When it comes time to renew your employee benefit plan, an unreasonable increase in premiums might have you wondering whether or not you are better off changing from one experienced price insurance company to another.
What no insurance agent is going to tell you is that this will almost always end up working against you by the second year of the plan. Changing from one experience price employee benefit plan changes nothing – it just makes things worse for you as an employer.
Getting The Truth
Falling for the enticing offer of a lower premium from another experience-priced company (what is experience pricing?) only transfers the employee claims from one company to another. If you are paying a lower premium for the employee benefit plan then your premium increase will be higher with the new company.
For example, let’s say you paid a total of $10,000 annual premium for your Extended Health Benefit and had $12,000 in claims. You could be faced with a 30% increase in premiums with your current insurance company simply because they lost money on your plan.
If you moved your employee benefit plan to another company and the annual premium becomes $8,000 while you are still making $12,000 worth of claims, your benefit premium increase could be as high as 50%.
Where they cut upfront, they make up for on the back end later. If it sounds too good to be true, it probably is but how can Canadian employers know what they need to without getting an education in insurance companies?
Is That Really The Deal You Think It Is?
When a competing insurance agent tries to attract your business during renewal time, they will always lead with very low premiums in the first year. What they don’t tell you is that it always leads to a higher premium increase in the second year.
In a previous blog we talked about the target to loss ratio insurance companies work off to gauge their profits and you can be certain that the agent has taken this into consideration when quoting you that low introductory rate.
It’s great to get that cheaper deal the first year but once you start making claims the insurance company will want to recover that lost money as soon as possible and you’re the one that will be paying in years 2, 3, 4 and so on.
How Far Does Your Dollar Go?
If you are a small company, a dollar invested in extended health premiums will see a 30% administration fee, a cut for the agent’s commission plus tax and, of course, profit. The average insurance company will only be leaving you with roughly 70 cents from every dollar to go towards claims.
If a new insurance company ends up giving you an incredible discounted rate for the first year, despite the fact you spent more in claims historically, you can guarantee your rates will be skyrocketing the following year.
Solving The Cycle of Outrageous Premium Increases
Moving your plan to a pooled benefit program will help stabilize premium increases for companies with higher than normal claims. Keeping your employee benefit plan with an experience priced company reminds me of the famous definition of insanity: doing the same thing every day and expecting a different result.
If any broker or agent tries to convince you to buy solely on price, their only interest is to get you in the door without taking any consideration of the specific needs of your business. They should have more respect for your time then that.
This practice is akin to tactics that internet providers used to employ where you would get an introductory rate that was great for 12 months until it shot up to the regular rates. The main difference here is the agent can’t predict your rate next year, nor should they because they can’t do so without seeing your claims.
Don’t let an agent lure you with price unless they truly understand your business and the way you are making claims. A professional broker will give you an employee benefit plan that works for you and your staff so you can avoid any unpleasant surprises at renewal time.