The voluntary business is an important economic bellwether. It sounds plausible given that these are discretionary financial product purchases by large numbers of consumers.
As consumer sentiment changes, there is a direct impact on our economy. There also is, so we're told, a direct impact on participation rates, overall voluntary sales, etc. Given the fact most Americans have access to voluntary products, it may be true. But do voluntary brokers and company executives have the ability to use that information to predict the future? We wanted to test that concept.
Since 2005, Eastbridge has been asking voluntary brokers and voluntary company executives to share their attitudes and predictions. Twice each year, we survey a sample of these professionals about their recent sales and on their predictions (for the coming 12 months) in three categories: future sales growth, consumer attitudes toward voluntary and on overall profitability of their voluntary business. The resulting data are then combined into a measure that we label the Voluntary Confidence Index.
The index climbed through the first three surveys until it peaked in late 2006, when it began an unexpected and precipitous drop through December 2008. It is noteworthy that participants became more negative one year before the recession officially began, and turned positive seven months before the recession officially ended. Also, the decline in the index bottomed out at the end of 2008, twelve months before the only year with a drop in sales that the industry has ever recorded.
Were these voluntary experts able to predict the recession? Did they predict the first downturn in voluntary sales ever recorded? Or was it simply a coincidence? We may soon find out because (once again) the index turned negative in July 2011. In that same survey, more participants reported 2011 sales had thus far exceeded their expectations, making the negative predictions difficult to understand. Almost 40 percent of participants said year-to-date sales were higher than expectations; 39 percent said they were in line with expectations; and only 22 percent said they were below expectations. Yet despite this rosy report, all three components of the index turned negative, with overall profitability dropping the most.
If you believe voluntary practitioners have greater insight, look out for a downturn of some sort by year-end. If you think it's a coincidence, then congratulations on a strong showing so far this year. Either way, we'll see.
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