In my last column I discussed how to approach your client for her group benefits business, and what's typically included in these policies.
Now let's look at how to get a quote from an insurance provider.
How carriers set premiums
Carriers price health and dental benefits similar to how you'd budget for your heating bill. They look at your usage over the last two years, and then add inflation. Benefits, fees, commissions and profit are added on top.
Your goal is to minimize those expenses for your client by negotiating.
First, have your carrier state what their fees are. They declare this with the Target Loss Ratio (TLR). If the TLR is 80%, every $1 in premiums, they want 80 cents to go toward paying claims. The other 20 cents represents profits.
Describe this to your business owner client in the same way they mark up their products. A 20-cent delta between cost of goods sold and retail is a 25% mark-up on cost of goods sold.
Find a carrier who will minimize this mark up. The lowest possible is 15% for a group under 50 people, and 12% for a larger group.
Place these plans through a buying group, to minimize fees. This can be done either through a chamber of commerce, an industry association, or a co-operative.
Finally, choose your commission. If you're just starting out, it's fair to go with 3%. Once established, you can increase to 5%. For a small group, increase it to 8%.
Getting a quote
Ask your client for the following information:
- Three years of premiums & claims history
- Policy booklet
- Copy of the latest bills
Send these to either an insurance company or a third-party administrator for a quote.
When you receive the quote, ask the insurer the following:
- How long the rates are guaranteed for;
- What inflation factors will mark-up health and dental (ensure it's not more than 5% for dental and 12% for health);
- If there are any reserves built in, such as an Incurred But Not Reported reserve (IBNR), which inflates premiums;
- If the printing of drug cards, booklets and other service items are included in the price;
- If they'll refund excess premiums back to the client if her expenses were lower than premiums (key to landing your client's business).
Avoid industry games
Insurance companies discount rates in the first year to obtain business. In year two, rates increase to compensate for the loss. This can mean a 20% discount in year one, and a 30% increase in year two.
This frustrates clients, so educate them about this practice. Describe it in terms of how a cable company competes using low introductory pricing. Note some providers don't do this.
Always read the fine print, including your client's contract, billing, and quote. Find out whether she's fully or self-insured. If the quote mentions stop-loss or payback of deficits, it's an ASO plan.
And your client's accountant will likely ask questions. Know the answers before making your pitch. Here are some examples of how you should respond.
Q. How much would it cost to improve the plan?
A. It depends what you want to improve. What specifically did you want to add? I will have to ask the insurance company for a new quote, which could take two to 10 business days.
Q. Is this the best possible rate you could find? How many times did you negotiate?
A. I negotiated with three of the top carriers and I'm presenting you with the lowest one. I negotiated two as much as possible, and the third is non-negotiable since they gave us their best price upfront.
Q. What is your commission?
A. I make 3% of premiums.
Q. If we switch, will these rates increase after the first year? How long can you guarantee them for?
A. Since you're part of a buying group, the rates will not increase dramatically next year. If your claims are higher than your previous claim history, your rate will increase. But if your claims end up being lower, your rates should decrease.