11 minute read 26 May 2021
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Change for the better: the future of worker benefits

By Chris Morbelli

EY Americas Life & Group Insurance Transformation Leader

Insurance transformation leader. Focused on strategy and operating model design, delivering operations and technology transformation, facilitating growth, scale and an improved customer experience.

11 minute read 26 May 2021

Insurers that make the right strategic moves, operational shifts and tech upgrades can seize huge opportunity in the group benefits space.

In brief
  • Rising costs, increasing digital expectations, regulatory shifts and a workforce with more part-time and free-lance workers are driving fundamental change.
  • The pandemic has made all types of workers aware of the need for financial security, meaning employers must offer a wider range of more flexible benefits.
  • Richer experiences and better usage of data are key to creating next-generation solutions and a more efficient worker benefits marketplace.

The group benefits marketplace is on the precipice of transformational change, thanks to a powerful combination of industry, societal and technological trends. The rapid evolution reflects the broader tectonic shifts going on in the life insurance and retirement market, as we highlighted in our most recent NextWave insurance report. Competition is intensifying as more carriers, as well as outside players, recognize the short- and long-term growth opportunities, potential for new revenue streams and stronger margins, and need for new solutions.

The changing nature of the workforce is another force driving transformation. At many companies, the workforce increasingly includes not just full-time employees, but also part-time workers, long-term contractors, short-term freelancers and project-based gig-workers, all of whom would value a thoughtful benefits package. The more considerable opportunity for brokers and carriers may lie in changing their orientation from “employee” benefits to “worker” benefits and designing purpose-built offerings to cover all categories of workers.

Several forces are shaping the market:
  • Costs are rising: higher medical costs and the focus on voluntary benefits shift the financial burden from employers to employees, putting pressure on traditional sales and service models.
  • Digital expectations are increasing: the digital experiences offered by many benefits providers significantly lag broker, employer and consumer expectations, a shortcoming fully exposed by COVID-19.
  • The workforce is evolving: societal megatrends — including the savings and protection gaps, the changing nature of the family and the gig economy — are forcing employers to develop new solutions.
  • Government is responding: New regulations add to the complexity, as does the inevitable influence of environment, social and governance (ESG) issues on workplace benefits.

Digital tools

28%

of brokers are less than satisfied with digital tools provided by insurers.

Interaction

44%

of consumers want more online interaction with insurance providers.

Just how much growth is possible? Recent EY research has identified market “white space” equating to $70 billion through increased participation of currently eligible populations. An additional $175 billion of growth can come from workers not currently eligible for group benefit plans (e.g., hourly employees, part-time workers).

Worker benefits market future growth potential
Total addressable market (non-health) $350b
Current realized market (non-health) $105b
Current eligible market (non-health) $175b
Total addressable wellness opportunity $70b

To seize the opportunity and achieve sustainable market leadership, insurers must commit to continual self-disruption and ongoing innovation. Routine tech upgrades and operational refinements for increased efficiency, while important, are insufficient.

Innovation will be necessary across the entire value chain. Processes must be data-driven, personalized, contextualized and automated. New offerings (including absence management, voluntary benefits and wellness programs) must be fully integrated and designed for flexibility, portability and affordability. They must also reflect the diverse and evolving needs of today’s workers. For example, they should help address the stressors associated with remote working and the erosion of traditional employment relationships. In planning for future growth, carriers must aim to get ahead of these major market shifts and adopt a holistic approach to transformation, which we describe below, to ensure their strategies align with where the market is going.

State of the workplace benefits market, circa 2021

Before the COVID-19 pandemic struck, worker benefits offerings produced growth for many carriers, thanks largely to low unemployment rates and expansion of voluntary benefits. However, continuing headwinds impede the ability of many carriers to capture available growth opportunities. The barriers include:

  • High expense ratios driven by inefficient legacy processes, which limit scalability
  • Sub-par digital experiences for brokers, plan sponsors and employees, which limit engagement
  • An aging workforce, contributing to a loss of institutional knowledge, and challenges in attracting the next generation of workers
  • Poor data quality and inability to effectively leverage external data sources, which can limit product flexibility and personalization
  • Additionally, the broadening interest in employee well-being — financial, physical and mental — drives the need for more non-traditional holistic and connected offerings.

