Transcript Document

Buyers Study – our purpose

With the largest private disability database in the nation,* UnumProvident is in a unique position to provide meaningful data on industry trends.

By sharing our data we can: • Give employers a view of the trends affecting their industries and offer strategies to help them compete in today’s marketplace.

• Provide an insider’s view, so employers will be better equipped to build a stronger, more competitive and flexible benefits package.

INSIGHT

Start with the basics – a good foundation of employer-provided group plans – and add supplemental coverage that can help meet changing workforce needs.

WHAT’S ON THE

HORIZON

A potential labor shortage and an aging and diverse workforce are changing the way employers and their employees think about benefits. Companies are changing their approach to funding and plan provisions to meet the varied needs of their employee population.

The aging workforce – trends

• Increasing life expectancies and the aging of the “baby boom” generation mean there will be an older labor pool.

• Disability claims from older workers are often due to illness, and the claim durations are longer.

• The greatest cost impact will be to healthcare premiums.

Change in Population Growth 1990-2000 2000-2010 2010-2020

Source: U.S. Census, 2000

80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Under 14 15-24 25-34 35-44 45-54 55-64 65+ WHAT’S ON THE

HORIZON

The aging workforce – recommended actions

• Consider providing flexible product solutions and funding options, including supplemental and buy-up options.

• Combine your disability program with a disease management program.

• Align plan design with the needs of an increasingly diverse workforce.

• Promote health resources for employees by adding a:  wellness program  work-life balance EAP  disease management program WHAT’S ON THE

HORIZON

The changing workforce – trends

• A clear labor gap is emerging, and demographics of the workforce are also changing. • Demographics suggest a departure from traditional family-oriented benefits.* 170 165 160 155 150 145 140 135 144.9M

144M 2002 2004 2006 2008 165.3M

2010 available workers labor needed 162.3M

2012 Labor projections through 2012

Source: “Employment Projections to 2012: concepts and context,” Monthly Labor Review, Michael W. Horrigan, February 2004.

WHAT’S ON THE

HORIZON

INSIGHT

Within a decade, employers will be competing for workers in a tight labor market.

The changing workforce – recommended actions

• Identify the needs of employees and offer a range of benefits based on their diverse lifestyles: age, family status and salary level.

• Compare benefit offerings with industry competitors.

• Let the employees influence the benefit offering.

• Look at non-traditional offerings.

 Match coverage to employee needs.

 Avoid a one-size-fits-all approach, recognizing that choice is more important than ever.

WHAT’S ON THE

HORIZON

Increasing healthcare costs – trends

• Healthcare expenditures represented 16% of the gross domestic product (GDP) in 2005. • Healthcare spending is expected to reach $4 trillion and 20% of the GDP by 2015.

Healthcare Spending as Percentage of GDP From 1980-2005

Source: Kaiser Family Foundation, Trends and Indicators in the Changing Health Care Marketplace, 2005. Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, 2005.

WHAT’S ON THE

HORIZON

Increasing healthcare costs – recommended actions

• Offer flexible supplemental plans that allow employers to help stabilize their costs while providing coverage options for employees.

• Offer a supplemental health plan – accident, critical illness or cancer insurance – to help employees offset:  out-of-pocket medical expenses, and  uncovered ancillary costs like rehabilitation, home care costs, travel and medical equipment.

WHAT’S ON THE

HORIZON

THE SHIFT TO

SUPPLEMENTAL

Employer-provided life and disability insurance gives a solid foundation to any benefits package, providing a good base of coverage for employees and contributing to their workplace satisfaction.

Today’s environment – supplemental trends

• Overall, the supplemental market more than doubled between 1997 and 2004, increasing from $2 billion to $4.2 billion in premium.* • Supplemental benefits can provide more choices for employees and help fill in where there may be gaps in coverage, including:  Income not covered by employer-provided disability coverage  The extra layer of life insurance needed by many families  Additional expenses from injuries or serious illness

INSIGHT

The Rise of Supplemental Plans

A recent LIMRA study suggests that supplemental insurance products are rising in popularity among employers who are adding these benefits because they fill a wide range of needs in the workplace.

