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#1: “It Only Takes 1 Week to be ‘Certified’ to Sell Insurance to Your Company”
Fact: In South Carolina, it only takes the completion of a 40 hour course to be licensed to sell your company group insurance products. My wife once spent a week at tennis camp, and what I can tell you with absolute certainty is that it did not qualify her to teach tennis, or for that matter even play tennis. It is an inconvenient truth; You wouldn’t use an attorney without a degree, but most companies use employee benefit advisors who’s only objective education is the completion of their 40 hour basic insurance course. The scary thing about this is you will likely spend 100 times more money through the advice of your advisor than through an attorney, doctor, or other type profession? Why is this? Because they are a ‘nice guy’? Try selling that reason to your CEO when something goes wrong.
Why would we entrust the investment of ten’s + of thousands of dollars to the advice of someone uneducated in their field?
As a company, what you can do about this is to ask your advisor what their industry specific educational background is. You need to know what the industry insiders know and what professional designations to look for; credentials such as the CEBS (Certified Employee Benefit Specialist), REBC, (Registered Employee Benefit Advisor), RHU (Registered Health Underwriter), CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and ChFC, (Chartered Financial Advisor). If you don’t see these credentials, then you need to ask hard questions to your advisor and to yourself to determine if they are qualified to help your business with such an important business investment.
You should also know that bigger doesn’t necessary mean better when it comes to your benefits advisor. Often clients will assume that the larger advisors have this educational expertise, when in reality you often find some of your least qualified advisors working for such companies. Or just as bad, you have a very qualified advisor get your business in the door and then abandon your account to others who aren’t qualified once the sale is complete. As a company, you should do some research to find out what standard is acceptable for your organization, then make sure you get what you pay for.
#2: “Your Benefit Advisor CANNOT Represent all Insurance Carriers”
Fact: You heard it here first, your benefit advisor CANNOT represent all insurance carriers. I know, I know – but your guy can right? Wrong! So why not you ask; here are the 2 major reasons:
1. Insurance carriers don’t license everyone. Sometimes your licensing paperwork can get caught up into the politics of the insurance carrier and cause you to never get appointed, or in other times there are certain disclosures (Errors and Omissions Claims, etc) that would prevent you advisor from becoming licensed.
2. Insurance carriers require volume of sales in order to keep your appointment. If your advisor doesn’t sell enough insurance with a particular carrier then their license is subject to being revoked. Think about it from the insurance carriers perspective; You have 100 advisors in South Carolina that want to sell your product, but 80% of your product comes from about 15 of them. The other 85 advisors simply use your quote to get a lower quote from other carriers with whom they do a lot of business. As this insurance carrier, why would you devote much energy to the other 85? You wouldn’t – and they don’t. At times, they will even revoke a advisors license so they can create exclusivity with the 15 who are loyal to their company.
Some of the most unethical advisor practices occur because of the inability to represent all carriers. It is not uncommon to catch advisors in a blatant lie about which carriers they have access to quote.
Why would your advisor do such a thing? Answer: Who would ever know?
The solution for your company is to have your advisor disclose on the front end which carriers they intend to market your business to, then look for gaps. Keep a back up #2 advisor to help you fill in the gaps if necessary to make sure every viable insurance carrier has a chance to compete on your business.
CAUTION: We do NOT suggest that you allow multiple advisors to solicit the same insurance carriers. Think about the logic of this from the insurance carrier perspective: You receive 3 different requests for proposals from different advisors on the same piece of business. You know right off the top that there are at least 3 different advisors working on this project, how many insurance carriers are involved? The chances of their getting this piece of business are really slim. Often this is enough to receive a decline to quote from a carrier. Or even worse, the 3 different advisors might ‘work the data’ (this is industry terminology for altering the claims experience, census, company name, etc) to get a better quote that the other 2 advisors involved. It is a real mess when this happens, and one bad apple can spoil the whole batch. (We discuss this in greater detail later in this report)
#3: “Your Benefit Advisor does NOT Represent You!”
Fact: In the State of South Carolina (and many other states), insurance advisors/advisors are ‘agents’, not advisors. By definition, a advisor works on behalf of the client company and an agent represents an insurance carrier. In South Carolina, the state department of insurance doesn’t license advisors, only agents.
You might ask, “So why is this important, after-all it is the state that has set it up this way?”. It is critically important, mainly because you didn’t know this prior to now. What does it mean when your advisor doesn’t represent you – It means that they don’t represent you! Your advisor has a duty to be upheld to the insurance carriers that they represent, and this could come at your detriment. As a client, what this means is that you must ask much harder questions to your advisor and understand that it is not a perfect relationship of their wholly representing your interests. You must press them to make sure you are getting the best possible deal for your company.
#4: “You Have NOT Been Told that Commissions Are Negotiable!”
Fact: That’s right, they are not automatic determine by the insurance carrier, but rather are negotiable. The reason you never knew this is because it was never in your advisors best interests to tell you. Why would they invite negotiation of what they get paid? The only exception to this is group medical insurance on clients with less than 50 employees enrolled (and that only holds with some carriers, not all).
So what is the solution? Make sure you are getting what you pay for. We are not suggesting that advisors do not provide an extremely valuable service, they do. However, you should only pay for the value you receive. Is your advisor helping communicate to your employees, are they offering new ideas on an ongoing basis, are they helping you to move forward? Ask these type of questions, and explore with your advisor how they can help you. Most companies only take advantage of 10% or less of their advisors capabilities – so decide upon what you are willing to pay, and then make sure you get a comparable value.
