2012 Voluntary Benefits Special Report

Voluntary’s role in era of uncertainty, rising costs

Voluntary benefits continue to offer opportunity for agents and brokers

By Dave Willis

Interest in voluntary benefits is strong. Voluntary benefits that can help employees insure or reduce out-of-pocket health care-related expenses are enjoying consistent growth, says Marty Traynor, vice president of voluntary benefits at Mutual of Omaha. "We're seeing significant interest in critical illness, accident and supplemental medical indemnity products," he explains, "and in services that provide advice and guidance to health care consumers navigating a confusing system."

Neal Lucchi, senior vice president, voluntary products, at HM Insurance Group, concurs. "Critical illness, in particular, has shown significant sales growth," he explains, noting that the number of carriers offering the product has grown, too. He says a March 2012 LIMRA survey reports that 85% of worksite carriers believe critical illness will experience the highest growth of any voluntary product this year.

According to Robbie Nevers, RHU, director, worksite and voluntary marketing for Standard Life and Accident Insurance Company, higher employer health insurance costs are driving increased interest. "There is a tremendous amount of cost shifting going on in the marketplace," he explains. "Employers who traditionally contributed towards an employee's health care costs are now either reducing the amount they contribute or passing the whole cost to the employee." 

Traynor sees this, too. "Rising health insurance costs are amplified at the employee level, with increased premiums, out-of-pocket costs and higher deductibles." Adds Glenn Petersen, vice president, voluntary benefits sales, for MetLife, "Critical illness insurance is becoming more prevalent and is attracting interest among employers and employees because it complements existing benefits in an era of health care reform and shifting benefits costs—including a migration to high-deductible plan offerings."

Agents are working with employers to implement these high-deductible plans and then use voluntary benefits, such as critical illness and accident, to help "fill the gaps," says Nevers. "Some employers are purchasing these benefits for all their employees, using the money they saved by going with the higher deductible."

Interest in health care-related coverage is strong, but it's not the only voluntary product enjoying growth. Group legal plans are attracting attention, too, Petersen notes, because they can provide high-value coverage at affordable premiums. "Tough economic conditions have underscored the value of group legal plans," he explains. "For example, from 2007 to 2011, Hyatt Legal Plans found that members more than doubled their use of legal plan services for debt and financial matters."

Use of bankruptcy services jumped 167% and the use of debt collection defense services rose 50%, as did the use of refinancing and home equity loan services, he adds. "Even dealing with more routine legal issues, like will preparation and real estate matters, can impact an employee's workplace productivity," he says. "Offering easy access to lawyers not only helps employees, but employers, too."

Capitalizing on voluntary

Retail agents and brokers can benefit by responding to this interest. "With the passage of PPACA and the uncertainty the law presents—especially for small employers—agents can use voluntary benefits coupled with high-deductible health plans to provide alternative solutions to group clients," Nevers explains. "They can return to a more traditional approach, using high-deductible plans to help lower costs and recommending voluntary benefits to address catastrophic events, such as a heart attack, stroke, cancer, bad car accident and more."

Lucchi encourages agents to sell the product as a part of the complete health insurance decision, not as an afterthought. "For example, while critical illness is sold by many as 'supplemental,' a producer who helps consumers understand how these plans complement health options is truly acting as an advisor," he says, "and buyers gain a better understanding of how products work together for more complete coverage."

Agents who are most successful with critical illness are those who "truly believe in the product," he adds. "I am passionate about the product because it is affordable, understandable and protects people from unexpected financial turmoil at the worst possible time."

Critical illness insurance may require a sales approach that differs from other products, Lucchi notes. "Many people have a natural filter that says 'bad things happen to other people,' so they presume they don't need it," he explains. "But when a connection is made to financial security, it can be quite compelling. Financial implications of an illness can go beyond the cost of medical treatment to include things like time off from work, travel expenses, additional childcare, and more. The logic behind the sale is the financial reason to buy it."

According to Traynor, "Brokers can do well if they become experts and build on their advisory role with employers. They are already quite familiar with the pressures facing clients; as advisors, they can help employers understand the value of using voluntary product options to meet the needs of employees and their families."

Petersen says that voluntary benefits, such auto and home, group legal, and critical illness insurance are a great way for employers to extend their benefits offerings without incurring additional employer-paid premiums. "In addition," he says, "they represent a way for agents and brokers to provide additional consultative value to their clients, while increasing revenue in the process."

Another advantage of offering voluntary benefits is the relatively low maintenance required. "The beauty of voluntary benefits is they involve less ongoing customer service than traditional health products," explains Nevers, "and the commission streams grow quickly even after just a few cases." He notes that the market for new health insurance customers is very competitive, and that voluntary products can help an agent or broker stand out.

Also, providing a broader set of products can help with retention. "Not only does adding voluntary benefits create an added revenue stream with minimal effort, it also helps create what I call a 'barrier to exit,'" he adds. "By bundling more insurance products with a client, it is harder for another agent to come in and take the business." This is something many agents and brokers already do with P-C products. "By having multiple policies with a client, if they get in a bind they more than likely won't drop all the policies."

One group of workers that may be particularly receptive to voluntary benefits is younger workers. "MetLife's 10th Annual Study of Employee Benefits Trends, released earlier this year, found that 52% of employees overall are interested in a wider array of voluntary benefits, but that percentage jumps to 57% for Gen Y and Gen X workers," says Petersen. "In addition, nearly two-thirds—62%—of workers in this age group are willing to shoulder more of the cost of their benefits, rather than lose them."

Perhaps these workers recognize something that Lucchi believes is an important factor. "Medical advances are allowing people to live longer," he explains, "This has implications for financial planning, and agents should point this out to prospective buyers when discussing their insurance needs."

Petersen notes that, while people are living longer and surviving critical illnesses at higher rates, that doesn't mean the insurance is unnecessary. "That's good news," he says, "but the bad news is that many of these individuals are unprepared for the financial impact of such an event. Getting a lump-sum payment in the event of a serious illness, which can be used for any purpose the insured determines, can be an attractive option for employees."

Understanding voluntary benefits and what they offer makes sense, regardless of what ultimately happens with health care reform, notes Traynor. "Whatever happens to the law itself," he says, "it's probably safe to say that things will never return to the way they were."

Petersen's closing advice is this: "To effectively deliver comprehensive voluntary benefits solutions to customers, agents and brokers should identify and work with organizations that offer a broad portfolio of benefit programs and that have expertise with benefits enrollment, administration and claims."