Most people are aware of the need to contact their household insurers if they build a home extension or have a significant change in their contents’ value.
But those who work in HR and benefits management sometimes fail to twig that group risk insurers also require to be informed of relevant changes to their schemes.
Some such events would appear obvious as they clearly impact on the risk being insured. For example, if a scheme member dies, if a rate review is triggered, if there are changes to the companies or groups of people included in the scheme, or if a member’s total benefit exceeds the free cover limit.
But you would be surprised at how often employers fail to tell us they have moved premises or have acquired another businesses — incorrectly assuming that the new employees are included in the scheme.
When made aware of such changes by clients we can notify insurers. But we don’t claim to be clairvoyant, so please don’t leave us in the dark.
Some of the more idiosyncratic examples of notification failure we have come across are, however, a little more forgivable.
For example, one client with 1,400 employees had given a mid-term pay rise to 15 of them because the payment for their job roles was out of line with the industry norm. There seemed no reason for the insurer to be notified as the rises occurred mid-term and weren’t sufficient to trigger rate reviews.
However, one of those 15 employees died, and because the individual had been temporarily absent when the increase occurred, it affected the payout.
The insurer capped the salary increase as opposed to paying out the full multiple of salary as per the scheme basis.
It was quite within its rights to do so because, as is standard practice, it has a clause buried within its terms and conditions that caps salary increases occurring whilst an employee is temporarily absent from work.
The chances of such a scenario arising are relatively slim but it shows that the small print can never be read too carefully!
Group risk insurers allow cover to continue for employees during temporary absence – normally up to the scheme termination date where the absence is due to sickness or accident, or for three years for any other reason.
By default, cover will be based on the scheme salary on the last working day before absence, although insurers will also allow some increases to be taken account of during the period of absence. But the limits vary between the different players — and may be changed from time to time.
For example, Aviva currently stipulates that any increase will need to be in line with standard company pay awards, and will normally be limited to a maximum of 7% per year.
Canada Life, on the other hand, limits increases to the lesser of the general level of increases in basic salaries or wages awarded by the member’s employer and the increases in the Average Weekly Earnings Statistic (including bonuses) published by the UK Office for National Statistics during the period of temporary leave of absence.
Insurers can also have different limits on when they require notification of a significant change in the total number of lives and/or salaries or sum assured from the figures at the last periodic rate review date. And, once again, these can be subject to change.
Currently, for example, AIG needs to be notified of a 50% variation in the number of members or their total salaries for schemes costed on an age-related rate table basis, or a 30% variation in the number of members or their total salaries for schemes costed on a unit rate basis.
Canada Life and Legal & General, on the other hand, require notification if membership numbers or cover levels increase by 25%, and Unum and MetLife require it if they increase by more than 30%.
Chase de Vere have an expert group risk team on hand to support our advisers with exactly these plan differences so you can be rest assured that you always have the most up to date advice available to you.
If you have any questions about what your group risk insurers may require you to notify them about or about any other aspect of group risk or employee benefits, then please don’t hesitate to contact us.
Content correct at the time of writing.