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Voluntary Employee Benefits: Market & Pricing

Warren Cohen, FSA, MAAAJacob McCoy, FSA, MAAADarrell Spell, FSA, MAAA

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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

Definition of Voluntary

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Continued Growth 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

Major Market Trends

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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

Eastbridge StatisticsU.S. Worksite/Voluntary Sales Report, April 2012

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Top Companies (47% Market) Aflac Unum Colonial Allstate

Top Products (68% Market) Term Life Insurance Short Term Disability Accident Hospital Indemnity Dental

Eastbridge StatisticsU.S. Worksite/Voluntary Sales Report, April 2012

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Distribution Channels Benefit Brokers Career Agents Classics Specialists Occasional

55% Group, 45% Individual

Eastbridge StatisticsU.S. Worksite/Voluntary Sales Report, April 2012

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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

Areas of Blurring

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Enrollment Methodology Group meetings vs. 1-1

Administrative Platform Self-Admin vs. Individual records

Distribution Benefit brokers vs. Worksite Specialists

Renewal Pricing Changes

Group vs. Individual Distinctions

These Distinctions Are Also Blurring

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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

General Data Challenges

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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

General Pricing ChallengesEmployee Choice

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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

General Pricing ChallengesTakeover vs. Virgin Risks

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Mixing Employer Paid and Voluntary in an Experience Study

Is the Age/Gender Slope the Same?

General Pricing ChallengesBase Claims Costs

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Do Industry & Area Factors Apply?

If so: Link to Employer Paid coverage factors or

modify? Data sources for New Voluntary Only Products?

General Pricing ChallengesApplication Of Group Rating Factors

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Should Minimum Participation Requirements Impact Pricing?

How Are Requirements Enforced?

Commission Linked to Participation?

General Pricing ChallengesParticipation Requirements

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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?

General Pricing ChallengesPortability

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Measuring Composite Rating Risks Possible Risk Mitigation

Experience on Takeover accounts Variation By Product (e.g. Flatter VSTD claim

cost curve) High projected participation

General Pricing ChallengesComposite vs. Age Based Rates

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New Territory for Group Benefit Carriers

Individual Persistency Assumptions Required Utilize Industry Data Develop ability to track experience

Financial reporting – DAC?

General Pricing ChallengesIssue Age Rates/Heaped Commissions

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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

General Pricing ChallengesExperience Rating

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ID and Measure Costs Unique To Voluntary Enrollment Solicitation Materials Billing Reconciliations

Logical Relationship With Non-Contributory Loads

Minimum Loss Ratio Considerations

General Pricing ChallengesExpenses

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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

Group Term Life Pricing ChallengesParticipation Factors

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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

Group Term Life Pricing ChallengesUnderwriting/GI

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Enhancing Participation vs. Anti-Selection

Takeover Rules

Re-enrollments of Existing Cases Limited GI vs. True Open Enrollment

Need for Open Enrollment Pricing Factors?

Group Term Life Pricing ChallengesOpen Enrollments

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

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Critical Illness Pricing ChallengesUtilization of Population Data

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

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Critical Illness Pricing ChallengesGeneral to Insured Population

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

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Critical Illness Pricing ChallengesParticipation & GI Factors

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)

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Critical Illness Pricing ChallengesValue of Gatekeepers

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?

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Critical Illness Pricing ChallengesUnique Benefit Provisions

Do They Apply to CI? Basis for Development

Align with Life Factors Possible modifications

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Critical Illness Pricing ChallengesIndustry and Area Factors

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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

Disability Pricing ChallengesPre-Ex Exclusion

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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

Disability Pricing ChallengesReplacement Ratio

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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

Disability Pricing ChallengesParticipation Factors

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Definition of Disability after Porting?

Nature of RTW efforts after Porting?

Disability Pricing ChallengesPortability

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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?

Voluntary Accident Pricing ChallengesData Sources

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Does Participation Matter? Less Than Other Voluntary Products?

Potential Dependent Anti-Selection Utilization Number

Voluntary Accident Pricing ChallengesEvaluation of Anti-Selection

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Less of a Consideration But Relatively Common for AD&D Limit Access to 24 Hour Coverage for Select

Industries

Voluntary Accident Pricing ChallengesIndustry & Area Factors