The benefit plan review

It would be nice to think that some aspects of your business could be left to look after themselves once they’re established, but the truth is that everything you do needs periodic re-evaluation.

In the benefits world, flexible plans require annual cost, coverage and experience reviews. A review may even lead the HR department to the most time-consuming change of all, and the one with the greatest potential to affect benefits service and costs, a change of insurance carrier.

The decision to review insurance providers is known within the industry as “marketing” the benefits plan, or “taking the plan to market.” Sometimes employers undertake this process by themselves, but in Canada, it is more commonly done with an agent, broker or consultant.

To market, to market…

Each employer has unique benefit goals, priorities, programs and workforce dynamics. As a result, the decision to review the provider relationship may be driven by a single issue or many factors. The most common reasons providers embark upon a review are:

•an employer’s internal issues, such as ownership changes, downsizing or profitability;

•to ensure an existing plan is up to date with the current environment (Does it reflect evolving employee needs or regulatory changes?);

•problems with the current insurer, such as cultural incompatibilities between the organizations or limited administration or service capabilities;

•limitations in the insurer’s product line, such as too little flexibility or a failure to support innovative plan designs;

•problems with the current insurer’s service, such as a failure to meet time or service standards; or

•the advice of the associated agent, broker or consultant in response to one or more of these issues.

Another reason employers may consider marketing their plan is to get a sense of the product and cost options available. There may be no compelling reason to change the carrier but the marketing process reaffirms that the current service relationship is the best one for the firm’s needs. However, there may be some unnecessary risk in this approach.

Consolidation in the insurance industry lets insurers be more selective about the business they take, and charge a premium for less attractive risks. Going to market means close scrutiny of the benefits plan and the truth is carriers may not like what they see. It’s a bit like dating, just because you’re available doesn’t mean you’ll receive a lot of offers.

If an employer has a compelling reason to take the plan to market — rather than simple curiosity about what options are out there — it offsets some of the risks inherent in the process.

The review process

Once an organization decides to review the carrier relationship, the work begins in earnest. The first step is determining the needs and what key criteria will be used to evaluate alternatives. Usually, this is done with an advisor or intermediary — an agent, broker or consultant.

The advisor will help develop a summary of requirements, known as a request for proposal (RFP). The RFP is generally distributed to all the possible insurance carriers, although sometimes a short-list of preferred providers is developed. The accuracy and specifics of the RFP are important, as they enable insurers to assess requirements, evaluate their ability to meet needs and price services.

The RFP usually includes specifics about gender and age of employees, their occupation or class of employment, their earnings and coverage amounts, as well as any dependent coverage. Past premium and claims experience are also provided to determine appropriate costs.

If the insurer is unable to adequately assess the sponsor’s needs, it may request additional information, or an extension of the response deadline. In some cases, it may even decline to submit a bid for the business.

Evaluating proposals

The RFP is an evaluation tool for both the sponsor and the potential insurers. The insurers will review the requirements and assess:

•if the business represents a desirable risk;

•whether current premium rates are competitive;

•if they can match current or desired plan design;

•whether they have the ability to provide the required administration service;

•if the timeline and the resource requirements are feasible; and

•who will be their most likely competition.

Then, upon receipt of the insurer proposals, the sponsor’s advisor will evaluate the responses to compare costs, service limitations and guarantees, underwriting assumptions and conditions, detailed descriptions of each benefit to be provided, eligibility criteria, and any deviations from the original requirements.

Once this is complete, the advisor will likely present this in a spreadsheet format to allow for the easy comparison of the pros and cons of each response. This, along with a careful review of the response specifics, will lead to a short-list of finalists for personal presentations, more detailed discussions or even on-site visits.

And the winner is…

When the review process end with the selection of a viable provider, it may be the start of a new relationship. If the decision is made to move to a new carrier, you will need to determine an implementation timeline for the changeover, review the current administration practices and identify any modifications required by the carrier change or any new contract provisions, decide how the change will be communicated to employees and what communication material should be provided so they can manage their benefits effectively in the new environment.

The advisor will continue to play a role throughout this final stage, and the chosen insurer will also be an active participant from this point on.

Changing insurance carriers for a plan of any size is a major undertaking. But that doesn’t mean this option should be avoided when reviewing business needs. As plan designs evolve, new products become available, and administration options expand, HR professionals owe it to the business and its employees to have the right benefits partner.

Jacqueline Taggart is a principal in the communications practice of the Toronto office of Morneau Sobeco. She can be contacted at (416) 385-2119 or [email protected].

To read the full story, login below.

Not a subscriber?

Start your subscription today!