Lesson 12

Question 1

12.1.1 Describe the marketing process in the context of group insurance

Answer 1

potential or current plan sponsor or its advisor solicits proposals or bids from insurers for the purpose of implementing a new or modified group benefits plan or to determine whether the costs and services of its current plan are competitive.

A plan sponsor can market a group benefits plan either directly or through an intermediary.

Question 2

12.1.1.b What are the two ways a sponsor can market a plan

Answer 2

Directly or through an intermediary

When marketing a plan directly, the plan sponsor deals directly with insurers,
typically their account executives. This method is most often used by larger plan sponsors (e.g., 200 or more group members). When using an indirect marketing
approach through an intermediary (who deals directly with the insurer), a plan sponsor can use an agent, broker or consultant, collectively referred to as “advisors.”

Question 3

11.1.2 Identify factors considered by a plan sponsor when choosing an insurer to
underwrite and/or administer its group benefits plan

Answer 3

Level of coverage, premium rates, retention expenses, level of technology, method of underwriting

Other considerations are legislative, tax, financial, administrative and provider issues

Question 4

12.2.1.a Briefly describe how agents operate in the intermediary
role in the group benefits plan market.

Answer 4

Captive agents only sell products of the agent’s sponsoring company

Agents are compensated in the form of commission paid by the insurer whose products they sell (a portion of plan premium is directed to the intermediary as compensation)

Question 5

12.2.1.a Briefly describe how brokers/consultants operate in the intermediary
role in the group benefits plan market.

Answer 5

A broker or consultant is an individual or company that represents a plan sponsor’s interests and doesn’t have an exclusive relationship with any insurer

Question 6

Differentiate between the traditional roles of brokers and consultants

Answer 6

Traditionally, brokers dealt primarily with smaller

or specialty groups while consultants dealt with larger, more complex groups requiring customized plans.

Question 7

Differentiate between the compensation modes of brokers and consultants

Answer 7

Brokers are usually compensated through commission but can use a Fee For Service (FFS) model

Consultants are compensated on a project basis, FFS basis or commission (straight commission where commissions accepted are applied as an offset against their fees)

Question 8

12.2.2.a Briefly describe the high-low method of

determining commissions for agents, brokers and consultants.

Answer 8

Higher commissions in the first year to reflect higher level of work required, significantly lower rates in subsequent years

Provides less incentive for good service in later years

Question 9

12.2.2.b Briefly describe the level method of

determining commissions for agents, brokers and consultants.

Answer 9

Same commission rates each year it is in force

Most common method of determining commission

Question 10

12.2.2.c Briefly describe the low-high method of

determining commissions for agents, brokers and consultants.

Answer 10

Commission rates increase for a specified period and level off (usually 6 years & at 15%)

Only a few insurers use this scale and with small groups

Question 11

12.2.2.d Briefly describe the flat percentage method of

determining commissions for agents, brokers and consultants.

Answer 11

Commission rates are set at a flat percentage

Plan sponsors who enter into an ASO agreement with an insurer or TPA for various admin purposes including the adjudication and payment of claims

Question 12

12.2.2.e List 4 methods of

determining commissions for agents, brokers and consultants.

Answer 12

1) High-Low
2) Level
3) Low-High
4) Flat percentage

Question 13

12.2.3 Identify the role of the insurers’ account executives in the marketing of group
insurance.

Answer 13

Usually they help facilitate the presale activities of advisors. The task is typically undertaken by a team of staff who focus on acquiring new business and may include tasks such as obtaining information necessary for preparing a quote, reviewing the proposed benefits plan design, performing preliminary risk assessments and preparing and presenting proposals.

Once a plan is sold account executives and the new business team from the successful insurer have a role in post-sale activities such as enrolling members

Question 14

12.3.1.a Briefly describe the negotiated placement method of marketing

Answer 14

The advisor/sponsor conduct preliminary interviews.

The selection is narrowed, typically to three.

Each insurer submits a brief report highlighting general strategy, philosophy and proposed group benefits plan.

Then an insurer is chosen and negotiations are finalized

Question 15

12.3.1.b Briefly describe the open bidding method of marketing

Answer 15

A public announcement is made to all eligible insurers through a RFP

Question 16

12.3.1.c Briefly describe the closed bidding method of marketing

Answer 16

The plan sponsor prescreens potential participants and selects specific insurers before actual marketing is done.

