Module 2

Question 1

Outline factors affecting the scope of the benefits plan management function and process

Answer 1

Overall group benefits plan management function and processes (e.g., who makes plan decisions, how they make them, who is accountable and applicable legislative requirements) vary depending on who the plan sponsor is. Other factors that affect plan management include the complexity and comprehensiveness of benefits coverage, size of the group, uniformity of benefits for different categories of members, geographical dispersion of members, whether the plan offers insured benefits and the number of service providers involved in insuring and/or administering the plan (e.g., insurers, advisors and third-party administrators (TPAs)).

Question 2

List three common plan activities which take place regardless of what type of entity acts as the plan sponsor

Answer 2

Regardless of what type of entity acts as the plan sponsor, there are common plan activities that fall into three key areas: plan design, plan administration and plan funding. These three areas are interrelated; decision making in one area can strongly influence decision making in another. At the same time, each area has a distinct and specific focus and set of activities. The plan sponsor must also consider decisions in one area in the context of the overall governance of the benefits plan.

Question 3

Outline plan features generally focused on in group benefits plan design (6)

Answer 3

Group benefits plan design includes the plan sponsor’s analysis and decision-making process when implementing a new plan or reviewing/changing an established plan. While plan design considers all possible benefits/provisions a group plan typically offers (in addition to funding and administration methods), plan design activities generally focus on:

(a) Benefits plan philosophy/objectives

(b) Categories of individuals eligible for benefits coverage

(c) Type and level of benefits provided and under what terms and conditions

(d) Whether plan members can choose some of their benefits

(e) Who pays for coverage

(f) How to manage plan costs.

Question 4

Discuss the role of the insurer in determining a plan sponsor’s funding arrangement options.

Answer 4

The funding arrangement relates to who will be financially and legally responsible for payment of claims and expenses incurred under the benefits plan. Ultimately, the insurer determines which funding arrangement options are available to a plan sponsor based on the size of the plan, types of benefits provided, volume of contributions to the plan or volume of premiums for insured benefits, volume of claims, regulatory requirements, tax considerations, the degree of financial risk the plan sponsor can assume and the insurer’s willingness to assume (i.e., underwrite) the risk associated with the plan. The factors affecting the choice of funding arrangement apply to all types of plan sponsors (single employers, trustees of multi-employer plans (MEPs), associations, etc.).

When the funding arrangement includes sharing risk with an insurer, the insurer uses the underwriting process to evaluate the risk of the plan and decide whether to insure it and at what price. Essentially, underwriting is the assessment of risk for the purpose of pricing group insurance (i.e., setting premium rates). Pricing involves determining the cost of expected claims plus administration charges, and from these projected costs, setting premium rates.

Question 5

Describe the broad categories of activities required in benefits plan administration. (3)

Answer 5

While activities vary depending on whether it is an established plan or is undergoing changes in benefits, insurer or other service providers, or is a new plan (start-up), plan administration generally requires:

(a) Determining an appropriate administrative approach.
(b) Performing plan member enrollment and benefit eligibility activities
(c) Evaluating the overall benefits program and specific benefits against appropriate performance standards

Question 6

Identify the policyholder in association plans

Answer 6

The association is the group policyholder. It signs the master contract, decides what types of insurance to purchase, negotiates the terms of the contract with the insurer, makes decisions regarding plan amendments, administers the plan, and collects and remits all premiums.

Question 7

Discuss factors that influence the viability of employer association plans from an insurer’s perspective (4)

Answer 7

While generally a good insurable risk, the viability of employer association plans depends on:
- A close relationship between members and the association
- A committed association executive
- Association administration capability
- A long-term, sustainable, competitive plan

Question 8

Identify challenges with plans for an association of individuals. (3)

Answer 8

Challenges with these plans typically stem from the fact that the plan is not based on an employer-employee relationship, which means:

(a) There are no employer contributions made to the plan

(b) There is no centralized automatic mechanism (e.g., payroll) for collecting premiums. Pre-authorized payments from plan members mitigate this challenge.

(c) Member solicitation must be done individually (in contrast to soliciting employers for employee groups), increasing marketing costs.

