Rethinking the Voluntary Insurance Market
The role of voluntary (supplemental) benefits has never been more important as employees shoulder more financial responsibility for healthcare. Yet the traditional model hasn’t evolved to meet this reality. BeneRe is a captive model designed to reimagine supplemental health benefits through transparency, sustainability, and positive employee outcomes.
Key Takeaways
- Health insurance isn’t enough on its own as employees face ever-higher deductibles and out-of-pocket maximums
- More than half of Americans have less than $1,000 in savings
- Voluntary benefits offer a solution, but problems exist in the overall industry
- Brokers have misaligned incentives because they may receive high commissions in the first year, which often leads them to carrier hop
- The BeneRe model ensures that profits go back to employee benefit plans, maximizing the value for employees
- Employees are better financially protected and enjoy enhanced plan designs and lower premiums
Supplemental health benefits are becoming more common in the U.S. as healthcare costs rise and employees are unable to cover expenses, even when they have employer-sponsored health insurance.
However, the voluntary benefits market still has significant structural issues. Many of these programs have historically disproportionately benefited brokers and the industry at large over the employees paying for coverage or the employers funding their plans. Today, these dynamics are being examined through a fiduciary lens, as recent litigation has brought voluntary benefits programs into broader conversations about fiduciary responsibility, governance, and participant outcomes.
This guide will review what the voluntary benefits market looks like today, its key problems, and how the BeneRe model can help your company address them.
The 2026 voluntary benefits market and its issues
Employer-sponsored health insurance programs on their own are no longer sufficient for employees, who are facing ever-increasing deductibles and out-of-pocket maximums. The average deductible amount has increased 17% over the last five years and 43% over the last ten years. For covered workers in small firms the average deductibles were $2,631 and $1,670 for large firms. These issues spread across industries and to employees within all income brackets.
Nearly half of Americans get unexpected medical bills, yet roughly 37% do not have enough money to cover a $400 emergency expense, and 57% can’t cover $1,000. And, our research shows that the majority of Americans are somewhat or very worried about being able to pay unexpected medical bills.
Voluntary benefits have emerged as an important financial protection. Accident insurance, Critical Illness insurance, and Hospital Indemnity insurance allow workers to get extra support when an unexpected medical event happens. This coverage gives them a financial safety net to counteract those deductibles and out-of-pocket maximums from their regular health insurance.
This growing gap between healthcare costs and financial preparedness is why voluntary benefits have become increasingly important. Accident insurance, Critical Illness insurance, and Hospital Indemnity insurance are designed to provide added financial support when an unexpected medical event occurs. These benefits help offset deductibles and out-of-pocket costs, giving employees a financial safety net when they need it most.
However, there are several structural issues weighing down the voluntary benefits market today. These include:
- Heaped compensation: Incentive comp plans pay brokers as much as 75% in the first year of a plan and step down after that, leading to misaligned incentives.
- Pay-to-play platforms: Large brokers get profits when platforms crowd out the competition.
- Low claims ratios: The heaped commission structure forces insurance carriers to seek low-loss ratios for years in the future so they see their target ROI.
- Carrier hopping: Because of heaped commissions, brokers are incentivized to change carriers every few years.
Another major challenge with the current voluntary benefits market is a lack of transparency: employers often do not have clear insight into claims and expenses, making it difficult to assess whether programs are delivering real value. This dynamic is frequently under scrutiny from a fiduciary and governance perspective. BeneRe’s group captive model was established in 2018 precisely to address this problem in the market.
How group captive models address structural problems in voluntary benefits programs
One way employers are addressing longstanding structural problems in the voluntary benefits market is through a group captive insurance model. These models are designed to better align incentives by emphasizing transparency and efficiency, shared risk, and fixed expenses, ensuring employees are getting maximum value.
In a group captive model, pooled risk is reinsured and any underwriting gains generated by the program are distributed at the end of the year on a pro rata basis to all participating members. These dollars are then reinvested in employee benefits programs or used as a premium offset. This structure allows employers to better understand how premiums are used, how claims perform over time, and whether programs are delivering real value to employees.
Single-parent insurance companies usually cannot include voluntary benefits without a Department of Labor exemption since it’s considered a conflict of interest under the Employee Retirement Income Security Act (ERISA). The company would essentially profit directly from its own employees.
However, the group captive model removes this conflict of interest since it’s based on a pool of employers sharing the risks and rewards across a pool of hundreds of thousands of employees. Costs are clearly defined, reported, and controlled.
The BeneRe group captive model offers:
- Lower premiums for employees
- Greater financial protection for employees
- Streamlined claims administration
- Vendor stability
- Fair compensation
- Quarterly financial reporting
- Potential annual dividend distributions
All employee premiums are paid directly to the A-rated insurance carrier, which issues fully insured policies and handles all administration and claims processing. BeneRe then reinsures 100% of the program. BeneRe applies this model to Accident, Critical Illness, and Hospital Indemnity insurance programs.
All underwriting gains go back into the employers’ benefits plans as dividends, so they can reinvest the funds in employee benefits programs. Targets for underwriting gains are between 10% and 20%, but we’ve seen even higher results for members. When claims vary from one year to the next, and in the event of a premium shortfall, there is zero downside risk as employers will never have to deal with a capital call.
Here are the steps involved in our program:
- Employees enroll in voluntary benefits during open enrollment. Payroll deductions are then sent to the insurance company that fronts the plan. There is no financial risk for employees.
- The carrier administers and manages the program like any other plan.
- BeneRe reinsures 100% of the risks while allowing the premiums to be held by the insurance company. The carrier thus holds the dollars until final claims are paid for the policy period, protecting employees.
- At the end of the policy year, the premiums net of claims and expenses are released to BeneRe and distributed on a pro-rata basis to participating plans. The 40% of expenses include carrier fees, client service, captive management, compliance, broker commissions, and taxes. There is then 60% left to pay claims. If claims don’t take up that full amount, the employer would receive the difference as a distribution at the end of the policy year.
Voluntary benefits give employees better financial support when they face an injury, serious diagnosis, or hospitalization. But the current market doesn’t always favor employers and employees.
The BeneRe difference: Since 2018 we have operated a first-of-its-kind group captive insurance solution for Accident insurance, Critical Illness insurance and Hospital Indemnity insurance. We give you full transparency about where the dollars are going, your employees receive lower premiums and full protection, and any potential dividends are reinvested in employee benefits programs. It’s that simple. There is no downside.
To learn more about our model, contact the BeneRe team today.