Voluntary Insurance Pays…But Who Benefits?

Share this article


Eric Krieg

Eric Krieg

Eric Krieg is an industry disruptor with 30 years of experience in employee benefits brokerage and consulting. He informs employers and the media on how the employee benefits industry really operates. Krieg has served on national advisory boards for Aetna, United HealthCare, CIGNA and Guardian, as well as regional groups for Anthem, Kaiser Permanente and Medical Mutual. He began his career at Aetna and later served as senior vice president and group benefits business leader for one of the nation’s largest independent insurance brokerage and risk management firms. In 2014, Krieg launched the industry’s first benefits advisory services practice of its kind at Risk International, an independent risk and benefits management firm. Skilled in TCOR (total cost of risk) methodologies, he advises employers on LEAN benefits management techniques. Since 2011, Krieg has presented at conferences, seminars and webinars on various topics, including the ACA, wellness and health exchanges/marketplaces. A graduate of the University of Toledo, his professional designations include GBA, ChFC and CLU.

Eric Krieg

In a benefits landscape that is full of challenges, it’s time to call out plans and services that either no longer serve a productive purpose for employer funds and/or are wasting valuable employee dollars and employer resources.

There are several benefits plans that many of you offer to employees that aren’t much better than playing the lottery. Namely accidental death and dismemberment insurance and various voluntary plans. Ask yourself:

“What are the number of claims that you have actually seen on these benefits?”

The likely answer: Zero.

The Problem with Accidental Death and Dismemberment Insurance

Whoever developed the concept of AD&D coverage was brilliant. Here is how it works:

  • First, make up lots of potential ways to make people feel they could receive a payment and charge them next to nothing for it, say, 1–3 cents per thousand, or about $2.00 per month for a $100,000 of coverage. For customers, it’s almost like, “Well gosh it’s so cheap, I might as well just buy it.”
  • Next, attach the benefit to another plan that actually has value when used in the right form (life insurance, for example) and it becomes a comprehensive package that customers cannot refuse — cha ching!

I suppose that long ago the chance of losing some combination of limbs, vision and hearing was much more prevalent than it is today. What do you think the frequency of these incidents are lately? It’s pretty darn low.

It’s not unusual to see a business with 1,000 employees spend anywhere between $25,000 to $50,000. This isn’t a huge amount of money, but why give it to the insurance company? I am sure that could help fund other initiatives that create greater value.

By the way: Why is it that you need more life insurance if you die in an accident? I haven’t figured it out yet myself but I have heard some pretty interesting suggestions.

The Solution: Get all the life insurance you need — and skip the AD&D coverage.

The Deal with Voluntary Benefits

This is the traditional thinking when it comes to voluntary benefits:

“Employers and advisers expect the importance of supplemental benefits to grow, fueled in part by the changing demands of employees.”

Say what now? This thinking assumes that employees want voluntary benefits programs, but is that really true? I say no. Rather, insurance companies and brokers want to make money selling this coverage, so it’s really about the increased supply from vendors and not the “changing demands of workers.”

Here’s how insurance companies and brokers make it work:

  • They engage in what they would refer to as “employee education” around having comprehensive coverage.
  • Next, the vendors propose plans to fill (non-existent) financial gaps for those enrolled in a consumer driven plan or possibly under the veil of a private exchange vehicle.

The fact that insurance reps and brokers can sell your employees on voluntary plans so easily means that their fundamental pitch to employers is “your workers really want these programs; be a good employer and offer them.” However, I argue that the only employees who truly are asking for such programs are those who know someone who works for AFLAC.

Some Voluntary Benefits Plans Do Add Value

For the sake of this discussion, let’s not include plans like term life, disability, dental or vision on our “no” list. Those plans clearly can provide important value for your employees, and many expect to have such coverage through their workplace.

However, we should be wary of critical illness, cancer, accident and whole life plans. Why? It’s simple economics. If the commissions paid to brokers are greater than the claims made by policyholders, you have an inherently bad deal for the consumer.

The Solution: Employees would be better off putting money in their own HSA accounts than buying some voluntary plans designed to fill those (again, non-existent) gaps.

As for you employers, you should ask your insurance company representatives what their company’s loss ratio is (the right answer is about 40 percent). Between high commissions and low loss ratio, you know your employees are not the winners.

The Bottom Line: Pass on coverage your employees don’t want or don’t need.

Who We Are

The Insider Blog is an independent advocate for industry-wide change that uncovers waste and addresses best practices, trending topics and need-to-know information for chief financial officers, risk managers and benefits managers who need to improve the bottom line.

Follow Us