Consolidation and economies of scale have dominated conversations about the group insurance industry in recent years. With stakeholders focused on these areas, a smaller player has emerged and capitalized on employers’ needs left unmet by large carriers. That player is the third-party administrator(TPA). Traditionally viewed as a supplement to the insurance industry, TPAs are now positioning themselves to reshape the industry. Currently, TPAs are seen as a heterogeneous mix of companies. Marilee Mark, vice-president of marketing, group benefits, with Manulife Financial in Waterloo, Ont., describes the group as having “varying degrees of services and levels of sophistication among them.”(Manulife places second on this year’s ranking of group insurance providers.) Typically, they are small businesses in niche markets run by people with insurance backgrounds. Some take care of the administration of an employer’s benefits plan, while others also do claims adjudication. TPAs can be brokers or offer only software solutions for administration. “From the enrollment, eligibility and billing side, TPAs have always been there,” says Alex Diemer, client service delivery leader with Aon Consulting in Toronto. For larger insurance companies, providing services to non-traditional groups of employees—such as unions, construction workers or teachers— is often not cost-effective. This has created an opportunity for TPAs that have stepped in to provide administration and then partnered with the carriers to cover the risk. “Insurance [companies] do a great job of handling most cases,” says Pat Donnelly, a vicepresident with Manion, Wilkins & Associates Ltd., a TPA in Etobicoke, Ont., “but when it comes to difficult or challenging groups they don’t do as well.” Camille Isaacs-Morell, senior manager, marketing and strategy, group insurance, with Standard Life(which places ninth on this year’s ranking of group insurance providers) in Montreal, believes TPAs have a role to play, particularly in managing unconventional plans. TPAs are willing to take on the administration that insurers aren’t geared toward providing, which can involve personalized service for the employees of a client or catering to employers with fewer than 75 lives. DEMANDING DIFFERENCE
Some believe consolidation within the industry has reduced choice and flexibility for employers, not just unconventional employee groups. “Is [the TPA market] expanding because there is a frustration from dealing with carriers and maybe [plan sponsors] not feeling the level of service from before? I think that’s part of it,” says Diemer. “Also, carriers may not be as flexible in their design of products and what they are willing to accommodate, so employers are searching out alternatives.” Carole Yari, president of RWAM Insurance Administrators in Elmira, Ont., believes the relationship among TPAs, insurers and employers is win-win-win. “Employers are demanding choice, and we’re bringing it to them while [we sell] the insurers products,” she says. And, adds Donnelly, outsourcing to a TPA can allow insurance companies to focus on their core competencies, namely risk management, while the TPA does administration more efficiently. AN EVOLVING ROLE
TPAs are not, however, into the risk side of insurance, which includes life and disability. “We have no intention of taking on risk,” says John Moore, vice-president, business development, with Johnston Group in Winnipeg and president of the Third Party Administrators Association of Canada (TPAAC). “We see ourselves as partners.” TPAs have previously been seen as a support to the insurance industry and not a partner or competitor, but that’s changing. Employers who are willing to take on the risk of health and dental plans internally are turning to TPAs to provide administration services for such claims. More and more insurers are outsourcing their administration to reduce margins. Of the approximately $26.2-billion group insurance market, it’s estimated by Fraser Group that TPAs have 10%. “Group insurers need to pay close attention to TPAs,” says Mark. Besides adding flexibility and personalized touches while helping to reduce costs, TPAs are the catalysts that allow a further unbundling of benefits services, says Suzanne Caron, vice-president, pricing, underwriting, systems and quality control for group benefit, with Standard Life in Montreal. “They can offer different services to the employers by enabling unbundling without passing on the difficulty of working with multiple insurers to the employer.” This creates a challenge for the insurance companies that can become removed from their clients. Carriers need to focus on building strong, ongoing relationships with employers by responding to their needs. PRESSURE TACTICS
