Welcome to Part 7 of our Employee Benefits Marketing series – Checklist Items for doing it properly and the myths associated with each step.
The 10 Point Employee Benefits Marketing Checklist was created to equip advisors and employers with effective tools and information that go beyond marketing simply based on price. Our checklist is now available in the CloudAdvisors Solution Library, just search for “CloudAdvisors” or contact an employee benefit specialist who is #poweredbyCloudAdvisors to share with you.
Checklist #7: Calculating Financial Projections in Quotes
A financial projection is produced by predicting future premium cost for benefit plans using rates and fees in the current quote and current claim patterns. Providing these forward looking costs in proposals may seem obvious, however it is possibly the most missed checklist item. As covered in previous items, benefit costs are dynamic and change both monthly with coverage volume, and yearly with renewal rates. Most employee benefit plans are sold on an annual term, which means the insurer guarantees the unit rates for one year, making it easy to show attractive savings in the first year only. When presenting a proposal to change benefit plans, an Advisor should evaluate the future projected costs of each proposal to determine true savings and impact.
Two primary considerations in a financial projection:
- Impact of proposed premiums versus expected claims
- Disclosure of marketing investments by benefit
Benefit renewals are essentially based on the previous years’ claims; patterns can be reviewed and inflated to predict future claim volumes and premiums. If claim volumes remain unchanged, or even increase during the year, this can have a greater impact at renewal. When evaluating savings such as experience-rated benefits like health and dental, it is essential to determine where the costs are being generated. If there is an insufficient premium to pay for claims and fees, the savings will be short-lived and a proposal with cost savings may reveal significant increases beginning the following year.
The marketing investments are referred to as a “investment” rather than “savings” because investments are designed to be returned in the future. When benefits are priced in the market, competing providers may offer a reduced rate to increase the attractiveness of their proposal. This will not meet expectations if the client is looking for long term savings, however if the client is looking for short term savings, these discounts can be beneficial. Insurers typically have 10-30 percent to “invest” in discounting insurance premiums on a quote. This can depend internally on the allocation of investments to meet quarterly sales targets.
Withholding financial projections and not disclosing marketing investment in proposals can lead to attractive but artificial savings. Employers basing their decision to change providers may make poorly informed decisions that result in disruption to cash flow and complaints from employees about benefit cost volatility.
Marketing Myth #7: Our Current Benefits Plan is Over-Priced
False. It is common in any given year when an employer requests an Advisor to conduct a marketing that many other providers will by able to produce quotes with savings. On the surface, this may make the current benefits plan and provider look over-priced, however insurance has a true cost in terms of risk and claims that can only be discounted for so long.
These quoting providers are essentially investing in the first year’s rates to win over the employer’s business, but costs will need to be recouped in future renewals based on claims. Insurers offering discounts may also have an internal policy for recovering these costs in future years that should be negotiated and disclosed. Employers cannot sustainably switch providers every year to realize these discounted rates. By budgeting for the true costs, true savings can be differentiated from market forces and employers can see how competitive and sustainable their benefit costs really are in the marketplace. Advisors can also use this information to help employers intelligently take advantage of discounts and ensure plans are always competitively priced each year.