Benefits brokers must be willing to think creatively to determine how they can put together the most competitive benefits package.
Since the 1940s, employer-provided life insurance has been a staple of company benefit packages. These are typically group policies packaged by licensed benefit brokers who specialize in creating employee benefit packages, and the policies usually provide coverage and guaranteed payments for the insured beneficiary.
While group insurance policies are easy to put together and available to all employees in an organization, they have some important drawbacks. For starters, most group policies tend to be one-size-fits-all with limited customization, which may not be right for employees with specific needs.
Another problem is the meager payments, often in the $10,000 to $50,000 range, amounts that typically wouldn’t cover even a year’s salary for a deceased policyholder’s family. Perhaps the worst problem with group policies, from an employee perspective, is that coverage doesn’t transfer when an employee changes employers.
At a time when many companies are struggling to find and keep staff, offering the right benefits package has never been more important. With this in mind, employers should consider augmenting their benefits with individual life insurance benefits to supplement their group policies. While making such a transition presents some challenges, the good news is that recent technological developments have made the process much easier.
Group life insurance versus individual life insurance
In the insurance industry, there are two significant avenues through which consumers can receive coverage: insurance brokers and insurance agents. While the terms are often used interchangeably, there are actually fundamental differences between the roles these people play. Insurance agents usually work directly for insurance companies and typically sell individual policies directly to consumers. To do this, an agent must collect the required underwriting documentation from each policyholder. This can often take weeks or even months, especially when dealing with health records that have not yet been digitized.
In contrast, insurance brokers are licensed professionals who work directly with a company to create benefit packages for their employees. Because benefit brokers tend to work long-term with organizations, they tend to have good working relationships with employees and access a lot of employee data for underwriting purposes. Benefit brokers are also mainly involved in providing group policies, which, due to the lower possibility of adverse selection (e.g. extension of coverage when the risk is higher than that foreseen by the insurer), have much more relaxed underwriting requirements than to individual policies. Therefore, coverage is almost guaranteed for each employee. However, the problem is that an employee cannot take it with him when he changes careers.
Compared to side by side, individual life insurance is typically far superior to group coverage. While the task of qualifying for an individual policy may be more daunting, successful qualification will provide policyholders with broader coverage and higher payments for their beneficiaries. Best of all, individual life insurance stays with policyholders even when they change employers.
Expand individual life insurance benefits
Again, the biggest obstacle to expanding a company’s individual life insurance offerings is the lengthy underwriting process, which, using traditional methods, can take anywhere from 45 to 60 days to complete. The long waiting time is due not only to the large number of medical documents that have to be submitted and reviewed by an underwriter, but also to the health exams that the applicant has to undergo. Unless these delays can be dramatically reduced, it will remain impractical for a business to provide individual life insurance benefits to its employees.
Fortunately, the insurance industry, like almost all industries today, has undergone a digitalization revolution in recent years. Medical documents are now increasingly available in digital format, making it easier to discover and share. Other benefits of digitization include the development of digital omnichannels that allow users to buy life insurance online with greater ease and security. In fact, people have gotten so comfortable with online purchases of insurance that, according to LIMRA’s 2022 Insurance Barometer study, there has been a 29 percent increase in online life insurance purchases over the past six years.
But the biggest shift has been in the realm of big data and AI-powered analytics, which can enable benefits brokers to quickly determine a client profile, decide on an appropriate risk class, and form a pricing model. all in a few minutes. Such a near-instant onboarding process means brokers should have no problem qualifying a new employee as part of the onboarding process.
Sure, these technological advances have been happening at such a fast pace that it’s no wonder 50% of insurance brokers admit they struggle to keep up with everything. Even here at Pendella, we’ve seen that our staff members have a hard time keeping up with the latest developments. But we’ve also seen that the latest insurtech innovations can pay off when brokers make the effort to integrate them with their current systems. Therefore, benefit brokers should make it a priority to increase the pace of their digitization and learn the new tools of the trade.
But providing individual life insurance benefits won’t be enough by itself to get people to sign up. Employees, new and current, also need to be educated about the benefits of individual life insurance. Too many people don’t know that their group coverage is probably inadequate. Many Americans also mistakenly believe that individual life insurance is too expensive, even though the average cost of a life insurance premium per US household is only $993 a year, or less than $100 a month.
With this in mind, benefit brokers should also make a concentrated effort to inform and educate employees about the benefits of taking out individual life insurance. Since they presumably have closer relationships with employees working alongside them, brokers can provide the necessary friendly face and in-person advice to sign people up.
Read more: Workplace life insurance and the life cycle of needs
In the quest to help employers find and retain the best talent, benefits brokers must be willing to think creatively to determine how they can put together the most competitive benefits package. Shifting from a group to an individual life insurance focus can be a key part of that strategy, especially if that effort is supported by the latest digital underwriting techniques and a committed educational effort.
Bob Gaydos is the founder and CEO of Pendella.
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