An article was recently published in the Vancouver Sun called The Painfully Slow Evolution of Group Benefits and I wanted to address it here because I have a couple of issues with their approach to the information presented.
There is no question that many employee benefit plans currently being sold in the Canadian marketplace are not meeting the needs of all the employees in the company.
The Problem With Employee Benefit Plans
The main issue I had with the commentary in the Vancouver Sun article was that it only focused on the agent marketing system that the major insurance companies have had in place since they opened for business. All our major insurance companies (SunLife, ManuLife, Great West Life, Empire, Greenshield, etc.) have been providing employees the same product line with different values with a “one plan design fits all” approach for every employee in a company.
For example you have a choice of 80% or 100% reimbursement on prescriptions. A $300 payment for a chiropractor compared to $700 with another company, with or without a deductible. There are hundreds of components inside an extended medical and dental plan; the value of each component can be manipulated to obtain a lower premium. That is how they have been marketing.
These plans are ‘experienced priced’ and you are buying their product at retail cost.
The real question is why have they not changed their marketing strategy to suit the current market conditions? Here is a partial list of issues:
- The major insurance companies only educate their marketing agents on “the values” attributed to a chiropractor benefit ($300 up to $700). Rather than educating the agent on the effects of high chiropractor claims of their experience-priced plan at renewal.
- A car salesman sells the car and the mechanic knows how it works. A group consultant knows how to sell it and he can tell you how it works. It almost seems that insurance companies are not interested in educating an agent on how their product works.
- Lack of infrastructure to support flexibility; agents are unable to market flex designed benefit plans because the insurance companies simply don’t have it in their administration and computer systems to be able to offer it.
Third-Party Administrators (TPA) Can Design Products
When you deal with a third-party administration company, they design the products and handle the monthly premium billing for the insurance company. They design the product needed to suit the variety of demographics within any company.
As a broker, when we design a flex plan, which includes essentially anything we want. We take three of our best plans and put them on one billing statement and create a premium that’s collected on behalf of a major insurance company such as Great West Life or ManuLife, etc.
The Versatility of Flex Plans
As a broker, our TPA handles all the administration including collecting the premium on a flex plan, which is typically three different plan designs, but the insurance company doesn’t care how we design the product, they will simply hold us accountable for billings. Within 60 days the insurance company sends our third-party administration company a bill. At that point, we take the money collected from premiums and send them a cheque.
We send them one cheque but it could be a culmination of 20 plan designs, obviously depending on the clients individual needs.
Employee Benefit Plans Shouldn’t Be Oversimplified
Major insurance companies have little incentive to over-complicate the process by offering infinite options. It makes more sense to package and sell employee benefit plans in a simplified process so agents require less training and employers have less to think about. Any sales and marketing expert will tell you that when you have too many options, you are less likely to close the sale because the client can’t decide what they want.
The major insurance companies prefer not to go through the extra work from additional administration and billings when they could simplify, standardize and have anyone sell it.
The Benefits of Using A Broker
Using an insurance or benefits broker is similar to using a mortgage broker: you get the expertise and knowledge of an insider without having to pay them. Brokers make a commission off of the plan provided by the insurance company and, in turn, are not biased to any particular insurance company.
A great broker will guide you through the process of finding employee benefit plans from a range of competing insurance companies to get you the best value for your money.
Perhaps the writer of that Vancouver Sun article simply overlooked the option of flex plans and the valuable service a third-party administrator. The benefit is similar to that of using a mortgage broker to buy a home; the broker doesn’t charge an additional fee, the banks pay them. This allows him or her to remain unbiased when finding the best deal for their clients.
Any company purchasing employee benefits needs to do the research before settling on a group plan and enlist the help of a trusted and knowledgeable benefit consultant – they can be worth their weight in gold in the long run.
Unfortunately, over 90% of Canadian employers aren’t even aware they are paying what’s called “experience pricing” and buying their benefit plans at retail prices. Read this article to learn more about the differences between traditional ‘experience priced’ plans and pooled benefits.