The screening may be with or without an advisor, through interviews or a short questionaire

Question 17

12.3.2 Describe factors that influence a plan sponsor’s choice of method for marketing its
group insurance plan.

Answer 17

• budget
• time constraints
• size of the plan sponsor
• size of the group

Question 18

12.3.2.b Describe when the negotiate placement method of marketing is used

Answer 18

When a plan sponsor has specialized needs that only a few insurers can meet.

A sponsor’s budget/timing constraints might also warrant use of this process.

The downside is that without external competition it is difficult to asses the competitiveness of any one proposal.

Further the agreement negotiated reflects the negotiating capabilities and strategies

Question 19

12.3.2.c Describe the advantages and disadvantages of using the open bidding method of marketing

Answer 19

Advantage: most choice, and most competitive bids possible

The downside is that reviewing and analyzing each proposal is a time consuming and costly process that often involves reviewing bids that are clearly not competitive

Question 20

12.3.2.d describe closed bidding as compared to the other two methods of marketing the plan

Answer 20

Closed bidding is a middle of the road approach as it does not have as much choice as open bidding and requires more time and cost than a negotiated placement

Question 21

12.4.1 Outline 7 presale activities entailed in the marketing of a group insurance plan and the parties responsible for each

Answer 21

1) prospecting/identifying clients (advisor)
2) Preparing and releasing the RFP (plan sponsor/advisor)
3) Deciding to quote or not to quote (insurer)
4) Preparing and submitting the proposal (insurer)
5) Analyzing the proposal (sponsor/advisor)
6) Holding finalist meetings (plan sponsor/advisor)
7) Making the final decision (plan sponsor)

Question 22

12.4.2 Describe prospecting in the context of group insurance.

Answer 22

Prospecting involves cultivating a relationship with a plan sponsor that may need help introducing or improving its group insurance plan.

Insurance account executives can develop relationships with advisors in hope that advisors consider their company when marketing a plan

Question 23

12.4.3 Outline reasons why a plan sponsor might decide to market its group benefits plan (4)

Answer 23

1) To stay current with design changes in the regulatory and competitive environment
2) To address concerns with its current insurer, advisor, product line or service
3) For internal (plan sponsor/organizational reasons)
4) In response to an advisor’s recomendation

Question 24

12.4.4 State the general rule regarding how often a group benefits plan should be marketed

Answer 24

Small-midsized (<500) every 3-5 years

Larger plans are marketed less frequently (5-7) years because they are given more services and flexibility in terms on ongoing plan design and funding changes

Question 25

12.4.5 Outline steps taken by the advisor, in conjunction with the plan sponsor, in
preparing an RFP when marketing a group benefits plan. (6)

Answer 25

1) Obtains information & Documents
2) Compiles a questionnaire
3) Includes advisor specific information
4) Prepares cover letter
5) Releases RFP
6) Disseminates additional required information

Question 26

12.4.6 Outline member data typically provided for a RFP for marketing a group benefits plan (9)

Answer 26

1) ID number
2) Age or DOB
3) Sex
4) Province of residence
5) Dependent coverage election if any
6) Occupation or class
7) Coverage amount
8) Earnings (if underwriter wants to know coverage relative to earnings)
9) Date of employment

Question 27

12.5.1 Outline factors insurers consider when deciding whether to quote on a RFP for the marketing of a group benefits plan (12)

Answer 27

1) Risk associated
2) Completeness of RFP (whether full risk assessment can be done)
3) Reasons for marketing
4) Whether the advisor requesting the quote is the incumbent advisor
5) Competitiveness of the current premium rate levels
6) Ability to match the current or requested plan design
7) Ability to meet any special needs of the client
8) Viability of spinning off benefits where only certain benefits are attractive to the insurer (TPAs may be used)
9) Acceptability of providing a proposal on an uninsured basis where the risk is unwanted
10) capability to provide requested administrative claims and reporting requirements
11) Timing constraints and resources available
12) Current insurers and potential competitors

Question 28

12.5.2 Outline information insurers generally include in proposals submitted in response to an RFP for a group benefits plan.

Answer 28

1) Detailed description of deviations from the RFP specifications if any
2) Description of the individuals eligible for coverage under the plan
3) description of each benefit to be provided and a schedule of benefits (amounts, maximums, duration, coinsurance, deductible)
4) Schedule of monthly premium rates for each benefit and alternative benefits
5) Description of the insurers retention expenses, how renewal rates, reserves, interest debits/credits are calculated for experience rated plans
6) Any underwriting assumptions/conditions
7) responses to the RFP questionnaire if any
8) Details of servicing the plan such as insurer’s automated claims administration systems
9) General information about the insurer including its financial strength, products and services

Question 29

12.6.1 Describe criteria used by the plan sponsor and/or advisor to assess the financial competitiveness of proposals received in response to an RFP for a group benefits
plan.