One way carriers can respond to needs and enhance relationships with employers is to deliver on their demands for creative strategies for dealing with their aging workforce and assistance with cost containment. Stephen Gould, senior vice-president, human resources, for Purolator in Mississauga, Ont., says he wants insurance companies to be more proactive. One idea he suggests is to mine data on his company’s members and alert him to trends he could address with education programs or awareness campaigns. “We’d like to know, for example, about diabetes patterns so we could plan for the future if necessary.” It comes down to plan sponsors craving value-added service from insurance carriers that goes beyond just administration—a service that TPAs can do cheaper. Gould believes the increasing presence of TPAs may ignite some necessary competition, which will allow employers to be more demanding of the industry. “Plan sponsors want more control,” says Moore from the TPA Johnston Group. “We give control and opportunity to clients.” Insurance companies are feeling the pressure of this new dynamic. “[Insurance companies] haven’t come up with any new benefits to distinguish themselves,” says Joel Drolet, director of sales for group insurance and individual brokerage, for Assumption Life(which places 17th on this year’s ranking of group insurance providers)in Moncton, N.B. “We have to come up with insurance that TPAs cannot copy.” Brigitte Parent, senior vice-president of group benefits, Sun Life Financial(which places third on this year’s ranking of group insurance providers)in Toronto, says it’s pretty clear the role of the benefits provider has evolved, and employers are looking to insurers for atypical solutions. “We need to step away from the conventional.” Manulife’s Mark believes the demand on the insurance industry is a result of a maturation of traditional benefits offerings. Carriers, she says, need to look at other types of offerings. New benefits could include more flex aspects to plans, elements of health spending accounts and access to alternative health services. THE TRADE-OFF
Using a TPA can help reduce margins for employers or insurers, and their smaller size and responsiveness to change will shake up the market. However, there are apprehensions about the lack of regulation of TPAs. This is a particular concern when it comes to those that are evolving into adjudicators and brokers. Standard Life’s Isaacs-Morell recognizes that TPAs already administer cases for some insurers and are eager to build more alliances, but she stresses that carriers should have operational mechanisms in place to deal with them. Assumption Life’s Drolet says TPAs need to be regulated because “some are large organizations that do administration very well, while others are not.” Employers, says Sun Life Financial’s Parent, should thoroughly investigate any TPA they want to partner with for adjudication. “[Employers] can sometimes spend a lot of time focusing on fees and miss doing the due diligence on the adjudication, which can very quickly offset any savings they may have gained in fees.” As a major part of the workforce continues to get older and the new generation of workers demand more personalized attention, insurance companies will have to find new ways to deliver services either through innovation within their organizations or through strategic partnerships with TPAs. TPAs are positioning themselves to support insurance companies in their attempts to respond to employers needs. They are also helping employers source flexibility and customization. Insurers are beginning to realize they need to become more responsive to employers. If they choose not to, they’ll watch TPAs move in on a larger part of the market. Just add integrity John Moore, vice-president, business development, with Johnston Group and president of the Third Party Administrators Association of Canada(TPAAC), is very aware of the sometimes negative reputation of TPA s around the lack of regulation. That’s why his company and eight other well-known Canadian TPAs created TPAAC, he says, so insurers, employers and regulators can have confidence that members of the organization follow standard best practices. Currently, there are 12 members in TPAAC. In order to join the organization, a TPA must agree to an audit from the global auditing firm KPMG, which requires, at minimum, that the company prove it meets the standards for doing business. This includes specific procedures related to fund segregation, client/insurer funds reconciliation and internal client fund protection controls. The company must also show it has a written disaster recovery plan. Moore adds that the Office of the Superintendent of Financial Institutions(OSFI)has outsourcing regulations(known as guideline B-10)for insurers. TPAAC wants to raise awareness of the organization and its regulations. |