THE SHIFT TO

SUPPLEMENTAL

Today’s environment

• Group disability  96% of employers with 5,000+ employees provide LTD coverage, but only 45% of employers with 20 to 99 employees provide this coverage.*  More than half of group disability income protection plans are offered on a voluntary or contributory basis.

• Life insurance is one of the most common group benefits offered.

Percent of companies by size offering LTD insurance

Source: "The Changing Group Insurance and Healthcare Marketplace: The Non-medical Marketplace 2003," Figure 9, LIMRA International, 2004.

Employers who recently indicated they are considering a new long term care benefit

Source: “The Changing Group Insurance and Health Care Marketplace, Overview 2003,” LIMRA International, 2004.

• Group long term care is an attractive benefit for employers who want to differentiate themselves in a marketplace that includes an aging workforce.

THE SHIFT TO

SUPPLEMENTAL

BLUEPRINT

FOR BENEFITS PLANS Today employers face numerous pressures to attract and retain skilled employees in a shrinking labor market. This shift has increased the importance of offering a broad range of supple mental benefits and employee choices.

Moving into the future with supplemental benefits

In addition to the flexible coverage that supplemental benefits provide, these plans offer employers: • Ease of enrollment and benefits administration • Numerous ways to share information and clearly communicate the value of benefits offered:  employee education materials  one-on-one advisory sessions  group meetings  online self-service

INSIGHT

The Importance of Benefits Communication

Employees are three times more likely to be satisfied with a benefits program with effective communication.

1

80% of employees feel a need for better benefit education.

2

80% do not know the cost/ value of their benefits.

3

BLUEPRINT

FOR BENEFITS PLANS

The most popular supplemental benefits

• Life insurance (interest-sensitive whole life, universal and additional term life) provides coverage above the base offered by the employer.

• Short term disability is fast becoming a clear choice for employers.

• Critical illness, accident and hospital indemnity is reaching double-digit sales growth.* Industry supplemental Sales mix by product type

Source: Eastridge Consulting Group, “U.S. Worksite Study,” May 2006.

Supplemental policies by industry (UnumProvident inforce customers, 2005)

BLUEPRINT

FOR BENEFITS PLANS

Addressing the needs of a diverse workforce

Supplemental benefits are typically sold as multi-line cases – more than one product is offered, and employees can choose the products that best suit their particular needs.

• Long term care insurance • Supplemental life insurance • Supplemental health insurance

INSIGHT

Supplemental Health Supplemental health is a valuable complement to most medical plans, pro viding benefits that can be used to cover deductibles, co-pays and co-insurance costs as well as financial expenses not covered by standard health plans like private nursing, rehab, and equipment.

BLUEPRINT

FOR BENEFITS PLANS

Supplemental buying trends

Growth rate of supplemental products shows a rising popularity among employees over the past five years.

Who’s buying

• The most common purchasers of supplemental products are age 30 to 49.

• Women outpace men as purchasers of supplemental products.

Supplemental benefit sales as percent of total UnumProvident sales • Average annual growth over the past three years is 18-20% • Expected annual growth of 18% Percentage of UnumProvident inforce policies by issue age, 2005

BLUEPRINT

FOR BENEFITS PLANS

CONCLUSIONS

Today’s climate calls for employers to lean more heavily on the expertise of their insurance advisors. Employers with compre hensive knowledge about the newest solutions on the market will have the competitive edge critical to the changing employment landscape.

How this study can help employers

To map out the most cost-effective benefit strategy, it is imperative that employers address the delicate balance between containing costs and attracting top talent. The main factors that determine success are: • a keen knowledge of competitor’s offerings • an intuitive grasp of how changing demographics impact employee benefit needs • creativity in developing a flexible benefits plan that allows employees to select and purchase the voluntary coverage that meet their needs • the ability to harness tools like supplemental health and disability insurance to help protect employees from health events that can lead to financial difficulty • the foresight to help employees prepare for retirement using new financial planning vehicles, such as long term care coverage

CONCLUSIONS

AN INSIDER’S VIEW OF

INDUSTRIES

What is the competition offering employees? How do buying trends affect various major industries? Here’s an insider’s view of benefits offered within specific industries, and a look at how those choices reflect business reactions to various market pressures.

