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Will daily sickness benefits insurance survive the next 10 years?

Health and Benefits|Insurance Consulting and Technology

By Reto Ebnöther | June 2019

For a number of years, brokers and clients have time and again been confronted with the same statement from insurance companies: “Unfortunately, we will once again have to amend our tariffs for daily sickness benefits next year.” Many are asking where the situation is headed. The first insurance companies have already exited this business line. Will it soon no longer be possible for companies to insure the risk of lost pay in the event of illness?

Before we examine the future of daily sickness benefits insurance in Switzerland, it is worthwhile to take a look back. There are several reasons why we currently find ourselves in the position we are confronted with. On the one hand, for a number of years it was always possible to find an insurance company that was willing to underwrite risks below a profitable premium level in order to increase its market share. Insurance brokers utilised this situation in order to negotiate the lowest possible premium for their clients – in some cases despite the poorer claims result. On the other hand, companies often generously overlooked their own claims figures – after all, there was always a cheaper insurance company. Result: the claims ratio (= premium divided by claims payments incl. provisions) of many insurance companies increased close to or even exceeded 100% with, it should be noted, a target value of 75%.

Around five years ago, the market started to change: margin erosion in other insurance sectors, greater transparency and rising cost pressure gave rise to a change of thinking among insurers: all insurance business lines should be profitable in their own right. This in turn triggered a gradual increase in premiums. At the same time, there was an increasing awareness that the rising number of psychologically related absences was not only a temporary phenomenon. Not all providers were able (or willing) to master this challenging situation and, for example, companies such as Sanitas and Concordia exited the daily sickness benefits business.

However, there are also other providers that are continuing to struggle with the profitability limit. Further premium hikes are unavoidable for many and it is only a matter of time until further providers discontinue their offers in this area. Rising premiums place a strain on the budgets of businesses. In solutions for which employees pay part of the premium themselves, the hike in premiums permanently eats away at any wage increases, leading to frustrated personnel. It is therefore with justification that the question can be asked where this situation is headed. This is particularly the case in instances in which companies with a certain claims burden can no longer find a classic insurance solution.

An increase in the waiting period may remedy the rising premiums. Whether this actually also makes sense with a higher claims burden is a different question and can only be answered on the basis of a detailed analysis of the relevant claims data. The self-bearing of this risk may represent a possible alternative but this has some disadvantages that should not be underestimated: for example, departing employees cannot transfer to an individual daily allowance solution. This is an especially sensitive issue in the case of restructuring measures. In the pension fund, the waiting period for a disability pension without daily sickness benefits insurance typically has to be adjusted from 24 to 12 months, which in turn leads to a cost increase here. In the event of claims, the company cannot call on the professional case management of an insurance company – the modular purchasing of claims handling support without having insurance cover at the same time is currently not (yet) possible in Switzerland. There is the risk that absences become prolonged due to the lack of claims handling support, with the claims burden rising further – an inconvenient negative spiral. Last but not least, sensitive coverage gaps may also emerge for healthy employees (depending on the provisions of their employment contract) – not exactly a convincing addition to the employee value proposition.

There are therefore numerous reasons for a company to stick with a classic daily benefits allowance solution. If the company’s own claims burden means, however, that there are no (or only clearly overpriced) solutions available on the market, the company requires additional arguments in its negotiations with a potential risk bearer. Occupational health management (OHM) plays an important role in these negotiations. Companies that can demonstrate with defined processes and specific initiatives that the health of their employees is important to them will hold much better cards in a market with an increasingly limited offering. Whether this makes it is possible to agree an improved premium or even gain cover at all.

In order to remain an interesting employer over the long term – including the ability to offer an adequate employee benefit package – occupational health management will be essential. OHM can, of course, take many forms. There is not only ONE solution. What is decisive is that the company gives specific thought to the requirements of employees in order to then enable it to directly address them. Experience from practice shows, however, that many companies have great difficulties in doing this – despite commendable declarations of intent. The (short-term) success of such measures is called into question and therefore they do not even start to look at them in detail. The only thing is, just like gaining control over above-average illness-related absences (either in terms of length or number), the development of systematic and targeted OHM takes some time. Measures do not take effect from one day to the next. Several dimensions have to be taken into account and for this reason it is ultimately those who address these issues in good time who come out on top. Once a building is burning, the time has already passed to talk about fire alarms. All that is left to do is to limit the damage and start with the reconstruction. Generally speaking, this will be significantly more expensive than prevention would have been.

A far-sighted company recognises these facts and surrounds itself with the relevant expertise in good time. Simply focussing on the insurance solution (as a company or advisor) is not enough. The focus must be broadened and the current situation analysed in a holistic manner. Only in this way can optimal conditions be created with respect to the interplay between systematic, needs-oriented and targeted preventative measures and an insurance solution structured in line with the customer’s specific needs. Employees feel that they are taken seriously and that they are in good hands and can thus perform at their best. And to return to the original question: the daily benefits allowance solution will still exist in 10 years. However, the solution will be customised and be structured in a manner than sees it integrated into the customer’s overall concept. On the other hand, customers without an overriding health strategy will continue to be denied access to insurance cover.

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