Employee Benefits Checklists and Myths #7

September 9, 2020
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Team CloudAdvisors

Employee Benefits Checklists and Myths #7

September 9, 2020

Welcome to Part 7 of our Employee Benefits Marketing series – A checklist of items to properly market employee benefits and the myths associated with each step. Employee Benefits Marketing Checklists and Myths #7 discusses financial projections and overpriced plans.

The 10 Point Employee Benefits Marketing Checklist was created to equip advisors and employers with effective tools and information that go beyond marketing, simply based on price. Our checklist is now available in the CloudAdvisors Solution Library. Search for “CloudAdvisors” or contact an employee benefit specialist who is #poweredbyCloudAdvisors to share it with you.

Employee Benefits Marketing Checklist #7: Calculating Financial Projections in Quotes

A financial projection is produced by predicting future premium cost for benefit plans. It does this using rates and fees in the current quote and claim patterns. Providing these forward looking costs in proposals may seem obvious. However, it is possibly the most missed checklist item. As covered in previous items, benefit costs are dynamic. They change monthly with coverage volume and yearly with renewal rates. Most employee benefit plans are sold on an annual term, which means the insurer guarantees the unit rates for one year.

This makes it easy to show attractive savings in the first year only. An Advisor should evaluate the future projected costs of each proposal; this is done to determine true savings and impact when presenting a proposal to change benefit plans.

Two primary considerations in a financial projection:

  • Impact of proposed premiums versus expected claims
  • Disclosure of marketing investments by benefit

Employee Benefits Checklist #7: Benefit Renewals

Benefit renewals are essentially based on the previous years’ claims. Similarly, patterns can be reviewed and inflated to predict future claim volumes and premiums. If claim volumes remain unchanged, or even increase during the year, this can have a greater impact at renewal. When evaluating savings such as experience-related benefits like health and dental, it is essential to determine where the costs are being generated. If there is an insufficient premium to pay for claims and fees, the savings will be short-lived. In addition, a proposal with cost savings may reveal significant increases starting the following year.

Employee Benefits Checklist #7: Investment vs. Savings

The marketing investments are referred to as a “investment” rather than “savings”. This is because investments are designed to be returned in the future. When benefits are priced in the market, competing providers may offer a reduced rate to increase the attractiveness of their proposal. This will not meet expectations if the client is looking for long term savings. However, if the client is looking for short term savings, these discounts can be beneficial. Insurers typically have 10-30 percent to “invest” in discounting insurance premiums on a quote. This can depend internally on the allocation of investments to meet quarterly sales targets.

Withholding financial projections and not disclosing marketing investment in proposals can lead to attractive but artificial savings.  Employers basing their decision to change providers may make poorly informed decisions. This results in disruption to cash flow and complaints from employees about benefit cost volatility.

Marketing Myth #7: Our Current Benefits Plan is Over-Priced

This is false. It is common in any given year when an employer requests an Advisor to conduct a marketing. Many other providers will be able to produce quotes with savings. On the surface, this may make the current benefits plan and provider look over-priced. However, insurance has a true cost in terms of risk and claims that can only be discounted for so long.

Though these quoting providers are essentially investing in the first year’s rates to win over the employer’s business, costs will need to be recouped in future renewals based on claims. Insurers offering discounts may also have an internal policy for recovering these costs. The policies for recovering costs in future years should be negotiated and disclosed. Employers cannot sustainably switch providers every year to realize these discounted rates. Similarly, by budgeting for the true costs, true savings can be differentiated from market forces. Employers can see how competitive and sustainable their benefit costs really are in the marketplace.

Advisors can also use this information to help employers intelligently take advantage of discounts. In addition to this, it can help ensure plans are always competitively priced each year.

You can find more information about Employee Benefits Checklists and Myths #7 in our solution library.

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