Group benefits insurers may be missing pricing opportunities when renewal decisions are made at whole-case level, particularly where different products within the same customer relationship have significantly different performance.
In a recent analysis, pricing and decisioning provider Earnix argues that applying a blended rate across a multi-benefit relationship can result in insurers under-pricing benefits where performance has deteriorated while putting unnecessary pricing pressure on more profitable products. The company said the resulting trade-off can affect both portfolio economics and persistency.
The issue becomes particularly apparent in cases covering multiple products, such as life, dental, vision, disability and supplemental health. Each benefit can have different claims experience, competitive dynamics and sensitivity to lapses, meaning the economics of one product may look very different from another within the same customer relationship.
For example, dental could be running significantly above its target loss ratio while life remains profitable. A single case-level increase risks averaging out those differences, potentially limiting the rate taken on the underperforming benefit while increasing the pressure on a product that is already performing well.
The challenge is partly rooted in how group benefits renewals are calculated. Renewal pricing typically combines manual rating with experience rating, with credibility weighted according to block size. Claims trends and credibility can vary between individual benefits, meaning the resulting blended rate may not fully reflect the risk associated with each product.
The pricing process can also be complicated by the number of teams involved. Actuaries, underwriters, pricing specialists and sales teams may use separate systems, spreadsheets and manual workflows when developing and adjusting renewal recommendations.
This can make broad rate actions easier to implement than more granular strategies. Rate action limits may be informed by historical experience, underwriting judgement and business rules, while teams can have limited ability to test how different pricing scenarios could affect profitability and persistency before settling on a recommendation.
Earnix for Group Benefits is designed to provide a more systematic approach by bringing predictive models, pricing logic and business constraints together. The platform allows carriers to assess potential renewal actions across profitability, persistency and competitiveness while incorporating carrier-specific rules.
Factors including durational rating, plan design, competitive positioning and the potential short- and long-term impact on the portfolio can also be incorporated into the optimisation process.
The approach moves the focus from determining one rate for an entire case towards assessing the appropriate action for each benefit while considering the economics of the wider relationship.
A case covering life, dental and vision, for example, could receive a blended six per cent increase under a whole-case approach. A benefit-level strategy could instead hold life flat, apply a larger increase to dental in response to its loss ratio performance and use the stronger position of vision to help protect the broker relationship and reduce shock lapse risk.
Governance is another consideration. Renewal recommendations can be changed by underwriting or sales teams based on factors such as broker of record activity, concerns around shock lapses or discussions with brokers.
Those adjustments can contain important market and case-level insight, but disconnected workflows can make it difficult to understand why a final pricing decision differs from the original recommendation.
A unified environment can allow models, assumptions, constraints and pricing decisions to be documented and traced. This can help carriers maintain greater consistency and governance while still giving actuaries and underwriters scope to apply their expertise where exceptions are required.
Renewal decisions can also become a source of future pricing intelligence. By connecting pricing actions with outcomes such as persistency and overall block performance, carriers can assess which strategies are delivering against profitability and retention objectives.
That creates a feedback loop in which the results of previous renewal decisions can inform future pricing strategies, rather than relying on the same assumptions from one renewal cycle to the next.
For group benefits insurers managing increasingly complex portfolios and rising renewal volumes, Earnix’s analysis highlights the potential of a more granular approach, in which individual benefits are priced according to their own economics while remaining part of the wider customer relationship.