Question 9

Describe key characteristics of MEPs

Answer 9

MEPs generally cover employees working under the terms of a collective agreement. Typically, a MEP covers members of a union within a single trade (e.g., a construction trade, such as carpenters or electricians, or members of a union that represents multiple trades or industries). In these types of industries, union members can work for many employers within the industry (employers who are unrelated financially) throughout their career; therefore, there is not a standard employer-employee relationship.

A MEP commonly uses a trust structure, managed by trustees, to deliver benefits. A trust fund or trust funds are created to receive contributions from participating employers on behalf of each union member they employ, and the supporting plan or plans are created to provide benefits to members. Similar to association plans, MEPs can achieve a larger contributing group and a larger pool of funds by pooling the contributions of many employers.

Question 10

Explain the significance of the trust agreement and the participation agreement in managing a MEP.

Answer 10

The “sponsors” (who may be a union or one or more unions together with an employer/association group) normally establish the trust agreement. In trusts, the sponsors are the “settlors.” The settlors establish the trust, support the collective bargaining agreement requirements that ensure funds are contributed to the trust, set and amend the terms of the trust, appoint the trustees and determine the beneficiaries.

A trust agreement establishes the terms and conditions for overall trust management and empowers the trustees to make decisions related to the trust operations (e.g., adopting policies for benefits, investment of funds, governance, etc.)

Unless an employer is a signatory to a collective bargaining agreement that specifically indicates it has received and adopted the trust agreement, it is not necessarily bound to the trust or to any rules the trustee establishes. If employers are not parties to the trust agreement, there should be robust participation agreements between the employer and the trust fund.

Question 11

Outline the rules trustees must adhere to in administering a MEP (7)

Answer 11

• Duty to obey the trust instrument (This is the primary duty)
• Duty of care
• Duty of loyalty (act in the best interests of beneficiaries)
• Duty of discretion
• No-delegation rule
• Duty of confidentiality
• Duty of disclosure

Question 12

Explain why single employers are the most attractive type of benefits plan sponsor for insurers

Answer 12

The most prevalent type of plan sponsor is the single employer. Single employers include corporations, partnerships and sole proprietorships as well as government organizations and government-sponsored agencies such as school boards and social work agencies. Single employer groups satisfy the five fundamental principles of insurance, and insurers consider them a desirable risk.

Question 13

Identify the policyholder in a single employer plan.

Answer 13

In single employer plans, the employer is the group policyholder. It signs the master contract, decides what types of group insurance coverage to purchase, negotiates terms of the contract with the insurer, makes decisions regarding plan amendments, administers the plan, and collects and remits all premiums.

Question 14

Explain the role of governance in benefits plan management. (6)

Answer 14

Good governance can help plan sponsors ensure legal compliance and avoid liability. Good plan governance:

(a) Is essential for meeting fiduciary and other obligations

(b) Minimizes risks and maximizes efficiency

(c) Promotes accurate, timely and cost-effective delivery of benefits

(d) Promotes consistent administration of the plan in the best interests of plan members and beneficiaries

(e) Requires control mechanisms that encourage good decision making, proper and efficient practices, clear accountability, and regular review and evaluation

(f) Contributes to positive plan performance and helps to demonstrate due diligence on the part of the plan sponsor.

Question 15

Identify tools available to support good governance practices in group benefit plans

Answer 15

Group benefit plan sponsors can draw on guidance provided to pension plan sponsors through various bodies, such as Canadian Association of Pension Supervisory Authorities (CAPSA), to improve their own benefits plan governance structures and processes. The CAPSA Pension Plan Governance Guideline No. 4 describes the structure and processes for the effective administration of a pension plan to ensure the plan administrator meets its fiduciary and other responsibilities.

Question 16

Group benefit plan sponsors can draw on guidance provided to pension plan sponsors through various organizations, such as Canadian Association of Pension Supervisory Authorities (CAPSA), to improve their benefits plan governance structures and processes. Outline the eleven principles contained in the CAPSA governance guidelines.

