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Group Life Conversion - Making Sure Small Details Don’t Lead to Big Problems

October 23, 2016| By Jay Curran | Life | English

Region: North America

Heraclitus, a Greek philosopher, is believed to have originated the expression that the only constant is change. Today, given the many trends affecting the Group Life business, change isn’t just constant - it’s accelerating. From increasing expectations around the customer experience to new advancements in technology, the challenge is to stay ahead while not overlooking the details that keep the enterprise running.

One of those often-overlooked details for group carriers is the conversion privilege. A critical piece of the Group Term Life product portfolio, the conversion privilege is mandated in all 50 U.S. states, the District of Columbia and Puerto Rico. However, the challenges associated with administering it may not always be fully understood or appreciated, and if ignored, could lead to bigger problems down the line.

For example, many states have adopted variations of the conversion privilege as defined by NAIC Model 565, “Group Life Insurance Definition and Group Life Insurance Standard Provisions Model Act.” Other states have structured their own mandates, but the variation in terms of products that must be offered and timeframes that must be met among just those states is striking.

Although conversions are not at the forefront of the sales process, a seamless conversion process enhances the carrier-client relationship by servicing employees in need. Timely execution of the conversion process is critical and can test the service standards of any organization. From notification of the conversion privilege to administering varying mandated extensions of the conversion period and verification of eligibility for conversion, the list of conversion-related activities is extensive. If not properly equipped with the right administrative resources, a carrier potentially puts its business reputation at risk with its clients.

It might seem that Group Term Life carriers that have a sister Individual Life company or division might have a leg up from an administrative perspective. Of course, an individual carrier has the infrastructure built in to manage the policies from the point in time they are issued. Before that however, new processes must be set in place to assure that conversions are offered only to those who are eligible and for no more than the amount for which they are eligible. Questions must be answered, including: Which side of the carrier’s house will own and maintain the administration and/or extra mortality associated with their conversion book of business? If the group side owns the experience, how will the individual side track and charge it back?

For Group Term Life carriers without a sister Individual business unit, the internal costs associated with manufacturing an Individual Life policy can be staggering - actuarial, accounting, compliance, claims payment, licensing, legal, system capabilities to administer individual life plans with cash value, and even additional personnel. Of course, there are also the risks associated with administering a small number of conversion policies. Partnering with a conversion expert is a great way to minimize the associated costs, eliminate exposure to extra mortality and redeploy internal resources to focus on strategic initiatives.

While it includes its own price tag, clear advantages to contracting with a conversion services expert to handle administration include the following:

  • Capital relief - the need for capital that would otherwise be deployed
  • Compliance with state mandated deadlines
  • Expertise in handling thousands of conversion transactions on a daily basis
  • Day-to-day administration of individual policies - assurance that conversion policies are issued, premiums are collected and claims are paid

The insurance market today requires carriers to incorporate changes that create efficiencies and new technologies while balancing legacy systems that support lesser transactional business, such as conversions. Gen Re and our business partner, HRMP, have been working with Group Life carriers for over 20 years to not only alleviate the administrative burdens of conversion, but also remove the selection and extra mortality costs – an investment that is priceless.


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