In The Voluntary Market, Advisors’ Role Forever Changed By ACA

By Cyril Tuohy

InsuranceNewsNet

A look-see into the future direction of the voluntary market reveals that financial advisors and brokers had best prepare to become facilitators and consultants as more voluntary benefits products are sold through the exchanges.

The “crystal ball” survey of top executives in charge of insurance carriers that sell voluntary benefits also believe that the basis of carriers’ competitive advantage will be to serve customers directly rather than through an intermediary, according to a series of recently published surveys by Eastbridge Consulting Group.

The health care exchanges will provide that conduit, Ginger Bates, research director of Eastbridge, said in an interview with InsuranceNewsNet. “There are a lot of broker-provided exchanges, carrier-provided exchanges, public and private exchanges.”

In 2013, as many as 43 percent of respondents said the ability to serve policyholders directly provided a key competitive advantage, an increase of more than 30 percentage points from 2011, the Eastbridge researchers found.

In short, the broker’s value as a pricing intermediary comparing prices among voluntary benefit plans will likely be forever changed by health reform. A broker’s role, Bates said, will differ depending on the size and needs of employers, but brokers “will definitely continue to be an important apart of the whole process,” of buying voluntary benefits.

As many as 80 percent of executives leading carriers active in the voluntary benefits market expect some form of change to their companies’ distribution model, and more than 50 percent expect those changes to be major, Bates also said.

In one sense, 2014 is shaping up to be an anomaly because it’s the first year of the Affordable Care Act, and employers are still feeling their way as to how voluntary coverage falls out for employees, and at what price.

Indeed, executives said “uncertainty in the future of health care” remains the biggest challenge facing clients as well as their own business, Eastbridge reported in its survey “Worksite/Voluntary Marketing: An Executive Perspective Frontline Report.”

In surveys past, executives have cited product competition and “attracting quality brokers” as the major challenges, Eastbridge said.

But in the next five years, executives said there’s little doubt that all voluntary benefits will be sold through some type of exchange, with online and call center enrollment being used more frequently than through face-to-face sales.

Employees pay 100 percent of voluntary benefits through a payroll deduction. T

The benefits are offered in addition to shared benefits in which the employer and the employee contribute to premiums.

Employers find voluntary benefits attractive because they don’t contribute to premiums. Yet offering the benefits helps retain employees.

Employees like the benefits as they allow employees to supplement coverage they already have, and can buy the coverage at a lower price because of group rates unavailable in the individual market. Brokers like to sell voluntary benefits because they provide a new revenue stream, especially with thinner profit margins on the employer-paid side of the benefits equation, Bates said.

Examples of employee pay-all benefits are vision, dental, accident, supplemental medical coverage, medical indemnity, critical illness, cancer, long-term disability and term life. Term life policies are the most common voluntary benefit sold in the marketplace.

Total estimated new business annualized premium in the voluntary benefits market was $6.0 billion in 2012, an increase of 6.6 percent, compared to 2011. Term life premiums represent an 18 percent share of those sales in 2012, according to Eastbridge statistics.

Voluntary products have been around for decades, but only in the last 20 years have sales taken off as the costs of health care have skyrocketed. Approximately 15 to 20 voluntary benefits carriers dominate the market. With at least 65 carriers participating in the market, supply is plentiful, Bates said. Demand is rising.

Among employees in businesses with 10 or more employees, the percent of employees owning at least one voluntary benefit increased to 38 percent in 2013 from 32 percent in 2010, according to Eastbridge. More than half all employees own either two or three voluntary products.

Nearly 90 percent of respondents in Eastbridge’s 2013 Voluntary Industry Confidence Index midyear survey said they expect sales to increase in the next 12 months. “Respondents continue to be optimistic about the voluntary/worksite industry’s capacity to grow their voluntary business,” Gil Lowerre, president of Eastbridge, said in a news release.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.