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U.S. Group Life Market Remains Stable And Competitive

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A few years ago, the U.S. group life insurance market looked about as interesting as a bowl of oatmeal.

Today, “Id describe it as stable, dull and boring,” says Michael Goldeen, a Palo Alto, Calif., benefits broker, who adds, “Thats good.”

LIMRA International, Windsor, Conn., has found that agents and brokers who sell employee benefits tend to devote far more attention to health and pension plans than group life plans.

But producers who sell group life like the fact that the group life market may not demand that much attention.

“To me, its very good that it hasnt changed that much,” says Bill Lindberg, a broker at Lindberg & Ripple Inc., Windsor, Conn., who sells group life insurance to small and midsize employers.

Rates have held steady, and the market is as competitive as it ever was, he says.

As for administration, “once in a while, someone dies,” Goldeen says. “Other than that, I never hear about it.”

Seventy-nine percent of midsize employers and 98% of employers with more than 500 employees already offer group life benefits, according to LIMRA.

The high penetration rates mean that insurers often have to take business away from competitors to sign new cases, says Kate Borgatti, a LIMRA group product analyst.

LIMRA figures show that annualized new group life premium fell 4% in 2002, to $2.4 billion, and that premiums for all group life policies in force increased 5%, to $16 billion.

The increase in total in-force premiums “is in line with salary increases and inflation, and thus indicating relatively stagnant market growth,” Borgatti says.

But modest revenue growth is not necessarily so terrible in a world where sales of equity-linked products have been plummeting.

One sign of the stability is in group life product design.

Most of the changes that have occurred have been driven by insurers efforts to stand out, not by employee demand, industry executives say.

Standard Insurance Company, Portland, Ore., has improved its accelerated death benefit in recent years by increasing the percentage paid out to 100%, from 50%.

Another change: Most big insurers that offer accelerated death benefits no longer require that a policyholder be confined to a nursing home to receive the benefits.

“Some of the smaller players might require it, but the bigger ones dont because of the pushback we got from our customers,” says Jeff Smith, an assistant vice president at Standard.

Standard also has added an optional critical illness rider, which can pay out even when an insured is not terminally ill, and a family benefit package, which includes an education benefit for the children of insureds who die in accidents.

Adding the education benefit “was a response to the market, but more a need for support of the family when an accidental death occurred,” Smith says. “Our life product is in tune with the family.”

Standard and other insurers are also offering special counseling programs and checking accounts for the bereaved.

But the main benefit, the death benefit, has not changed much.

Of course, group life insurers are facing some major, difficult-to-analyze risks right now. Two are Severe Acute Respiratory Syndrome and the threat of a massive terrorist attack.

But Michelle Fallahi, a vice president in the Minneapolis office of ING Re, doubts SARS will have much effect on the typical U.S. group life carrier.

“Even though its given a lot of press, I dont think that its had a catastrophic effect on health care costs at all,” Fallahi says. “There are other diseases out there that are claiming lives, too. You can look at heart disease or cancer and say they claim more lives than SARS.”

Goldeen was already selling insurance in late 1968 and early 1969, when the Hong Kong influenza pandemic killed 33,800 Americans.

From the standpoint of benefits brokers, the Hong Kong flu “was all talk,” Goldeen says. “More people died of lung cancer.”

Goldeen is a little more interested in the possibility that terrorists might unleash a deadly smallpox epidemic.

ING Re executives see definite signs that reinsurers and insurers of group life plans are making more of an effort to avoid concentrating too much risk in one location or one community.

But Borgatti has not seen evidence of the fear of terrorism having much effect on retail group life pricing, or on the sale of basic or supplemental life coverage.

“Catastrophe reinsurance prices skyrocketed in 2002, averaging 700% over 2001 levels,” Borgatti says. “However, this did not affect 2002 group life pricing in any substantial way that we saw.”

Meanwhile, at the worksite, the increasing cost of health benefits, worries about the economy and worries about national security have outweighed the effects of the Sept. 11, 2001, terrorist attacks on awareness of the need for life insurance, Borgatti says.

She does see signs the soft economy and rising health insurance prices are affecting the group life market.

Because so many people are looking for work, employers no longer feel as much pressure to add traditional, employer-paid benefits to attract good candidates, Borgatti says.

At LIMRA, she adds, some survey results hint that the smallest employers are dropping group life coverage. But most employers still want to offer a competitive benefits package, and most want to maintain strong employee relations, she says.

Moreover, because group life accounts for only 0.2% of total compensation costs, few employers view cutting existing group life benefits as a way to make a major dent in expenses, Borgatti says.

Some life insurers and producers have talked about employers shifting to voluntary, employee-paid life benefits programs.

But recent data suggest that, for now, employers and workers are using employee-paid life benefits mainly to supplement employer-paid programs, not to replace the employer-paid programs, Borgatti says.

Reproduced from National Underwriter Edition, May 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.