Fully Insured Health Products
The Fully Insured Health line of business is comprised of: (i) specialty health,
including dental, vision, short-term medical, supplemental products (including
fixed indemnity limited benefit, critical illness, and hospital indemnity);
(ii) pet insurance; (iii) non-subscriber occupational accident; and (iv) major
medical business that is in run-out. Independence American has exited major
medical business as a result of healthcare reform which caused adverse underwriting
results in 2013 and 2014. IHC affiliates perform marketing, sales, underwriting
and administrative functions on the majority of our Fully Insured Health business.
We have also established a relationship with a leading provider of international
health plans for specialized niche markets. We also own 80% of GAF, which through
its wholly-owned operating subsidiaries (including third-party administrators
and brokers) focus on non-subscriber occupational accident coverage in Texas,
injured-on-duty coverage in Massachusetts and other accident-related coverages.
Ancillary Products
This category is primarily comprised of dental, vision, short-term medical,
and supplemental products (including fixed indemnity limited benefit, critical
illness, and hospital indemnity). These are sold through multiple distribution
strategies. The ancillary products grew significantly in 2015 and we expect
continued growth in 2016.
Independence American sells group and individual dental products. IHC administers
the majority of Independence American's dental business and is also the primary
distribution source of this line of business. The dental portfolio includes
indemnity and PPO plans for employer groups of two or more lives and for individuals
within affinity groups. Employer plans are offered on both employer paid and
voluntary bases. As part of the distribution of our dental products, we also
offer vision plans that offer a flat reimbursement amount for exams and materials.
Gross dental premiums remained flat in 2015. We expect the dental business to
remain relatively flat in 2016.
Independence American sells short-term medical (“STM”) products
in the majority of states. STM is designed specifically for people with temporary
needs for health coverage. Typically, STM products are written for a defined
duration of at least 30 days and less than twelve months. Among the typical
purchasers of STM products are people who are in between open enrollment periods
or need coverage for a limited duration until their Affordable Care Act (“ACA”)
plan becomes effective, and others who need insurance for a specified period
of time less than 365 days. Independence American’s gross premium increased
significantly in this line of business in 2015. We anticipate continued growth
in this line of business in 2016 in part due to increased demand for coverage
and new distribution relationships.
The Company markets supplemental products to individuals and families. These
lines of business are generally used as either a supplement to a major medical
plan or in lieu of major medical coverage for persons that choose not to purchase
such coverage. The main driver for growth in this line is that consumers are
moving to higher-cost sharing on their individual major medical plans, and are
looking for products to help them offset the additional risk of higher deductibles
and out of pocket limits. The product lines included in this supplemental grouping
include critical illness and bundled packages of accident medical coverage,
critical illness and life insurance. Sales of hospital indemnity plans (“HIP”)
and fixed indemnity limited benefit plans decreased in 2015 due to a regulatory
ruling that was subsequently overturned by a federal court. These products,
which are available in most states are available through multiple distribution
sources including Company owned direct-to-consumer websites, call center and
career agents, general agents and on-line agencies.
Pet Insurance
Independence American writes pet insurance through a marketing and administrative
company that manages one of the largest blocks of this business in the United
States. During 2012, Independence American began to renew premium that had been
underwritten by another insurance company. These plans are marketed to dog and
cat owners through veterinary offices, independent marketing organizations,
its nationwide call center, and increasingly, direct-to-consumer.
Occupational Accident
Independence American writes occupational accident insurance through marketing
and administrative companies owned by GAF. This occupational accident product
provides accidental death, accident disability and accident medical benefits
for occupational injuries to employees of companies that have elected to not
participate in the Texas workers compensation system (non-subscribers). The
product also gives the employer the option to purchase coverage for employer’s
liability. Employer’s liability arises when an injured employee brings
an action against the employer for occupational injuries and chooses not to
accept the benefits provided for by the employer’s occupational accident
benefit plan. The employer is covered for damages and costs arising from the
settlement of such action, subject to the terms and limits of the policy. On
December 31, 2013, GAF acquired an entity that provides administrative services
for occupational accident insurance as well as Injured on Duty coverage, a form
of occupational accident coverage. We have achieved synergies through coordination
of administrative services with other entities owned by GAF, and we will continue
to seek cost savings.
Medical Stop-Loss
During 2015, Independence American marketed and reinsured employer medical
stop-loss insurance nationally on a direct basis through Risk Solutions and
indirectly through two select independent managing general underwriters ("MGUs"),
which are non-salaried contractors that receive administrative fees. MGUs are
responsible for establishing an employer's conditions for coverage in accordance
with guidelines formulated and approved by Standard Security Life and Independence
American, billing and collecting premiums from the employers, paying commissions
to agents, and third-party administrators ("TPAs") and/or brokers.
