Module 10 - Marketing a Group Insurance Plan Flashcards
Describe the marketing process in the context of group insurance
In the context of group insurance, marketing is a process through which a 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.
When marketing directly, the plan sponsor deals directly with insurers, typically their account executives. When marketing through an intermediary (who deals directly with the insurer), a plan sponsor can use an agent, broker or consultant, collectively referred to as “advisors.”
Identify factors considered by a plan sponsor when choosing an insurer to underwrite and/or administer its group benefits plan.
Plans can differ significantly by insurer in level of coverage provided, premium rates charged, retention expenses, level of technology in the service offering and method of underwriting. Administrative considerations and provider characteristics also influence the selection of insurer.
Outline reasons why a plan sponsor might decide to market their benefits plan.
The following are common reasons that a plan sponsor might choose to market a plan:
a) To stay current with changes in the competitive environment, i.e., to access more competitive premium rates, new relevant products or technology
b) To address concerns with its current insurer, its product line or service level
c) For internal (plan sponsor/organizational) reasons (e.g., a change in business structure or benefits budget reductions)
d) In response to an advisor’s recommendation for reasons such as those outlined above.
State the general rule regarding how often a group benefits plan should be marketed
As a general rule, a group benefits plan should be marketed no more than once every three years. Ideally, small- to midsized plans, i.e., covering fewer than 500 individuals should be marketed every three to five years. Larger plans are marketed less frequently (typically, every five to seven years) because they have more services and greater flexibility to make ongoing plan design and funding changes.
Briefly describe how agents, brokers and consultants operate in the intermediary role in the group benefits plan market.
Historically, an agent sold the products of only one insurer, referred to as the agent’s primary sponsoring company. This type of agent is known as a captive agent. Today, many agents sell the products of more than one insurer. Agents are compensated with commissions paid by the insurer whose products they sell. Commission rates are incorporated into the premium rates insurers charge plan sponsors for coverage of a benefit.
A broker/consultant is an individual or company that represents a plan sponsor’s interest with respect to its group benefits plan and does not have an exclusive relationship with any one insurer. Traditionally, brokers dealt primarily with smaller or specialty groups while consultants dealt with larger, more complex groups requiring customized benefits plans. Today, both these intermediaries operate in similar ways, although there are still a few distinctions. For example, brokers are normally compensated through commissions. Consultants are compensated on a fee-for-service (FFS) basis or through commissions as agreed with the client. A consultant’s commission can be either a straight commission or commission offset, i.e., commissions accepted are applied as an offset against their fees.
Briefly describe the high-low, level and flat percentage approaches to determining commissions for agents, brokers and consultants.
(a) High-low: Higher commission rates are paid in the first year of a plan to reflect the higher level of activity required of the agent and the significantly lower rates paid in subsequent years as less maintenance is required. This scale does not provide financial incentive to the agent to continue the same service levels after the first year of the plan.
(b) Level: The same commission rates are paid each year the plan is in force. This scale provides more incentive for the agent to service and retain the plan sponsor’s business. The commission schedule can be tiered on a declining scale based on total premium.
(c) Flat percentage: Commission rates are a flat percentage (e.g., 2% of annual premium or premium equivalents).
Identify the role of the insurers’ account executives in the marketing of group insurance.
The insurers’ account executives help facilitate the presale activities typically undertaken by a team of staff who focus on acquiring new business (an insurer’s new-business team). Account executives can lead or be part of the team. Presale activities may include obtaining information necessary for preparing a quote, reviewing the proposed benefits plan design, performing preliminary risk and organizational fit assessments, and preparing and presenting proposals. Once the plan is sold, account executives and the new-business team from the successful insurer have a significant role in postsale activities, including enrollment and installation of the plan.
Briefly describe the negotiated placement, open bidding and closed bidding methods of marketing.
With a negotiated placement, the advisor and/or plan sponsor conduct preliminary interviews of insurers to narrow the selection to a limited number of insurers. Once potential insurers are identified, each submits a brief report highlighting its general strategy, philosophy and proposed group benefits plan (or confirms its ability to provide the plan approach requested by the plan sponsor). Based on these reports, the advisor and/or plan sponsor choose a single insurer to provide details of the group benefits plan for negotiations and finalization. Alternatively, based on their understanding of the plan sponsor’s needs, expertise and knowledge of the marketplace, an advisor may recommend insurers to the plan sponsor without conducting the interviews.
Under the open bidding method, a public announcement is made through a request for proposal (RFP) to all eligible insurers.
With closed bidding, the plan sponsor prescreens potential participants and selects specific insurers before doing actual marketing. The screening may be done with or without the assistance of an advisor through interviews or a short questionnaire. An advisor can also recommend insurers to invite based on their expertise and knowledge of the marketplace. Each of the resulting closed group of insurers receives a detailed RFP.
Describe factors that influence a plan sponsor’s choice of method for marketing its group insurance plan.
The plan sponsor’s choice of method is influenced by many factors, including the size of the plan sponsor, the size of the group, the complexity of the plan and any procurement requirements of the plan sponsor’s organization.
Negotiated placement is typically used when a plan sponsor has specialized needs that only a few insurers meet, as it becomes a relatively simple process of elimination for the advisor to select the best insurer for the plan sponsor. A plan sponsor’s budget and/or timing constraints might also prompt use of this process. The downside to this approach is that without external competition, it is difficult to assess the competitiveness of any one proposal. Furthermore, the agreement negotiated reflects the advisor’s and/or plan sponsor’s negotiating strategies and capabilities.
The advantage of open bidding is that the plan sponsor has the most choice and likely receives the most competitive bids possible. The downside is that reviewing and analyzing each submitted proposal is a time-consuming and costly process and often involves a review of submissions that are clearly not competitive. Further, some qualified insurers may decline to bid merely because of the number of competitors. This method is most frequently used where a plan sponsor’s procurement process requires it.
