1. Voluntary Employee Benefits: Market & Pricing
Warren Cohen, FSA, MAAA
Jacob McCoy, FSA, MAAA
Darrell Spell, FSA, MAAA

2. Definition of Voluntary
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

3. Major Market Trends Continued Growth Group Benefit Carrier Expansion
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

4. Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012
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

5. Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012
Top Companies (47% Market)
Aflac
Unum
Colonial
Allstate
Top Products (68% Market)
Term Life Insurance
Short Term Disability
Accident
Hospital Indemnity
Dental

6. Eastbridge Statistics U.S. Worksite/Voluntary Sales Report, April 2012
Distribution Channels
Benefit Brokers
Career Agents
Classics
Specialists
Occasional
55% Group, 45% Individual

7. Areas of Blurring 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

8. Group vs. Individual Distinctions
Enrollment Methodology
Group meetings vs. 1-1
Administrative Platform
Self-Admin vs. Individual records
Distribution
Benefit brokers vs. Worksite Specialists
Renewal Pricing Changes
These Distinctions Are Also Blurring

9. General Data Challenges
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

10. General Pricing Challenges Employee Choice
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

11. General Pricing Challenges Takeover vs. Virgin Risks
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

12. General Pricing Challenges Base Claims Costs
Mixing Employer Paid and Voluntary in an Experience Study
Is the Age/Gender Slope the Same?

13. General Pricing Challenges Application Of Group Rating Factors
Do Industry & Area Factors Apply?
If so:
Link to Employer Paid coverage factors or modify?
Data sources for New Voluntary Only Products?

14. General Pricing Challenges Participation Requirements
Should Minimum Participation Requirements Impact Pricing?
How Are Requirements Enforced?
Commission Linked to Participation?

15. General Pricing Challenges Portability
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?

16. General Pricing Challenges Composite vs. Age Based Rates
Measuring Composite Rating Risks
Possible Risk Mitigation
Experience on Takeover accounts
Variation By Product (e.g. Flatter VSTD claim cost curve)
High projected participation

17. General Pricing Challenges Issue Age Rates/Heaped Commissions
New Territory for Group Benefit Carriers
Individual Persistency Assumptions Required
Utilize Industry Data
Develop ability to track experience
Financial reporting – DAC?

18. General Pricing Challenges Experience Rating
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

19. General Pricing Challenges Expenses
ID and Measure Costs Unique To Voluntary
Enrollment
Solicitation Materials
Billing Reconciliations
Logical Relationship With Non-Contributory Loads
Minimum Loss Ratio Considerations

20. Group Term Life Pricing Challenges Participation Factors
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

21. Group Term Life Pricing Challenges Underwriting/GI
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

22. Group Term Life Pricing Challenges Open Enrollments
Enhancing Participation vs. Anti-Selection
Takeover Rules
Re-enrollments of Existing Cases
Limited GI vs. True Open Enrollment
Need for Open Enrollment Pricing Factors?

23. Critical Illness Pricing Challenges Utilization of Population Data
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

24. Critical Illness Pricing Challenges General to Insured Population
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

25. Critical Illness Pricing Challenges Participation & GI Factors
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

26. Critical Illness Pricing Challenges Value of Gatekeepers
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)

27. Critical Illness Pricing Challenges Unique Benefit Provisions
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?

28. Critical Illness Pricing Challenges Industry and Area Factors
Do They Apply to CI?
Basis for Development
Align with Life Factors
Possible modifications

29. Disability Pricing Challenges Pre-Ex Exclusion
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

30. Disability Pricing Challenges Replacement Ratio
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

31. Disability Pricing Challenges Participation Factors
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

32. Disability Pricing Challenges Portability
Definition of Disability after Porting?
Nature of RTW efforts after Porting?

33. Voluntary Accident Pricing Challenges Data Sources
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?

34. Voluntary Accident Pricing Challenges Evaluation of Anti-Selection
Does Participation Matter?
Less Than Other Voluntary Products?
Potential Dependent Anti-Selection
Utilization
Number

35. Voluntary Accident Pricing Challenges Industry & Area Factors
Less of a Consideration
But Relatively Common for AD&D
Limit Access to 24 Hour Coverage for Select Industries