Group's benefits: market consolidation, competitive pricing and product bundling are helping some carriers increase their group life book of business.

GROWTH AND SERVICE: Hartford Financial's 2003 purchase of CNA Financial's group benefits business boosted its group life sales in 2004 and added an important new beneficiary assistance service, said Robert Berman, assistant vice president and director of product management for the group benefits division of Hartford Life.

The number of group life writers has shrunk over the past several years, but several dozen players remain in what was once a dispersed market, said Anita Porter, director of Limra International's Product Research Center.

While several large competitors jockey for position, the top 15 players still represent approximately 80% of the total in-force business written in the group life market, said Joe Zazzera, an A.M. Best Co. financial analyst. Numerous other carriers write much smaller amounts of business, diversifying their earnings and revenue streams.

Group life sales remain relatively flat for much of the market, but a few players have been able to develop fairly substantial growth in new business. Hartford Life Group and Liberty Life Assurance Company of Boston are two such companies. While they have different market shares, both writers say they're on similar growth tracks this year.

Market consolidation, product enhancements, improved services and product bundling are driving companies' group lift sales. In addition, some carriers are pricing more competitively to gain market share, particularly in the large case market segment where there's frequently heated competition for large accounts, Zazzera said.

Hartford's 2003 purchase of CNA Financial's group benefits business fueled its group life sales in 2004. CNA's group benefits book of business--including its group life, accident, short--and long-term disability and some specialty businesses--also substantially increased Hartford's distribution force, boosting sales and premium growth. In addition, the acquisition added a new service-"Beneficiary Assist"--for Hartford's group life beneficiaries to provide them with legal, financial and emotional counseling upon filing a claim. "Now, we just don't hand them a check, but a set of services that help beneficiaries cope with their loss, such as legal help if they don't have a will or emotional counseling," said Robert Berman, assistant vice president and director of product management for Hartford's group benefits division.

Liberty Life Assurance Company of Boston took the product bundling route, positioning group life as a companion product to its existing disability customers. "It was a focused strategy for us to expand out penetration into out existing customers and to provide them more products and more value in doing business with us," said Kevin Krzeminski, senior vice president of benefit sales. "We look at life very similarly to the way we look at disability, and we feel we can differentiate ourselves with that product by focusing on quality and expertise and making sure the product provides customer value," he said.

The two companies also increased the face amount of lift insurance they issued in 2004. Hartford had a 102.9% growth in group life issued, while Liberty Life Assurance posted a more than 90% rise in new business growth that year, according to A.M. Best Co. data.

A Market Snapshot 

While only a handful of carriers achieved a substantial rise in group life sales in 2004, several factors continue to drive the market's appeal.

Though competitive pricing among players has been one of the drivers of growth for some carriers, many carriers became more rational in their pricing in 2004, said A.M. Best Co.'s Zazzera. Historically, competitive pricing has been an issue among some carriers, especially when it comes to higher profile, big-name accounts, or larger accounts in general, which drive higher new premium levels, he said. In recent years, there has been increased interest in small- and midsized employee-benefits accounts, said Zazzera. "This sector of the market has developed into more of a target for many employee-benefits carriers, partially due to the potential for greater profit margins. Additionally, as opposed to the large case market, which is commonly churned from carrier to carrier, particularly when rate increases are required, smaller accounts are generally more loyal, less price sensitive and report better persistency."

In addition, carriers are able to package group life benefits with other employer group products, and tan offer better pricing due to bundling of products, Zazzera said. "While carriers' margins on single accounts may not be abundant, economies of scale are achieved across larger blocks of these small group accounts."

There's also an awareness of its need. "Many people still like group life and see the value in it. And for many, the only type of life coverage they have is through their employer on a group policy," said Potter.

The terrorists' attacks on Sept. 11, 2001, helped shape that need. "That, coupled with the ease and affordability of group life, has all come together to what's become a reasonably growing marketplace," said Paul Graham, vice president of insurance regulation and chief actuary for the American Council of Life Insurers.