An overview of industries

Education

– represents the second largest employment sector in the U.S., accounting for about 13 millions jobs.

1 •

Engineering, Architecture and Related Services

– growth is predicted in select segments of these industries.

2 •

Financial Services

– changing demographics and deregulation are driving job growth.

3 •

Health Services and Research

– the largest industry in the nation, health services and research is projected to experience the largest single industry job growth through 2014.

4 •

Information Services

– the workforce is younger than most industry sectors, with large percentages of workers age 25 to 44.

5 •

Legal Services

– highly paid legal professionals require more extensive income protection.

6 •

Management and Marketing

– income protection is essential for this white-collar sector.

7 •

Manufacturing

– this growth engine for the economy faces recruiting challenges.

8 •

Wholesale/Retail Trade

– this group makes up a significant portion of the nations’ employment.

9 View our Buyers Study Supplement for information on the challenges faced by HR professionals. It describes the products several key industries are purchasing and what trends are developing in benefits plans.

www.unumprovident.com/buyerstudy

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Education

industry

LTD

• In recent years, new LTD business has shown a significant shift to contributory funding.

• Those in the education industry are 10 times more likely than any others to choose a less common benefit percentage (other than 50%, 60% or 67%).

STD

• The most common STD duration period selected is less than 13 weeks (43%).

Life

• Recent traditional life cases have almost exclusively been employer funded (96%).

Supplemental Products

• In 2005, based on the choices made by employers, the most popular products are individual short term disability income protection, life and critical illness. • Retirements combined with expanding demand will create labor shortages in some areas through 2014, especially in the South and West.

• Employment growth of 17% is expected in this industry between 2004 and 2014, higher than the 14% projected increase for all other industries combined.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Engineering, Architecture and Related Services

industry

LTD

• 24% of LTD sales in the last three years were 100% contributory.

• A majority (85%) of the employer groups select a 60% benefit percentage of salary .

STD

• 51% of STD plans from 2003 to 2005 were employer funded, while 33% were 100% employee paid.

Life

• The most common range of maximum benefits for traditional group life was $50,000 to $99,000 (33%).

• Engineers’ starting salaries are significantly higher than those of other college graduates, so they are good candidates for supplemental income protection.* • Companies will be competing for highly skilled talent. Flexible benefit packages can help attract these seasoned professionals.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Financial Services

industry

LTD

• During 2005, a declining proportion of financial services cases offered an employer-paid plan.

STD

• A relatively high percentage of financial services employers choose to totally fund group STD plans; however, this is trending down from 62% of inforce cases, to 58% of new sales during the past three years, and 50% of new sales in 2005.

• From 2003 to 2005, 58% of the time the industry chose employer-funded life insurance.

Supplemental Products

• The sector shows steady growth in supplemental individual STD, life and critical illness products.

• Changing demographics and deregulation are driving job growth.* • This sector is projected to grow by 30% between 2004 and 2014 and account for 5% of all employment.* • Employment is expected to increase as banks expand the range of products and services they offer to include insurance and investment products.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Health Services and Research

industry

LTD

• From 2003 to 2005, 59% of issued policies are employer paid, while 33% are employee paid, in line with national averages.

STD

• 72% of plans have benefit maximums in excess of $500, with 36% offering a benefit greater than $1,000.

Supplemental Products

• Employers in this industry purchase the most supplemental benefits, representing about 36% of 2005 supplemental sales.

• The aging workforce of the nation’s largest industry will have a large impact on the nursing field.

1 • Within 10 years, 40% of working RNs will be 50 or older.

2 • Employers will need a competitive compensation package with attractive benefits to stay ahead of this labor shortage.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Information Services

industry

LTD

• While historically 69% of employers chose employer-paid funding, in the last three years policies show a shift toward employee-funded plans, with employer-paid plans dropping to 58%.

Life

• With the greatest percentage of workers between 25 and 44, fewer employees choose spouse and child coverage on their group policies than in most other industries.

Supplemental Products

• IT and financial service companies make up 15% of the total market – comprising 11% of group sales and only 5% of total supplemental benefits sales.