Open to the unexpected Wellness initiatives or health promotion as part of the benefits package is on the wish list of increasing numbers of employers. “We have access to a wealth of data to help [employers] build the business case for the investment,” says Brigitte Parent, senior vice-president of group benefits, Sun Life Financial in Toronto, and insurers need to capitalize on it. According to Laura Mensch, senior vice-president, national practice leader, health strategies, with Aon Consulting in Toronto, targeting the employee and specific, key disease states is the path to success with health promotion programs. Suzanne Caron, vice-president, pricing, underwriting, systems and quality control for group benefit, with Standard Life in Montreal, adds, “Everyone is reluctant [to start programs] because it is difficult to demonstrate the financial impact, but we have to invest initially to get the return at a later time.” Along with wellness programs, Mensch says the need to communicate and educate employees is increasingly important. Dave Johnston, executive vice-president, group, with Great-West Life(which places first on this year’s ranking of group insurance providers) in Winnipeg, says that this year “the employment environment [created] more challenges in staffing and, as such, the value of benefits moved up in priority from past years.” Employers want their employees— who are in varying demographic groups that pose very different communication challenges—to understand the benefits package in order to attract and retain. Employers are also struggling to get employees to understand their role in controlling costs. Cost control is the number one priority for employers, and they are open to new approaches to address the challenge. Johnston has noticed a move in management strategies away from cost shifting to cost avoidance by looking at promoting areas such as prevention and healthy workplaces. “We’re seeing evidence of a more integrated health and disability approach,” he says, so employers are realizing that costs in one area, such as prescription drugs, can result in savings in another area, such as disability. This way of thinking about benefits is shedding light on a previously overlooked area of disability—mental health. Johnston says plan sponsors’ awareness of mental health issues in the workplace is growing due to “it’s impact on benefit costs and productivity.” Employers are also increasingly willing to accommodate the needs of their employees depending on where they are in the country. It’s a growing trend known as regionalization. Assumption Life’s Joel Drolet, director of sales for group insurance and individual brokerage, says employers are looking to tailor benefits plans to the demands of specific regions to attract(in Alberta)or retain(in the Maritimes) their best talent. Marilee Mark, vice-president of marketing, group benefits, with Manulife Financial in Waterloo, Ont., has observed additions to benefits packages in the West and a focus on drug spending in the some of the Atlantic Provinces. The demand for talent in the West is also pushing plan sponsors into the global workforce. Employers are not only attracting employees from other provinces but from other countries, too. “People are a lot more mobile,” says Caron. “So employers are asking insurance companies to assist them in providing coverage.” In addition, some companies are outsourcing their benefits or are looking to provide insurance for affiliate companies in multiple countries. “We have to form alliances and partnerships so we can provide services to those employers.” |
THE NUMBERS We’ve made significant changes to this year’s Group Insurance Report. To ensure consistency in how the group benefits industry is reported and measured, we have adopted the methodology of the Group Universe Report, the industry standard. Under this methodology, used with the permission of Fraser Group, group insurers were asked to exclude revenues for government-sponsored social benefit programs and for creditor and affinity group business when reporting their 2006 revenue figures. For the full methodology, click here. The group insurance industry experienced moderate growth of 6.7% in 2006 with the total insured premiums at $26.2 billion as of December 31, 2006. The top 20 providers accounted for $23.7 billion of the total insured premiums and experienced a 6.7% growth over last year. Great-West Life placed first on the ranking of group insurers with $5.7 billion in revenues. That’s a 5.1% increase over last year. Manulife Financial took the number two spot with $5.53 billion and a 3.2% increase, and Sun Life Financial came in third with $5.51 billion after experiencing 9.5% growth. Desjardins Financial Security saw a 16% increase—the largest last year—moving it into fourth place with $1.4 billion. In group health, the top three providers are Great-West Life Assurance Co., Manulife Financial and Sun Life Financial, Group Benefits. The insured premiums of the group health sector total $12.8 billion—a 4.2% increase over 2005. After a 3.5% growth, the group life sector has total insured premiums of $2.28 billion this year. Great-West Life Assurance Co., Manulife Financial and Sun Life Financial, Group Benefits, are in the top three spots. Administrative Services Only Providers had a sector total of non-insured premiums of $11.2 billion, which increased 8.7% from 2005. The top three providers in this group are Sun Life Financial, Group Benefits, Great-West Life Assurance Co. and Manulife Financial, respectively. |
Leigh Doyle is assistant editor of BENEFITS CANADA. leigh.doyle@rci.rogers.com For a PDF version of this article, click here. |
