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. |
