Claims professionals are paid to navigate difficult situations. Among the most difficult of these challenges is an untimely, work-related death. In addition to the experience of sadness and shock, most workers’ compensation statutes create a lifetime of financial obligations that must be evaluated and distributed to the widow, widower and/or dependents.
Introducing settlement options at these fraught times is hardly ever met with enthusiasm, even several years after the death. Many surviving family members struggle as their loved one is reduced to a number on a check and find it easier on an emotional and practical level to continue receiving weekly payments.
What options does a claims professional have? Other than settle the claim with an annuity, is there a way to improve reserves while maintaining weekly benefits that the surviving family members expect?
The answer is a Two-Party Reinsurance Agreement, a transfer of benefit agreement with a life insurance company through the purchase of a period certain annuity. In plain English, the underwriter purchases an annuity to fund the weekly death benefit for the life expectancy of the widow/dependent/widower. The underwriter can take advantage of the time value of money with a 35-40% reduction in the cost to fund the ongoing benefits—and survivors continue to receive that benefit, uninterrupted.
These agreements come with commutation riders that return a very high percentage (95% on average) of the remaining value of the annuity to the underwriter in the event of death, remarriage, or if the claim is settled. The most attractive additional feature is that approval from the surviving family members is not necessary; only notification is required.
There are some basic facts that must be understood before initiating a Two-Party Reinsurance Agreement. First, it does not settle the claim. It is solely a transfer of benefit, not the qualified assignment that occurs when closing a claim with a structure. While reserves are reduced and administrative costs are minimized, the claim remains open. If the surviving family member lives past his or her life expectancy, payments must be reassumed by the underwriter of the risk. Also, “alive-and-well” checks must be maintained throughout the course of payment.
When settlement is not possible, it is critical to explore options for carriers, TPAs, and self-insured organizations that reduce the cost of open, legacy claims like survivor benefits. Transfer of benefit agreements provide an easy, no-risk savings solution for the underwriter that do not change anything about benefits other than the name at the top of the check for the surviving family members.
If you have any questions or would like to discuss this option, please reach out to me at nwomack@chronovo.com.
