Some ten insurance companies are active in the market for group occupational disability insurance schemes within the framework of the Work and Income (Fitness for Work) Act (WIA). They provide so-termed ‘own risk products’ based on the Return to Work (Partially Fit Persons) Regulations (WGA). These providers were keen to enter the market in 2006, when the Disability for Work Insurance Act (WAO) was amended into the WIA. Since then, employers have had the option to either bear the risk of partially incapacitated employees themselves or take out insurance with the Employee Insurance Administration Agency (UWV) or an insurance company. Although in practice most employers are insured with UWV, every six months they have an opportunity to review their choice and transfer with effect from 1 July or 1 January.
The market has hardly been profitable so far, particularly in recent years. In addition, insurers not always made the right assessment of the risks in this market. Another development with major implications for the future is the recent legislative change as a result of which temporary workers will also come under the ‘own risk cover’ as from 2016.
This all prompted DNB to assess in greater detail whether the insurers involved have taken adequate measures to manage the current risks and whether they are sufficiently prepared for any future financial setbacks.
Are insurers aware of the risks?
The assessment revealed that by now the insurance companies in the sector are aware of the risks incidental to the developments in this market. It is nevertheless difficult to establish whether we have in fact seen the worst. For instance, the cause for several risks is to be found in the particular nature of this niche market in which market parties and the government operate side by side and in part depend on one another. As it turns out, insurers do not always have complete and up-to-date information at their disposal. That may be due to their insufficient management of internal processes, but also to their reliance on other parties, such as UWV, for the provision of data. What’s more, on entering this market, insurers tended to acquire market share based on an overoptimistic premium structure with often long-term guarantees. As supervisor, DNB therefore wants to know whether insurers assess all these and other risk factors properly and take appropriate precautions in good time.
What does DNB expect from insurers?
DNB expects insurers in the occupational disability market to put their primary processes in order and reinforce the management of the risks they are exposed to in a broader sense, particularly given that as from 2016 they will also be responsible for the ‘own risk’ insurance for temporary employees, the so-termed WGA flex. If they excessively or overly have to rely on independent third parties that are crucial to their risk management, a review of strategies and business models is called for. DNB also expects insurers to take steps to control and mitigate all risks so as to ensure that they remain able to meet their obligations and their solvency position is not in jeopardy.
In DNB’s opinion this is not the end to the matter, however, as other occupational disability products are also under pressure and this may even increase as a result of economic or risk-technical developments. Examples include individual disability insurance (AOV-Individueel) or the WGA benefit shortfall insurance (WGA-hiaatverzekering). The latter in the most comprehensive form provides a supplement of up to 70% of the former (maximum) salary, after deducting other sources of income (e.g. current salary and benefits under the WGA ‘own risk’ insurance). DNB finds it important that insurers should also timely make adequate arrangements and take appropriate risk management measures in this respect.