Group, employer-paid coverages have traditionally been managed using a self-administrative process. This system works well for these cases, and typically requires the employer to keep the records on who is covered, for how much, etc. The insurer in these situations keeps no individual records.
The employer is the client and all the employees (almost) who are eligible receive coverage, at least up to the GI limits. As a result, there is almost no concern about an unscrupulous HR staff person declaring that an uninsured employee has coverage (moral hazard). In addition, although a claim requires the employer to verify coverage (because only it has the records), a typical group life case, even in a large company, will have a relatively small number of claims per year.
The system works, causes no undue hardship, and serves the employer-client, the broker, and the insurer well.
But imagine we created a new type of employee benefit. Instead of the employer being the client, imagine that employees were the clients. Imagine that the broker and insurance company wanted to market to their clients. Imagine that the product was an accident plan rather than life insurance, generating a high volume of claims.
Imagine that only 30 percent of the employees were covered, making the designation of who was covered a critical step, and introducing a far more severe moral hazard. Self-administration would be a serious problem for each of these changes. The insurer and broker would not know who their clients were, and each claim would require verification.
Of course, this business is here today and is coming to dominate the benefits landscape. Call it “voluntary” or “worksite”, this business is not just the future; it's the present. And today, self-administration of voluntary benefits serves no one well.
This is the situation some traditional group companies are still facing today, trying to force the voluntary “round peg” into the self-administration “square hole.” Some carriers haven't even acknowledged that they are falling behind. Even though many employers are relatively new to voluntary, they are starting to understand the difference between square and round. Already, more than half of surveyed employers prefer their carrier to keep individual records rather than using a square hole self-administration system.
Increasing pressure on carriers to move towards a modern administrative platform is up to us. By doing the right thing for our clients, we encourage laggard carriers to do the right thing also. And as those carriers are finally forced to do the right thing, we will all benefit: our clients, our carriers, and ourselves.
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