Brokers – Brokers may or may not have an affiliation with a specific insurer and are generally paid on commission, which is included in the premium remittance structure. Some brokers offer their clients a sophisticated array of consulting and administrative services, while others concentrate on just the basics. By law, commissions must be disclosed on request and should be reviewed annually, just as consulting fees are reviewed against the services rendered. Plan sponsors should know the commissions that they and their employees are paying and should expect quality advice regardless of how the advisor is compensated.
Insurance Agents – Most individual insurance agents specialize in helping people build financial strategies using insurance company products. When their clients are business owners, the opportunity may arise to help clients manage their employee benefits plans. While some agents have enough expertise in employee benefits to competently advise clients, many individual agents rely on the services of specialty firms to supplement their own knowledge. If an agent specializes in individual insurance coverage, the employer should ask if he or she will provide all of the group advisory services or work with another firm. While partnering means splitting the commission between the agent and the specialty firm, the combination may bring a level of expertise that the agent alone cannot provide.
Third-party Administrators – Somewhere between consultants and brokers, TPAs provide outsourcing as well as advisory services. Their compensation as advisors may be directly or indirectly subsidized by the fees they collect for plan administration. Some also offer claims administration and advice on plan design.
Efficient systems can help an employer create a platform for total rewards communication and culture when internal resources have been reduced. However, plan sponsors should clearly define their data integrity and ownership rights, particularly in the event of a system upgrade or contract termination. It may seem counterintuitive to plan in advance to terminate the contract, but it’s analogous to a pre-nuptial agreement—it can save a lot of time and money if the plan sponsor decides to change TPAs in the future.
The plan administration contract should be properly constructed to allow for an orderly transfer of data or termination of services. However, it is difficult to anticipate all contingencies, creating a virtual handcuff to the current administrator. Once services are outsourced, plan sponsors can resume these responsibilities in-house, but not without considerable investment and careful planning. Consider the cost, quality and ease of the future change before making any commitments.
Crossover and Considerations
Until recently, insurers aligned themselves with employee assistance providers to bundle services and expand the breadth of their services. The acquisition of Shepell·fgi by Morneau Sobeco, for example, may cause insurers to adopt a different course of action for the future.
With the consolidation of the Canadian insurance market, the remaining insurers offer quality service, flexibility and generally competitive pricing. Many agents offer services beyond group insurance. For example, an agent may manage the owner’s personal insurance needs or serve all of the general insurance needs of the business.
Moreover, insurers are now stepping into the consulting arena. With the growth of disability management and health and productivity services, the insurer has access to information at a very granular level. In a drug utilization review, for instance, an advisor can request data from the insurer and charge for the analysis and advice, or the advisor can work with what the insurer offers at a reduced cost. Insurers are compensated based on claims volume; their advice is logically influenced by their own claims systems and inherent limitations. For a large group or problem, it may be worthwhile to retain a consultant or broker. For routine annual reviews of a simple group plan, it may be more economical to work directly with the insurer.
Before deciding, consider both cost and quality of input—as well as the cost of not acting. Flexible benefits plans, in particular, require a higher degree of diligence than plans with no coverage choices. Consequently, the communication needs, the periodic review of the coverage choices and the pricing require a level of expertise that may extend beyond the resources of a smaller broker or individual agent.
Some consultants have entered the world of administration, providing full-service outsourcing as well as consulting services. Full outsourcing shifts all administration services and most employee contact to a third party. Larger employers with widespread workforces may find outsourcing attractive, particularly if their internal resources are limited. Smaller employers, however, should be cautious that they are grouped with appropriate peers to ensure that outsourcing is a cost-effective strategy. Whether this is a good business decision will depend on many factors, including the viable alternatives, the internal resources available and the number of transactions.
