Group insured benefits

Mercer provides guidance

on the variety of options

available to manage risks; these can be tailored

to the individual needs

of the scheme and the

employer concerned

Through regular market
reviews, Mercer ensures
that the most appropriate
and cost-effective level of
insurance is chosen 

Managing risk for employee benefits is an area of increasing concern. Pension scheme trustees and employers who are responsible for providing benefits in the event of death in service, and prolonged or serious ill-health, find that the unpredictable nature of these benefits sets them apart from other benefits. It is, therefore, essential that professional advice on cash flow and the ultimate cost of these benefit provisions is available.

Mercer provides guidance on the variety of options available to manage these risks; these can be tailored to the individual needs of the scheme and the employer concerned. Through regular market reviews, Mercer ensures that the most appropriate and cost-effective level of insurance is chosen. By expanding the range of investigation into how death-inservice and long term disability benefits are financed, cost can be contained and in many instances reduced.

Management of Risk

Our experts help employers and trustees to review their benefit provision and elect what benefits to insure and what to self-insure. In addition, we can assist in determining the amount and form of the insurance that should be purchased, and the appropriate insurance provider.

Insurance and Self-insurance

Mercer consultants provide a detailed analysis, tailored to each scheme, setting out the advantages and disadvantages of selfinsurance, which takes into account:

• size of the membership
• age and maturity of the scheme
• cash flows
• reserves
• company’s/trustees’ attitude towards risk and fluctuations in cost

In many cases a combination of insurance and self-insurance may be appropriate. Mercer will advise the decision-makers on the various risk-sharing combinations that can be considered.

Examples of risk-sharing include the following scenarios:

• Insuring Sum at Risk

  
The amount of life assurance is reduced as the reserve held for retirement benefits grows, such that the total (insurance plus reserve) equals the death-in-service benefits provided.  This means that the amount of insurance needed for each individual member reduces as the member gets older and more expensive to insure.

• Self-insure Death Benefits

The liability for death benefits is retained within the scheme up to a certain point having regard to the current fund solvency, after which a reinsurance policy is purchased to protect the scheme against benefit costs in excess of this level. It is necessary to evaluate any remaining exposure to the pension fund even with such reinsurance in place. 

• Partial Self-insurance of Long Term Disability Benefit

Without altering the benefit payable to a member the employer purchases disability cover with a longer deferred period and/or a lower termination age and/or no pension contribution protection and/or no escalation. Hence, the employer and/or the pension scheme accept responsibility for payments during the period(s) not covered by the insured amount and/or continued contributions to the pension fund and/or benefit increases not insured.

• With Profit

The benefits are insured on a with profit basis. Premiums can be between 2% and 10% higher than the premium rates for a standard insurance arrangement, but the scheme can benefit from rebates from the insurer. This arrangement may be regarded as similar to self-insurance with stop loss cover.

• Multinational Pool

An employer with employees in a number of countries may choose to participate in a multinational pooling arrangement.

• Market Reviews

Whatever form of insurance is decided on it is important that regular reviews are undertaken every two to three years, as this can result in significant savings in a competitive market. Mercer has a team that specialises in the management of risk benefits and costs, they can - following a full review - issue a report which sets out an analysis of a company’s existing insurance along with tailored recommendations on selfinsurance.

• 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.