Answer 16

(a) Principle 1: Fiduciary responsibility
(b) Principle 2: Governance framework
(c) Principle 3: Roles and responsibilities
(d) Principle 4: Performance monitoring
(e) Principle 5: Knowledge and skills
(f) Principle 6: Governance information
(g) Principle 7: Risk management
(h) Principle 8: Oversight and compliance
(i) Principle 9: Transparency and accountability
(j) Principle 10: Code of conduct and conflict of interest
(k) Principle 11: Governance review

Question 17

What are the key government-sponsored plans that coordinate with group benefit plans, and what types of benefits do they provide? (4)

Answer 17

(a) Provincial/territorial health insurance plans, which provide basic medical and hospital services

(b) Canada/Quebec Pension Plans (CPP/QPP), which provide retirement and disability pensions.

(c) Employment Insurance (EI), which provides income benefits to insured workers who are temporarily unemployed through no fault of their own as well as special income benefits to employees who have an interruption of earnings due to certain events (e.g., parental and maternity leave, sickness and leave to provide compassionate care).

(d) Workers’ compensation (WC), which provides workers with a no-fault guarantee of compensation, including income replacement for disabled workers, survivor benefits if workers die as a result of a work accident, and payment of medical and rehabilitation expenses for work-related injuries or illnesses.

Question 18

Explain the significance of human rights legislation for group benefit plans sponsors and service providers

Answer 18

Human rights legislation makes it illegal to discriminate against an individual on numerous prohibited grounds.

In the context of insurance, group benefit plans cannot discriminate on a prohibited ground in terms of eligibility requirements or amount of coverage provided unless there is bona fide justification for the differential treatment or unless legislation permits it.

Discrimination is reasonable if based on a sound and accepted insurance practice and there is no practical alternative.

Question 19

Explain the significance of employment standards legislation for group benefits plan management.

Answer 19

Employment standards legislation provides for statutorily protected leaves of absences. All jurisdictions provide for unpaid pregnancy and parental/adoptive leave. Benefits must be continued during these protected leaves. Neither employees nor employers can contract out of these standards. If an employee receives a greater right than that provided by statute (e.g., through an employment contract or collective bargaining agreements), this greater right prevails over the corresponding minimum standard.

Question 20

Explain the significance of section 6(1)(a)(i) of the Income Tax Act (ITA) for group benefit plans.

Answer 20

Section 6(1)(a)(i) of ITA addresses taxation of employee benefits. The paragraph’s general thrust is to include in employment income “the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment.” This includes most fringe benefits. However, there are a number of specific exemptions, many of which can be described as relating to the health and welfare of the employee.

Question 21

Provide examples of both taxable benefits and allowances as outlined in Income Tax Folio /S2-F3-C2

Answer 21

(a) Free or subsidized board and lodging

(b) Cash gifts and awards

(c) Personal use of an employer’s automobile or vacation property

(d) Holiday trips, prizes and incentive awards for an employee and employee’s family

(e) Provincial health insurance premiums in provinces where premiums are payable by residents

(f) Life insurance premiums

(g) Employer contributions to a group sickness or accident insurance plan (except wage loss replacement plans)

(h) Reimbursement for tools used by employees in employment

(i) Low and interest-free loans

(j) Financial counselling and income tax return preparation.

Question 22

Give examples of nontaxable benefits from employment

Answer 22

(a) Contributions to a registered pension plan (RPP) or deferred profit-sharing plan (DPSP)

(b) Counselling services related to mental or physical health, termination of employment or retirement

(c) Distinctive uniforms and special clothing required for employment

(d) Transportation to place of employment if provided directly by the employer

(e) Use of an employer’s recreational facilities

(f) Recreational facility dues if membership is required and benefits the employer (the expense is not deductible to the employer, however)

(g) Non-cash incentive awards of up to $500 to mark achievements such as length of service or safety standard awards

(h) Employer contributions to a wage loss replacement plan that pays benefits on a periodic basis

(i) Contributions to a private health insurance plan (except in Quebec for provincial income tax purposes)

Question 23

Explain the significance of privacy laws for group benefits plan management

Answer 23

Privacy legislation directly impacts all benefits plan administration activities, including enrolling employees, confirming eligibility, obtaining evidence of insurability, managing coverage provisions, processing claims, communicating with plan members and other stakeholders, and overall management of the data stored in the benefits administration systems. To avoid liability, plan sponsors must establish proper procedures, policies and forms to ensure staff and service providers adhere to privacy rules.

