Advisors are often interested in landing their self-employed clients’ group benefits plans since they bring in recurring fees.
However, it’s challenging to learn all of the complexities of health insurance alone.
Here’s how to ask for that business.
Find out if it’s worth your time.
The average commission is 5% of premiums, and you might spend 20 hours to work the case. So, if you value your time at $100/hour, you may prefer a client with 30 employees ($40,000 in premiums) or more. The annual commission in this case would be $2,000.
If the client has more than 200 employees and is on an administrative-services-only (ASO) plan or self-insurance plan, they’re already paying the least amount in administration fees possible. So you might be better off passing.
And if the client has fewer than 10 employees and is fully insured, you likely won’t be able to find her a better deal. Few insurance companies will discount small plans to win business. Plus, the commission might be too small for the amount of effort required.
Instead, your target should be business owners with 20 to 200 employees. This way, you can get them better deals, and the premiums will be significant enough to put in the work.
If the client fits your profile, find out if she’s satisfied with her benefits provider. Many will have complaints. They’ve likely had to stomach premium increases of 5% to 30% each year.
Suggest you can get her a better deal. If she’s interested, learn the difference between a fully insured plan and ASO.
The following products are packaged in a group plan:
- Health and Dental benefits
- Life insurance
- Long term disability (not all plans have this)
The only real insurance products are life and disability. Health and dental are marketed and packaged as insurance products, but they do not behave in the way typical insurance products do.
That’s because dental is a recurring expense, and a trip to the dentist’s isn’t likely to break your client’s bank. Compare that to death — an event that would set a family back financially.
Since there’s little risk involved when buying dental and health, all you’re doing is hiring an insurance company to pay the claims — not underwrite risk. This means you have to negotiate the lowest administrative fees possible with a health and dental insurer. But for life and disability, you don’t have to negotiate as much.
A fully insured plan treats all benefits as if they’re insurance. Clients pay premiums, and if their expenses are lower than their premiums, the insurance company doesn’t refund the difference. Also, the insurer won’t ask clients to pay the bill if claims exceed premiums.
Meanwhile, an ASO plan places the risk on the client. This plan recognizes that health and dental benefits are not insurance, and therefore, it’s not catastrophic if expenses exceed premiums. The employer takes responsibility for claims, so if premiums are higher than expenses, she gets the difference, and vice-versa.
Clients with fewer than 100 employees are better off with a fully insured plan, since their claims are more volatile.
Next week, we’ll discuss how carriers set premiums and how to get a quote.
Yafa Sakkejha is a Benefits Consultant and Partner with The Beneplan Co-operative.