In addition, aging baby boomers and the increased expected life span of Americans are spiking demand. Carriers also have increasingly become more aggressive with price quotes, the result of which is allowing carriers to grab market share, said Graham. "They're now willing to take small margins on a whole lot of business and make money that way, and it's really become a pricing game in the market during the past five years," he said.

Online Administration

Technology also has helped drive increased sales, said Limra's Potter. "A lot of employers are looking for carriers that can do administration online and be more efficient, which would take the burden off of them. It's cost effective to get carriers up and running and make the process more efficient," she said.

Technology is doing just that for Hartford. The company recently rolled out several online tools, including its "Beneficiary Designation Management" tool to manage designations online and maintain historical data, in addition to its "Employer View" and "The Hartford at Work" Web site to allow employees to access policy information and submit claims via the Web.

While some carriers believe aggressive competition in the market impacts the sales of new business, others don't think its effects are as powerful. "It's out there, and in any line of business we know it's there, but we're looking at the same core set of competitors day in and day out who've been in the market for a number of years," said Hartford's Berman. "The way we approach it is that we like to underwrite and price our risk with return on equity in mind. We need to be profitable for our shareholders. We've been in the business for a long time and plan to stay there, so we need to continuously hit target returns." When quoting business, he said, the company evaluates the potential for profitability and sustainability in the future. "We don't try to go out and buy business," he said.

Some believe there's still an untapped market that carriers increasingly need to explore, particularly among small-and midsized groups. For smaller employers--those with fewer than 100 lives, the underpenetrated market is driven in part by medical cost inflation and the downturn in the economy since the turn of the century, said Porter.

According to The Hartford Life Insurance Literacy Study, only three in four employees eligible for lift insurance actually take the product. Almost nine in 10 employees surveyed say it's an important thing for them, but their actions don't follow through, said Berman. And among those with coverage, more than four in 10 don't have adequate coverage. The key, he said, is education. "If we educate employees, the total size of the market will grow. We want our share of the pie, but we think the piece can actually get even bigger." Employees aren't prepared for their needs. "When we ask employees how ranch money they'll need to carry on a certain lifestyle and pay for essentials, the amount of insurance they have won't cover things they deem important," he said.

Voluntary As an Answer?

While some believe the growth of voluntary products will fuel group lift sales, it's unclear whether that trend will actually play out.

For some carriers, voluntary group life products have helped shape the market. "With medical costs going up and more benefits going voluntary, such as accident, life, disability, dental or vision, we've changed some of out processes and approaches to how we do voluntary business to make it easier for producers, employers and employees who purchase coverage from us," said Hartford's Berman. Ease of doing business, he said, includes everything from personalized enrollment forms to adding travel assistance services to lift policies.

But others are a bit more skeptical that voluntary group life products are living up to their hype. "People have been saying for the past three to four years that voluntary life would be the motor behind how the market grew, but we've really not seen that play out," said Limra's Potter. "Consumers have just so much discretionary income to spend, and with medical costs rising, more of that discretionary spend now is going to health coverage."

Employees will likely feel some of the effects, Berman said. "With expansion of voluntary products, [employees] will be the ones to pay a much greater share of group life costs going forward."

A Look Ahead

Most industry experts expect the group life market to remain stable.

* "There'll likely be moderate growth in the market in the next several years because there's value out there and people are looking for life coverage. Salary increases will dictate that more than anything else," Limra's Potter said.

* Competition will remain particularly fierce for the "plain vanilla group life product," said ACH's Graham.

* "Employers and producers are recognizing that there's more to life insurance than just price of the product, and they're looking to carriers focused on high value, high service, who are willing to work with an employer to identify their needs and create solutions for them," said Liberty Life's Krzeminski.

Key Points

* While the group life market remains relatively flat overall in terms of sales and new policies issued, a few companies are realizing growth in both areas with different approaches.

* Online policy administration has helped drive increased sales.

* Some carriers are finding growth from voluntary group life products.

Learn More

Hartford Life Group (Hartford Life Insurance Co.) A.M. Best Company # 06518 Distribution: Independent agents, brokers, banks and wirehouses

Liberty Life Assurance Company of Boston A.M. Best Company # 06627 Distribution: Brokers, consultants, company sales force

For ratings and other financial strength information about these companies, visit www.ambest.com.