Question 24

Describe the regulation of Canadian insurance companies

Answer 24

In Canada, the regulation of insurance companies has two different but interrelated purposes: the regulation of insurance industry solvency (i.e., financial soundness) and the regulation of insurers’ market conduct. Solvency regulation is the responsibility of both provincial/territorial governments and the federal government, depending on where the company is incorporated. Insurers that incorporate federally are subject to the financial soundness/solvency regime administered by the Office of the Superintendent of Financial Institutions (OSFI). OSFI is an independent agency of the Government of Canada. Insurers that incorporate in a specific province or territory are subject to the oversight of that province or territory.

Question 25

Explain why OSFI requires insurers to maintain at least 150% of the calculated Minimum Continuing Capital and Surplus Requirements (MCCSR) to meet their obligations.

Answer 25

The Insurance Companies Act (ICA) requires federally regulated life insurance companies to maintain adequate capital and liquidity, in particular, to maintain an adequate margin of assets over liabilities. This minimum level of capital is the MCCSR. The MCCSR guideline provides the framework for OSFI to determine whether or not a life insurer is maintaining adequate capital reserves to meet its outstanding liabilities. OSFI has the power to require a life insurer to increase its capital or to provide additional liquidity.

Question 26

What is the MCCSR based on?

Answer 26

The minimum amount of capital an insurer must hold takes into account the possibility that actual policy payouts may differ significantly from expected policy payouts because of various events beyond the insurer’s control. The MCCSR is based on five risk components including asset default risk, mortality/morbidity/lapse risks, changes in interest rate environment risks, segregated funds risk and foreign exchange risk. The ratio is set at 150% rather than 100% because the MCCSR calculation does not explicitly address all risks (e.g., systems, data, strategic, management, fraud, legal and other operational and business risks, and risks the actuary does not explicitly address when estimating policy liabilities).

Question 27

Explain the significance of the so-called Uniform Insurance Acts. (5)

Answer 27

The Uniform Insurance Acts (and the Quebec Civil Code) establish many of the fundamental rules and regulations applicable to all insurance contracts, including group life and health insurance policies. The Uniform Life Insurance Act requires every group policy to provide the following information in the policy:

(a) Name of the group policyholder or a sufficient description of the insured (e.g., the group policyholder)

(b) Method of determining persons whose lives are insured

(c) Amount, or the method of determining the amount, of the insurance money payable as well as conditions under which it becomes payable

(d) Period of grace, if any, within which the premium may be paid

(e) Whether the contract provides for participation in a distribution of surplus or profits that may be declared by the insurer.

The Uniform Accident Insurance Act contains equivalent policy information requirements as well as protects the interests of the policyholder and insured members from misrepresentation by one of the insured members.

Question 28

Explain the role of the AMF in Quebec

Answer 28

The Quebec government has mandated the AMF to regulate the province’s financial services industry and provide assistance to consumers of financial products and services.

Under the Act “Respecting the Regulation of the Financial Sector,” the AMF oversees, in an integrated manner, the areas of insurance, securities, derivatives, deposit institutions—other than banks—and the distribution of financial products and services. Its mandate includes ensuring that the financial institutions and other regulated entities of the financial sector comply with the solvency standards applicable to them and the obligations imposed on them by law to protect the interests of consumers of financial products and services. It also supervises the activities connected with the distribution of financial products and services and administers the rules governing eligibility for and the carrying on of those activities.

Question 29

Explain how the CLHIA code of ethics influences insurance industry practices. (8)

Answer 29

CLHIA membership accounts for 99% of the life and health insurance in force in Canada. As a condition of membership, all CLHIA members are committed to conducting their business in accordance with the CLHIA code of ethics. The code focuses on fair treatment of insurance consumers (including group consumers) through:

(a) Keen, fair competition so the public can obtain the products and services it needs at reasonable prices

(b) Advertising services and products clearly and straightforwardly and avoiding practices that might mislead or deceive

(c) Ensuring that illustrations of prices, values and benefits are clear and fair and contain appropriate disclosure of amounts that are not guaranteed

(d) Writing all contracts in clear, direct language without unreasonable restrictions

(e) Using underwriting techniques that are sound and fair

(f) Paying all valid claims fairly and promptly without unreasonable requirements

(g) Ensuring competent and courteous sales service

(h) Respecting the privacy of individuals by using personal information only for the purposes authorized and not revealing it to any unauthorized persons.

