“Several trends are developing in the group life marketplace, including market saturation, decreasing returns, internal competition for capital, and threats from outside competition.”
This prophetic comment could have been overheard at any recent industry meeting, but it is an actual excerpt from the program summary of the Society of Actuary’s annual meeting–of October 1998! While some things haven’t changed since then, we are seeing many new developments and facultative requests from our clients this year. This article focuses on 3 of the most popular of these and hopefully provides some useful market insight for both reinsurers and direct writers.
Trend One: Increased Life Insurance Amounts for Key Employees
Employers seeking higher group term life coverage for key employees aren’t new, although the trend is usually found in groups of more than 1,000 lives. We are now seeing requests for all size employer groups, even down to 150 lives.
Producers already know group life insurance underwriters will approach this cautiously, especially if the increase is requested on a guarantee issue basis. If one of the key employees has developed a life-threatening illness, offering insurance without medical underwriting to favor one employee could lead to adverse selection creating unfavorable claim experience. As this kind of request is becoming more common, however, underwriters may need to reconsider whether the new plan design is reasonable and based on industry norms and expectations. Producers may wish to screen these requests to reduce the possibility of adverse selection that would have a negative impact on the rates.
Trend Two: The Effects of the Aging Population
There has also been increasing pressure to liberalize group life insurance age reductions or even remove them completely. In the next 5 years, baby boomers will comprise 40% of the workforce. As they begin to retire, there will not be enough younger workers to make up the gap, so employers are looking for liberalized age reductions in their policy design as a way to help retain their aging, experienced work force. While many group life actuaries predict that group life rates will offset increased mortality, it is the underwriter’s responsibility to look for possible adverse selection if the age reduction liberalization benefits only a few employees.
Similarly, the age shift of our working force may also affect the waiver of premium benefit found in group life policies. Employer groups may want to extend the eligibility age beyond 60 or extend the benefit period beyond age 70. When the line between the disability benefit period and a retirement date begin to merge this way, the benefit will be virtually comparable to a paid up life benefit at retirement.
Trend 3: Enhanced Customer Service through Portal Websites
Producers know that customer service is key to attracting and keeping customers. This year, many group insurers have rolled out new and improved portal Websites to support this. A Met Life customer service survey on the company’s website this year indicated that employer groups are actively improving their IT services. Of U.S. employers with more than 1,000 employees, 47% offer benefits websites, while another 36% plan to do so, the survey suggests.
These portals give brokers, agents and policyholders simple, fast and direct access to satisfy their business needs including enrollment, posting policy provisions and completing forms. Additionally, some portals support employee conveniences such as underwriting exam scheduling, e-mail notification of underwriting status and approval, and an employee’s benefits information through a password and a user ID.
While the initial outlay for these services may seem relatively expensive, in the long run they are expected to reduce a carrier’s expenses and help make its product more competitive.
In conclusion, group life producers need to stay on top of the subtle trends that could affect their bottom line. Competition from rate pressures continue to make group life insurance viewed as a commodity, so customer service improvements such as Web portals may expand their customer base and reduce a carrier’s expenses.
Group life underwriters need to pay special attention to new plan designs that demand a liberalization of a carrier’s underwriting practices. It is necessary to view all of the new trends in perspective. Some trends may need to be considered on a case by case basis, while others may prove to have no real effect on its bottom line and will be incorporated into new underwriting strategies.