In the changing world of employee benefits, there has been a noticeable shift in the perception and necessity of voluntary benefits. As workplaces adjust to their diverse populations' changing needs and expectations, voluntary benefits are essential to a comprehensive employee well-being strategy.
Voluntary benefits programs are valuable employment perks designed to provide benefits when employees need them the most. As the name suggests, these benefits aren’t mandatory and are often offered at a group rate. Given the wide array of products and services, many employees find voluntary benefits especially attractive, as they can build a program suited to their needs.
The four main categories of voluntary benefits are health and wellness, personal benefits, financial wellness, and financial security. Examples include critical illness insurance, legal services, identity theft protection, pet insurance, paid disability, and tuition assistance. These benefits can improve the quality of life now and provide security for the future.
The growth of voluntary benefits is a key reason alternative funding solutions are becoming more popular. Over the last decade, we’ve seen significant changes in these products. Previously, benefits were one-size-fits-all, offering little flexibility for employees' diverse needs.
Previously, these benefits were secondary solutions to be used at the employees’ convenience. Enrollment was passive and not part of the Employee Retirement Income Security Act (ERISA). Employees had to meet face-to-face with an advisor to learn about and enroll for each option to access these benefits. The industry also struggled with transparency regarding claims experience, loss ratios, and commissions.
Today, the workforce is diverse with employees from different generations, each having unique preferences and priorities. These benefits now appear alongside core benefits in the enrollment guide to show how they complement the medical benefits. They have evolved to allow self-enrollment and are treated like other ERISA programs.
| Past | Today |
|---|---|
| Past | Today |
| Nice to Have | Must Have Benefits |
| Passive Enrollment | Active Enrollment |
| Non-ERISA | ERISA |
| Face to Face Enrollment | Self-Enrolled |
| Low Transparency | High Transparency |
| Low Loss Ratios | Improved Loss Ratios |
| No Claims Integration | High Claims Integration |
| 100% Voluntary | Increased Employer Funding |
| One-size-fits-all | Custom Designs & Choice |
Traditional, one-size-fits-all benefit packages no longer resonate with the varying needs of today's employees. As a result, the demand for voluntary benefits has surged, allowing employees to customize their benefits to align with their circumstances. Key reasons for the growing focus on voluntary benefits include the rise of work-life balance, health and financial wellness, technological advancements, and fewer human resources (HR) staff.
Work-life balance is now a key focus for employees looking for overall well-being. Voluntary benefits, such as flexible work schedules, remote work options, and wellness programs, are essential in supporting employees' efforts to balance their professional and personal lives.
As high-deductible health plans become more common, the need for products wrapped around the core benefits grows. Voluntary benefits such as accident, critical illness, and hospital indemnity coverages have become key components of the overall core benefits structure. The COVID-19 pandemic has highlighted the importance of health and financial stability. In response to the challenges of the pandemic, voluntary benefits such as telemedicine services, income protection, and critical illness coverage have become even more important.
Technology has made managing voluntary benefits much simpler. Digital enrollment platforms and online access have made choosing and managing benefits easier for employees. Employees now understand the benefits more clearly, and face-to-face meetings are no longer necessary. Self-enrollment is the new norm.
At the same time, there is a market trend in which staffing within HR is declining. Where there used to be several staff members, companies now ask HR teams to do more with less, including funding. As a result, HR managers are looking toward captives for funds to help support employee programs.