Question 30

Explain the significance of CLHIA guidelines and reference documents for group insurance practices.

Answer 30

CLHIA develops guidelines and reference documents designed to promote consistent practices and standards for the life and health insurance industry and to reinforce the best interests of consumers and the industry. CLHIA guidelines do not have the force of law, and legislation takes precedence over the guidelines; however, insurers are expected to abide by these guidelines as a condition of membership. Insurers may develop their own practices, provided they meet the minimum standards set out in these guidelines.

Question 31

Describe the mandate of the Third Party Administrators Association of Canada (TPAAC) (5)

Answer 31

The TPAAC is an association of organizations that are engaged in the business of providing pension and benefit administration services to companies, unions and associations. Its goal is to represent the interests of the members of TPAAC in a common voice to the insurance industry and the various provincial and federal government regulatory bodies. Its strategic focus includes:

(a) Promoting and protecting the interests and conserving rights of those engaged in the business of third-party administration of group insurance and pension plans

(b) Promoting standard and sound business and administrative practices among TPAs

(c) Educating the public on the business of TPAs

(d) Sharing information for the mutual benefit of the members

(e) Promoting maintenance and improvement of the qualifications and standards of TPAs.

Question 32

Describe the mandate of the OmbudService for Life & Health Insurance (OLHI)

Answer 32

OLHI is a national independent complaint resolution and information service for consumers of Canadian life and health insurance products and services, including life, disability, employee health benefits and travel benefits, and investment products such as annuities and segregated funds. Its mandate is to provide free, prompt and impartial assistance with consumer complaints and information inquiries. The OLHI role in complaints handling is to guide consumers through the industrywide complaints resolution process by providing:

(a) General information on Canadian life and health insurance products and services, including life, disability, employee health benefits, travel and insurance investment products such as annuities and segregated funds

(b) An independent complaints resolution process for those consumers whose complaint or concern is not resolved to their satisfaction by their life and health insurance company within certain time frames.

Question 33

Explain the protection offered by Assuris to group insurance policyholders.

Answer 33

Assuris is an independent not-for-profit industry-funded compensation organization that protects Canadian policyholders in the event their life insurer fails, by minimizing the loss of insured benefits and ensuring a quick transfer of their insurance policies to a solvent company, where their protected benefits will continue to be honoured. All life insurance companies authorized to sell in Canada are required by federal and provincial/territorial regulators to become members of Assuris.

Assuris protection applies to life insurance, critical illness insurance, health expenses, disability income, long-term care, and some money accumulation or annuity policies in the event of insolvency of their insurer.

Question 34

Outline the general rights of insurers that are parties to group insurance contracts. (13)

Answer 34

(a) Be provided with accurate information so it can adequately assess the risks involved, assess the validity of claims and set the rates appropriately

(b) Inspect group policyholders’ payroll and other records to assess the eligibility of plan members (this is usually specified in the policy)

(c) Adjudicate claims as per the terms of its policies

(d) Underwrite and decline business

(e) Decline to renew policies

(f) Deal only in those locations (provinces/territories or countries) that are allowed by law and in which proper services can be provided

(g) Change underwriting procedures, reserve formulas, interest credit formulas, retention formulas, benefit wording (with the signature of the insurance company’s president or chief executive officer on the contract and/or amendment page), underwriting guidelines, standard commission scales on future business, service procedures, service staff and service locations

(h) Change standard internal administration procedures

(i) Decline coverage for any amount over the nonmedical maximum coverages if the plan member cannot pass medical underwriting approval

(j) Cancel benefits for plan members who are not actively at work (e.g., during a strike)

(k) Sell all or a part of its book of group clients to another insurer. A book of group insurance policies refers to a section or to a portfolio of policies.

(l) Refuse to deal with a specific advisor and refuse to quote on any specific group

(m) Invest monies in their pools as the insurers see fit (and as permitted by law).

