The Good, The Bad and the Ugly

Local Partnership LogoAs an Employee Benefit Specialist we constantly educate our clients about the concept behind group insurance; and how it is priced.  The overarching assumption in pricing a group plan is that some employees will claim more than the average, some will claim the average, and some will claim below average.  In theory, pricing becomes the blend of  “the good, the bad and the ugly”.

If you look at an insurance carrier’s block of business as one single employer, one would expect some clients to claim more than the average, some will claim the average and some will be below.  If the above is the case then why, when an insurance carrier is presented with a group prospect that has claims higher than the average, they decline to quote? Every month we receive calls from Account Executives saying we want to do business with you, and we want you to sell our product. Really the message is “we want your business, but only groups that do not have higher than average claims”.  This sends a bad message to all consumers.

For years our industry has been telling consumers that group insurance is a great tool for attracting and retaining employees, and as a business owner, implementing a plan is a corporately conscious thing to do. The problem comes in how the industry manages a business after they become a consumer.  The message can quickly turn to “we want your business, until you have high claims, and then we don’t want you anymore”.

Consumers which have high claims, are those that need the insurance the most.  On top of that most have implemented a plan because our industry told them it “was the right thing to do”.  When high claims occur those consumers are not only faced with unsustainable increases, but become restricted in finding affordable alternative solutions because the industry refuses to quote.

Industry claim pooling was implemented a few years ago, and was presented to consumers as as good thing for them, and a solution to remedy this problem.  Our industry told consumers claim pooling would reduce the probability an employee, who had higher than average claims, would adversely affect the cost of the plan. They were also told it would make it easier for them to find alternative solutions, if their current pricing became unsustainable.   In reality what it has done it to reduce the probability that one specific insurance company becomes selected against, by spreading the risk through all of them.  It has also highlighted an issue, which was previously not required to be disclosed (high claimants), which has made it easier for insurance companies to become more selective in the business they write.

Don’t get me wrong.  I am all for capitalism and understand no one does anything for free.  There has to be a cost for everything; however there has to be a way to meet the capitalistic needs of large insurance companies; and those of the consumers who are in need of their products the most.