• This industry’s workforce remains younger than most, with a large percentage of workers age 25 to 44.* • Because this sector is just beginning to offer voluntary workplace benefits, employers who make these benefits available can set themselves apart from their competition.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Legal Services

industry

LTD

• Legal, along with education and retail trade, is one of the top three industries to follow the trend to employee-paid plans.

STD

• Employer-paid plans with no employee contribution represent only 43% of all plan designs for the past three years.

Supplemental Products

• Law firms tend to offer a much richer critical illness benefit than average, purchasing twice as many plans in the $20,000 to $40,000 benefit range than the average for all other industries.

• Although this sector is predicted to have average growth, the government predicts a 30% spike in paralegal jobs through 2014.* • Since the legal industry purchases a much higher than-average number of LTD plans with a high maximum benefit, law firms will need to offer similar plans to remain competitive.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Management Consulting and Marketing

industry

LTD

• A strong shift toward employee contribution for LTD coverage has taken 100% employee-paid plans up to 38% of policies sold during 2003 2005, compared to 22% of all inforce cases.

STD

• Over the past three years, there has been a shift toward 100% employee contribution, although non-contributory remains the choice for 50% of cases.

Supplemental Products

• The most popular supplemental products sold in 2005 were life, individual STD, and critical illness, based on total new premium.

• This industry employs highly educated and well compensated individuals who have a vested interest in income protection.

In addition to a salary, many in this field receive additional compensation, such as profit sharing, stock ownership and performance-based bonuses, which give them significant income protection needs.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Manufacturing

industry

LTD

• In a growing trend, more than half (56%) of the companies opted for non-contributory plans (2003 to 2005), down from 68% of all cases.

STD

• There is no clear trend away from non contributory STD plans. During the last three years, employers are paying for this coverage in 60% of cases.

• Manufacturers pay an average of 80% of employees’ premium contributions for health care, the highest of any non-governmental

Life

• Nearly two-thirds of cases sold in the last three years offered salary multiples; most common was five times the salary amount. sector, yet the majority (80%) report a current shortage of qualified job applicants with the

Supplemental Products

• This industry’s supplemental sales are relatively steady even in a declining industry, demonstrating the popularity of these flexible benefits among a diverse work group.

necessary educational backgrounds and skills.*

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

An insider’s view of the

Wholesale/Retail Trade

industry

LTD

• Retail trade is the only industry in which 100% employee-paid is the number one funding choice for recent policies.

STD

• Retail trade has lower maximum benefits than the national average; wholesale trade is trending toward the average.

Life

• The most common maximum flat benefit amount for the wholesale trade industry was $50,000; those offering a multiple of salary most often selected five times the amount.

Supplemental Products

• The most popular offerings as percentage of new premium for 2005 were life, individual STD, and accident. Critical illness is also up in this industry as a whole.

• The turnover rate for retail employees is higher than average,* which means retail employers will find benefits an important tool in attracting new employees, while helping to retain their most productive employees.

• Wholesale trade is engaged in benefit cost shifting, with 55% of 2005 sales offering employer-funded LTD, compared to 70% of inforce cases.

Information from the UnumProvident internal database 2003-2005

INDUSTRIES

AN INSIDER’S VIEW

Sources

Buyers Study – our purpose

* UnumProvident represents the multiple insuring subsidiaries of UnumProvident Corporation, including the #1 group and individual income protection carriers in the United States, according to the JHA 2005 U.S. Group and Individual Disability Market Surveys, 2006.

The aging workforce – recommended actions

* Center for Disease Control, Morbidity and Mortality Weekly Report, September 10, 2004.

The changing workforce – trends

1 Society for Human Resource Management (SHRM), “Workforce Forecast, A Strategic Outlook,” 2004-2005.

2 “Employment projections to 2012: concepts and context,” Monthly Labor Review, Michael W. Horrigan, February 2004.

Today’s environment – supplemental trends

* Eastbridge Consulting Group, “U.S. Worksite Sales Report,” May 2006.

Today’s environment

* UnumProvident data, 2005.

Moving into the future with supplemental benefits

1 Watson Wyatt Worldwide, “Communication Plays Critical Role in Improving Retention Power of Health Benefits,” press release, February 23, 2005. 2 LIMRA, Group Life Insurance Annual Review 2005, May 2006.

