According to LIMRA’s latest U.S. Life Insurance Ownership study, for the first time in history, more Americans are covered by employment-based life insurance than by individual life insurance. To anyone studying the workplace benefits marketplace, this is not too surprising. Life insurance is just the latest example of the importance the workplace provides Americans when it comes to receiving or obtaining many of the financial insurance products they and their families have come to rely on. Over the years, more Americans have obtained their medical, dental, vision, disability, and supplemental health products through the workplace than through retail channels.
One of the primary motivations for employers to offer benefits such as financial insurance products is they are an extremely important attraction and retention tool; one that companies will continue to use well into the future. And while the workplace benefits marketplace is expected to continue to grow, its future market potential will be limited, in large part, due to five environmental forces.
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A slowdown in labor force growth
The labor force has been declining over the past 17 years due to several factors, including a decline in population growth and an aging society. Currently, the labor force participation rate stands at 62.9 percent, a decline of four percentage points from 2000, according to the Bureau of Labor Statistics. What’s more, this slowdown is not projected to abate anytime soon. If the trend remains unaltered, it will continue to contribute to the decline in the percentage of people who are eligible for employment-based benefits, thus limiting the opportunity for workplace carriers and their advisors to increase market penetration.
America is aging
With each passing year, older age groups represent a larger percentage of the workforce. In 2000, the percentage of the workforce made up of those 55 years and older was 13 percent. It is projected that the same age group will make up 25 percent of the workforce in 2024. In contrast, those workers in the “prime-working” age segments — the ones most likely to be covered with a workplace benefit — are projected to make up a smaller proportion of the workforce. As more boomers retire, they join the ranks of consumers who may no longer be eligible for or lose their employment-based coverages.
Changing employer-employee relationships
Another environmental force outside the realm of control of carriers and advisors is the growth of non-traditional jobs, such as independent contractors and on-call workers. Since 1995, the percentage of workers employed in these alternative work arrangements has almost doubled, increasing from 9 percent to 16 percent, according to survey from the National Bureau of Economic Research. Because a growing percentage of the labor force is expected to move into these types of work arrangements in the future, the number of workers eligible for workplace benefits will not grow as fast as the overall labor force.
Changing occupational trends
Workforce dynamics are constantly changing and have played a major role in the expansion of employee benefits over the years. While new jobs and industries have been created, old ones have disappeared. Unfortunately, not all jobs are created equally. By 2024, the service sector is expected to experience the majority of the job growth and account for over 80 percent of all jobs. Conversely, manufacturing jobs are expected to experience some of the sharpest declines. Moreover, the occupations projected to add the most new jobs over the next seven years also tend to have lower annual wages. Overall, the Bureau of Labor Statistics projects these 15 occupations will account for nearly one-third of all new jobs.
The proportion of total compensation devoted to health care costs
Even though earnings for workers are slowly increasing, they have been hard-pressed to keep up with rising health care costs. The share of total compensation devoted to wages and salaries has declined by 4 percent since 1991. Offsetting this decline, meanwhile, has been the increase in the proportion devoted to health care coverage, and a corresponding decline in the percentage allocated to nonmedical insurance benefits.
Currently, health coverage accounts for over 8 percent of total compensation and this percentage is expected to increase. As a result, rising costs will erode the compensation budget for other benefits in the future.
Although workplace carriers may not be able to do much to influence the larger demographic, social, and economic trends affecting employers and employees in the coming years, they can significantly influence how employers and employees view and obtain financial insurance products. By understanding how current and future trends will affect the industry, carriers can get ahead of environmental changes and prepare for a new generation of workplace benefits.
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