Time marches on…but average ages march slower! An analysis of Ellipse second year costs

by Graham Lee, Ellipse's Chief Actuary

Since launch we have been championing the use of age related premium rates for all sizes of schemes, we believe this allows more accurate costing – premiums that reflect the risk that has been insured over the period of cover, and don’t see the cross subsidy from the young staff members to the older staff that is typical of unit rated business.

However, we are aware that some clients like the fact that the unit rate gives an idea of the cost on the second year particularly as pay increases are typically easier for an employer to predict than staff changes. So we’ve had a look at the experience we have seen on over 700 of our own in force schemes, to see how much the average age really changes over a year:

 

While there is variation the majority are changing by less than 1 year, and the key points are that:

- For small schemes (less than 500 members) the average age increases by about a quarter of a year over a scheme year

- For larger schemes the increase is much smaller, more like half a month per scheme year

Given an increase in group life rates of around 9% for each year of average age, applying the above results gives an approximate increase in the second year cost of 2.5% for a small scheme and 0.5% for a larger one.

Many factors, such as an acquisition, recruitment drive or downsizing, can change the age profile significantly over the year.  What this analysis shows is that, even where such major events are absent, staff turnover will mean that very few companies will have exactly the same workforce in 12 months as they do today.  An assumption that average ages will – on average! – increase one year at a time is therefore a long way from what happens in the real world. 

Your feedback shapes what we do

We have just compiled the results of our latest adviser survey and, as always, we want to share the results, the negatives as well as the positives.  If you would like to see the responses we got – and some of our responses to points raised, click here.

Key results:

·         Ellipse is seen as very competitive for group life cover – 82% of respondents rated our premiums at 8/10 or better for competitiveness.

·         Our new premium rates for Interact have made us much more competitive for group income protection than we had been previously

·         Our ‘overall’ average rating is a healthy 7.8/10 (but down a little from our previous score of 8.1/10)

Our twice-yearly survey is crucial to us.  While we get feedback from advisers from day to day in the normal course of business, it is very useful to get a regular snapshot of how competitive (or not) we are and to spot any trends in how advisers are thinking about us and the service we offer.

In every survey, we get several useful suggestions and pointers.  Of course, we can’t act on all of them – there are some where we just disagree philosophically with the points being made – but we give serious attention to everything that the surveys reveal.

Because of its importance to us, we are extremely grateful to all the advisers who took part.  We hope to get another good response when we run our next survey towards the end of the year.

Appropriate professional help at claim for your clients’ people

A death or a critical illness in your corporate client’s scheme is our – and the adviser and employer sponsor’s - moment of truth.   As well as getting the money to the beneficiaries as quickly as possible we strive to provide more than the cheque.  That help and support needs to be the best available and both deeply professional and practical. To achieve that we have partnered with Winston’s Wish and RED ARC.

For every death claim under our group life policies, Ellipse asks the scheme administrator involved to pass information about Winston’s Wish prompting a call to their Helpline.  They are the leading provider of bereavement services to children and their families.   This short film about their work will be on the main stage at Glastonbury this weekend.   

All our critical illness claimants and their families are offered RED ARC's Critical Illness Service.  In essence this is a care planning process. A Personal Nurse Adviser establishes contact and provides information, expert advice and emotional support. This is best illustrated by this case study. Recently RED ARC conducted their annual patient survey. The survey highlighted they consistently offer a high level of service, with 97% of patients reporting it as good / excellent.