Question 35

Outline the general rights of policyholders (or plan sponsors) that are parties to group insurance contracts. (12)

Answer 35

(a) Determine the design of the benefits plan within the parameters of what the insurer is prepared to underwrite

(b) Determine which benefits are to be included, if this meets underwriting approval

(d) Determine the method of funding to be used, if this meets underwriting approval

(d) Determine the premium share between the plan sponsor and plan members

(e) Cancel the policy at any time and not replace it, unless specific employment contracts or union or employee association agreements say otherwise. Plan members need to be advised immediately to ensure they have a chance to convert their group life insurance benefits to personal life insurance policies.

(f) Change insurers at any time, provided no plan member loses group life or disability insurance coverage

(g) Change the premium-sharing arrangement with the plan members at any time

(h) Change the agent of record at any time. Smaller policyholders using a captive agent (an insurance agent who only works for one insurance company) may be able to change only to another agent within that insurer, if they wish to retain their policy with that specific insurer. All others can change at any time to whomever they wish. Commissions cannot be paid to individuals who are not licensed to receive commissions in the province or territory where the group policyholder is located (this is usually where the head office of the policyholder is located).

(i) Collect and remit the plan member share of the premium

(j) Expect the insurer will deliver services and pay claims as per the terms of the policy, including any amendments and anything promised verbally or specified in writing by the (salaried) insurer representatives (not to be confused with the advisors)

(k) Receive and keep refunds of premiums without refunding to plan members their share. Refunds may be accomplished in the form of a premium holiday, where plan members remain insured but are not required to contribute to premiums for a specified period, or by investing the refund in other areas that directly benefit plan members.

(l) Cancel or stop paying premiums for benefits when plan members are not actively at work, such as during a strike, except as required by law.

Question 36

Outline the general rights of plan members who are insured under group insurance contracts.

Answer 36

(a) Expect notification of any change to benefit wording within a reasonable time period and, preferably, before a change takes place

(b) Be provided with copies of a current plan member booklet

(c) Expect the plan sponsor to make proper deductions and to remit the premiums in a timely manner so as not to jeopardize the policy or the claim payments

(d) Change their own revocable beneficiaries of the life insurance benefit at any time. In Quebec, a spouse as beneficiary is irrevocable, unless explicitly indicated as revocable.

(e) Expect the plan sponsor to look after the plan members’ best interests in terms of setting up coverage and handling the funding of the benefits in a judicious manner that represents the best interests of all concerned parties (this is rarely challenged by plan members)

(f) Expect the plan sponsor to enroll group members on time so as not to cause a delay in their coverage or dependent coverage or the possible declination of that coverage

(g) Expect the plan sponsor to submit timely eligibility information (e.g., enrollment of new group members, salary changes, etc.)

(h) Expect privacy and confidentiality of all personal information and all information that pertains to their claims or the claims of their dependents. No information that is attributable to or identifiable with a specific plan member can be released without the plan member’s or the dependent spouse’s written permission.

(i) Decline coverage, unless the policy’s administration is set up by the plan sponsor as a condition of employment.

Question 37

Outline the general rights of dependents under group insurance contracts.

Answer 37

Dependents covered under group policies have few rights under those policies, particularly in terms of actual policy wording, coverage, the definition of dependent, administration, rates and enrollment. Unless specifically directed by the policyholder or by the terms of the group insurance policy wording, it is up to the plan member to declare on the group insurance enrollment form that there are dependents and that coverage for dependents is required.

Question 38

Outline the general rights of an advisor appointed as the agent of record of a group insurance contract. (7)

Answer 38

(a) Request and inspect the overall premiums, claims and rate history for each benefit of the policy.

(b) Request, inspect and clarify plan member data used by insurers to provide competitive and accurate quotes

(c) Request clarification from the insurer of the terms and conditions of the policy, on behalf of the group policyholder

(d) Request assistance from the insurer, via the group office, in reevaluating a particular claim (only if permission has been granted by the group policyholder)

(e) Request plan member and dependent medical information on behalf of the insurer; once requested, such information can be sent directly to the insurer by the policyholder

(f) Assist the policyholder in the group insurance administrative functions as requested by the policyholder and as allowed by the insurer and by law

(g) Participate in the analysis of group insurance quotes as requested by a group policyholder.