Collectively, these factors can prevent insurers from taking full advantage of the increasing demand for new solutions. For instance, technology, data management and process limitations will prevent insurers from developing and participating in the integrated ecosystems and platforms through which more holistic and flexible solutions will be offered and managed. We expect these ecosystems and platforms to become the primary method of product distribution over the next 10 years.

COVID-19 shined a spotlight on many of these challenges. The almost overnight migration to full-time remote work highlighted the need for large-scale digitization and more robust technology. EY research confirms how employer priorities are shifting and that technology matters more than ever to employers; 65% report that tech is a critical consideration in selecting group benefits providers. Consumer needs are changing, too. For example, the pandemic generated and expanded interest in new products and services, solutions offering protection and promoting financial well-being.

We believe these demand signals are an invitation for insurers to fulfill their purpose of helping individuals, families and communities prepare for unknown risks and recover from adverse events. Indeed, purpose-led strategies will help insurers increase their relevance to consumers’ lives and provide competitive differentiation.

Shifting customer needs and clear demand signals

EY research highlights how the pandemic has increased consumer demand for products that feature more financial protections and emphasize physical and mental well-being. Worker benefits won’t necessarily address all of these needs, but packages can be structured to more deliver the outcomes consumers are seeking (e.g., more financial security, less psychological stress).

According to our research, individual US consumers are interested in products that:

  • Pay three months of income in case of job loss: 98%
  • Pay credit card bills in case of job loss: 93%
  • Pay hospitalization expenses: 91%
  • Offer lower premiums in exchange for more personal data: 86%
  • Fund college education accounts in case of job loss: 85%
  • Provide access to funds in case of emergencies: 85%
  • Provide usage-based car insurance: 80%
  • Offer predetermined coverage bundles and pricing that can be adjusted based on requirements: 74%
  • Cover health costs associated with home accidents: 71%

Source: EY Consumer and Small Business Survey, 2020

 

Looking ahead: how the worker benefits market will evolve between 2021 and 2025

Relevance wins:

In our view, future market evolution will be guided by clearer and more compelling value propositions more directly aligned to consumer needs and segments. For instance, in the eyes of younger workers, student debt repayment is a more important benefit than life insurance. The need for and nature of disability insurance will look vastly different for the huge numbers of knowledge workers working from home. Future benefits also will reflect the impact of automation and digitization in shifting job types from transactional tasks to experience- and knowledge-based activities. In addition, the rise of advanced bots and digital workers will put a premium on career development, training and reskilling.

Lines continue to blur:

The lines between health care and health care services have blurred, meaning more types of insurers are competing in the worker benefits space. The historical focus on meeting employees’ medical needs has evolved to a broader scope of benefits incorporating more elements of wellness, including physical fitness and exercise, mental health (especially important in the remote working world), family leave, career planning and personal development. Simple retirement plans are being supplemented with financial planning, money management and education programs to help individuals reduce stress, define their goals and access support as they work to fulfill those goals.

Products become solutions:

Workers expect the same ability to personalize their benefits packages as they experience in their engagement with other industries. That means being able to offer a broad portfolio of protections and value-adding solutions with flexible features that are purpose-built and can be easily customized, rather than a one-size-fits-all, employer-dictated solution.

The future is more freelance:

Employers are looking for ways to manage their expanding use of contract workers. The goal is to be the employer of choice for the highest performers, keeping them engaged and supporting their productivity. These workers also are looking to access benefits programs, another potentially significant growth area for benefits providers.

The NextWave of life insurance and retirement

Insurers seeking to grow their worker benefits should stay ahead of future developments in the life insurance and retirement market

Collaboration between industry and government increases: Underfunded public retirement systems and the need for financial education lead to more extensive collaboration and product innovation.

Insurers serve as life and wellness concierges: Stronger value propositions and richer, more flexible experiences increase customer retention.

Retirement 2.0 becomes reality: Flexible lifetime income solutions bridge the savings gaps and empower new lifestyles and career paths.

Read the full report

Moving forward: a holistic approach to transformation

Insurers seeking to satisfy emerging and unmet market needs must consider strategies that support value now, next and beyond.

