The increase in employee benefits choices and the resulting portability of benefits have created confusion in the employee benefits marketplace, according to a recent study by Conning Research and Consulting Inc.
This analysis of the worksite market indicates that many of the issues that came into play during the movement from defined benefit pensions to defined contribution plans may well be playing out in the transitions underway in portable life and health insurance. Increased choice can create confusion and the need for increased information in the selling process. Once the employee must actively choose a benefit, inertia may result in lower penetration in voluntary products.
It is useful to look at the transition from defined benefit retirement benefits to today's portable benefits because some of the same dynamics are at work today with other benefits. The shift toward defined contribution plans has increased the portability of pension benefits -- a distinct advantage given the increased job mobility of recent years -- and has provided employees with more flexibility during retirement.
In response to this shift from defined benefit to defined contribution pension plans, many insurance companies expanded their product offerings to include defined contribution products and investment products such as mutual funds. As employees change jobs and take their defined contribution pension plan balances with them, individual products such as retail mutual funds and individual annuities are possible destinations for the funds. Insurance companies have increased the variety of individual annuities available in an attempt to capture this "roll-over" market.
Unfortunately, since participation is often voluntary, many employees choose to not participate. As more benefits become voluntary and the number of products sold through worksite marketing increases, this pattern of non-participation will continue.
Portable life and worksite-marketed products
The marketplace is moving toward voluntary benefits, worksite marketing, and portable life insurance. Worksite agents and brokers are presenting a full range of insurance products, including employer-pay-all benefits, voluntary benefits, portable benefits, and standalone individual products. This full range of products can provide options tailored to each employee's specific situation. However, as seen with pension benefits, when participation becomes voluntary, enrollment decreases.
Facilitate the transition
The general public is not always particularly savvy regarding insurance matters. There has been an increase in the number of insurance information sites on the Internet. This, combined with decreases in term life rates, has made it relatively easy for consumers to find individual coverage that is less expensive than group coverage available through their employers. In addition, individual policies have several advantages over group voluntary term life, including guaranteed premiums, increased coverage and product options, and the ability to compare rates from multiple insurers.
To date, penetration rates for voluntary benefits and sales via worksite marketing have not met expectations. In part, low penetration is the result of the increased number of choices. As the number of choices increases, so does the need for information and the possibility of confusion. Education is essential if employees are to be expected to understand the products and how they fit with their insurance needs. Only then will customers buy the products. Therefore, employers and the worksite marketer will need to provide education and advice to enable employees to make reasonable decisions.
However, employers have not been eager to assume the educational role. Some insurers have assumed the advisory role with some success. However, this role is more related to insurance distribution than "manufacturing,"and the proportion of insurance distribution directly controlled by insurers has decreased steadily over the past few decades. Brokers and benefit counselors, by focusing solely on distribution and the advisory role that facilitates it, are more likely to have the in-depth knowledge of the full range of benefits and voluntary products than an employer's human resources staff.
Successful brokers and benefit counselors are using several strategies, techniques, and technologies to increase worksite penetration. These include coordinating enrollment for all benefits and worksite-marketed products and tailoring enrollment methods to the preferences of the employees. Each of these strategies requires sophisticated technology to communicate with employers and employees, and reliable data processing capabilities to insure seamless execution of enrollment transactions. Without extensive and reliable data connectivity, a broker or benefit counselor will have difficulty delivering increased enrollment in portable and voluntary benefits.
Long term, the market is moving toward a "unified defined contribution plan" for all insurance-related benefits. However, a major obstacle to a fully integrated system is that life and health insurance both lack the necessary combination of portability, affordability, and favorable tax treatment. Between now and the "unified" future, insurers, agents, and worksite marketers need to work with employees to enable them to make informed choices.
Terence B. Martin is a vice president at Conning Research & Consulting Inc. The Conning Research study "Changing Products for Worksite Marketing: Voluntary Benefits and Portability," analyzes and presents the issues that worksite marketers face in selling voluntary benefits and product portability enhancements. For more information, call 888-707-1177 or visit www.conningresearch.com.
