Over this past year, we have all been inundated with communications reminding us of the many changes that have resulted from the current and seemingly on-going pandemic. The benefits industry has had to maintain communications regarding travel coverage or whether premiums should be reduced because dentists and health practitioners are not as available as they were. Although the industry has tried to keep business-as-usual despite accommodations and exceptions to help support clients at a vulnerable time, things continue to be unusual. Plan renewals are no exception.
Initially, renewals were deferred to ease pressure on employers during COVID. Now, renewals are coming regularly. However, renewals delivered in the latter half of 2020 and into 2021 have to be calculated to accommodate the significant drop in claims, particularly dental claims, from April through July of 2020 and the credits given for that time. In addition, there is a belief that long term disability claims will increase as a result of the mental stress COVID has imposed on some employees and illnesses that may get delayed diagnosis and therefore become more serious than they otherwise might have been.
Long Term Disability (LTD)
ASSOCIUM has found that, unlike past years, the insurers have been more conservative in rating Long Term Disability. Insurers fund LTD with a combination of premiums and investments. Insurers, like many of us, have experienced losses in investment income during COVID. Coupled with a potential increase in claims, they need higher premiums to keep their reserves at necessary levels. Canvasing the market has shown us that any savings gained by moving a client can amount to less than 10%, on average, and not worth moving for.
Health and Dental
Health and dental renewals are even more complicated. The past year saw three months of almost no claiming. Employers were given premium rebates to help rationalize the discrepancies in premiums vs. claims but, it seemed, that wasn’t enough. However, what has happened is that claiming came back stronger in the fall as employees made up for the visits to practitioners and dentists missed earlier. So when preparing renewals, underwriters have a challenge in that they have to be able to predict claiming for the year to come based on the past year where three months were almost claims free.
We see a variety of approaches from the insurers. The common goal being to ensure that there is enough premium to cover claims over the next year. Renewals are about the future and most carriers discounted the April to July period either by looking at the previous nine months and extrapolating to 12 or by applying a formula to increase claim projections by about 12% for dental and 3 to 4% for health. Very few renewals that we have seen give full credibility to 2020 claiming.
ASSOCIUM Benefits has recently completed a block renewal. The LTD for the block increased and negotiating a lower rate yielded only a small compromise. Health and dental renewal was an exercise in extrapolation. We chose not to remove the COVID credits from premiums as that would require recouping them through the higher rates that would be needed to cover claims in the year ahead. We looked back at each clients’ claiming patterns and extrapolated forward to best determine what claims to expect in the coming period. As 2020 progresses into the fall and soon into winter, our claims reports are showing that we made the right decisions and that, so far, premiums are keeping pace.
Nobody knows what affect COVID will have on the year ahead. As the saying goes, hope for the best and prepare for the worst. ASSOCIUM will, once again, be mindful of the effects COVID has on our clients’ plans and accommodate as best as possible.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits Advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.