IN FOCUS
IN FOCUS 

 

 

Should a company employ insurance brokers for their employee benefit programs, particularly the medical and life insurance programs?

 

There are two conflicting answers to this question. One says that employing brokers will only add to the premium or contributions to the program because the benefit providers, life insurance companies or health maintenance organizations, have to provide for broker compensation.

 

In contrast, the other thought is that brokers actually reduce the cost of the programs as they are able to shop for lower premium or contribution rates. Add to that the added services that brokers provide.

 

ActuarialExponents, Inc.'s 2010 survey of life insurance programs could give us an answer. Below are the survey results showing the premium rates per P 1,000 of the common group insurance coverage (Life, Accidental Death & Disability, Total and Permanent Disability):

 

Size Bracket

Cover

Non-Brokered

Brokered

< 100

 

Life

2.60

1.72

AD&D

0.47

0.32

TPD

0.36

0.27

Sum

3.43

2.31

100 - <500

Life

1.82

1.59

AD&D

0.33

0.29

TPD

0.17

0.34

Sum

2.32

2.22

500 - < 1,000

 

Life

1.06

1.10

AD&D

0.29

0.28

TPD

0.24

0.24

Sum

1.58

1.62

1,000 - < 2,500

Life

 

0.66

AD&D

 

0.24

TPD

 

0.40

Sum

 

1.30

2,500 up

 

Life

1.13

0.52

AD&D

0.23

0.12

TPD

0.14

0.12

Sum

1.50

0.76

Overall

Life

2.09

1.42

AD&D

0.40

0.29

TPD

0.27

0.29

Sum

2.75

1.99

 

The survey results suggest that companies employing the services of a broker indeed have lower premium costs.

 

Also, from the survey, fifty-three percent (53%) of respondents make use of the services of insurance brokers. Forty-three percent (43%) of companies with less than 100 employees use brokers while sixty-five percent (65%) of those with more than 100 employees engage the services of a broker.

 

That more companies, especially the big ones, use brokers also suggest that more are convinced that brokers indeed reduce the cost or add value.

 

How come brokers are able to obtain lower premiums? These are the possible answers:

  • Providers put in the lowest rates possible for brokered accounts knowing well that there is competition - brokers won't just approach one insurance provider.
  • Brokers have better negotiation skills and at a better negotiating standpoint profound understanding of the business, having sizable business with providers and knowing the right persons to talk to.
  • Brokers really work hard to be able to provide the best rate. After all, they have to justify their existence.

 

Still, ActuarialExponents believe that the right answer to the question could vary depending on given situations. In general, we say that the smaller the Company and the leaner the HR manpower is, the more that a broker gives value.

 

Actually, this question can best be answered by trying it yourself. Haven't employed a broker before? Try employing one and see the difference.

 

Finally, it is equally important to choose a broker that gives more value-added services. Traditionally, brokers facilitate premium payments and provide claims assistance. Services have evolved and some brokers now provide the following additional services: utilization management, employee benefit consulting, wellness programs and service metrics application.