By Michelle Haines, Associate Actuary, U.S. Group Re
With a teen driver in my house, safe driving is top of mind. Is she wearing her seat belt? Is she obeying the speed limit? Is she resisting the temptation to use her cell phone? Laws and frequent reminders from Mom and Dad are intended to safeguard her against undue risk behind the wheel.
This is not unlike the current voluntary critical illness market, where the temptation to disregard safety measures is very real. Writing profitable business should be top of mind, and guidelines should be in place to mitigate risk and limit adverse selection.
RGA recently fielded the second edition of our critical illness survey, Critical Illness Underwriting Practices for Employer Groups. The survey confirms what we are seeing and hearing in the market: The trend is to liberalize certain underwriting practices and product features.
Liberal Underwriting Practices
One example of this is the pre-existing condition limitation, where 16 of 21 respondents said they have experienced an increase in the number of requests to remove pre-existing limitations entirely. This is a troubling trend for guaranteed issue voluntary products, as pre-existing limitations are one of the few ways to mitigate anti-selection risk. In fact, nine carriers specifically mentioned reducing or waiving the pre-ex provision as one of their top three critical illness trends of most concern. A 12/12 pre-existing condition provision remains the most common standard across all group sizes, but a handful of carriers said it was standard to waive the pre-ex provision for groups over 500 or 1,000 lives. Carriers can adjust rates for this, but the real risk is the potential for unexpected changes in the behavior of the insured. The actual results will depend on factors such as enrollment conditions, case size, and whether the group is a takeover case or new business.
Another trend is ‘perpetual’ guaranteed issue. Nearly half of participating carriers offer open enrollments with guaranteed issue to accommodate private exchange and enrollment platform requirements. As standard practice for renewal and annual enrollments with guaranteed issue, over half of these carriers allow all employees and dependents to elect coverage with no evidence of insurability. Contrast this with the survey results from two years ago, when carriers were more cautious with open enrollments. At that time there were noted instances of requiring medical evidence during open enrollments for renewal business. Perpetual guaranteed issue opens up the risk that an employee will wait to enroll for coverage when he or she has a greater chance of needing it. A pre-existing condition provision can help mitigate this anti-selective behavior, but what happens when the carrier is asked to waive the pre-ex and offer guaranteed issue at every annual enrollment? You can already feel the seat belt slipping away.
Generous Plan Designs
Our latest survey shows almost half of the carriers no longer have a lifetime maximum benefit amount, and it is becoming more common to pay 100% of the initial benefit for recurrence. While not specifically addressed in the 2015 survey, our related research showed the norm was to limit the maximum benefit to a multiple of the initial benefit, such as 300%. Recurrence benefits were typically equal to 25% or 50% of the initial benefit. The trend toward unlimited maximums is less concerning than 100% recurrence benefits. The likelihood of someone experiencing several critical illnesses, surviving each of them and keeping his or her coverage in force is small, limiting the maximum exposure. I am more cautious about 100% recurrence benefits because of the potential for mispricing. Carriers have filed wide-ranging rate loads, but not enough time has passed for most carriers to have credible insured experience to support those loads.Read More +