Francois Schaap, Managing Executive, Guardrisk Life
With death claims soaring in the wake of the Covid-19 pandemic, employer and fund schemes offering employee benefits (EB) have not escaped unscathed and this is likely to affect pricing at renewal.
Current vaccine data shows that the higher the vaccine rate in a specified group, the lower the risk of serious illness and death and it makes sense that insurers and reinsurers will price accordingly. With no end in sight for the pandemic, and yet another new variant of Covid identified in South Africa recently, Covid is going to be a challenge that insurers and reinsurers (and employer and fund schemes) are going to grapple with for the foreseeable future.
In terms of EB risks impacted by Covid, it is not inconceivable that insurers and reinsurers could start asking for employees’ vaccination profiles; and those entities that are able to extract this type of risk mitigating information will reap the benefits because it will be used to determine exposures and pricing, and assess underwriting structures.
One way that employers can mitigate price increases is to self-insure their EB schemes, which allows for EB programmes to be customized according to prevailing internal and external risks.
During times of uncertainty and volatility such as Covid-19, self-insurance of benefits through a cell captive structure allows for EB programmes to be structured periodically with different protection covers being offered by professional life reinsurers to lay off some of the client’s high exposures. Then, when normality returns to the market and the client’s circumstances, the self-insurance component can be increased again.
There is a misconception that self-insurance means that the cell takes 100% of the risk for its own account. The degree of self-insurance depends entirely on the client’s risk appetite, claims’ experience and external market factors, of which Covid is one example. Most employers and funds may start their journey conservatively by taking minimal risk and then increase self-insurance levels as they get comfortable with the concept and as reserves grow.
Reliable updated data lies at the heart of the cell captive model; the more data that is available regarding the risk profile and claims experience, the more accurately the risk can be priced. This determines self-insurance appetite and, when outsourced, often leads to lower rates.