Voluntary Benefits Special Report

Voluntary business continues to grow

Workers and employers adapt to a variety of products

By Len Strazewski

Fear, doubt and uncertainty. What else can employees feel after a terrifying recession, job losses and employer cutbacks in the benefits most workers have come to rely on to provide personal and financial security?

As employers search for ways to reduce their budgets and cut their employee benefits costs, they continue to recognize the need for supplementary benefits that can help their employees fill gaps in medical or disability coverages provided by employers. As a result, insurers that specialize in voluntary benefits marketed directly to employees say the group or individually rated programs are capturing more interest than ever from both employers and employees.

Voluntary benefits are usually endorsed by employers but chosen by and paid for by employees. They include supplemental long or short-term disability insurance, supplemental life insurance, and a wide range of medical and hospital supplemental coverages, which can be group-rated for large employee groups or individually rated for single employees or small groups.

Colonial Life & Accident Insurance Co. in Columbia, South Carolina, a division of Unum, is one of the largest voluntary benefits underwriters. The company provides individual accident and disability insurance coverage, critical illness and cancer insurance, hospital confinement indemnity insurance and other medical bridge insurance that pays expenses that may not be covered by group health plans.

While accident and disability insurance are among the oldest voluntary benefit offerings and are still very popular, the supplemental medical benefit coverages are quickly gaining popularity as workers struggle with concerns about growing limitations and shrinking value of group health plan benefits, says Colonial's Jay Hutchins, director of broker marketing.

Last year the insurer polled agents and brokers at the annual Benefits Selling Expo in Washington, D.C., and the Workplace Benefits Renaissance Conference in Nashville, Tennessee. About 60% of respondents to the informal survey said they recently added voluntary benefits programs for their employer clients. About 80% said voluntary benefits are very important to the overall benefits package they offer business owners, and another 17% said the benefits are somewhat important.

A more formal poll of more than 2,000 adults, including 724 full-time employees, conducted later in the year by Harris Interactive reveals that 82% of full-time employees who are currently enrolled in life, health or disability benefits through their employer or their spouse's employer think that life insurance offered on a voluntary basis will be important, very important or extremely important five years from now. For disability insurance, 77% said the same; for critical illness, 76%; accident insurance, 75%; and cancer insurance, 61%.

"Clearly, voluntary benefits have become a key part of the solutions brokers take to their business-owner clients," Hutchins says. "Years ago, voluntary benefits were considered as nice to have, but today they've become an integral part of company-provided benefits plans."

Hutchins says employee education and effective enrollment is critical to successful marketing, especially as competition among voluntary benefit markets increases. Large benefit brokers and consultants are diving aggressively into voluntary benefits marketing, he says, competing with smaller independent agents and raising the bar for service.

"If employees are confused, the problem is likely bad enrollment," he says.

Hutchins says Colonial Life can provide marketing and enrollment training and program support for agents and brokers who want to increase their voluntary benefits or process enrollment directly if an agency chooses.

"We believe that it is your client, so it is your call. But there's no reason why any agent can't compete successfully with whatever level of support they choose to receive from us."

Aflac, based in Columbus, Georgia, one of the most well-known providers of short-term disability insurance, hospital indemnity insurance, accident insurance and critical illness insurance products, is known for its consumer marketing mascot, a quacking duck. However, the company has also expanded its marketing and enrollment support for agents and brokers and increased its voluntary product line, says Ronald Agypt, senior vice president.

He says the company can provide "turnkey operations" for agents and brokers who have previously specialized in property/casualty insurance but have decided to expand into voluntary benefits. The insurer can provide not only a wide range of voluntary products, but also multiple enrollment platforms—from in-person counseling to online individual enrollment and value-added marketing services, such as custom benefit statements and communications booklets.

Aflac also ranks among the largest providers of voluntary dental insurance. The company recently announced a new individual dental insurance voluntary benefit to supplement its original group dental voluntary product. The program provides an annual maximum benefit that increases each covered person's policy year maximum by $100 after each 12 consecutive months the policy is in force, up to a maximum of $500 per covered person.

Other features include an orthodontic rider benefit that will pay $500 for the initial orthodontic treatment and then $50 for continuing treatment each month up to 18 months.

Why the new product? Company executives say that a recent Aflac study found that 33% of consumers are not offered dental plans at work while 86% said that employer-offered dental benefits are important to them.

Also, research by LIMRA, an insurance industry research association, indicates that dental insurance is the third most desired benefit after major medical insurance and retirement benefits, the insurer says.

