employers not offering (but aware of)voluntary benefits are receptive to purchasing voluntaryproducts.

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“A great opportunity has emerged with employers who don'tcurrently offer voluntary benefits. They now display greaterawareness of the benefits and more likelihood of purchasing aworksite product than in the past,” Neyer says.

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“Unfortunately, our research shows that the industry istargeting these employers less frequently. Companies shouldconsider adjustments to their strategies, product features,producer incentives, etc. to better reach and educate theseemployers, and capitalize on this warming market.”

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So although some brokers see voluntary as their saving grace inthe biz, many aren't following through. Even a Sun Life Financialsurvey of 3,000 employed adults released in June found workers arevirtually clueless about voluntary benefits. Except for medicalinsurance, workers spend no time reviewing their benefits options.That's where brokers can—and should—step in.

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“If you place focus on the American worker, you'll differentiateyourself by focusing on the employee,” Penko says. “That's the waythe industry is moving these days.”

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