Company A has taken over Company B. Company A has, in the past, had group income protection (IP) and...
Company A has taken over Company B. Company A has, in the past, had group income protection (IP) and life cover for its employees, and now wants to supply the same for Company B which has none. Will both companies need to be underwritten again or is there a way around this?
Alan Lakey, principal, Highclere Financial Services
Group life often escapes underwriting because insurers generally offer a pre-determined level of cover without medical disclosure. This is only offered as long as all employees are included which ensures they are not selected against. Those employees whose salaries are higher than the non-medical limits will have to provide full health details.
Adding the additional workforce to the existing group life plan should not pose any problems as long as all employees are included and subject to the usual caveats regarding the occupational risk being unchanged.
The group IP plan is likely to reflect a similar thinking as long as all employees join. Insurers will have different non-medical limits and it is likely that higher earners will need to provide medical evidence.
The claims definition may vary according to the perceived occupational risk so if Company B provides a different risk level it may be that the terms for all employees may have to be varied. This could also be a factor if Company B employees have a higher incidence of foreign travel.
Some insurers insist on a minimum entry level of 50 lives and if Company A did not reach this figure, but does now, it will allow further consideration of the schemes future. Generally, a new insurer will accept, up to a pre-ordained limit, a bulk transfer of employees without requiring any medical disclosures.
Andrew Potterton, chief medical underwriter, Unum
Assuming there are no exceptional circumstances in this scenario, Company B should be incorporated without any underwriting into Company A's scheme, at its existing premium rate and on the same terms.
The simplest case would be that if Company B employees merge with the Company A workforce then Company B as a subsidiary of Company A could require underwriting consideration.
It would be reasonable for the insurer to take a closer look at the existing rates and terms under the following conditions; if the number of members were to increase significantly, say by more than 25%; the nature of Company B's business was materially different from Company A's; there were changes to the risk profile such as a high proportion of the new membership being based overseas or, for group life, long-term absent; Company A wished also to enhance the existing scheme basis in some way, such as reducing the group IP plan's deferred period.
While entry up to the group life and group IP free cover levels might be assured, the insurer would expect to medically underwrite any member's benefit that is to exceed either plan's free cover level. Since most insurers base free cover on the number of the lives insured in the scheme, the new membership could bring with it an opportunity for increasing those free cover levels and to take more members out of medical underwriting.
Glenn Laming, group protection sales director, Legal & General
There are two elements to consider: the need for medical underwriting and the impact on the financial underwriting that determines the premiums charged.
Regarding medical underwriting, L&G would normally expect employees of Company A to be unaffected by the inclusion of new employees. The cover already in place would remain and there is the possibility of improvement to the free cover limit - the amount that can be provided without the need for medical evidence - by including the employees of Company B. The majority of employees in Company B, assuming their total cover is below the free cover limit of the scheme, should be able to join the scheme without the need for medical evidence. It is likely that this cover would be provided automatically subject to employees being actively at work on the date of their inclusion.
With the financial underwriting, a lot will be determined by the impact of including Company B employees into the main scheme. If it is a small number being included in the scheme in relation to the total membership, it is possible that the underwriter will be happy for them to be included within the current unit rate. If the membership increases significantly, then the underwriter may wish to review the rate for the whole group. Other factors such as the location and occupation of the employees being included, as well as the benefit basis compared to existing members, will also determine the impact on the premium.
