The group insurance industry isn’t immune to the current economy. However, insurers are expecting to bring change and innovation to the marketplace as a result of this downturn.
Downsizing, salary freezes and cutbacks have become the way of the times, and insurers, like employers, have to do more with less.
“If you have a case that has 1,000 lives, you expect to collect premiums for all 1,000. If [the plan sponsor] cuts 200 employees, you are only going to collect premiums for 800 lives,” explains Jean Guay, senior vice-president, group insurance, with Standard Life (No. 10 on the Top 20 Group Insurance Providers ranking). “If you look at the benefits that are based on salary, like disability and life, there is 2% or 3% inflation that is factored into the plan. If the salary isn’t increased, you don’t get that premium either. That has an impact on the revenue.”
With less revenue coming in and clients closely examining their plans to find ways to contain or cut costs, insurers have to be able to perform effectively under pressure. For many insurers, this simply means going back to basics.
“I think for companies like ours that have strong core values, the adaptation is really about sticking to those core values and doing what you do, really well,” explains Brad Fedorchuk, vice-president, group marketing, with The Great-West Life Assurance Company (No. 1).
Stuart Monteith, senior vice-president, group benefits, with Sun Life Financial (No. 2) adds, “In this economy, there is increased pressure on insurers to be more efficient in the delivery of our products. And we have to be increasingly sensitive to our clients’ needs. They are going through tough times. We need to understand their needs so we can adapt and provide solutions.”
But just as providers need to be aware of their clients’ needs, they also need to make sure their own needs are being met. For this reason, providers are becoming increasingly focused on bottom-line costs. “Insurers are adapting [to market conditions] by presenting favourable renewal proposals to [active] groups that have positive experience results in an effort to maintain such business,” says Scott Heard, vice-president, sales and marketing, group insurance, with Industrial Alliance (No. 9). “Conversely, less favourable renewal proposals are developed for groups that have consistently produced negative experience results.”
Marg French, worldwide partner with Mercer, says, “The insurance industry is cautious and being a little more selective in the risks that they underwrite. I think as a result of that, there is more thorough analysis of risk going on.” However, Guay says risk management is something that the industry always pays close attention to. “Risk management is the basis of our business. We’re paid for this expertise. There are many factors insurers consider when assessing risk, including the economic climate. This is not specific to the current market conditions; it’s an ongoing process.”
More for Less
Times are tough and clients want to see their dollars go further. They want better service and more options, but they don’t want to pay extra for it. So what does this mean for insurers? “Clients’ expectations of all suppliers are increasing,” explains Heard. “Clients are seeking the best service provider and the lowest possible price. Clients are much less willing to pay a premium for preferred service. Successful insurers will be required to offer “best in class” service at a highly competitive price.”
But that’s not all clients are looking for. As their workforce becomes more dynamic, employers need products that will help them—and their employees—through times of transition. If insurers want to grow their market share, they have to be ready to meet these new needs. “We are coming out with some products and services that are helping companies through the downsizing process. Products like voluntary benefits and rollover benefits for those who may find themselves out of the workforce temporarily or permanently,” Monteith says. He adds that clients want their relationships with their insurers to be more collaborative and more of a partnership. “They need to know that we are behind them and supporting them in these tough times. They are looking to us to provide some innovative ideas. We also really need to focus on quality customer service.”
Additionally, Heard says, “Third- party-administered arrangements are growing in number and influence across Canada, as benefits advisors seek increased leverage with providers to better serve their clients’ needs and expectations.” He explains that when clients are looking for potential claims payers, they are looking at more than just price. They’re also considering aspects such as call centre capabilities; online administration systems; solvency of the claims payer; claims management expertise; electronic explanation of benefits; direct deposit capabilities; and employee communications support. “Plan sponsors will seek provider relationships that satisfy all of these needs,” he says. Insurers need to be at the top of their game, providing clients with the best service—and price—they can offer.
Getting Personal
The practice of expanding employer-paid benefits to become better armed in the talent war is coming to an end. “We are seeing a movement toward plan sponsor and plan member cost-sharing, whatever that looks like: increased deductibles, introduction of formularies,” says Todd McLean, principal with Eckler Ltd. “Gone are the days where employers picked up the whole tab for benefits programs. Most plans don’t have formularies, but we are seeing an increase in them because it’s a cost-containment technique.”
Until recently, wellness was the word in the group insurance market, but economic conditions seem to have stifled the buzz. “It now appears that plan sponsors are focusing their attention on their existing benefits programs and are not investigating the potential value of additional offerings such as health and wellness initiatives,” Heard explains. “It seems unlikely that plan sponsors will consider additional investment in their benefits plans until confidence returns to the financial markets.” Guay believes that once the markets stabilize, the focus will return to health and wellness products.
Heard points out that the current economic environment also has plan sponsors rethinking the funding arrangements and designs of their plans. He says these challenging times are causing some plan sponsors to reassess their previous decisions to switch from an insured arrangement- (in which the insurer accepts the liability for the total claims paid and the plan sponsor’s liability is limited to the premium charged by the insurer) to an administrative services only (ASO) arrangement [in which the insurer or other third-party claims payer (TPP) provides claims payment services and related administrative support but is not financially liable for the claims payments]. In ASO arrangements, the plan sponsor is financially liable for claims payments and receives a monthly invoice from the insurer or TPP for the claims actually paid. “We are seeing an increasing number of requests that involve a potential switch from ASO to insured benefits as plan sponsors seek to limit their potential liability for health and dental benefits,” Heard confirms.