Answer 29

• Premium rates
• retention expenses
• pooling charges
• reserve levels
• interest crediting

Question 30

For insured nonrefund accounting benefits (fully pooled or prospectively rated) where the plan sponsor does not assume financial accountability for plan surpluses
or deficits, the premium represents:

Answer 30

the net cost of the benefits.

For these plans the premium is the most important aspect of cost for competitiveness

Question 31

For refund accounting benefits where the plan sponsor shares in the plan surplus or deficit, the competitive analysis focuses on….

Answer 31

reserve and retention levels rather than the premium rate levels

Question 32

For refund accounting benefits, the net cost is equal to ….

Answer 32

the claims costs (paid claims plus the change in reserves) plus retention, interest credits/ debits on reserves and cash flow.

Question 33

What is considered when analyzing retention?

Answer 33

the level of retention and the basis of the charges as well as the application of premium taxes

When comparing retention levels, advisors typically use a fixed set of assumptions, such as common expected claims levels, number of plan members or number of claims.

Question 34

For prospectively rated nonrefund accounting and refund accounting benefits,
renewal premium rates are based in full or in part on the plan’s experience. Advisors
evaluate the experience to ensure that….

Answer 34

quoted rates will generate adequate premiums

to cover the plan’s expected claims and expenses.

Question 35

12.6.2 Outline qualitative criteria plan sponsors and/or advisors consider when evaluating insurers’ proposals submitted in response to an RFP for a group benefits plan (6)

Answer 35

1) Ability to provide the requested benefits and services
2) Reputation of the insurer and ability to underwrite benefits based on ratings of the insurer’s claims paying ability
3) Ability to produce reports and provide other services including administration systems and plan communication materials
4) Completeness of proposal, including response to the questionnaire
5) Quality of proposal

Question 36

12.6.2.b Outline quantitative criteria plan sponsors and/or advisors consider when evaluating insurers’ proposals submitted in response to an RFP for a group benefits plan (4)

Answer 36

1) Competitiveness of premium rates, retention, and reserve levels as well as the interest crediting basis
2) premium rate and retention guarantees
3) Nonevidence and overall benefit maximums
4) Quoted rates for both current and alternative plans

Question 37

12.6.3 Describe the typical components of a marketing report prepared by the advisor to present to the plan sponsor (5)

Answer 37

1) An introduction
2) A commentary on the group benefits plan
3) The market sources
4) A summary of the results of the qualitative & quantitative analysis and ranking
5) Highlights of each proposal summarizing strengths and weaknesses
6) recommendations

Question 38

12.6.3 What is usually included in the introduction of the marketing report prepared by the advisor to present to the plan sponsor

Answer 38

reiterates the reasons for marketing the group benefits plan including financial objectives and any constraints/limitations such as budgetary constraints and risk tolerance

Question 39

12.6.3 What is usually included in the commentary on the group benefits plan of the marketing report prepared by the advisor to present to the plan sponsor

Answer 39

identification gaps in the

current plan design, and how the marketing attempts to bridge these gaps

Question 40

12.6.3 What is usually included in the market sources section of the marketing report on the group benefits plan of the marketing report prepared by the advisor to present to the plan sponsor

Answer 40

listing insurers invited to participate in the marketing and

those that declined to quote and why

Question 41

12.6.4 Describe 4 key categories of questions an insurer’s account executive/new-business team should be prepared to address in a finalist presentation with respect to an RFP for a group benefits plan

Answer 41

1) insurer issues
2) group contract
3) implementation and administration
4) Communications

Question 42

12.6.4 What are some questions relating to insurer issues an insurer’s account executive/new-business team should be prepared
to address at a finalist presentation (3)

Answer 42

• Is the insurer financially solvent
• How does its rating compare with those of its own competitors
• If the insurer’s rating isn’t in the top category or has been recently downgraded what is it doing to rectify the situation and in what time frame?

Question 43

12.6.4 What are some questions relating to the Group contract an insurer’s account executive/new-business team should be prepared to address at a finalist presentation (3)

Answer 43

1) Who makes decisions and where (home office or field office)?
2) Will the insurer modify contract wording if needed to meet the plan sponsor’s needs?
3) How are amendments handled?

