Group Life Market: Mostly Sunny, Some Clouds
The equivalent of a weather report on the U.S. group life insurance market would be mostly sunny with a few clouds.
Yes, high health insurance prices and a weak job market are hurting new sales. And, yes, terrorism, influenza and New York Attorney General Eliot Spitzer lurk in the shadows. But, for all this, actual group life profits have been relatively stable.
Pretax U.S. group life statutory profits totaled $2.4 billion in 2003. The market totals have been bouncing between $1.4 billion and $2.5 billion for the past 10 years, and they should end up in that range this year, says Eric Smithback, a consulting actuary in the Chicago office of Milliman Inc.
The group market is “pretty consistent with what we saw a year ago,” says Peter Cook, vice president of corporate insurance sales at Aetna Inc., Hartford.
For many insurers, stability is frustrating.
Group life “has become just a commodity,” says Deborah Tatro, vice president of worksite and special risk at Pan-American Life Insurance Company, New Orleans. “People are just trading cases back and forth.”
But for benefits brokers, the stability of the group life market is a relief from the endless upheaval in the group health and retirement services market.
A year ago, Palo Alto, Calif., broker Michael Goldeen called the group life market “stable, dull and boring.” Today, he says happily, “its about the same. I see nothing in the way of changes.”
Where the insurance company executives and analysts see tight margins, Bill Lindberg, a Windsor, Conn., benefits broker, sees carriers competing to offer reasonable prices to his employer clients.
In the long run, “when product is priced fairly, its good for everyone,” Lindberg says.
Group life is one of the most popular group insurance products: 51% of employees at private U.S. employers have access to life benefits, according to the Bureau of Labor Statistics.
Today, group life “is holding its own,” says Anita Potter, assistant vice president of LIMRA International, Windsor, Conn. “The employers arent dropping the coverage.”
Insurance companies “are still finding that group life insurance is a mainstay,” says Leonard Cavallaro, senior vice president of sales and marketing at Benefit Partners, Omaha, Neb., an arm of Jefferson-Pilot Corp., Greensboro, N.C.
Benefit Partners is best known for its group long-term disability coverage, but, even there, group life still accounts for about 30% of group sales, Cavallaro says.
But, in many regions of the country, “the economy still is not growing,” Potter says.
Thats a problem for sellers of group life, because increases in the number of covered employees depend heavily on increases in the number of jobs offering good wages and benefits.
Meanwhile, many insurers are making good on promises to exercise more self-discipline when going after new business and to work harder to keep the clients they already have.
The result is that LIMRA members are reporting a combination of slow sales and growing overall premium revenue.
For the first half of 2004, for example, participants in LIMRAs group life market survey reported a 6% drop in premium revenue from new sales but a 3% increase in premium revenue from group life contracts already in force.
In addition to rising health insurance costs and slow job growth, one major external force shaping the group life market is demographics.
This is an issue because the average age of the insured worker is increasing by about 6 months per year, Smithback says.
But the shadows hovering over the market are 2 types of risk that may never have any significant effect on real group life results: terrorism and contagious disease.
Group life insurers set up new risk management operations in the wake of the 9/11 terrorist attacks, and those operations are focusing more attention on the effects of giant disasters, Smithback says.
At Benefit Partners, Cavallaro agrees that insurers really are paying more attention to possible sources of catastrophic claims. “Post-9/11, a lot of carriers, us included, started looking at things like concentration of risk,” Cavallaro says.
Risk Management Solutions Inc., Newark, Calif., made news in April by publishing a report that simulated the effects of hypothetical disasters on the group life market and other insurance markets.
A big anthrax terrorist attack might cost all insurers, including health insurers and property-casualty insurers, more than $50 billion, but RMS researchers found that the most expensive disaster for group life insurers might be a big flu epidemic. A big flu epidemic that killed 200,000 people could lead to about $2.6 billion in group life claims, the researchers estimated.
In some cases, because of consolidation in the group life reinsurance industry and concerns about terrorism, group life insurers are having a tough time buying reinsurance, according to analysts at Moodys Investors Service, New York.
But the experts interviewed say concerns about giant catastrophes have not had much effect on group life prices or availability.
Internal forces reshaping the group life market include consolidation and Spitzers investigations.
Some insurers are leaving the group life market as a result of major mergers and acquisitions that have little to do with the state of the group life market. CNA Financial Corp., Chicago, for example, closed on the sale of its entire group benefits to Hartford Financial Services Group Inc., Hartford, at the end of 2003.
But few new players are entering the group market, Potter says.
Consolidation may be helping the biggest group life players take market share away from smaller competitors.
This year, the top 5 carriers that participated in LIMRAs group life market survey accounted for 59% of reported U.S. group life sales. During the first half of 2003, the top 5 carriers accounted for 56% of U.S. group life sales.
In the future, broker compensation could be a major area of change in the group life market.
Group life executives laugh nervously and refer reporters to generic corporate statements when asked about Spitzers investigation of commission overrides and other forms of broker compensation that are not reported in benefit plan tax forms.
Some experts have predicted that the Spitzer investigations and related investigations could lead to more standardized compensation programs.
For now, though, competition among carriers in the group life market is protecting brokers from the erosion in broker support that has plagued the group health market, brokers say.
In the group health market, some insurers have coped with runaway medical cost inflation by cutting back on sales support and asking brokers to handle more customer service.
In the group life market, “servicewise, the carriers are really good,” Lindberg says. In addition to providing a steady level of service, the group life carriers continue to develop the sales proposals and quotes themselves, Lindberg adds.
Insurers have responded to steady profits in the group life market and customer satisfaction with the products by resisting the urge to add bells and whistles for the sake of adding bells and whistles.
Smithback has noticed some insurer interest in improving underwriting features.
But insurance company executives interviewed could not think of many noticeable changes in the way of their core life policy features. “We didnt change products a whole lot,” says Cook, the Aetna sales executive.
At Pan-American, Tatro has noticed more insurers trying to set themselves apart from other sellers of group life by offering other types of benefits, such as critical illness insurance or travel assistance services, as built-in features or optional riders.
Standard Insurance Company, Portland, Ore., is one of the companies that has been beefing up its standard group life policy with extras. Standard is making travel assistance and repatriation benefits standard features for the small businesses that buy its Standard Select group life policies.
MetLife Inc., New York, and Prudential Financial Inc., Newark, N.J., are 2 of the companies that have been using group life as a chassis for cross-selling EAPs.
Tatro also sees group life carriers trying harder to sell employee-paid life insurance, either as a supplement to employer-paid group life or as an alternative for employers who are unwilling or unable to pay for life coverage.
The shift toward employee-paid coverage is especially pronounced at employers with fewer than 500 employees, Tatro says.
Employers that still pay for some group life may limit employer-paid coverage to as little as $10,000, Tatro adds.
Reproduced from National Underwriter Edition, November 18, 2004. Copyright 2004 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.