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Voluntary Employee Benefits: Market & Pricing

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Presentation on theme: "Voluntary Employee Benefits: Market & Pricing"— Presentation transcript:

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

2 Definition of Voluntary
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

3 Major Market Trends Continued Growth Group Benefit Carrier Expansion
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

4 Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012
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

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

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

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

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

9 General Data Challenges
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

10 General Pricing Challenges Employee Choice
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

11 General Pricing Challenges Takeover vs. Virgin Risks
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

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

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

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

15 General Pricing Challenges Portability
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?

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

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

18 General Pricing Challenges Experience Rating
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

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

20 Group Term Life Pricing Challenges Participation Factors
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

21 Group Term Life Pricing Challenges Underwriting/GI
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

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

23 Critical Illness Pricing Challenges Utilization of Population Data
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

24 Critical Illness Pricing Challenges General to Insured Population
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

25 Critical Illness Pricing Challenges Participation & GI Factors
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

26 Critical Illness Pricing Challenges Value of Gatekeepers
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)

27 Critical Illness Pricing Challenges Unique Benefit Provisions
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?

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

29 Disability Pricing Challenges Pre-Ex Exclusion
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

30 Disability Pricing Challenges Replacement Ratio
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

31 Disability Pricing Challenges Participation Factors
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

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

33 Voluntary Accident Pricing Challenges Data Sources
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?

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

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

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