The current financial condition of the world economy has caused a number of changes in the way we view various insurance products. One group of insurance products that is getting a fresh look is voluntary benefits. These insurance products have, to one degree or another, been a staple in the insurance marketplace since the 1950s. However, their usage has always been pretty limited.

In the 1950s and 1960s, the majority of an employee's insurance needs were supplied via programs that were frequently provided and paid for by the employer, thus negating the need for ancillary coverages such as those provided by voluntary plans. Additionally, because voluntary programs required the employee to pay for them, few had much interest in these products. For most insurance companies, they represented a very small percentage of their overall book of business.

But times change, and many employers now have to make difficult decisions about the long-term sustainability of their organizations. With eroding bottom lines, employers are searching for ways to reduce their overhead, just to keep the doors open. Over the past three to five years, employee benefits has been just one of the areas that has seen a downturn in employer participation.

Current state of the market
More and more, employers just do not have the financial resources to continue to provide a wide array of insurance products and plans to their employees. However, many realize how important these coverages have become to their employees. As a result, growing numbers of employers have begun to explore the advantages of making voluntary benefits available to their employees. Typically, voluntary benefits refer to such core coverages as life and health products, disability, dental, vision, critical illness and long-term care.

Despite a significant array of core products, creative insurers are bringing to market a seemingly unlimited number of ancillary products as well. Among some of the more imaginative products that are now available via voluntary benefit programs are:

• Pet care
• Legal plans
• Travel services
• Mortgage plans
• Employee purchase and shopping plans for things like computers and cars

In general, the scope of services available for voluntary benefits is pretty much limited only by one's creativity. Today's new "worksite marketing" products have exceeded prior programs by leaps and bounds. Interest from an insurer standpoint is that most of these types of programs do not require traditional underwriting because they represent a quick payout that frequently has minimal coverage limits.

"In 2009/2010 we observed that voluntary benefits were going to grow significantly and we decided this was going to be an area of focus for us." As a result, "we chose to invest in this area." -James Reid Head of Aetna's Voluntary Benefits Program

However, it is not always a "slam dunk" for insurers. Recently, one major area of voluntary benefits has become a trouble spot for some insurers. The trouble centers around long-term disability and long-term care coverage. While there are several reasons for this, the primary concern involves an increasing scrutiny of long-term disability claims by the Social Security Administration. As a result, insurers are now beginning to face increasing loss ratios. However, despite the increase in loss ratios, there have not been concomitant pricing increases. What has happened, however, is that some carriers are winding down their business in this coverage area. Most recently, Prudential Group stopped selling group long-term care policies in most states, effective August 1, 2012. Prudential did say in its press release that current policies would remain in effect and be available for renewal, assuming that premiums are paid on time and policy limits are not exhausted.

Interest rising
Most of the major health care insurers have offered voluntary benefits for years; however, for many of them, it was not a major product line. For example, James Reid, who heads up Aetna's voluntary benefit program, notes, "We have been in the core voluntary products for years."

UnitedHealth has had a similar experience. "We have been in this market segment for quite some time," points out Barbara Howe, vice president in charge of voluntary benefits.

However, both have indicated that, over the last few years, they have seen a significant increase in interest in voluntary products for employers of all sizes.

Howe says that, as a result of this increased interest, "Over the past couple of years, we have gotten serious about how we approach this business."

In Aetna's case, Reid states, "In 2009/2010, we observed that voluntary benefits were going to grow significantly and we decided this was going to be an area of focus for us." As a result, he says, "We chose to invest in this area."

As with most things in life, it was not one single thing that caused the increasing interest in voluntary programs. Among some of the more important reasons were concerns by employers regarding the ever-increasing medical costs. For many employers, Reid notes, "They had to cut benefits or provide programs that had significantly higher out-of-pocket expenses." Further, Howe points out, "Following the recession, people were beginning to take a closer look at their financial health" and became concerned that they did not have sufficient funds for many of the increased deductibles and/or copayments. Employers have begun to feel the employees' pain in this area and are now offering voluntary benefits to assist in resolving some of these important issues.

Previously, despite the whole idea of cafeteria benefit plans, in practice they were pretty much used a "cookie cutter" approach. In recent years, Reid points out that Aetna, in a study completed last year, learned that employers have seen considerably more interest in these plans from employees at all levels. They want to be able to customize a benefit program that meets their specific needs. The days of "one size fits all" are gone. Voluntary benefits, for the most part, can give employers the ability to provide their employees with a wide array of benefit options. This gives the employee the flexibility to design a benefit program for his or her specific needs, and this has become a major selling point for voluntary benefits.

"Over the past couple of years, we have gotten serious about how we approach this business." -Barbara Howe Vice President UnitedHealthcare Voluntary Benefits

One of the common characteristics of most voluntary benefit plans is that the premium is paid by the employee, primarily through payroll deduction. This allows the employee to do a much better job of budgeting for these costs. Additionally, administratively these programs are pretty easy for the employer to provide and still offer employees significant advantages. By far one of the greatest advantages to voluntary benefit plans is the overall cost when compared to traditional coverages. While costs vary by type of coverage and carrier involved, in general, there is a significant pricing differential between getting a term life policy from the agent that sold you a homeowners policy and what you could purchase from an employer-sponsored voluntary benefit plan for term life coverage. Many employers and employees are quite surprised when they see the difference that the cost under a voluntary benefit program can provide.

Conclusion
Voluntary benefits have experienced considerable growth over the last couple of years. Employers and employees are interested in having the ability to customize their benefit package to their own personal needs. Many agents and brokers have been resistant to discussing voluntary benefits because, in the past, they had limited appeal to employers. That's no longer the case-voluntary benefit programs can be great door openers and provide an excellent reason for contacting current clients and prospects.

In essence, voluntary benefits have moved from being just one of the coverages that an agent/broker has in his or her portfolio to becoming, as Howe notes, "the topic of discussion in many of our brokers' meetings."
From Aetna's point of view, Reid says that today, based on conversations with plan sponsors, agents, and brokers that they work with, "there appears to be a great deal of interest."

There is little evidence that this growing trend will slow any time in the predictable future. For that reason, agents and brokers should not let this unique opportunity pass them by.

Special Report
The articles in the Voluntary Benefits Special Report (pages 57-74) were written by Michael J. Moody, MBA, ARM, a regular contributor to Rough Notes.