Voluntary Benefit Sales Continue To Grow

The group vs. individual mix graph shows the detailed results for the last several years.

Product platform is getting less and less relevant, though, as carriers merge the best of both worlds into their new products.

Sales by product line

Looking at specific products, voluntary life accounted for the largest share of worksite sales (24%) last year. Disability was 2nd with 20%, followed by accident insurance and hospital income-medical supplement-limited benefit medical.

The increase in life sales in 2005 was driven almost solely by term insurance. Term sales were up almost 14% while UL-whole life sales were down slightly over 2004 levels. Voluntary disability sales were again weighted towards short-term products this year, with voluntary short-term disability sales growing 5% and voluntary long-term disability sales actually showing a decrease of 29%. As for other products, hospital indemnity and limited benefit medical plans both grew at just over 15%, and critical illness at almost 13%. Cancer sales grew at just 4%, and long term care insurance sales were fairly flat. Dental sales were down again in 2005.

Interestingly, voluntary vision sales increased by 46%, although total vision sales are still quite small when compared to other voluntary products.

These trends are consistent with Eastbridge's consumer research, which shows that today's employers and employees are more interested in products that help cover deductibles and out-of-pocket expenses than they were in the past. As evidence of this, more carriers than ever are offering hospital indemnity and limited benefit medical products.

Sales by distribution segment

The study also tracked voluntary distribution and found that employee benefit brokers again accounted for the largest percentage of sales of any single segment (42% in 2005 compared to 37% in 2004).

Clearly, we're seeing a trend of more voluntary sales coming from brokers for whom worksite is a secondary line. In 2005, brokers who focus primarily on worksite wrote 47% of the sales, while the primarily "non-worksite" producers wrote 53%.

In-force premium

In-force premium increased at about 7% in 2005. Based on premium tracked in the past and historical estimates of the total market, we believe that the 2005 in-force worksite premium was between $13.4 billion and $17.7 billion.

The in-force premiums graph shows the estimated in-force premium for 1997 through 2005.

While 2005 sales were not as robust as in past years, we still believe voluntary sales will continue to grow. We believe more and more Americans will find it convenient and even a necessity to purchase financial security products at the workplace. This trend is fueled by a reduction in traditional distributors and agents calling on the middle market. It's also being driven by consumers who are now comfortable buying at the workplace and who have clearly expressed their appreciation for several advantages of worksite products:

oThe payroll deduction mechanism, with its implicit budgeting mechanism.

oThe belief that the products have been vetted in advance.

oThe convenience of buying at the workplace.

When you consider these features and the well documented increases in health and welfare benefit costs that have been squeezing employers (and fueling the interest in consumer-directed healthcare, benefit banks and defined-contribution concepts), it's hard to imagine that voluntary won't increase in importance.

Data is scarce on the degree to which voluntary products cannibalize sales of employer-paid coverages, but there is no doubt the migration has begun. Health plans have seen increasing co-pays and deductibles, premium sharing is becoming increasingly common and traditional benefits are changing into base/buy-up plans. All major group carriers are preparing for the voluntary migration. These trends, too, will likely ensure continued growth in the voluntary-worksite market.