| Product | 2018 Plan Year | 2019 Plan Year | Total 2018-2019 | |
|---|---|---|---|---|
| Product | 2018 Plan Year | 2019 Plan Year | Total 2018-2019 | |
| Accident | Carrier Earned Premium | $1,171,686 | $1,165,685 | $2,337,371 |
| Carrier Incurred Claims | $130,042 | $121,112 | $251,154 | |
| Carrier Paid Claims | $130,042 | $111,762 | $241,804 | |
| % Paid vs. Incurred | 100% | 92% | 96% | |
| Loss Ratio (Based on Incurred) | 11.10% | 10.39% | 10.75% | |
| Critical Illness | Carrier Earned Premium | $1,454,274 | $1,433,044 | $2,887,318 |
| Carrier Incurred Claims | $454,225 | $313,150 | $767,375 | |
| Carrier Paid Claims | $454,225 | $291,725 | $745,950 | |
| % Paid vs. Incurred | 100% | 93% | 97% | |
| Loss Ratio (Based on Incurred) | 31.23% | 21.85% | 26.58% | |
| Hospital Indemnity | Carrier Earned Premium | $1,287,553 | $1,249,898 | $2,537,451 |
| Carrier Incurred Claims | $395,850 | $346,950 | $742,800 | |
| Carrier Paid Claims | $395,850 | $313,350 | $709,200 | |
| % Paid vs. Incurred | 100% | 90% | 95% | |
| Loss Ratio (Based on Incurred) | 30.74% | 27.76% | 29.27% | |
| Voluntary Benefits Combined | Carrier Earned Premium | $3,913,513 | $3,848,627 | $7,762,140 |
| Carrier Incurred Claims | $980,117 | $781,212 | $1,761,329 | |
| Carrier Paid Claims | $980,117 | $716,837 | $1,696,953 | |
| % Paid vs. Incurred | 100% | 92% | 96% | |
| Loss Ratio (Based on Incurred) | 25.04% | 20.30% | 22.69% |
A captive insurance company is a subsidiary created by an organization to provide insurance to its parent company and related entities. They can offer several benefits, including better transparency, effective risk management, cost control, and customized insurance programs for employers and their HR departments.
While voluntary benefits improve transparency, loss ratios, and claims integration, the problem has not been completely solved. Typical loss ratios for these benefits range from 25% to 30%. Captives encourage employers to engage more actively with their programs to address this. They give organizations greater control over their insurance, allowing them to customize coverage to meet the specific needs of their workforce.
Organizations are always looking for new ways to manage risk; captive structures can be essential to this strategy. They offer a straightforward method for handling risk. By keeping certain risks within the captive, organizations can gain more control over their exposure and potentially reduce reliance on traditional insurance markets.
They can also help HR departments achieve more stable and predictable costs. By keeping risks within the captive, organizations can avoid some of the ups and downs in premium costs that come with traditional insurance markets.
The following chart shows the actual claims experience of a client before they started the captive program.
| Coverage | Net premiums 2019 | Net premiums 2020 | Net premium growth |
|---|---|---|---|
| Coverage | Net premiums 2019 | Net premiums 2020 | Net premium growth |
| Credit Disability | $2,564,428 | $29,326,540 | 1044% |
| Voluntary: Pet, ID Theft, Other | $848,481 | $5,752,269 | 578% |
| Crime | $11,865,750 | $67,365,208 | 468% |
| Credit Life | $4,833,732 | $14,218,823 | 194% |
| US Long Term Disability | $989,260,953 | $2,529,909,611 | 156% |
| Environmental | $32,599,444 | $73,726,920 | 126% |
| Medical Stop-loss | $1,428,762,178 | $2,591,230,867 | 81% |
| Multinational Pooling Global Life/Health/Disability | $209,633,093 | $226,687,846 | 74% |
| Intellectual Property (IP) | $22,697,335 | $39,481,286 | 74% |
| Life Annuity | $992,885,860 | $1,705,843,254 | 72% |
| Cyber Liability | $41,105,803 | $63,486,361 | 53% |
| D&O | $55,053,639 | $82,582,894 | 50% |
| Contractor/Vendor P&C | $269,702,269 | $385,745,693 | 43% |
We’re seeing more organizations integrate voluntary benefits into their overall benefit packages to meet the changing needs of their workforce. Marsh McLennan Agency (MMA) offers BeneCap, a voluntary benefits captive solution designed to enhance your captive by adding 100% employee-paid coverage to your existing risk management strategy. Our goal is to improve loss ratios so employees receive better benefits, and if there are extra premium dollars, we can use them to support employees even more.
We conduct a 360° Diagnostic Assessment to review current benefit plans, technologies, and communications to find the right funding strategy. This comprehensive analysis allows us to identify ways to enhance programs, streamline administration, cut costs, and improve employee experience. For more information, reach out to us at captives@MarshMMA.com.
Senior Financial Leader
Voluntary Benefits Practice Leader
