Tag Archives: group life

What should employers consider when life and disability benefits renewal time comes around?

The overall spending on life and disability benefits is significantly less than the costs for healthcare coverage. But a little focus there can often lead to real savings on these products along with greater employee satisfaction.

Benefits managers don’t have to wait until a renewal at the end of a rate guarantee to review the program’s experience. Performing reviews on an annual basis can ensure that there are no surprises.

Benefits managers should consider rate comparisons, quality of service received, and integrated leave management options as well as disability and life insurance specific considerations.

In this article, Milliman’s Jennifer Fleck discusses in more detail what employers should consider when group disability and life insurance benefits come up for renewal.

Tax reform considerations for group life and disability insurers

How will tax reform in the United States affect the profitability of disability income and group life insurance? To offer some perspective, Milliman consultant Jennifer Fleck performed an analysis measuring the effect that the Tax Cuts and Jobs Act could have on the following products:

• Individual disability income
• Group long-term disability income
• Group short-term disability income
• Group life insurance with waiver of premium

The analysis considered three key changes in the tax law affecting life insurers as well as a fourth change, which remains an open issue. The analysis was done with industry average assumptions on profitable plan designs. Read Jennifer’s article “Tax reform: Disability income and group life” to learn more.

How can predictive analytics enhance group life and disability insurance?

The group life and disability insurance sector has been slower to adopt predictive analytics than other lines of insurance. One reason for the sector’s lag is because insurers often have limited information on who they are insuring. However, there are still many ways to incorporate predictive modeling technology to improve results. Milliman consultant Jennifer Fleck provides some perspective in her article “Group insurance ‘Project Insight’.”

Captive insurance considerations for group life and long-term disability sponsors

Captive insurance can help employers reduce the costs of group term life or long-term disability (LTD) benefits. This arrangement provides employers with greater control over invested assets and possible tax savings. However, sponsors need to assess the underlying risks associated with these types of captives because they are different from the risks related to traditional captives in the property and casualty (P&C) sector.

In this issue of Benefits Perspectives, Milliman’s Paul Correia presents an overview of the evolving captive insurance market for large benefit plan sponsors. He also discusses significant risks that employers should think about regarding these funding arrangements. The following excerpt highlights some key risk considerations:

• Risk diversification—Employers with existing captive arrangements for P&C coverages may see opportunities for improving their enterprise risk management practices by adding group life and disability programs to the mix. Because P&C risks are often uncorrelated with group life and LTD risks, combining the different coverages under one roof may provide a better spread of risk. The resulting diversification may help mitigate risk by reducing volatility of claims experience. Similarly, an employer that does not have an existing captive and wants to establish one for employee benefits programs may also consider funding its P&C insurance through the captive, in order to diversify the captive’s risk attributes.

• Counterparty risk—Due to the nature of captive transactions that involve U.S. employee benefits, captives depend on the fronting companies to underwrite the risks and adjudicate the claims. The underwriting for group life and LTD insurance depends in large part on very company-specific perceptions of the underlying risks, such as LTD claim termination run-out patterns (i.e., whether benefits are paid for months or decades, depending on the cause of the disability) and group life mortality improvement. The adjudication of group life and LTD claims also tends to vary substantively from one company to another. The fronting company’s ability to effectively underwrite the risks and administer claims is an important risk consideration for employers that use captives to reinsure group life and LTD programs.

• Catastrophic risk—All insurance companies that provide group life and disability coverages are exposed to catastrophic risk. One random event, such as a plane crash, can cause extraordinary losses. This is a particularly important issue for group insurance writers due to the concentrations of risk by employer group and location. Catastrophic risk is a big concern, even for group insurers that have many group customers. It is an even greater concern to captive insurers that insure only one group. The impact of a catastrophic event can be reduced by entering into reinsurance and stop-loss agreements.

Health exchanges pose opportunities and challenges for group life and disability products

The expansion of private and public health exchanges into more diverse insurance markets presents both opportunity and risk to group life and disability insurers. Exchanges promise insurers potential growth opportunities through new forms of distribution. Still, there is uncertainty as to how new business will evolve under these models.

Milliman’s Paul Correia authored a recent article in Best’s Review discussing strategies that group life and disability carriers should consider in marketing products on the exchanges. Here is an excerpt:

Pricing on Exchanges
Many group life and disability insurance companies are still developing their exchange strategies. Those that are considering participating in exchanges are giving serious thought to the inherent pricing challenges.

The lack of historical experience in this market segment poses obvious challenges. First, the demographics and risk characteristics of future insured populations are unknown. Some insurers speculate that exchanges may be popular among cost-conscious employers and first-time buyers of ancillary products, for example, but there are many unknowns, such as variations by employer size or location.

Second, future participation levels are unknown. Most voluntary group life and disability insurance products have minimum participation requirements to mitigate anti-selection risk. But it may be difficult to enforce these requirements in exchange markets.

One-on-one sessions with employees and group meetings at the work site have been effective for boosting participation, but these initiatives likely will not be integrated with exchange enrollment platforms. Insurers may be reluctant to refuse coverage to a case that fails to meet a minimum participation requirement on an exchange. They may also be pressured to dispense with minimum participation requirements entirely.

Finally, there are concerns over allowing plans to be split among multiple insurers. Disability and life insurers typically have been immune to this issue, although it is not uncommon in the large-group medical insurance market. The primary concern is that allowing employees to choose from among multiple insurers’ plans will exacerbate anti-selection risk. The consensus, however, seems to be that exchanges will not split disability and life insurance plans among multiple insurers in the near term, although this could be a subsequent development.

Enrollment and Administration
Group life and disability insurers understand that exchanges can provide valuable enrollment platforms for tapping into new markets. It is likely, however, that some exchanges will be better than others at providing enrollment and distribution support, and some may be able to provide administrative services that others cannot provide.

These insurers should pay close attention to capabilities such as the ability of an exchange to efficiently process changes in employee earnings, or the ability to effectively administer open enrollments of new hires. Exchanges that have solid front- and back-end capabilities should appeal most to group life and disability insurers.

Some group life and disability insurers have not invested in voluntary products and are now faced with the decision of whether to invest in these products and potentially participate in exchanges or not. Insurers that already operate in voluntary markets need to decide what types of products should be offered through exchanges.

Designing products that are attractive to employers is critical. Equally important is the ability to market these products on exchange platforms. Insurers are considering marketing strategies that take advantage of exchange formats. For example, insurers may see opportunities for distributing less-prevalent ancillary products, such as accident indemnity and critical illness insurance, traditionally sold through work site distribution channels. Because exchanges fundamentally facilitate sales of voluntary products, they could prove to be effective at bolstering enrollment and participation in these types of products.

To read the entire article, click here.