And the Beat Goes On… For Group Insurance
I have to confess that I’ve been a wannabe disc jockey for most of my life. Although I have had to dial back my on-air activities given my day job, radio remains one of my great passions. My eclectic Spotify playlists are filled with artists ranging from U2 to The Charlie Daniels Band, to Sonny & Cher. I lost interest in Sonny & Cher after their ‘70s variety show was canceled, but one of my favorite tunes is still their hit single “And the Beat Goes On,” whose message is that life, just like a rhythm, keeps going despite all its ups and downs.
After working in group insurance for over 20 years, I can say that the same holds true for the industry. Group insurance has experienced its fair share of upheavals, most recently during and after the pandemic. It is now feeling the effects of today’s economic turbulence by virtue of raised prices, increased product demand, and claims volume. But with an ongoing value proposition and resilient business model, the group insurance industry’s proverbial beat goes on — insurers continue to develop more innovative products and customized services in response to customers’ demands, as well as the mixed bag of current industry trends that we’ll examine in this blog.
The Facts on the Ground
Due to consumers’ greater attention to their health, insurance products have experienced heightened demand over the past two years. Unfortunately, small businesses (with fewer than 500 employees) that employ half of all private sector employees and are the growth engine of the group insurance market have been hit hard, with about one-third either temporarily or permanently closing. Most remain concerned about their ability to generate pre-pandemic revenue levels, hire and retain qualified employees, and manage their way through today’s inflation and supply chain-related challenges. Many insurers have been hit hard by increased mortality in their group life insurance businesses and increased morbidity for their group disability and other supplemental health businesses.
Bright Spots and Major Trends
Despite the pandemic’s residual effects, some bright spots may indicate a potential industry uptick, such as the number of new businesses being started (there were applications for 5.4 million new businesses in 2021), the increased value that employees now place on group insurance products, and the number of employees returning to the workplace.i Over half of employees who quit their jobs or retired during the Great Resignation of 2020-2021 plan to return to work despite a slowing job market. Group insurers also expect mortality trends to improve in the future with fewer fatalities from COVID.
To provide greater context, here are seven major product, pricing, claims, and service trends that the pandemic and its aftermath have influenced, which should continue until more stable markets prevail.
- Rising health insurance costs. In 2021, annual premiums for health coverage for a family of four cost $22,221, with the average employer assuming 72% of that cost.ii This hinders wage growth and prevents many small businesses from offering health insurance to their employees, with potential negative impacts on employee morale and productivity. To help keep costs down, health insurance companies have raised deductibles and co-pays and excluded certain coverage types, a trend that is expected to continue. This practice creates opportunities for other group/voluntary insurance products to fill these gaps.
- Shifting roles in employee benefits. The role of the employer continues to shift from payer to sponsor for employee benefits, with consumerism and voluntary health insurance products helping to fill employees’ health insurance gaps. Today, 31% of U.S. employees have employer-sponsored, employee-funded health savings accounts (HSAs) as a replacement for group health insurance, with 54% of these accounts added in the past three years despite a temporary lull during 2020 due to the pandemic.iii Employer to employee education remains an important opportunity for greater HSA adoption.
- Rapid growth of voluntary benefits. These products help offset health insurance deductibles, copays, and coverage gaps and now generate high single-digit annual growth rates,iv with broad and growing coverage across large and small businesses and high satisfaction rates for the employees that use these products. With 27% of employees currently enrolling, this market is poised for long-term growth with improved employee education, continuing product innovation, and lower product costs.v The pandemic has provided a wake-up call for employees, with about one-third buying at least one more voluntary benefits product in 2021 and 2022.
- Long-term COVID impact. According to the U.S. Government Accountability Office, between 7.7 million and 23 million U.S. citizens suffer from long COVID, which causes brain fog, muscle pain, fatigue, and other debilitating symptoms that can last for months.vi This will continue to negatively affect the group disability, critical illness, and other health-oriented product offerings of group insurance companies and require significant pricing adjustments for these products.
- The need for better mental health options. Employee mental health has trended downward the past few years and has further deteriorated due to the pandemic. In response, 31% of employers now offer virtual mental health coaching, up 13% from 2019, with time off for mental health and flexible scheduling also becoming popular offerings.vii Beyond the mental health issues, employers now must deal with evolving state and federal laws related to paid family medical, parental, and child-bonding leaves. This provides long-term opportunities for group insurance companies to support employers with their absence management offerings.
- The rise of virtual health and wellness offerings. Wellness offerings have become an important part of overall employee benefits packages. Most employers now offer wellness incentive programs to their employees and a near-majority provides telemedicine alternatives. Employers report that the uptake of telemedicine by their employees has positively affected their health insurance costs.viii
- Provider costs rise while service options increase. The largest barrier to increased employee adoption of voluntary benefits products remains the price.ix With morbidity trends remaining negative, this will place further pressure on pricing for group disability and supplemental health products, which need to be offset by lower servicing costs enabled by modern technology. Group insurance companies need modern technology platforms to enable critical capabilities including: 1) efficient new case installations; 2) the support of multiple enrollment methods, including call center, paper, face-to-face, and omnichannel technology, online tools that have become increasingly popular during the pandemic’s duration; 3) multi-tier commission and bonus plans for brokers; 4) accurate, timely, and flexible billing options; 5) open connectivity to employer HRIS systems for automated change/delete/add functions for coverage and other changes, and; 6) advanced claim intake and payment capabilities.
As the pandemic fades into the background and new market challenges arise, group insurance faces an entirely different set of market dynamics. Insurers are continuing to re-price their products and invest in more modern technology platforms to capture market share and stay competitive. In doing so, they will reinvigorate and strengthen the industry to keep the insurance beat going for a long time to come. Like Sonny & Cher said, “history has turned the page…and the beat goes on.”
Click here to learn more about current group insurance trends.
i CNBC. https://www.cnbc.com/2022/02/01/small-business-owners-optimistic-but-still-face-challenges-amid-covid.html
ii Kaiser Family Foundation. 2019 Employer Health Benefits Survey. https://www.kff.org/health-costs/report/2021-employer-health-benefits-survey/
iii Pulse Ascensus Health Savings Account Trends. https://pulse.ascensus.com/healthsavings.html
iv LIMRA. https://www.limra.com/siteassets/research/workplace-benefits/workplace-products/2021/fourth-quarter/workplace-benefits-historic-growth-rate-summary-4q-2021.pdf
v Aflac Workforces Report 2022. https://www.aflac.com/business/resources/aflac-workforces-report/default.aspx
vi Risk and Insurance. Absence Management Trends for 2022. https://riskandinsurance.com/5-absence-management-trends-for-2022/
vii Aflac Workforces Report 2022. https://www.aflac.com/business/resources/aflac-workforces-report/default.aspx
viii Aflac Workforces Report 2022. https://www.aflac.com/business/resources/aflac-workforces-report/default.aspx
ix Eastbridge Consulting, 2022. Voluntary Product Trends: May 2022.