Take a look at your yearly employee benefits renewal. Do you see TLR’s, ASO, IBNR’s and CFR’s? ...And you thought we had a lot of acronyms in the tech sector ;-)
Employee benefits don’t need to be complicated. In reviewing a sample of Annual Renewals provided to us by a handful of technology employers, significant and needless complication is endemic within the industry.
In a recent review of a sample annual renewal from one client, we counted no fewer than 200 pages delivered. Only a few pages actually contained information that we needed. We all know that simplicity and clarity leads to understanding.
So what are the key issues that you need to key onto to help you focus on what matters for your annual employee benefits renewal? The single most important number in your insured quote for employee benefits is your Target Loss Ratio, or TLR. Your Target Loss Ratio is the set amount of each dollar that you pay to an insurance company that is allocated to pay for claims.
For example, if your TLR is 80%, this means that the insurance company expects to pay $0.80cents in claims for every dollar you give them in premium. Put differently, this means that they need $0.20cents to pay an $0.80cent claim. If you do that math, that equals a 25% administration fee.
If you are dealing with an insured plan (vs. self-funded or ASO), you should negotiate the TLR’s first, as your rates are always driven by your claims. It’s sort of like Rice Krispies; what did you think they were made of? By focusing on your TLR’s, you are dealing with the cause of your rate (the claims) rather than your symptoms (the rates).
To be clear, the higher the TLR, the lower your actual rate. TLR’s are generally higher for larger groups. For smaller groups, it’s not unusual to see TLR’s of 60-75%. For larger groups, they can be as high as 92%.
Remember, an insurer is far more interested in retaining a profitable client than they are in trying to find new clients. In a mature market such as this one, their interest is based on retention. You can use this fact to your advantage at the time of renewal.
Here’s a test.
Take a look at your last 3 years’ Paid Claims (be sure not to look at Incurred Claims). Compare that to the last 3 years’ Paid Premium. In many cases, you will find that the Paid Claims trend is increasing slowly or not at all, while the premium trend is increasing year over year. Is there a big spread between these two numbers? Ask yourself, “why is that?” If your Paid Claims are generally stable, yet your Paid Premium continues to increase, you might consider using that information to negotiate a “tighter” TLR - which will lower the fees you are paying to the insurer to adjudicate your claims.
By knowing the benchmarks, you can arm yourself to be a better negotiator at renewal time.
It has been said that “one should never know how laws or sausages are made”; and the same may be said for employee benefits. But by helping you become a more informed consumer you will empower yourself to deal with a consolidating industry in a dynamic and changing marketplace.
About the Author:
Jeffrey Stinchcombe is a Partner at HealthSource Plus, one of Canada’s fastest growing providers of employee benefits, group retirement and wellness solutions to groups of 50-5,000 employees in Canada. He can be reached at .(JavaScript must be enabled to view this email address).