  • Now: Digitize and automate current operations and end-to end-journeys, using advanced technology to protect the core of the business and lay a foundation for future innovation.
  • Next: Plan and take initial actions to deliver new forms of customer value by taking deliberate steps to move beyond legacy product thinking and toward more relevant worker solutions.
  • Beyond: Prepare to take advantage of “digital marketplaces” that will enable more fluid and efficient interactions. The worker experience will be similar to those offered by other sectors that have more fully digitized. Firms that set a clear vision and take effective action in the nearer term will be best positioned to create this future.

Across these three time horizons, insurers must focus their efforts on four key areas that comprise the core of the transformation business case:

  1. Design, manage and refine the right experience: Richer customer experiences and more robust digital capabilities are a must for insurers to seize future growth opportunities. That’s certainly true regarding interactions with brokers and employers, where insurers can provide segment-specific value propositions that match products and services to market needs and enhance the experience for all stakeholders. The ability for carriers to deliver broader wellness solutions, with offerings aligned to different life stages and presented within personalized, digitally integrated experiences, will be critical for reaching new consumers and driving enhanced engagement levels.

  2. Define the right workforce and organize it in the optimal way: Tomorrow’s workforce and organizational models will look very different than today’s. Many of the changes will result from insurers redesigning their core network, deciding which functions and processes are mission-critical and providing incremental investment into those areas that create a competitive edge. Think “agile teams” of knowledge workers vs. big departments of administrative staff.

    A heightened focus on differentiating functions will require new skills and talent, including data scientists, skilled analysts and experience designers. Such roles may be best accessed through partnerships or available via insights-as-a-service models. Culturally, insurers will have to increase the organizational appetite for change, promote more risk-taking and test-and-learn thinking. They must also adopt agile ways of working. These can seem like futuristic aspirations, but the key to fulfilling them is to start taking specific and incremental actions in the immediate term.

  3. Gain access to the right data and use it more strategically: Better data and more effective analytics can unlock financial opportunities across the worker benefits value chain. Consider how analytics tools can share next-best actions to boost sales and distribution productivity, through smarter and more proactive cross-selling. Further, better data can improve risk assessment in underwriting, with more accurate pricing leading to higher rates of straight-through processing and closing ratios.

    In our experience, data-driven prospecting and marketing can improve sales force productivity by 5% to 10%. From an employee’s perspective, that means enrollment experiences that feature personalized recommendations, tailored information and targeted messaging, which can collectively increase enrollment participation by as much as 15% to 20%.

  4. Design the right architecture, deploy the right tools and create the right ecosystem: Stronger technology and a fully integrated and connected ecosystem are essential components of long-term transformation in the worker benefits space. For many insurers, the first step is core platform modernization and an intense focus on third-party integration, reflecting that they now operate in an “API world.”

The days of building monolithic solutions are over. Many InsurTechs and startups have emerged with compelling offerings, including HR and payroll systems, benefits administration, brokerage platforms and third-party data solutions. Carriers and worker benefits providers can realize value quickly by forging the right partnerships and making the right investments, and, in some cases, acquisitions. Platforms, such as EY Nexus, streamline third-party integration through robust data exchange and seamless connections into broader ecosystems and partner networks. Carriers that engage fully with these ecosystems will be on a faster path to the extensive automation and rich experiences needed to win across all market segments. Tomorrow’s winners will be expert “assemblers” that constantly monitor tech developments and upgrade their capabilities with the best available tools.

The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

Summary

We are witnessing the transformation of an industry through a new generation of relevant solutions, purpose-built and flexible for individual needs, delivered through a more efficient marketplace, and designed to help workers be healthier, happier, and more productive. Employers that provide this new generation of benefits will be better positioned to win the war for talent. Providers who enable this new approach can unlock significant and sustainable competitive advantage.

While these steps represent a great deal of work, our experience confirms that the payoffs are attainable and significant. In fact, many forward-looking insurers have already begun to execute on this compelling vision for the future of worker benefits.

About this article

By Chris Morbelli

EY Americas Life & Group Insurance Transformation Leader

Insurance transformation leader. Focused on strategy and operating model design, delivering operations and technology transformation, facilitating growth, scale and an improved customer experience.