Top Trends in Voluntary Benefits Mark Parabicoli AVP

Top Trends in Voluntary Benefits Mark Parabicoli AVP & Managing Director Liberty Mutual Insurance Company Erin Barfels Chief Human Resources Officer ARAG

Current Situation Panel / Group Discussion • What are your top concerns • During a recession? • Plans and concerns surrounding economic recovery? • Healthcare reform? • Where does the importance of voluntary benefits fit into your overall strategy? Now… Let’s see how this compares to our recent, online employee survey.

Executive Summary • Building a robust Voluntary Benefit program aligns with employers’ top objectives of attracting/retaining quality employees and controlling costs — There is evidence of increased employee loyalty and satisfaction • According to a July 2010 SHRM survey, job security and benefits are top two motivators of employee satisfaction • 82% of employees with voluntary benefits report being satisfied vs. 52% w/out voluntary benefits* • However, most employers currently have limited voluntary benefit offerings and are not planning to significantly expand their offerings — While employers agree that voluntary benefits are valuable, few currently provide more than 6 offerings to employees — There is a perception gap between employers and employees on importance of variety in Voluntary Benefits offering • Employers offer a variety of different voluntary benefits, with life insurance and short/long-term disability being the most common — Most employers don’t plan to expand offering, but those that do look to add Long Term Care insurance, legal plans and auto/home insurance • The next steps in expanding your Voluntary Benefits program are identifying gaps, selecting providers, and establishing payroll deduction. * Anthem BCBS and Taylor Nelson Sofres, “Employees Give High Priority To Voluntary Benefits, ” Oct 10, 2010

Employer Survey Parameters Who did we target? (August 2011)

Employee Survey Parameters • • Methodology – Project Name: Employer B-C Study – Design/Method: Online survey Sample – Sample Size: 611 interviews – Qualifications: US resident adults age 25 or older who are employed full time in an organization with 10 or more employees in the US. Employer must offer some type of voluntary benefits, but respondents were not required to be enrolled in any of them. All industries. – Field Dates: July 21 – 27, 2011

HR Executives Priority Ranking Voluntary benefits program was considered significantly less important than the top priorities of attracting/retaining quality employees and controlling costs Rated importance of priorities by HR managers (out of 10 -point scale) (n = 215) Source: Online Survey of Voluntary Benefits, August 2011

Employee Priority Ranking There are significant gaps between employer perception and employee priorities, most notably in the importance of retirement benefits and voluntary insurance benefits Source: Met. Life Study of Employee Benefits trends, April 2010 (n = 569 for employers, n = 627 for employees) Employees and employers were asked to indicate the importance of various factors of employee loyalty towards their company

A Gap Exists With the Employer’s Perception • 52%* of employees indicated they want a wider array of voluntary benefits • Only 21% of employers reported their employees are requesting more variety in voluntary benefits + • And only 14%* plan to increase voluntary benefit offerings in the next two years *Source: Metlife 9 th Annual Study of Employee Benefits trend + (n = 215) Source: Online Survey of Voluntary Benefits, August 2011 An opportunity exists to better align benefits strategies with employees’ benefits priorities.

Current Voluntary Benefits Offerings There is an opportunity for most employers to enrich voluntary benefits program. (n = 215) Source: Online Survey of Voluntary Benefits, August 2011

Current and Planned Voluntary Benefit Offerings There is a wide variety of voluntary benefits that employers currently offer; however, consideration levels to add new voluntary benefits are not very high. % employers who currently offer* % employers who consider adding** Life Products 69% Long-term care 28% Disability (short and long term) 67% Legal Plans 18% Dental 56% Auto and Home Insurance 16% Vision 55% Critical Illness 14% Long-term care 34% Pet Insurance 13% Critical Illness 34% Vision 11% Supplemental Medical 19% Disability (short and long term) 10% Legal Plans 18% Supplemental Medical 9% Auto & Home Insurance 18% Hospital Indemnity 15% Life Insurance 5% Pet Insurance 11% Dental 1% * Out of those who currently have a VB plan ** That they do not currently offer Source: (n=215) Online Survey of Voluntary Benefits, August 2011

Who Can Help Me? % employers who consider adding** Largest Providers for the top-3 Categories Long-term care 28% Long-Term Care insurance: Legal Plans 18% Prudential Auto and Home Insurance 16% Genworth Financial Critical Illness 14% Unum Pet Insurance 13% Vision 11% Disability (short and long term) 10% Supplemental Medical 9% Hospital Indemnity 8% Life Insurance 5% Liberty Mutual Group Dental 1% Metropolitan Life Insurance Co *Source: Online Survey of Voluntary Benefits, August 2011 +Source: Business Insurance Survey, shrm. org vendor directory Legal Plans: ARAG Hyatt Legal Plans Auto and Home Insurance: Travelers Group

Adding Value Through Payroll Close the gap in Voluntary Benefits by: - Increasing the variety of voluntary benefits available - Making payroll deduction available Source: Met. Life Study of Employee Benefits trends 2009 Employees and employers were asked to indicate agreement with the statements above

The Importance of Payroll Deduction Nearly all employees say being able to pay for voluntary benefits with payroll deduction is extremely, very or somewhat important. Importance of payroll deduction - Extremely/Very/Somewhat Important Organization Size Total (N=611) 10 To 99 Employees] (N=128) 100 To 999 Employees (N=196) Age 1, 000 + Employees (N=287) Q 10. How important is it to you that you can pay for these voluntary benefits with payroll deduction? Base: All Respondents July 2011 25 To 34 (N=177) Extremely Important 35 To 44 (N=171) Very Important 45 Or Older (N=263) Somewhat important

What is the Competition Doing? Almost nine-in-ten employers allow employees to pay for voluntary benefits through payroll deductions. Employer offers payroll deduction for Voluntary Benefits - Yes (%) Total (N=611) Organization Size 10 To 99 Employees [H] (N=128) 100 To 999 Employees [J] (N=196) 1, 000 + Employees [K] (N=287) Age 25 To 34 [P] (N=177) Q 08 A. Does your employer offer the opportunity to purchase voluntary benefits through payroll deduction? Base: All Respondents July 2011 35 To 44 [Q] (N=171) 45 Or Older [R] (N=263)

Impact of Payroll Option Key Consumer Benefits: – No down payment – No installment fees – Easy budgeting Technology Overview: – Complete flexibility to Employer’s payroll calendar – Encrypted file transmissions – Seamless ability to switch employee to direct bill at home in the event of disability, LOA, termination, etc – 60 -day testing and implementation timeline Source: Internal Liberty Mutual data; 2008

Next Steps 3 Simple steps to improve your benefits program: 1. Identify existing gaps by conducting a workplace survey to understand employee priorities and interest 2. Select turn-key providers with robust communications plans 3. Work with vendors to establish payroll deduction Result… Watch morale and employee retention rise…while you maintain the bottom line.

“Voluntary is no longer a quaint sideline; it has become one of the largest and fastest growing segments of the benefits business. ” - Gil Lowerre, Eastbridge Consulting January 2011 Ed. – Benefits Selling Magazine