Closed bidding is the middle-of-the-road approach, as it offers less choice than open bidding but requires more time and costs than negotiated placement. Smaller organizations (which make up most companies in Canada) tend to use closed bidding, making it the more common process.
Assuming the marketing is being done through an advisor, outline the presale activities entailed in the marketing of a group insurance plan and the parties responsible for each.
Presale activities (to select an insurer) include:
(a) Identifying prospective insurers (advisor)
(b) Preparing and releasing the request for proposal (RFP) (plan sponsor/advisor)
(c) Deciding to quote or not to quote (insurer)
(d) Preparing and submitting the proposal (insurer)
(e) Analyzing the proposals (plan sponsor/advisor)
(f) Holding finalist meetings (plan sponsor/advisor) and/or making a final decision (plan sponsor).
Assuming the marketing is being done through an advisor, outline the steps taken by the advisor (in conjunction with the plan sponsor) in preparing an RFP when marketing a group benefits plan.
The steps the advisor takes, in conjunction with the plan sponsor, in preparing the RFP are:
(a) Obtaining information and documents, including relevant information on the plan sponsor, current benefits, alternative plan designs, underwriting and administration arrangements, experience and rate history, and plan member data
(b) Compiling a questionnaire to gather additional information, including the insurer’s administration capability, underwriting guidelines and financial position
(c) Including advisor-specific information to confirm the advisor is authorized to conduct the plan marketing on behalf of the plan sponsor
(d) Preparing a cover letter for the RFP outlining proposal deadlines and providing contact information for questions
(e) Releasing the RFP to selected insurers
(f) Disseminating additional required information that might be requested by insurers.
Outline the plan member data typically provided in the RFP for marketing a group benefits plan.
Plan member data typically provided in the RFP includes:
(a) Identification number
(b) Age or date of birth
(c) Sex
(d) Province/territory of residence
(e) Dependent coverage election, if any
(f) Occupation or class
(g) Coverage amount
(h) Earnings (if any benefit is based on earnings)
(i) Date of employment.
Outline factors insurers consider when deciding whether to quote on a request for proposal (RFP) for the marketing of a group benefits plan.
Factors insurers consider in deciding whether to quote include:
(a) Risk associated with the plan sponsor and its group benefits plan
(b) Completeness of the RFP and whether it allows for a proper assessment of risk
(c) Reasons for marketing
(d) Whether the advisor requesting the quote is the incumbent advisor
(e) Competitiveness of the current premium rate levels
(f) Ability to match the current or requested plan design
(g) Ability to meet any special needs of the client
(h) Viability of spinning off benefits where only certain benefits (of those being marketed) are attractive to the insurer
(i) Acceptability of providing a proposal on an uninsured basis where the risk is unwanted
(j) Capability to meet requested administrative, claims and reporting requirements
(k) Timing constraints (proposal deadline) and resources available
(l) Current insurers and potential competitors.
Outline information insurers generally include in proposals submitted in response to an RFP for a group benefits plan.
Most insurers include the following information in their proposals:
(a) Detailed description of deviations from the RFP specifications, if any
(b) Description of the individuals eligible for coverage under the plan
(c) Description of each benefit to be provided and a schedule of benefits (a summary of benefit amounts, maximums, duration, coinsurance, deductible, etc.)
(d) Schedule of the monthly premium rates for each benefit offered and for alternate benefits, if any
(e) Description of how renewal rates, reserves and interest debits/credits are calculated (for experience-rated plans only). Expense information is included for both refund and ASO plans.
(f) Any underwriting assumptions and/or conditions, such as the period of time the quotation is valid as well as premium rate and retention guarantees
(g) Response to the questionnaire in the RFP, if any
(h) Details of servicing the plan, such as the assigned service team and its location
(i) General information about the insurer, including its financial strength, products and services.
Describe criteria used by the plan sponsor and/or advisor to assess the financial competitiveness of proposals received in response to a request for proposal (RFP) for a group benefits plan.
The financial competitiveness of proposals can be assessed based on the net cost. Information about the cost of the plan (such as premium rates, retention expenses, pooling charges, reserve levels and the interest crediting basis) facilitates comparisons of the insurer’s cost and competitiveness.
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 the net cost of the benefits. Comparison of quoted premium levels is the most significant component of the financial competitiveness analysis.
For refund accounting benefits where the plan sponsor shares in the plan surplus or deficit, the analysis focuses on reserve and retention levels rather than premium rate levels. For refund accounting benefits, the true (or net) cost is equal to the claims costs (paid claims plus the change in reserves) plus retention, interest credits/debits on reserves and cash flow. Note that the paid claims amount in the equation is the same for each insurer.
Retention cost is analyzed for level and basis of these charges to ensure that comparisons are made on a consistent basis. 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.
The interest crediting basis and corresponding interest rates used to credit or debit interest on reserves, cash flow, deposit accounts, surpluses and deficits are also considered. Although interest credits/debits do not make up a significant portion of the benefit cost relative to reserves and retention, they affect the cost.
For prospectively rated/experience-rated benefits, renewal premium rates are based in full or in part on the plan’s experience. Advisors evaluate the experience to ensure that quoted rates will generate adequate premiums to cover the plan’s expected claims and expenses. Since the guarantee periods for premium rates can vary between insurers, a three-year analysis is often used to illustrate the financial position to determine the true relative financial competitiveness of the quotations.
If the rates include commissions, quoted premium rates are checked to ensure all rates include the same commission level.
An additional check is made to determine that quoted premium rates are based on the same benefit levels, account structure or classes (e.g., executive, hourly, etc.) administration and underwriting bases.
