COVID-19 has had a significant impact on employers’ claims experience. As a result, we’re seeing carriers calculating 2020 benefits renewals differently than the traditional way of doing so.
First, let’s take a quick look at what happened to benefit plans when COVID-19 first hit, back in Spring 2020. During the months of the lock-down, claims activity on Dental and Healthcare decreased to nearly zero. Paramedical service providers and dentists were forced to close and/or temporarily stop their services. In response to this, and in an effort to support clients, most insurers offered premium relief of up to 50% on dental premiums and up to about 10% on extended healthcare premiums, depending on a carrier. This relief came in way of “premium credits” which most carriers applied to months of April, May and June.
In July, most provinces’ economies including Saskatchewan started to reopen. This resulted in health and dental claim patterns starting to make their way back to normal. In many cases however, we have seen claims increase dramatically due to pent-up demand for dental and paramedical services. Once dental clinics reopened, and once paramedical practitioners reopened their doors either physically or virtually, people rushed in to get that overdue dental procedure or that physiotherapy session.
As a result, there is a different claim pattern in benefits renewals in 2020 compared to what we normally see.
How has COVID-19 impacted clients’ renewals?
Group benefits renewals are standardly based on 12 months of claims experience. The demographics during that 12 months will determine how the rates for the “pooled” benefits will change. Pooled benefits include Life insurance, Accidental Death & Dismemberment, Dependent Life and Long-Term disability coverage. “Experience rated” benefits include Health, Dental and Short-Term Disability. These benefits’ renewal premiums are traditionally based on the 12 months of premiums paid vs claims paid.
We know that the claims paid through the 3 months of COVID-19 lockdown are much lower than normal. This is especially true for Dental. As for Extended Health benefits, drug claims continued through those months. However, paramedical services and other services had much lower claims than usual.
Carriers are using a different approach this year
When carriers are pricing renewals, their goal is to set premiums at a level that is sufficient to cover next year’s claims. They use prior years’ claims experience to estimate the claim level going forward. Because 2020 has been so different because of COVID-19, we are seeing that carriers are using a different approach for this year’s renewals.
Every carrier has determined how they will handle a renewal when the 12 months of experience includes those 3 months of COVID-19. If a carrier were to use the claims of those 3 months just as they are, doing so could set a client up for a distorted renewal this year, and an even more distorted renewal next year. Carriers want to avoid that scenario.
We have seen 3 different ways that carriers are dealing with benefits renewals this year:
- Some carriers are taking those 3 COVID-19 months of experience and ignoring it at this year’s renewal. That means the renewal for this term, is based on 9 months of claims experience, rather than 12. This is the simplest method for clients to understand.
- Some carriers are bringing those 3 COVID-19 months of claims up to a more “normal” level and then using the full 12 months of claims experience. We have seen 2 different ways that carriers are adjusting the claims in the COVID-19 months:
- Actuaries determine a “factor” for each of Health & Dental. Then, they multiply the 12 months of actual paid claims by that factor to bring the paid claims to a more realistic level. The factors are different for Health and Dental. Dental claims were more severely affected and thus have a higher factor.
- Carrier sets the claims paid for the 3 COVID-19 months, at the Target Loss Ratio (TLR) rather than using the actual paid claims. For example, for a group has a TLR of 75% and paid $2000 of premium in each of those 3 months, insurer would use $1500 for each of those 3 months as their “paid claims”.
Clients may, or may not, see how these changes are applied in their renewal. We believe that advisors should be explaining to each client how the carrier has adjusted their 2020 renewal to accommodate the COVID-19 months of claims.
Do you have questions about your benefits renewal this year? Get in touch with us – we’d be happy to help!
