As a consumer, it’s clearly in your best interest to know as much as you possibly can about the product or service you are buying so you can make the best and most informed decision to obtain the best value for your money.
Certain salespeople of any industry avoid subjects and numbers about their product that would put them at a disadvantage. Many insurance agents want to stay away from the following when selling an employee benefit plan.
1. Target Loss Ratio (TLR)
The target loss ratio (TLR) is the insurance companies projected profit point of the extended health and dental benefits of your employee benefit plan. It is the maximum dollar amount of claims paid by the insurance company expressed as a percentage of your premium.
Any amount in excess of the TLR will result in the insurance company losing money and you can expect a premium increase at your annual renewal. When selling an employee benefit plan, one thing many insurance agents would definitely keep their distance from discussing is the target loss ratio of your group plan. Many insurance companies do not disclose it in the quote to the agents – the agent has to ask for it.
Let’s say you spend a dollar in premium for extended health and because you’re a small company. For your size the insurance company wants 30% for administration costs, agent commission, premium tax and a percentage for profit. It is expressed as a 70% TLR. So for every dollar you pay in premium you can only spend 70% on claims, the insurance company keeps the rest. A small company paying $5000 a year in premium can only spend $3500 on health claims. Rarely is that spending limit disclosed to you the consumer.
2. They Are Required To Disclose Commissions
Insurance agents, by law, are supposed to disclose their commissions. Most agents won’t have an issue disclosing it to you but it’s good to know as a buyer that it’s absolutely within your right to ask.
3. A Great Deal Today Could Mean High Increases Next Year
Not too long ago another insurance agent was trying to sell an employee benefit plan to one of my clients. My client received a much cheaper quote and calls me to say the other guy is going to save him a lot of money. I thanked him for calling and told him I would stop by to speak with him.
During the meeting I explained to him his total annual premium for the extended health care with the new company was only $2000 – definitely a great price. The problem was the TLR was only 60% or $1200. He realized that was not very much as he had just handed me $500 worth of claims for physiotherapy, chiropractic and massage.
I could see he was doing some quick math in his head because he knew other employees were also submitting extended health care claims. He now realized the new product would result in a very high premium increase at renewal and this was not a good deal.
The information that reveals this truth was even on the presentation sheet but was not explained to him or what it meant. Needless to say, he was shocked when he realized how the wool was being pulled over his eyes.
4. They Don’t Know The Market
Most insurance agents are not knowledgeable about the advantages of other options, especially when it comes to pooled pricing and the pricing stability it offers to small companies. The average insurance agent only wants to sell you an experienced priced plan because that is all they have available to them. With an experienced plan you could be faced with a significant premium increase as illustrated above.
The plan options available to pooled employee benefit plans are the same as those available to experience priced plans. My experience in benefits is all experience priced plans are the same. They don’t actually know if what they offer is the best value or not because they only sell on price, not the quality of the product and its benefits to your employees.
Some insurance agents will actually mislead you by saying that your extended health benefits and your dental are “somewhat” pooled. That is something that employers need to be very careful about. [Read more about pooled plans here]
5. They Won’t Tell You To Use The Plan
Many insurance agents will promote their benefit plans to help employers attract and retain employees but what you won’t hear is your benefits agent telling you to use the maintenance portions of your benefit plan. Things like purchasing orthotics, chiropractic and similar services are not claims insurance companies like to see a lot of.
Maintaining the health of your employees without your group plan rates going up is a realistic and valid concern for employers. The point of paying for an employee benefit plan is to receive benefits. That’s why they’re called benefits in the first place!
You Shouldn’t Be Afraid To Use Your Plan
You should be concerned if your insurance agent is discouraging you and your employees to use the employee benefit plan and spend money on orthotics, massage, chiropractic, eyeglass and whatever keeps the employee healthy.
This is especially important with anyone in the construction industry. Our bodies are our temple but in construction, they are also the single most important tool for making money.
While we’re discussing this, it’s crucial to know that if you are on experience pricing [like over 90% of Canadian employers], making consistent maintenance claims will inevitably result in your premiums skyrocketing. If you’re not sure what the differences between pooled benefits and experience price plans, be sure to read this article and understand what you are paying for.