Accurately estimating the premiums that a company should pay is essential to a comprehensive review of the cost of employee benefits.
The premiums required on a specific date are the best indicator of future premiums and an excellent indicator of the competitiveness of the financial arrangements granted to a company by its insurer. Let’s examine some of the factors that influence this.
Bidding: balancing the best prices with the creation of a partnership
Two important factors must be considered when establishing the required rate: the insurer's administrative costs and the level of investment agreed upon in the premium rates in the context of a bid.
- Since administrative costs are composed more of fixed than variable costs, the higher the number of employees in the company's plan, the lower the costs as a percentage of premiums. In the years following a request for proposals, they may be gradually reviewed by the existing insurer.
- In a competitive bidding context, insurers analyze the group's past experience to set rates at the required level. However, to win a contract, insurers bid rates well below those required, often with rate guarantees longer than the standard 12 months.
It might therefore be logical to conclude that, to pay the lowest possible premiums, an employer should often issue RFP’s. However, in the Canadian and Quebec markets, insurers very often prefer to establish long-term business relationships with companies. Thus, a group that repeatedly finds itself on the market risks being refused several bids from insurers and, in the long term, experiencing much greater difficulty in obtaining more favorable administration fees and rates.
Claims history: group profile as a determinant of fair premiums in group insurance
One of the key concepts used to set rates for group insurance is a group's own experience. For underwriters, the past always affects the future. On average, did participants consume a lot of medication or make maximum use of the massage therapy services provided for in the contract the previous year? If so, we can bet that this will happen again next year. The insurer will therefore want to be sure to charge premiums that are sufficient to cover its costs.
In larger groups, the past profile of long-term disability insurance claims and sometimes even life insurance claims can also be used to determine the appropriate level of premiums required.
Comparative analysis and overall costs of group insurance plans
A comprehensive review of the coverage offered by a company's group insurance plan is often overlooked during a diligent HR review. It is essential to understand how a company's plan compares to others using a panel of comparables. The size of the group, its composition (executives or factory workers), the geographic location of employees, the proportion of costs absorbed by the employer, and the organization's industry are some of the factors to consider in this exercise.
Once the comparative analysis of the plan is complete, the company must verify whether the results are in line with what it wants to offer. Does it want to offer a plan that stands out from the crowd to attract and retain the best talent in its field? Would a median plan satisfy employees? It is then essential to make the necessary adjustments to the plan's coverage to bring it up to the desired level.
Secure your HR decisions with a group plan assessment
An in-depth comparative analysis helps determine the fair cost of a company's group insurance plan. The same applies to the risks associated with specific plans and agreements, particularly in the context of mergers, acquisitions, or strategic reviews. If these reviews are not conducted by rigorous professionals, unexpected and costly discrepancies may arise later, compromising the smooth continuation of operations.
Support from Lussier experts in diligent HR review
Lussier's specialists are available to help you establish an optimal long-term cost control strategy, both through sound governance and the implementation of prevention programs (disability management, health and wellness, or stress management). Contact us for a comparative analysis tailored to your specific needs.