Fall 2006 / No. 69
Takeovers
– Is this a good or bad thing for the industry?
Carriers
agree that takeover business is on the rise in the voluntary
market. That was a finding earlier this summer when Eastbridge
released the Frontline Report, Takeover Business in the
Worksite/Voluntary Market (2006). The report gathered
data from 20 carriers that accept takeover business on voluntary
products. Not surprisingly, the study found that dealing with
takeover business is just a ‘fact of life’ in today’s
world. It also found that employee benefit brokers are most
likely to be involved with takeover business and cases with
over 200 lives are prime candidates for takeovers. Additionally,
carriers feel that the percentage of takeover business is going
to increase in the future. But is this a bad thing?
The answer
is that it really depends. Takeover business can mean that
you are taking on more risk (if you are taking over an account
on which another carrier is raising rates) or it can be motivated
by a broker who wants to increase commission (if the product
has heaped commissions). But takeover business doesn’t
have to be bad business. In fact, if takeovers are a fact of
life, the carriers need to have the processes and procedures
in place to ensure that takeover business is profitable business.
Carriers also need to make sure that their guidelines for handling
takeovers are well thought out and help them control the potential
risk of too many takeovers. They need to ensure that insureds
and brokers are not able to take advantage of a takeover situation.
Some of the most common takeover safeguards include:
- Home
office approval of the case before it can be written, at
least for some case sizes
- Matching
the prior plan design and only allowing coverage changes
with evidence of insurability
- Requiring
evidence of the prior plan
- Requiring
loss ratio and premium history on takeover cases of 200 or
more lives
Carriers
are also beginning to reduce commissions on takeover cases.
This is relatively new and is not the universal approach but,
especially for carriers with heaped commissions, it may become
a trend. Certainly reducing first-year commissions and/or requiring
levelized commissions on any takeover removes the revenue incentive
for switching carriers. Today, the type and amount of reduction
varies significantly from carrier to carrier, but we believe
that this is a trend that is likely to continue.
Takeover
Business in the Worksite/Voluntary Market (2006) is an
Eastbridge Fronline Report. Eastbridge’s Insight and Information
Partner companies received the report free of charge. For
information on these programs, contact Eastbridge at info@eastbridge.com or
call (860) 676-9633. |