American Public Life Insurance Co. in Jackson, Mississippi, provides supplemental limited medical benefit insurance coverage, voluntary group disability insurance, group accident insurance and hospital indemnity insurance with a variety of riders for inpatient and outpatient special care and emergency room care.

The insurer also provides group cancer and dental insurance and individual versions of the group coverage for employers with insufficient enrollment for group coverages.

Peggy Hayes, eastern regional business director based in Chesapeake, Virginia, says both employer interest and producer interest in voluntary benefits are increasing dramatically. As employers reduce their contributions to group health plans, growth in group benefit premium volume has slowed.

"There's a lot of uncertainty among group employee benefits brokers about the growth of their business. They are taking a long, hard look at voluntary benefits, both as a source of continuing growth, but also as a way meeting the changing needs of their employer customers," she says.

"The need for benefits to supplement employer-paid benefits isn't going away with health care reform; it is growing. Employers are turning to voluntary benefits programs in droves."

Hayes says that agents and brokers need to guide their employer clients to "bundles" of voluntary benefits that may include supplemental life insurance, accident insurance and short-term disability insurance that can be designed specifically to fit with employer-paid benefits and provide a stronger umbrella of financial security.

However, she notes that agents and brokers new to voluntary benefits may need provider support in adapting to the complexity of voluntary benefits sales. "Brokers need to realize the dual nature of the voluntary benefits programs. The first sale is to the employer to gain the support for worksite marketing, but the final sale is to the employee who must make an individual choice.

"This is not always intuitive to the agent or broker that has previously specialized only in group benefits."

Chartis Insurance in New York, an international commercial and personal lines property/casualty insurer, recently expanded marketing of two voluntary benefit programs—critical illness insurance, which covers a broad range of some of the most traumatic and expensive illnesses, and travel accident and travel protection insurance.

Critical illness insurance is one of the fastest growing medical supplement benefits, says Shawn Austin, senior vice president of corporate markets. It is also one of the fastest changing as insurers expand the range of illnesses covered by the policies and levels of limits available, he says.

The latest version of the Chartis voluntary critical illness insurance pays lump-sum benefits ranging from $5,000 to $25,000 per insured after the first diagnosis of life-threatening cancer; heart attack; kidney (renal) failure; stroke; coma; paralysis; coronary artery bypass graft; loss of sight, speech or hearing; major organ transplant—heart, liver, lung or pancreas—and severe burn.

Austin says travel accident insurance and travel risk management are also products on the rise as employers grapple with an increasing moral duty to protect their employees traveling overseas—but have difficulty budgeting the costs.

Disasters—both natural and manmade—pose a host of health, security, safety and risk concerns for individuals traveling on business, he explains. "Employers have a legal, fiduciary and moral Duty of Care for their employees. This responsibility extends globally and must apply to employees stationed in all corners of the world," he says.

As a result, employers need to evaluate and coordinate packages of "travel risk management" benefits that can provide protection and emergency services to employees who travel. Such a program can include employer-paid benefits and voluntary benefits or upgrades that can provide richer and more comprehensive benefits for employees and executives at greater risk.

Financial security remains an important driver of voluntary benefit sales, according to Mark Konen, president of Lincoln Insurance and Retirement Solutions in Radnor, Pennsylvania, which specializes in financial security products and annuities. The insurer released the results of an analysis of this market earlier this year.

"In today's environment, we see a shift towards protection products that offset volatility and solutions that offer flexibility. The need for guarantees has become a compelling driver, along with an increased awareness of risk. As people near retirement, understanding the risks that may lie ahead and planning for the unknown becomes more critical. There is also a movement towards worksite products; as employers search for cost-effective solutions, voluntary coverage continues to grow in importance," said Konen.

He predicts growth for insurance products that provide financial guarantees such as universal life, survivorship life, variable universal life insurance and variable annuities.

Long-term care insurance sales, which have languished for years, may be on the rise, he predicts, but in a hybrid form. A hybrid policy with a long-term care rider offers an alternative by allowing the customer to reallocate cash reserves to a product that offers multiple benefits, including an optimized long-term care benefit, a leveraged death benefit (when combined with a life insurance policy) and access to cash if needed.

For example, by just taking a portion of cash reserves, an advisor can reallocate it to a single-premium purchase of a "hybrid" policy that links the benefits of universal life insurance with a long-term care rider, or to an annuity with a long-term care rider, depending on the individual's specific goals and needs, he says.