In these volatile times it is more important than ever that businesses take a proactive approach to the upcoming renewals of their insured employee benefit programs. There are plenty of challenges to address; we take a look at current market behaviour and the impact which COVID-19 has had.
How did we undertake this analysis?
At a high level, Aon can leverage our extensive broking data to identify market trends by country, product and industry segment. Supplemented by engagement with our carrier partners, we can predict the likely impact on renewal pricing in terms of hardening, softening or flat markets.
The impact of COVID-19
The pandemic lockdowns across the globe have had a well-documented impact on the provision of non-COVID 19 related healthcare and, in many countries, the short-term claims ratios on medical benefits will be lower in 2020 than forecasted. This decrease in claims costs will vary by geography, demographics and industry.
The impact of the claims rebound will not be fully known for a while. A balanced approach is typically required, with brokers juggling the needs of employers who are looking for premium offsets, the cheapest possible renewal cost, and more sustainable pricing. But with medical insurers sitting on claims surpluses, this may be more challenging than previous years - and we all know that the outcome is key.
The largest proportion of death cases due to COVID-19 has been for the older demographic and the working age population has been much less impacted. Whilst overall we are seeing a moderate deterioration in the claims experience affecting group life business, we are still seeing pricing challenges materialise. This is driven by factors such as an increased exposure where employers have older working age groups, the increased risk for those with underlying health conditions – as well as ongoing return on capital challenges driven by low interest rates.
The direct impact of COVID-19 on the disability market, certainly the long-term disability market, has to date been minimal. However, this could be the calm before the storm. There are a multitude of issues (lower long-term interest rates, economic uncertainty, individuals not being able to access non COVID-19 screens and treatments, working environments that increase certain physical and emotional risks) which mean that overall we fully anticipate markets to re-align pricing to the risk.
The aftermath of COVID-19
Having good market knowledge and understanding is only one part of the broking story. But uncertainty remains about future risk exposures on the health impact – and subsequent cost of claims – for individuals who have not been able to access screenings or treatment for non COVID-19 related issues; how ‘long COVID’ might impact future health costs; or how future COVID-19 outbreaks will further impact health systems.
It is now well understood that there is an increased risk of severe illness from the virus that causes COVID-19 for an individual with underlying medical conditions, including: cancer, heart conditions, type 2 diabetes, and severe obesity. Being overweight, having hypertension or high blood pressure or moderate to severe asthma are amongst the medical conditions that could result in an increased risk.
This is relevant when we consider some of the key employee health risks impacting employers now, whether this be through absence rates, presenteeism, reduced productivity or actual claims across the key employee benefit coverages and will do so in the future. For example, the concerning statistics released by Cancer Research UK which show that around 3 million people are waiting for a screen and between April 2020 and August 2020 there were around 350,000 less referrals than normal and a 39% drop in the seven key tests often used to diagnose cancer. The impact of COVID-19 on people’s mental health has been well-documented; 82% of UK adults have suffered from issues such as continuous low mood, anxiousness, low self-esteem or hopelessness during lockdown. Fewer people are accessing support combined with less support available; research by BUPA shows that 44% of people didn’t tell anyone about their mental health issues and research by Mind shows that one in four people who tried to access NHS mental health services were unable to get support.
Employers will undoubtedly feel some impact of this and consequently should be thinking about how they factor this into their future health and wellbeing approach. It feels inevitable that better access to care for all, being more proactive in supporting employees adopt healthier habits and championing a culture of personal and organisational resilience are some of the ways the employer/worker relationship will evolve. Linking this back to renewals it should act as a reminder that simply testing the markets and hoping for the best based on market conditions is not the most robust strategy. Having an approach that understands employee risks, educates employees, and supports workers to become the architects of their own health and being able to evidence this as part of the renewal conversations should lead to better outcomes.
Brokering conversations about wellbeing
Looking to the future, brokers and insurers are considering how to take this to the next level in the context of employee benefit insurances. For example; can you take data from a health engagement platform and use this to price certain risks, such as Group Life? This underwriting approach will create an environment where all stakeholders can be rewarded; individuals engage and get healthier, corporates get improved renewal terms based on their corporate health score and insurers can be more selective about which risks to target.
Never has there been a better time for the broker, employer and insurer to link the pricing element of the broking project with the health management aspect. Many employers are reviewing the playbook when it comes to their approach to employee health, resilience and engagement, and whilst past claims experience will always be a key factor in the way insurers price future risks there is the chance to change the narrative. Brokers and insurers regularly sit across the meeting room table, real or virtual, talking about how value-add services should be utilised more by employers and that when it comes to pricing the emphasis should be on value and best price rather than simply the cheapest price. The following months will offer additional clarity on insurer pricing behaviour and the impact on market dynamics and employers could use this period to review their program’s balance between price and value-based benefits for their employees.
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