'One and done'
…may be a fantastic feature of group risk cover when it comes to underwriting, but there’s a danger that some consulting jobs are considered on a ‘once and done’ basis when they should be anything but.
Group life schemes’ catastrophic event limits are what I have in mind. Maximising them can be a complex exercise involving multiple insurers and a lot of haggling, but they are too big a part of a client’s cover – and can have too great an impact on their premiums – to be regarded as being a finished item at any point in time.
Event limits seem to have been around a long time, but of course only came in following the September 11th terrorist attacks in 2001, which showed us the possibility of large numbers of claims arising from single events. As is usual with the insurance industry, the initial response was to apply stringent limits, erring very much on the side of caution, while the newly perceived risks were subjected to risk analysis. The likely frequency and impact of catastrophic events – and not just those instigated by terrorists – had to be assessed, ‘catastrophic and single events’ defined (easier than it sounds) and the mechanism by which capacity could be measured and used designed and built.
With capacity being limited, securing sufficient cover for potential liabilities in the event of a catastrophe was the priority for advisers and not an easy job where clients had large offices in city centre areas, particularly Central London and Canary Wharf. If no mainstream group risk insurer was able to provide all the coverneeded, cover was split between two, three or more insurers with top up cover through catastrophe excess of loss cover sourced through the London market.
All of these solutions are still available, but it’s usually far from the case that clients have no options open to them. The intervening years since 2001 have allowed insurers to gain confidence in their understanding and management of the risks involved and it should be possible in many cases not only to improve the amountof catastrophe cover a client has, but also to save them money in the process. One of the strategies of my own company, Ellipse, since we entered the market late in 2009, has been to deliberately target large group life schemes where we feel we can offer advisers and their clients improved coverage without them havingto find more money for the privilege. As a result, we have won leading shares in the programs of several of the largest schemes in the market providing them location event limits in the range of £200m to £300m, even in postcodes where £100 million was previously thought to be the maximum achievable from any one office. The highest single event limit we have done in central London is £500m.
The danger for advisers lies in thinking that group life schemes where event limits are a key issue are locked in to their current insurer(s) because there isn’t going to be anything better elsewhere.
So, for your group life clients, ask yourself these questions:
1. Have they currently got a catastrophe excess of loss top up policy in addition to their main group life cover?
2. Has the structure of their program – for example, split cover between two or more insurers – not changed in the last six years or more?
3. Have the members been advised: “Your life cover may be reduced in the event of a single major claim event where x or more members die”?
Where the answer to two or more of these questions is yes, a thoroughgoing review of their group life arrangements is indicated.