Question 44

12.6.4 What are some questions relating to implementation and administration an insurer’s account executive/new-business team should be prepared
to address at a finalist presentation (5)

Answer 44

What type of implementation tools and support does the insurer offer?

What type of premium administration does the insurer offer?

Does the company have premium administration software and/or online administration services?

What assistance is provided during the installation and maintenance phases?

Does the insurer provide a toll-free line for inquiries?

Question 45

12.6.4 What are some questions relating to communications an insurer’s account executive/new-business team should be prepared
to address at a finalist presentation (3)

Answer 45

Can the insurer produce special claims reports if required? What are the costs involved?

What assistance is provided by the insurer during
the plan installation in terms of effective plan member communication material?

Question 46

12.6.5 Outline postsale activities completed in the marketing of a group benefits plan prior
to the installation of the plan. (7)

Answer 46

1) Insurer drafts a master application with detail on how the plan will operate
2) Plan sponsor completes the master application and submits it and the binder cheque to the insurer
3) Plan is communicated to members
4) Individuals are enrolled by the plan sponsor
5) Group documents are prepared and issued by the insurer
6) plan is installed and administration commences
7) Ongoing service relationships are established

Question 47

12.6.6 Explain the role of the master application in a group insurance contract

Answer 47

The master application can be defined as a request for group insurance coverage by a prospective contract holder. The application initiates the procedures necessary to put the plan into effect

The insurer prepares it on the basis of the proposal, any negotiated changes and the current group documents.

Once the application has been reviewed by the advisor and/or approved and signed by the plan sponsor, it is returned to the insurer.

If payment was not sent earlier, a binder cheque for an amount equal to the first month’s estimated premium is typically included with the
signed application.

Question 48

12.6.7 Explain the role of the group contract (includes Master application or policy) (6)

Answer 48

It described:

1) Type and level of coverage
2) Insuring provisions (definitions, eligibility, commencement and termination of insurance)
3) Benefit provisions (waiver of premiums, definition of disability, qualifying period, offsets, eligible expenses)
4) Claims provisions
5) Premium provisions
6) General provisions (conformity to legislation and disclosure)

Question 49

12.6.8 Describe the role of the financial agreement in plans underwritten on a refund accounting basis

Answer 49

For plans underwritten on a refund accounting basis a financial agreement is to formalize the financial terms of the contract.

It usually includes the underwriting basis, procedure for preparing the renewal rating and formula for the preparation of the annual financial accounting, including the cross rating of benefits, allocation of surplus, recovery of deficits and calculation
of interest credits and charges.

Question 50

12.6.8 Describe why a financial agreement is not required for self-insured plans with an ASO arrangement

Answer 50

A financial agreement is not required for self-insured plans with an ASO arrangement, as all financial terms and conditions are normally outlined in the ASO
agreement itself.

The ASO agreement normally includes an overview, summary of benefits, definitions, eligibility, commencement/termination and benefit provisions

Question 51

12.6.9 Explain the relationship among the plan sponsor, the advisor and the insurer after the installation of a group benefits plan has been completed

Answer 51

It is important for the account executive to ensure that the overall operation of the plan runs smoothly. The account executive may pass the responsibility to a group/client services representative

In other words, when the plan’s status shifts from new to existing business, it primarily becomes the responsibility of the insurer’s service team

The group service representative must establish rapport not only with the plan sponsor
but also with the advisor.

Similarly, the advisor should ensure that the plan sponsor
is contacted regularly to check on the status of the plan and resolve any issues before they escalate.

Question 52

What does CCIR stand for

Answer 52

Canadian Council of Insurance Regulators

Question 53

What does CISRO stand for

Answer 53

Canadian Insurance Services Regulatory Organizations

Question 54

12.7.1 Describe the intent of CLHIA Reference Document: The Approach: Serving the
Client Through Needs-Based Sales Practices

Answer 54

The Approach is an industry-developed description of
sales practices that specifically addresses the principal that recommended products must be suitable to the needs of the consumer

The six supporting
elements in the reference document describe generally accepted sales practices
within the life and health insurance industry.

The commentary in the reference document shows how these elements, in different transactions that range from very simple to very complex, provide means of ensuring that advice and
recommendations are appropriate to the needs of the client.

