Coverage portability soon to crash-test

Even though the Covid 19 health crisis is in overtime, the economic crisis that goes with it has yet to emerge in statistics. In 2020 the number of company failures in France was at its lowest since 1987 and the government employment agency reported a drop of 2.7% in category “A” job seekers in the fourth quarter. Financial support for businesses and short-time working have indeed staved off the damaging effects for the moment but these will certainly come through in 2021 and 2022. Insurers, employers and wage earners will be faced, in particular, with the emergence of difficulties in the portability of complementary health and personal protection insurances.

A scissors-effect on portability

Since 2015, employees who lose their jobs benefit, under certain conditions, from a 12 month continuation of the health and personal protection coverage in force in the previous company. At a time of constantly declining unemployment, the effect on actuarial provisions has been generally in line with forecasts (around a 2.5 point impact on underwriting ratios)…at least until now. The alarming reduction in company employee numbers poses a very simple problem: fewer people paying contributions and more people drawing benefits means there is little chance of balancing the books…

What happens when a company fails is not clear

Who will pay for portability? Even now, 5 years after enactment, the law is not clear with regard to company failures. In a decision handed down on 5 December 2020 relating to companies in liquidation, the highest court in the French judiciary – the Court of Cassation – stipulated that even if the company provides no finance the insurer must maintain portability for as long as the policy has not been cancelled. In fact, the commencement of judicial winding-up is no justification for cancelling an insurance…Three years earlier the same court ruled that portability would apply for as long as the policy remained in force, which seemed to mean the insurer’s obligations would cease on expiry of the policy when the company is liquidated. Since then, several decisions handed down have indeed ruled that policy cancellation does not interrupt portability that commenced when the policy was still in force. With more and more company liquidations and disputes, legislators will have to make a move on such issues.

The cost of portability when employee numbers fall

Job Savings Plans (PSEs) – and a lot are expected for 2021 – do not appear to be so complex. A number of insurers have already built into their policy conditions the principle of charging an extra premium, or contribution, in the event of a sharp drop in staff numbers. Employers know only too well: there is no financial magic wand, it is only their contributions that guarantee risk coverage. Rather than financing this risk up-front by making basic contributions more expensive or else inflicting ongoing scheme imbalance, insurers and employers have every interest in isolating the costs of massive job cuts. When posting the extraordinary costs of portability to their PSE a company avoids a lasting hit to their income statement and to their health and personal protection schemes. Such losses have been realised and one can now start afresh.

[1] Pôle Emploi

[2] Prévoyance

[3] Plan de sauvegarde de l’emploi (PSE): Plans dictated by French law prior to implementing a collective redundancy plan.