In our last benefits breakdown, we talked about life insurance and the trends we're seeing. This month, we talked with ThreeFlow underwriting consultant Allina Verrillo to understand how open enrollment works for life insurance and how to request that a carrier provide one.
Open enrollment can be a great tool for increasing participation in a group’s voluntary life plan without having to provide evidence of insurability (EOI). However, carriers may view an open enrollment as a risk and may not want to offer one off-cycle.
When it comes to voluntary life, what's the difference between open enrollment and an annual enrollment period?
Open enrollment (OE) is an event where employees can enroll for the first time or increase coverage without EOI. An annual enrollment occurs at each policy anniversary and allows employees and dependents to enroll in coverage or change their elections with EOI.
Can a group get an open enrollment whenever they want?
No. OEs allow employees a chance to assess their voluntary life coverage needs as well as an opportunity to increase coverage without providing medical information. When employees evaluate their need for coverage, it increases the chance for adverse selection, and the risk carriers are taking on increases.
Adverse selection is when applicants have personal information about their risk that a carrier wouldn't know. They use this information to purchase coverage they are likely to use.
OEs are standard when a group moves carriers or adds coverage for the first time. Carriers can make exceptions to offer an OE once a group is in-force, but they must ensure they can mitigate the added risk.
How do carriers mitigate the risk of adverse selection?
Carriers may choose several tactics to mitigate their risk, including:
- Pricing voluntary lines more conservatively to account for adverse selection
- Setting minimum participation and lives thresholds
- Putting Guaranteed Issue (GI) limits on plans
- Reviewing the industry and incomes to ensure the population is willing to buy
- Limiting the number of voluntary lines to avoid overwhelming employees at enrollment
- Excluding prior declined employees from open enrollments
- Excluding dependents from the OE
That said, a carrier is more likely to offer an open enrollment when they are confident that participation will increase.
What should a broker include when asking underwriting for an open enrollment event?
Below are a few points that can help show the carrier that you're serious about increasing enrollment.
Highlight increased participation
The in-force participation is something a carrier underwriter will always review. Standard participation requirements can differ across carriers and products, but on average, carriers require 20% of the eligible population to enroll for voluntary life. Generally, at least a 10% increase in participation will offset the risk of adverse selection.
Most underwriters will push back on offering an OE if participation is already high (40% or more). If the current GI is lower than average, request a higher GI amount in conjunction with the OE. With the increased GI, the overall premium will likely increase and can help the underwriter feel more comfortable with the risk.
If participation is low or below where it contractually needs to be, highlight what will be different from past enrollments and what the plan is to increase enrollment.
Show an active enrollment strategy
Passive enrollments are when benefits elected in the prior year don't change unless the employee makes updates. An active enrollment requires an employee to go in and select all coverages.
The enrollment strategy will give the carrier insight into the policyholder's involvement in the enrollment event. An active enrollment will almost always produce better participation than a passive event.
Agree to add new products
It's important to highlight any new products being added because the additional premium from those lines may also help offset the risk of adverse selection.
Call out when the last OE took place
Typically, carriers don't like to offer OE more than once every three years. Highlight how long it has been since the last enrollment; if it is less than three years, be prepared to explain why it is being requested.
Some carriers are more likely to offer a voluntary life OE if dependents are excluded. There is more risk with dependent coverage, so eliminating that risk may help their decision.
Can an open enrollment impact how underwriters look at claims experience?
When carriers look at claims, they are looking at past experience to predict how a group will run moving forward. When an OE takes place, it may alter how the case would typically run because of the added risk of adverse selection.
Some carriers may compare originally sold enrollments to current enrollments to see how elections changed during OE. The underwriter may line up those changes and make adjustments to any claims that were part of the OE. If an individual claims listing shows spikes in claims due to OE, a competing carrier may choose to temper claims.
While standard voluntary life policies don't always include OE, there are times when it is appropriate to request one from your carrier. By having a solid strategy in place and providing plenty of detail to the underwriter, you may increase case-level premiums to help manage the overall risk for a group.