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Voluntary Employee Benefits: Market & Pricing Warren Cohen, FSA, MAAA Jacob McCoy, FSA, MAAA Darrell Spell, FSA, MAAA 1.

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Presentation on theme: "Voluntary Employee Benefits: Market & Pricing Warren Cohen, FSA, MAAA Jacob McCoy, FSA, MAAA Darrell Spell, FSA, MAAA 1."— Presentation transcript:

1 Voluntary Employee Benefits: Market & Pricing Warren Cohen, FSA, MAAA Jacob McCoy, FSA, MAAA Darrell Spell, FSA, MAAA 1

2 Common terms used in the industry are voluntary, worksite, supplemental coverage, etc 100% Employee Paid Coverage May be linked to Employer Paid Coverage Supplemental Life Core/Buy-Up Disability Carriers may include business with partial Employer subsidies 2 Definition of Voluntary

3 Continued Growth Eastbridge Statistics Group Benefit Carrier Expansion Expanded Product Lines: Critical Illness & Accident Individual Carrier Distribution Expansion AFLAC Acquisition of Continental American Continued Blurring of Group vs. Individual Increasing Awareness in the Market Large/Jumbo Cases 3 Major Market Trends

4 New Business Premium Growth Total sales in 2011 = 5.5B 2011 growth rate = 4.5% Top 15 companies account for 82% of the market Takeover business accounts for 42% of the market 4 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012

5 Top Companies (47% Market) Aflac Unum Colonial Allstate Top Products (68% Market) Term Life Insurance Short Term Disability Accident Hospital Indemnity Dental 5 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012

6 Distribution Channels Benefit Brokers Career Agents Classics Specialists Occasional 55% Group, 45% Individual 6 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012

7 Group vs. Individual Contract Greater rate and filing flexibility with Group Lower MLRs with Individual Group products with Individual features Issue age rating, portability, heaped commissions Individual products with Group features GI/minimum participation, case specific rates 7 Areas of Blurring

8 Enrollment Methodology Group meetings vs. 1-1 Administrative Platform Self-Admin vs. Individual records Distribution Benefit brokers vs. Worksite Specialists Renewal Pricing Changes 8 Group vs. Individual Distinctions These Distinctions Are Also Blurring

9 Self-Admin Data Limitations: Aggregate Bill Exposure Based on Initial Rating Census Integrity of Participation Data Initial vs. Ongoing Assumed vs. Actual Quality Control Checks Segregating Portability Experience 9 General Data Challenges

10 Various Forms of Employee Choice Amount of Coverage Plan Design: Disability Elimination & Benefit Period Dependent Coverage Pricing For Apparent Value Anti-Selection Possible offset from increased participation 10 General Pricing Challenges Employee Choice

11 Possible Use of Known Information In Case Level Pricing Participation Rate: Count & Amount Age/gender mix Loss experience Actual vs. Eligible Census Assume higher participation from poorer risks? (e.g. Blue Collar vs. White Collar employees) Participation varies by case size? Assumed Benefit Level and Expense Loads 11 General Pricing Challenges Takeover vs. Virgin Risks

12 Mixing Employer Paid and Voluntary in an Experience Study Is the Age/Gender Slope the Same? 12 General Pricing Challenges Base Claims Costs

13 Do Industry & Area Factors Apply? If so: Link to Employer Paid coverage factors or modify? Data sources for New Voluntary Only Products? 13 General Pricing Challenges Application Of Group Rating Factors

14 Should Minimum Participation Requirements Impact Pricing? How Are Requirements Enforced? Commission Linked to Participation? 14 General Pricing Challenges Participation Requirements

15 Assessing Value of Portability Data Sources? Theoretical anti-selection risk Administrative Costs Who Pays For Value All Participants Vs. Self-Supporting Pool Combination of Above Death Spiral Risk? Impact of Port Experience on Group Experience? 15 General Pricing Challenges Portability

16 Measuring Composite Rating Risks Possible Risk Mitigation Experience on Takeover accounts Variation By Product (e.g. Flatter VSTD claim cost curve) High projected participation 16 General Pricing Challenges Composite vs. Age Based Rates

17 New Territory for Group Benefit Carriers Individual Persistency Assumptions Required Utilize Industry Data Develop ability to track experience Financial reporting – DAC? 17 General Pricing Challenges Issue Age Rates/Heaped Commissions

18 Are Non-Contributory Algorithms Directly Transferrable to Voluntary? Same credibility factors? More volatility for voluntary? Basis for Experience Data Requirements Eligible or Projected Participating Lives 18 General Pricing Challenges Experience Rating

