Benefits Challenge: Bridging The Workplace Coverage Gap

October 2024

The workplace benefits market is facing a changing environment that is creating a new landscape within which insurance, retirement and related benefits providers must now operate. As the market evolves, gaps are emerging, creating both challenges and new opportunities for companies.

Many workers rely on workplace benefits to address their insurance, retirement and related needs. This is especially true of lower- and middle-income workers who often do not have a personal financial advisor or other financial professional with whom they can work to address their needs. As such, workplace benefits are often the only reliable source for today’s workers seeking financial products and services.

But is the industry meeting the needs of today’s workforce? The data would suggest not, and it also indicates that work needs to be done to deliver offerings that align with the preferences and needs of today’s workforce. Consider the following:

• Only about half of employers offer a comprehensive suite of benefits covering insurance and retirement needs of their workers.
• Market penetration of specific insurance benefits and participation rates have been relatively flat over the past several years.
• Forty-one percent of households have no access to defined benefit plans and no savings in defined contribution plans or IRAs.
• A record number of American adults (42 percent) say they need (or need more) life insurance.
• According to LIMRA’s Financial Wellness Index, a measure of financial health and stress, the average American worker scores just 5.50 on a scale of 0 to 10.

To successfully connect into today’s workforce, it is critical that organizations understand the changing nature of work and the role that benefits play in employers’ talent strategies. Industries and occupations are changing while remote and hybrid work models have changed the ways in which workers learn about, enroll in and use their benefits, with digital tools playing an increasingly important role in benefits strategy.

Technology

Technology is one area that is having a significant impact on the world of work. Artificial intelligence (AI), in all forms, is changing the nature of work and jobs themselves. According to the Pew Research Center, 19 percent of all workers have jobs that are highly exposed to AI, meaning that a significant portion of their job duties and activities could be replaced by technology, putting their jobs at risk. However, more workers are likely to be impacted, to at least some degree, by AI.

While it remains to be seen if and how quickly certain jobs and industries will be displaced or replaced by AI technologies, what is clear is that the workplace and the workforce is rapidly changing due to advancements in technology. While some jobs will be replaced, new jobs will be created. Companies that provide workplace benefits must be vigilant and nimble to take advantage of these opportunities as they emerge.

Gig Economy

Technology is also powering the freelance and gig economy. Many workers are supplementing their incomes through gig work. These jobs are often supported and enabled by technology platforms, making it easy for individuals to establish themselves in the gig economy. Companies such as Uber, Etsy, DoorDash and Rover provide specific gig opportunities while platforms such as Fiverr and Upwork create online communities for freelancers and employers to connect.

According to research conducted by LIMRA and EY, approximately one-third of the workforce currently participates in the gig economy to some extent. In five years, up to 29 percent of the workforce could rely on gig work as their primary source of income. Workplace benefits organizations will need to connect with workers where they are and when they want, which for many workers may not be through traditional arrangements. The gig and freelance economies provide a growing opportunity for financial services organizations to provide needed coverage to this growing segment of the workforce.

Benefits Strategies

In addition to the workforce changing, employers’ benefits strategies are changing as well. Today’s private employers view their benefits packages differently than they have in the past. While 70 percent of employers say that their company’s benefits package will be critical to attract and retain workers, they are placing more responsibility in the hands of their workers when it comes to funding the benefits and managing them. Insurance benefits are now often funded through contributory or voluntary arrangements, where the workers are paying all or part of the premium costs of the plans. This is especially true of supplemental health benefits such as accident, critical illness and hospital indemnity plans.

On the retirement side, the number of defined benefit retirement plans (i.e., pension plans) has declined from 148,096 in 1980 to less than 47,000 today, leaving fewer workers covered by pension plans. Over the same period, the number of defined contribution plans has increased from 340,805 to well over 700,000 today. This shift to employee-centric models requires companies to place increased attention on communication, education, enrollment and servicing strategies. Decision-support tools, powered by technology and generative AI, will become critical in the successful distribution of workplace benefits and helping workers address their needs through customized and personalized strategies.

Conclusion

While the world of work continues its transformational shift, one thing remains certain: Workplace benefits remain central to employers’ value propositions in the competition for talent. Workers continue to evaluate what they are looking for in an employer, balancing the need for salary, benefits and other employer attributes. New work models are emerging. Techniques that were successful in the past may no longer suffice. New marketplace realities require companies to take a new perspective on their offerings and how they can bridge the gap, connecting workers with the coverages they need.

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