3 LIMRA, The Marketer, May 2006.

*

The most popular supplemental benefits

Eastbridge Consulting Groups, “21st Century Employer – Redefining the Benefits Business,” May 2004.

Addressing the needs of a diverse workforce

1,2 The Commonwealth Fund, “Health Coverage for Aging Baby Boomers: Findings from The Commonwealth Fund Survey of Older Adults,” Sara R. Collins, Karen Davis, Cathy Schoen, Michelle M. Doty and Jennifer L. Kriss. January 2006.

Sources

An overview of industries

1 Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to industries, 2006-07 Edition, Education Services, on the Internet at http://www.bls.gov/oco/cg/cgs034/htm, Last modified date; December 20, 2005 (cited April 24, 2006). 2 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2006-07 Edition, Engineers, on the Internet at http://www.bls.gov/oco/ocos027.htm (cited April 4, 2006); and Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2006-07 Edition, Architects, Except Landscape and Naval, on the Internet at http://www.bls.gov/oco/ocos038.htm (cited April 4, 2006.

3 Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition, Securities, Commodities, and Other Investments, on the Internet at http://www.bls.gov/oco/cg/cgs122.htm and Financial Managers: http://stats.bls.gov/oco/ocos010.htm. (cited August 3, 2006).

4 Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition. Health Care, on the Internet at http://www.bls.gov/oco/cg/cgs035.htm (cited August 3, 2006).

5 Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition. Software Publishers, on the Internet at http://www.bls.gov/oco/cg/cgs051.htm and http://www.bls.gov/oco/cg/cgs033.htm (cited August 4, 2006).

6 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2006-07 Edition. Paralegal and Legal Assistants, on the Internet at http://www.bls.gov/oco/ocos114.htm (cited August 29, 2006).

7 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2006-07 Edition, Advertising, Marketing, Promotions, Public Relations, and Sales Managers, on the Internet at http://www.bls.gov/oco/ocos020.htm (cited April 21, 2006).

8 National Association of Manufacturers, “Keeping America Competitive: How a Talent Shortage Threatens U.S. Manufacturing,” May 2003.

9 Bureau of Labor Statistics, U.S. Department of Labor, Industry at a Glance, 2005, on the Internet at http://www.bls.gov/iag/wholeretailtrade.htm (cited August 29, 2006).

Education

* Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition, Educational Services, on the Internet at http://www.bls.gov/oco/cg/cgs034.htm. Last modified date: December 20, 2005 (cited April 24, 2006).

Engineering, Architecture and Related Service

* Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2006-07 Edition, Engineers, on the Internet at http://www.bls.gov/oco/ocos027.htm (cited April 4, 2006).

Sources

Financial

* Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition Securities, Commodities, and Other Investments, on the Internet at http://stats.bls.gov/oco/cg/cgs122.htm, and Financial Managers: http://stats.bls.gov/oco/ocos010.htm (cited August 3, 2006).

Health Services and Research

1 Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition, Health Care, on the Internet at http://www.bls.gov/oco/cg/cgs035.htm (cited August 3, 2006).

2 Honor Society of Nursing, Sigma Theta Tau International “Facts on the Nursing Shortage in North America,” on the Internet at http://www.nursingsociety.org/media/facts_nursingshortage.html (cited August 3, 2006.)

Information Services

* Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2006-07 Edition, Software Publishers, on the Internet at http://www.bls.gov/oco/cg/cgs051.htm and http://www.bls.gov/oco/cg/cgs033.htm (cited August 4, 2006).

Legal Services

* Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2006-07 Edition. Paralegal and Legal Assistants, on the Internet at http://www.bls.gov/oco/ocos114.htm (cited August 29, 2006).

Manufacturing

* National Association of Manufacturers, “Keeping America Competitive: How a Talent Shortage Threatens U.S. Manufacturing,” May 2003.

Wholesale/Retail trade

* Bureau of Labor Statistics, U.S. Department of Labor, Industry at a Glance, 2005, on the Internet at http://www.bls.gov/iag/wholeretailtrade.htm (cited August 29, 2006).

PP-283 (1-07)

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