Standard Security Life and Independence American were responsible for selecting
MGUs, establishing underwriting guidelines, maintaining approved policy forms
and reviewing employers' claims for reimbursement, as well as establishing appropriate
accounting procedures and reserves. After Westport receives the appropriate
regulatory approval of their policies, Independence American will cease writing
new business.
Self-insured group major medical plans permit employers flexibility in designing
employee health coverages at a cost that may be lower than that available through
other health care plans provided by an insurer or managed care organizations
(“MCO”). Employer medical stop-loss insurance provides coverage
to public and private entities that elect to self-insure their employees' medical
coverage for losses within specified ranges, which permits such groups to manage
the risk of excessive health insurance costs by limiting specific and aggregate
losses to predetermined amounts. It is available on either a "specific"
or a "specific and aggregate" or an “aggregate only” basis.
Specific stop-loss coverage reimburses employers for large claims incurred by
an individual employee or dependent. When an employee’s or dependents'
covered claims exceed the specific stop-loss deductible, covered amounts in
excess of the deductible are reimbursable to the employer under the specific
stop-loss policy. The specific stop-loss deductible is selected based on the
number of covered employees, the employer's capacity to assume some of the risk,
and the medical claim experience of the plan. Aggregate stop-loss coverage protects
the employer against fluctuations due to claim frequency. The employer's overall
claim liability is limited to a certain dollar amount, often referred to as
the attachment point. An aggregate stop-loss policy usually provides reimbursement
when coverage claims for the plan as a whole exceed the aggregate attachment
point.
Group Disability
IHC entered into a reinsurance relationship with a leading producer of expatriate
business, effective January 1, 2012, which provides employee benefit insurance,
including medical, life, and disability, to expatriates, third-party nationals
or high net-worth local nationals. Independence American will continue to reinsure
10% of the risk on the health business in 2016, and we have filed these policies
in the United States on Independence American’s paper for employers that
wish to purchase a domestic policy to cover their employees. Due to anticipated
growth of this program, the Company expects an increase in premium in this line
of business in 2016.
Independence American reinsures 20% of Standard Security Life's DBL. All companies
with more than one employee in New York State are required to provide DBL insurance
for their employees. DBL coverage provides temporary cash payments to replace
wages lost as a result of disability due to non-occupational injury or illness.
The DBL business is marketed primarily through independent general agents. Independence
Reinsurance
Reinsurance is an arrangement in which an insurance company (the "reinsurer")
agrees to indemnify another insurance company (the "ceding company")
against all or a portion of the insurance risks underwritten by the ceding company
under one or more insurance contracts. Reinsurance provides a ceding company
with additional underwriting capacity by permitting it to accept larger risks
and write more business than would be possible without an accompanying increase
in statutory capital and surplus. There are two basic types of reinsurance arrangements:
treaty and facultative reinsurance. In treaty reinsurance, the ceding company
is obligated to cede and the reinsurer is obligated to assume a specified portion
of a type of category of risks insured by the ceding company. Treaty reinsurers
do not separately evaluate each of the individual risks assumed under their
treaties and, consequently, after a review of the ceding company's underwriting
practices, are largely dependent on the original risk underwriting decisions
made by the ceding company. In facultative reinsurance, the ceding company cedes
and the reinsurer assumes all or part of the risk under a single insurance contract.
Independence American currently only participates in treaty reinsurance. Both
treaty and facultative reinsurance can be written on either a pro rata basis
or an excess of loss basis. Under pro rata reinsurance, the ceding company and
the reinsurer share the premiums as well as the losses and expenses in an agreed
proportion. Under excess of loss reinsurance, the reinsurer indemnifies the
ceding company against all or a specified portion of losses and expenses in
excess of a specified dollar amount, known as the ceding company's retention
or reinsurer's attachment point, generally subject to a negotiated reinsurance
contract limit. Premiums paid by the ceding company to a reinsurer for excess
of loss reinsurance are not directly proportional to the premiums that the ceding
company receives because the reinsurer does not assume a proportionate risk.
In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding
commission. The ceding commission generally is based on the ceding company's
cost of acquiring and managing the business being reinsured (commissions, premium
taxes, assessments and miscellaneous administrative expenses). Independence
American participates in pro rata reinsurance for their medical stop-loss business.