FEATURED
ARTICLES:
Collective Purchasing
Plans – The new battleground
Gord Hart,
Partner, Employee Benefits & Pensions
With healthcare
inflation exceeding 15% annually and consolidation of the marketplace,
employers are facing a difficult future in the pricing of their employee
benefit plans. Traditionally, employers utilized a “marketing”
approach to ensure that their employee benefit plan underwriter(s) maintained
competitive pricing based on the risk associated with their policies.
If a policyholder felt that a renewal rate adjustment was “uncompetitive”,
they could have a broker prepare a request for quotation. Underwriters
would respond with their offer for providing the coverage submitted,
and the policyholder would determine whether the incumbent was fair
or if a change of underwriter was required.
This simplistic
approach may have worked in the past where underwriters may have used
little or no claims history in assessing the premium rate requirement,
but most if not all underwriters now use claims experience in assessing
the proper premium rate structure. Underwriters all utilize similar
underwriting criteria in the SME (Small to Medium Enterprise <250
employee) marketplace. This then reduces or eliminates most premium
savings generated by a change of underwriter. If insurer retention rates
(administration rates) differ by less than 5-10%, how can underwriters
provide premium reductions of more than 1-5% overall? Simple, marketing
discounts. Underwriters will spend dollars and “invest”
in new clients to achieve new sales goals, but upon renewal, will put
the policyholder through the same renewal underwriting process as the
previous underwriter. On top of the “marketing discounts”,
a new underwriter will likely require a full funding of the reserve
(reserve is established to offset a perceived lag in claims).
So why would a policyholder
change insurers?
There
are two primary reasons. Click here to read on..
