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Group insured benefits



Financing risk benefits

Insurance of risk benefits for employees is an area of considerable importance for Pension scheme trustees and employers who are responsible for providing benefits in the event of death in service, and prolonged or serious ill-health. It is essential that professional advice on the level of cover and the cost of providing these benefits is available.
 
Mercer provides guidance on the variety of options available to manage these risks. Through regular market reviews, Mercer ensures that cover is placed on the best available terms in line with the benefits promised.

 

Market reviews

It is important that regular reviews are undertaken at least every three years in order to ensure the scheme benefits from the best rates and coverage in a competitive market. This also demonstrates good scheme governance.  Mercer automatically re-markets schemes when the current rates expire (at the end of the 3 year guarantee period).

 

In the majority of exercises carried out over the past twelve months, the savings made justify the exercise. In 2009 over 80% of clients who undertook a market review achieved a saving with the holding insurer over existing rates. The average saving was 4% p.a. on death benefits and 9% p.a. on disability benefits. In addition, 60% of clients achieved further savings with an alternative provider - the average saving was 16% p.a. on death benefits and 25% p.a. on disability benefits. The final agreed rates hold for a 3 year period, accordingly these annual savings follow through to 3 years premium accounts.

 

One large scheme (over 2,500 members) saved €86,000 (16%) p.a. on death benefit premiums and €150,000 (26%) p.a. on disability premiums following rate reductions with its existing provider. Further reductions of €50,000 and €13,000 were available on switching provider.

 

Savings are also achieved for smaller schemes as the following example demonstrates.

 

A scheme with 70 members saved €7,000 (15%) p.a. on disability premiums following a rate reduction with its existing provider. Further reductions of €9,000 (15%) p.a. on death benefits and €2,000 (5%) p.a. on disability benefits were achieved by transferring cover to an alternative provider.


The market review process

During the risk review exercise, we look to:

 

  • Approach the top insurance companies in the market for quoting.
  • Give recommendations where insurances should be placed or why it should be retained.
  • Ensure that the chosen level of insurance continues to be placed on the most effective basis.
  • Compare terms and conditions between the various insurers.
  • Customise additional insurance options to suit your needs – such as; partial self insurance, profit-sharing  and multinational pooling.

Change of Insurer

Where Mercer recommends a change in insurer, an analysis of the policy conditions will be conducted to ensure there is no reduction in benefit for members. In addition, we verify that there are no breaks in cover and the transfer of cover to a new insurer is seamless.

 

Small schemes

Mercer has agreements in place with insurers for smaller schemes to provide generous free cover limits and premium rates for death and disability benefits. High free cover limits can significantly reduce the amount of underwriting requirements and restrictions imposed on members.

 

Self-insuring death benefits

The liability for death benefits may be retained within a Defined Benefit scheme up to a certain point after which insurance is placed to protect the scheme against benefit costs in excess of this level.

Partial self-insurance of long term disability benefit

Without altering the benefit payable to a member, the employer may reduce the insured disability cover by means of insuring

 

  1. a longer deferred period
  2. a lower termination age
  3. ceasing to insure pension contributions as part of the overall benefit


The employer and/or the pension scheme accept responsibility for payments during the period(s) not covered by the insured amount.

 

For schemes with high levels of fixed benefit increases e.g. 5% p.a., many employers are actively considering limiting increases to the annual increases in the consumer price index, due to the current economic climate. This can result in significant premium reductions. 


With profit

Death benefits may be insured on a with profit basis.  Additional premiums can be between 6% and 20% higher than the premium rates for a standard insurance arrangement, but the scheme can benefit from rebates from the insurer if claims experience is favourable. This option can only be considered for schemes with over 500 members and is available with certain providers.

 

Multinational pool

An employer with employees in more than one country (e.g. insurance policies in Ireland and the UK, or Northern Ireland) may choose to establish a multinational pooling arrangement, whereby an international dividend is paid when claims experience is favourable. There is no additional premium cost involved in a multinational pooling arrangement and the benefits can be considerable.