19 ID and Measure Costs Unique To Voluntary Enrollment Solicitation Materials Billing Reconciliations Logical Relationship With Non-Contributory Loads Minimum Loss Ratio Considerations 19 General Pricing Challenges Expenses

20 Theoretical Development: Extra mortality by participation What have we learned? Ratio of average claim to average coverage Linking Participation to Experience Data scrubbing Actual vs. Assumed Credibility of results/Smoothing Pricing Execution: Case Specific vs. Defaults 20 Group Term Life Pricing Challenges Participation Factors

21 Should Rates Be Adjusted For: GI Level Range of EE Options Impact of Case Size Theory vs. Experience Analysis Identifying GI risks: Impact of Grandfathering Tracking experience of underwritten risks Interaction with Participation Factors Impact of Prior GI on Takeovers 21 Group Term Life Pricing Challenges Underwriting/GI

22 Enhancing Participation vs. Anti-Selection Takeover Rules Re-enrollments of Existing Cases Limited GI vs. True Open Enrollment Need for Open Enrollment Pricing Factors? 22 Group Term Life Pricing Challenges Open Enrollments

23 Primary Source But Adjustments Required Understand Data (e.g. First Diagnosis or not) Incidence vs. Prevalence Contract Language Benefit Trigger Definitions & Benefit %s First Lifetime Diagnosis Requirement Refine Age Groupings Reconciliation of Multiple Sources 23 Critical Illness Pricing Challenges Utilization of Population Data

24 Start With Theoretical 100% ER Paid Scenario Multiple Methodologies/Sources Dash & Grimshaw Calibration Formula International Data Reinsurer Data (if applicable) Insured/General Ratio for Other Lines Actuarial Judgment Competition Validation of Pricing Assumptions 24 Critical Illness Pricing Challenges General to Insured Population

25 Highly Theoretical Development Considerations similar to Life More anti-selection potential? Pricing Execution Any basis for case specific adjustments? Minimum Participation For GI Management of shortfalls 25 Critical Illness Pricing Challenges Participation & GI Factors

26 First Lifetime Diagnosis Requirement Major pricing consideration Benefit Waiting Periods What types of claims do they prevent? Pre-Existing Condition Exclusions What can be deemed a pre-existing condition? Child Triggers (Birth/Prenatal Issues) 26 Critical Illness Pricing Challenges Value of Gatekeepers

27 Recurrent and Additional Events Need for and value of separation periods Some population data available Understand what underlies baseline incidence Health Screening/Wellness Benefit Sources of utilization assumption: judgment? Applicability to Children Separate per life charge? Is This Medical Coverage? 27 Critical Illness Pricing Challenges Unique Benefit Provisions

28 Do They Apply to CI? Basis for Development Align with Life Factors Possible modifications 28 Critical Illness Pricing Challenges Industry and Area Factors

29 Price differentials for GI with Pre-ex vs. GI with No Pre-ex Theory & Experience Relationship to Employer paid factors Takeover (prior service credit) vs. Virgin VSTD vs. VLTD VSTD Pregnancy Risk Value of Partial Pre-ex Benefit Limited Benefit Duration or Percentage 29 Disability Pricing Challenges Pre-Ex Exclusion

30 After-Tax Replacement Ratio Considerations What Has STD/LTD Experience Shown Us Incidence and Claim Termination Rates Gross-Up Plan Experience VSTD vs. VLTD Impact Impact of Plan Maximums Individual vs. Group Replacement Ratio 30 Disability Pricing Challenges Replacement Ratio

31 Considerations Generally The Same As Life More Anti-Selection Potential Than Life? Insured uses benefit Subjective nature of disability Actual vs. Eligible Census More Important Combined VSTD/VLTD Offering Impact on projected participation by product Minimum participation requirement considerations 31 Disability Pricing Challenges Participation Factors

32 Definition of Disability after Porting? Nature of RTW efforts after Porting? 32 Disability Pricing Challenges Portability

33 Myriad of Benefits Some Population Data available Extrapolation and adjustments required AD&D/Supplemental Health Experience General to Insured Population Adjustment Not as Material as CI? Historically material for AD&D Other Supplemental Health? 33 Voluntary Accident Pricing Challenges Data Sources

34 Does Participation Matter? Less Than Other Voluntary Products? Potential Dependent Anti-Selection Utilization Number 34 Voluntary Accident Pricing Challenges Evaluation of Anti-Selection

35 Less of a Consideration But Relatively Common for AD&D Limit Access to 24 Hour Coverage for Select Industries 35 Voluntary Accident Pricing Challenges Industry & Area Factors


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