Quoting Benefit Plans: Why Do Different Insurers Have Different Pricing?
Whether you’re looking to purchase an employee benefits plan for the first time or wanting to explore other options for your existing benefits plan, it’s not uncommon to receive varying quotes from different carriers.
Why Am I Receiving Different Quotes From Different Insurers?
At any given time, depending on an insurer’s book of business and willingness to try to increase their market share, you may see a significant difference from the lowest to the highest rates quoted - for the same plan design.
Why The Lowest Quote Isn’t Always The Best Choice?
Sometimes the lowest quote simply means that insurer is trying to “buy your business” at the front-end. It’s important to remember that they still have expenses and profit margins to cover, and the lower price at the front end can often mean that your plan will end up underfunded. What happens to a plan that is underfunded? In a Casino, the house usually wins. The insurer will recoup their losses and aim for more profitability at renewal time through premium increases.
What Other Factors Can Affect My Renewal?
When health & dental benefits are traditionally funded there is one key factor not often discussed at the outset: The ‘incurred but not reported’ (IBNR) reserve is a factor that is not always added to your rates until the end of the renewal period and can form part of the un-sustainable discounts offered when trying to earn your benefits business. The IBNR can be a percentage of claims or premium and could range generally from 8 to 12% depending on the carrier, and in some cases, it is not always disclosed.
Different Insurers Can Have Different Criteria
In addition to the IBNR, there are a number of other criteria that can differ between insurers. Here are a few examples:
- Target Loss Ratio (TLR): The percentage of claims to premiums required to cover expense and profits
- Inflation/Trends: Can range from 5-14% on dental and health claims. These are used to help forecast your future claims.
- Stop Loss: A claim threshold and expense that increases costs
As a key cog in your employee compensation package, benefits are not a commodity but rather a sum of moving parts. When looking to shop around your benefits plan, it’s important to have a benefits specialist leading the charge. This individual will be able to break down the intricacies of your benefits plan and advise you on what’s in the best interest of your company, both in the short term and the long term.