Question 55

12.7.1 What are the three principles for managing conflict of interest endorsed by the CCIR and CISRO

Answer 55

1) Interest of the consumer must be placed above that of the advisor
2) Actual and potential conflicts of interest must be disclosed
3) recommended products must be suitable to the needs of the consumer

Question 56

12.7.2 List those six supporting elements required to ensure that a recommended product
or service is appropriate for the needs of the consumer, as determined by a needs based assessment

Answer 56

1) disclosure to the client - the consumer should be provided with information about the range of products and services the advisor can sell
2) Client expectations - the advisor and client should have a common understanding
3) Fact finding - the advisor should obtain information about the client as is reasonable
4) needs assessment - extent varies by circumstance
5) recommendations and advice - should address client needs
6) Product information - the client should be informed about options available through the advisor and what products the advisor reccomends

Question 57

12.8.1 Describe the intent of CLHIA Reference Document: Advisor Disclosure (for
application to Group Benefits and Group Retirement business).

Answer 57

To make an informed decision, a plan sponsor considering purchasing a benefits product or service should be provided with information about how a product or service meets its needs, information about the company offering the product and information about the advisor and the advisor’s business relationships

According to CLHIA, advisor disclosure should be given to the client, in writing, prior to the sales transaction. The objective is to provide plan sponsors with good and meaningful disclosure.

Question 58

12.8.2 Identify the key items that CLHIA recommends be disclosed to achieve meaningful disclosure. (6)

Answer 58

1) The company(ies) with which the advisor places or recommends business
2) The nature of the advisor’s relationships with those companies providing products
3) How the advisor is compensated
4) Whether the advisor is eligible for additional compensation based on other factors (volume of benefits placed in a specific time period for example)
5) Any conflicts of interest that may influence the advice given
6) The plan sponsor’s right to ask for more information (on qualifications, licenses held)

Question 59

12.8.3 Provide examples of the type of information an advisor should disclose to a plan sponsor regarding the nature of the advisor’s relationship with the insurer(s)
providing the product or service.

Answer 59

1) any ownership interest the insurer has in the agency the advisor works for
2) Any ownership interest that the advisor has in the insurer if that ownership inters is above a 10% threshold
3) Any financing agreements between the advisor and the insurer that are germane to the plan sponsor’s understanding of any biases that could affect the advice such as commission advances and loans

Question 60

12.8.4 Outline specific regulatory-based disclosure requirements for advisors in Quebec about the nature of the relationship with the insurer(s) providing a benefits product or service

Answer 60

Quebec regulation requires that agents disclose any business relationships (if an
insurer holds any indirect or direct interest in the ownership of the firm).

Quebec also requires agents bound by an exclusive contract with a single insurer to disclose
that information.

Question 61

12.8.5 Outline considerations an advisor must take into account when determining the level of disclosure required to the plan sponsor regarding his or her compensation.

Answer 61

The level of disclosure should provide the plan sponsor with a basic understanding of the basic business relationship between the advisor and the insurer with respect to compensation, how an advisor is paid and from what sources.

Disclosure should confirm that any future increases in compensation or commissions require
written approval by the plan sponsor

Question 62

12.8.6 Assume you are an advisor who is providing a benefits product or service to a plan sponsor. Provide an example of a statement you could use to describe how you will be compensated.

Answer 62

If you choose a product through me, I will be paid a sales commission by the company that provides the product you purchase. I receive a renewal commission if you keep that policy in force.

I am also eligible for additional compensation—
bonuses or nonmonetary benefits, such as travel incentives—depending on the volume of business I place with a particular company during a given time period.

Question 63

12.8.7 Describe 2 criteria an advisor should consider to determine whether or not a
perceived conflict of interest might exist that should be disclosed to a plan sponsor.

Answer 63

1) Whether the advice or product offered would have been different if the situation or incentive giving rise to the potential conflict of interest did not exist
2) Whether it would appear to a reasonable, informed third party looking at the facts that the advisor acted in the best interest of the client.

Question 64

12.8.8 Outline specific regulatory-based disclosure requirements in Manitoba regarding conflicts of interest for advisors providing a benefits product or service.

Answer 64

In Manitoba, if advisors are in a conflict-of-interest situation, they must avoid the conflict or remove themselves from the transaction, regardless of disclosure.

Question 65

12.8.8 Outline specific regulatory-based disclosure requirements in Alberta regarding conflicts of interest for advisors providing a benefits product or service.

Answer 65

In Alberta, conflict is based only on prohibited occupations, and the conflict situation must be avoided, regardless of disclosure.