Recent slowing seems like a brief deviation from steady expansion
Since 1997, our company has been monitoring and tracking the trends in the worksite-voluntary benefits market. In this article, we look at some of the market through the 2004 sales year and share our thoughts on the future of the market.
The worksite market has shown steady growth from 1997 through 2004, often at a double-digit rate. In fact, in those seven years, sales have more than doubled, as seen in Chart 1.
New worksite sales for 2004 totaled an estimated $4.2 billion, a 3% increase over 2003. While the seven-year growth has been quite impressive, 2004 represented the second year in a row that the industry did not realize double-digit growth. This has caused some to wonder if there's a fundamental change taking place in the worksite market.
We do not believe so. Our analysis revealed that the slower growth primarily is due to issues in just a few companies and that, overall, the industry still has much room for growth.
Consider, for example, that sales increases were registered by almost 70% of the companies included in our study (65 worksite carriers, both group and individual, accounting for almost 85% of the total worksite volume). Over 50% of them achieved double-digit sales growth in 2004.
On the other hand, just 20% of companies had decreases, and four of these exited the worksite-voluntary market in 2004. Some of the other companies registering decreases last year had results only slightly down from 2003.
Our analysis further revealed six companies had decreases of $5 million or more in sales during 2004. If these six had achieved new business annual premiums equal to their 2003 figures, the industry growth rate would have been 6.9%. (Note: Most of these companies were dealing with internal issues that are expected to be resolved in the coming months.)
In-Force Premium
In-force premium increased about 11% in 2004, which is in line with historical averages (but a decrease over the previous two years–13% in 2003 and 17% in 2002).
We estimate the total market of in-force premium is between $12.5 billion and $16.6 billion. Chart 2 shows the growth of in-force premium for 1997 through 2004 (using our high estimates for each year).
Product and Platform Results
Group products continued to outpace individual plans, although the rate of growth was low for both. Group products grew 4% in 2004, while individual grew just 1%. The mix of group and individual premium for 2004 continued the trends of the past few years. In 2004, group products accounted for over 40% of new sales, while individual plans accounted for nearly 60%.
On a product basis, life insurance once again accounted for the largest share of sales, with 24%. Disability insurance was a close second, with 23%. Compared to last year, however, disability sales increased almost 3%, while life sales decreased by that amount. In fact, only three product lines–disability, hospital indemnity-supplemental medical and "all others" (e.g., AD&D and annuities)–showed increases from 2003 to 2004. The slight decrease in life sales may be attributed to worksite accounts consisting of existing cases having life insurance already in place.
The hospital indemnity and supplemental medical plans had the highest growth (over 80%) again this year, indicating employers and employees are still more interested in products that help cover deductibles and out-of-pocket expenses. Perhaps that's why more carriers than ever are offering and promoting this product to producers and their clients.
Distribution Results
We also are seeing changes in the types of distributors selling voluntary plans. Our study found that in 2004 the employee benefit broker segment accounted for the largest percentage of sales (36%) of any single segment. This is up from 34% in 2003. (The five broker segments are: employee benefit brokers, classic worksite brokers, worksite specialists, occasional worksite producers and multiline agencies.)
The classic worksite broker, worksite specialist and multiline agency market shares decreased from 2003 to 2004, while the occasional broker segment gained some ground (to 8% from 4%). Career agents, the second largest segment in worksite sales generated, also showed an increase, to 28% from 26% in 2003. Chart 3 shows the overall results.
