The income insurance market is becoming more complex due to the growing focus on sustainable employability. Yet according to consultants, insurers mainly concentrate on standardization. A mismatch between customer demand and product offer is brewing. IG&H spoke with several market parties in the insurance sector and provides concrete tools for product innovation.
It’s undeniable: currently, ‘sustainable employability’ is a trendy term. But the attention it receives seems appropriate. Not only should employers get a grip on the (financial) risk of rising absenteeism, the tight labor market also forces them to double down on being a good employer. This is difficult, so employers expect ‘customized’ support. At the same time, insurers focus on simplicity and cost reduction, which leads to less innovation and more homogeneity. As a result, income solutions tend to be suboptimal, and not all employers can realize their ambitions.
We’ve observed three axes for product innovation:
1. Sector differentation
Conversations with employers have shown that their needs often depend on the sector in which they operate. Of course, all insurers use sectoral premiums, but other than that, consultants still find the sector-oriented offer insufficient, despite the success of (former) ‘pension subsidiaries’ Loyalis and NV Schade. For them, the sector approach results in lower premiums, less absenteeism, and a higher penetration rate.
What elements does such a sector proposition consist of? We’ve listed the three main ones:
Insurance conditions focus on the collective labor agreement (which is especially relevant to the WIA (Work and Income Act) supplement), so employees’ financial risk is optimally covered.
Additional services are focused on a sector’s issues. This starts with targeted solutions for the main causes of an inability to work, but it can be expanded to other relevant HR domains. An example includes services which promote older employees’ labor mobility.
An attractive risk profile is created by a broad inflow (via covering agreements or even collective labor agreements) and by building unique data on a well-defined group of companies. The result is that premiums can be reduced and/or returns can be increased.
Most sector propositions have been created by building reactively on a solution for one customer. But it’s also possible to adopt a proactive approach. In that case, a sector is selected based on several criteria (such as scalability, the collective labor agreement, available data, commitment to the sector), after which a proposition is created with specialized consultants. Not as a replacement for the existing offer, but as a valuable addition to it.
2. Premium differentiation
Usually, premiums are determined based on historical absenteeism data. As a result, premiums are volatile and investments in vitality barely pay off. On top of that, the use of sectoral premiums means SMEs are ‘punished’ for absenteeism at the companies of competitors/colleagues. Of course, the ‘MKB Verzuimontzorgverzekering’ (absenteeism unburdening insurance for SMEs) will lead to premium stability, but it will ultimately have a price tag. Therefore, we believe that a more ‘customized’ premium contribution rate has potential for many employers, both small and major. Not to refute the solidarity principle, but to make investments in a healthy company more worthwhile.
Insurers struggle with the use of predictive data. The challenge lies in legal limitations and the complexity of data warehouses, but also in the unfamiliarity with the predictive power of customer and risk data. A good first step to detecting predictive elements is to have consultants and insurers bring together anonymized data. Historical absenteeism data don’t have to be abandoned: the flexible premium model forms a great intermediate alternative. In this model, historical absenteeism determines the basic premium, and the premium surcharge depends on investments in sustainable employability and short-term results (such as a reduction in absenteeism and lifestyle changes).
Furthermore, consultants believe a vitality budget may encourage employers to pursue a more conscious policy. Of course, the amount may depend on the scope of the contract and the risk profile. If the effectiveness of investments is proved, this can be translated into a premium discount.
3. Flexibility of conditions
More and more often, an insurance is the closing entry of a vitality solution, and the conditions hardly vary between insurers. Consultants believe more flexibility is required to keep covering the growing financial risk. There is a particular demand for an automatic link to the rising state pension age. Furthermore, there’s a need for a more flexible contract term – standard options of 1 and 3 years, for example. Finally, consultants wish to see more options with respect to self-retention (stop-loss) and a higher maximum insured amount, especially for large employers (invalidity pension).
Solution guidelines for digital innovation Product innovation doesn’t yield much if there’s no solid foundation. Therefore, we will provide concrete tools for improving digital services in our next blog.
Written by: Bob van Opstal (Manager Pensions) en Idriss Abdelmoula (Consultant Pensions). More info: bob.vanopstal@igh.com