The Outlook For Voluntary Benefits

Near the end of each year, we're invariably asked about the trends for the upcoming year. This article gives us an opportunity to address this question and share some data, as well as our views, on the voluntary market in 2009.
Foremost in everyone's mind is how economic conditions will affect voluntary benefit sales. While we have been tracking sales and other indicators for decades, we have yet to find a clear correlation between sales and any economic factor. High market demand and sales growth momentum may have overwhelmed changes in the economy. But that may all change in 2009, given the present state of the financial system. We may finally find that correlation.
Late in the year, those in the voluntary market are optimistic about their 2008 results. Of the carriers, brokers and third-party administrators surveyed in Eastbridge's Voluntary Industry Confidence Index report, 82% said they believe sales will increase over 2007 rates.
When asked how their sales this year compare to their expectations for 2008, 42% of respondents said their results are higher than expected, while 33% said their results are lower than they expected and 26% said sales are about as expected.
One factor that may be driving the positive outlook is that 8 in 10 carriers expect to introduce at least one new voluntary product over the next 12 months or so, as shown in chart 3. Another Eastbridge study, Product Trends, confirms that 2008 and 2009 are going to have significant product development activity. Specifically, 78% of the carriers in the survey expect to introduce a new product. Additionally, almost one-third of the companies will be introducing more new products over the next year than is typical for them. Only 22% do not expect to introduce any new products.

Companies selling individual products were slightly more likely to say they will not be introducing new products in 2008 than were companies with group products.
These new products may not be completely new. In fact, in many cases, the carriers are planning to revise and enhance existing products. (We're already seeing carriers shoring up their life products due to the new CSO table requirement.) We have heard from some of our clients that these new products will include some interesting innovations.
New term life or critical illness plans are the products most likely to be added to voluntary portfolios in the next 2 years, according to the survey. Universal life-whole life products came in third overall, followed by new cancer plans and new vision products. Chart 4 summarizes these findings.
We believe that in terms of sales growth, health-related products will lead the way. We don't necessarily see one single health-related product driving this growth (at least not until we have a clearer view of what's going to happen in Washington with health insurance and health care), but the category as a whole will see growth.
In terms of employee reaction, respondents to the survey believe that employee enthusiasm for voluntary worksite benefits will increase. In fact, more of the respondents in the most recent survey said that employee enthusiasm will increase as compared to the year-end 2007 survey (67% compared to 63%). However, 14% expect less enthusiasm.
Both the product trends and the confidence index surveys were completed before the most recent financial market crisis, so we're not certain if the positive outlook continues. But regardless of whether sales increase or decline, we know that individual employee dollars will be stretched. This means that carriers and brokers will need to make sure they are allowing employees greater choice in choosing coverage amounts. This will enable employees who may not be able to afford "full" coverage to buy at least some level of protection. Allowing employees to cover, say, 40% of their income instead of 60% may make the difference between making a sale or not. Those carriers or brokers who present employees with a decision to buy a single level of coverage or none at all may find their sales declining.
Overall, we are cautiously optimistic that the voluntary industry will weather the economic decline. We expect that for 2008, we will see increases, although perhaps at a slightly lower level than last year. For 2009, we think that we still will have a positive sales year, with rising unemployment posing the greatest challenge to sales growth. Only time will tell if our optimism and that of others in the market is warranted.
Gil Lowerre is president and Bonnie Brazzell is vice president of Eastbridge Consulting Group Inc., Avon, Conn. They both can be reached at [email protected]