By Simon Thomas, Director, Generali UK Employee Benefits
It’s a busy time of year for employee benefits renewals. And considering that 62% of group income protection (GIP) insurers and 62% of Death in Service (DIS) providers have increased their rates due to the pandemic1, it could pay to shop around.
In unpredictable times, it’s worth looking at providers that can evidence sustainable, below market average, pricing over a number of years. These are insurers that haven’t priced low just to win business one year, only to hike premiums when the going gets tougher in subsequent years.
Right now, a wide range of rates are being quoted for the same business, according to Mercer Marsh Benefits, adding: ‘reviewing the market and not being limited to a small panel of group protection providers is perhaps now more important than ever’. 1
The pricing increases are due to various reasons: from macro-economics generally and then the pandemic’s effect on the local economy, to the potential for higher claims costs where patient diagnoses and treatment have been delayed, causing employees to be absent from work for longer than would be expected and / or where the potential for early diagnosis of life-threatening conditions is reduced.
It’s important to bear in mind that although the underlying situation is the same for all group protection providers, the way that insurers approach pricing and balance risk across portfolios is quite different, hence the pricing variations not only from provider to provider, but also from scheme to scheme.
What are the drivers of pricing?
An insurer relies on a combination of insurance premiums and investment income to make a profit. When returns on investment are higher, premium rates can be lowered. For some years, businesses buying insurance enjoyed the benefits of a ‘soft’ market. This is where insurers compete hard to win business by cutting premiums, relaxing underwriting criteria and offering wider cover.
However, recent years have seen ‘hardening’ market conditions. And Covid-19 has only served to further solidify matters. A hardening market brings the reverse of the conditions described above; in other words, higher insurance premiums; tougher underwriting, providers writing less policies and reduced competition between providers.
So, some insurers were applying premium rate increases prior to 2020, then came Covid-19.
The impact of the pandemic
The standardised mortality rate - or average life expectancy - for England and Wales (for unisex ages 45 – 84) was increasing at +0.9% per year between 2011 – 2019. In 2020, it plummeted to -12.2%.
The problem faced by the industry is that conventional risk analysis and pricing models don’t work in situations where you get extreme mortality, so these models will effectively ignore 2020, considering it a one-off phenomenon that won’t impact life expectancy long-term, according to experts from Aon in its recent Demographic Horizons webinar. 2
They add that this should be considered a stop-gap solution only, because it obviously doesn’t work if the market continues to experience extreme mortality. Looking forward, models that can accommodate exceptional one-off years will be required.
Right now, Aon say that if the industry doesn’t allow for certain extreme variations in some way, for 2020, results for future years will be skewed. They looked at variations in mortality last year according to deprivation and geographical location and found that the latter shows a much more radical variation, stating that allowing for geographical variation when looking at pricing is needed.
And, on that note, London was hit much harder than other parts of the country. Indeed, the UK has seen the highest Covid-19 death toll amongst major developed nations.
In short, there’s clearly a lot more to consider than usual this year when renewing. But in partnership with insurers and consultants, you can not only achieve a sustainable price but also a scheme that works hard for you throughout the year, in terms of not only absence management, but also prevention; helping nurture a culture of self-care and support, whether your employees are remote working, on site or in the office.
Top tips for renewing
We’ve applied learnings from Mercer Marsh Benefits’ latest insight1 and Aon’s webinar2 to come up with the following top tips:
Start early. The larger the scheme the more potential to consider more factors, but only with enough time to do so. Insurers can take different approaches to underwriting when trying to quote the best terms, so starting the process early can pay dividend. Therefore, agree your renewal strategy with your consultant early and prepare the information needed well in advance.
Consider a wider review. Starting early will also give the time to consider conducting a wider review of the market because, as mentioned earlier, the market is currently seeing a wide range of rates being quoted for the same business.
Factor in embedded value services and special terms or features. For example, all group income protection providers include complimentary access to various early intervention and rehabilitations services plus, in many cases, support for HR too. Indeed, these services – many of which can be offered virtually – have proven invaluable for many during the various lockdowns and homeworking. However, again, insurers differ in their approach with regard to the services available, whether they’re integrated into care pathways or standalone, what communication support they provide and whether they’re willing to help you fund any specific support required that might fall out of the existing programme. Consequently, your consultant should be strongly factoring these into provider assessments during renewal.
Sources
1 Mercer Marsh Benefits, Covid-19 Group Protection Market Conditions Insight, Feb 2021
2 Aon, Demographic Horizons, Forecasting longevity whilst living in interesting times, Feb 2021