#5: “Your Benefit Advisor has Not Told You about All of their Conflicts of Interest”
Fact: Your advisor only wants to put your business with a handful of different insurance carriers, and if they are successful they get paid a lot more than usual to do so. This is because of general agency (GA Agreements) and override agreements. These are arrangements that allow your advisor to make more money when they sell business with certain carriers. In and of themselves, these are not bad – in fact they can add additional revenue to the operations of your advisor, and often be turned into additional added value services for you as a company. However, when used inappropriately they can have an effect of costing your business money.
Some of the most deceptive tactics in the industry surround this issue of conflicts of interest. It is not uncommon to hear a company told that they “don’t want to look at XYZ insurance carrier; they won’t give you anything but problems”. The question you should ask is, “Why? Who has had problems and can I talk with them about the problems they had?”. Unfortunately most companies don’t ask such hard questions, and they just get funneled into carrier contracts that aren’t in their best interests.
A good start solution for your company is to request your advisor to disclose the carriers with which they received a bonus from in the prior year. Knowing this will at least give you a place to start. It is also important to ask this question to gauge the reaction of your advisor, to look for red flags (a defensive stature would be a red flag example). Another red flag would be if they are totally clueless as to the answer. The reason this could be a problem is that it is likely their management has not told them where the conflicts of interest are, but rather just instructed them on which carriers they need to sell in order to ‘keep their jobs’.
#6: “You Have NOT Been Told that You Are Buying Too Much Insurance”
Fact: You will never hear a car sales man tell you that you are buying too expensive a car, nor are you likely to ever hear your employee benefit advisor tell you that you just bought too much insurance. Did you know that some things don’t really need to be insured? You heard it here first!
Remember, insurance is designed to be bought to pay for those things which are unexpected – and if they occurred it would cause significant financial strain. There is a statistical law called the Law of Large numbers that should be understood by every company purchasing group insurance. The implications of this law for you is that the more employees you have covered under your plans (whether it be medical, dental, life insurance, disability, etc), the less likely you are to need ‘full coverage’ insurance to pay for the claims of these plans.
What you are looking for is the point at which your claims become statistically viable, which is a fancy phrase for saying they become predictable. In other words, if you can predict your own claims to a certain extent, why would you pay an insurance carrier to predict them for you? The trick is to know what size employer is big enough for each line of insurance coverage. This will be different for each company depending upon the structure of your benefit plans (enrollment, employee contributions, demographics, etc), but as a general rule you can begin considering different funding arrangements on medical insurance once you have 100 enrolled employees. Many companies at this point think ’self-insurance’ and immediately run for the hills; but stay with us here for a minute so we can explain in detail. Funding of an insurance product is a continuum.
Being ‘fully insured’ or ‘fully-self insured’ are only 2 points on the funding continuum. There are many, many others along the way. As an employer with less than 100 employees covered under your plan, you start on the far left, and begin to move down the scale as you get larger and larger. A well educated, experienced advisor can help you choose where makes the most sense for your company, and thus making sure you aren’t wasting money in the meantime.
With dental and vision insurance, there is hardly any reason to purchase insurance once you have 100 employees – have you ever hard of a catastrophic dental crown claim? No, so why buy insurance against claims which are predictable and non-catastrophic. Short term disability is also another easy coverage creatively fund. Please use extreme caution when considering alternative funding on life insurance and long term disability. These plans can have significant liabilities attached, so you need to be extra careful about how you arrange this.
#7: “Your Benefit Advisor will NOT bring you the Lowest Price!”
Fact: Did you know that the price can always go lower? Chances are you have experienced this when a advisor or insurance carrier is about to lose your business – they immediately come back with a sweetheart deal. Then you sit their asking, “Why did I have to threaten my business partners to get them to do their jobs?” That a good and fair question, why did you?
It is good to use the 80%/20% rule here; 20% of your effort in this area is going to derive 80% of the value to your company. So what is equal to 20%? Put a little pressure on your advisors and insurance carriers. Make sure they know you mean business, and that you will fire them if it is necessary to do a good job for your company. By the way, it is hard to do this if your advisor is your brother-in-law. I have heard it makes for an awkward Thanksgiving dinner.
Another thing that is so often missed is that your insurance contracts should be looked at as a long term venture. Ask yourself, “Will our company still be offering this benefit in 5 years?” If the answer is yes, then you should be considering the long term impact of how your price is calculated. Ultimately, the claims under your insurance programs will determine your costs. The implication of this for you insurance programs is that if your rates are under priced, eventually it will catch up with you. For this reason, many advisors will bring you a higher initial premium rate, knowing that it is an accurate rate long term and will allow for stability in your plans.
In conclusion, sometimes you won’t get the lowest price because your advisor is lazy and in other times it is for your benefit. Make sure have a discussion with your advisor so you can feel confident you don’t fall into the first bucket.
The other thing to keep in mind is not to cry wolf. If you go overboard, no one is going to want to deal with you because there are too many other companies out there won’t demand as much. So be ‘pleasantly-pushy’. Require your advisor to help you get a good deal, but once you have squeezed the orange of its juice, don’t turn it inside out and go after the pulp. Save your energy for the other 9 items on this list.
#8: “Some Benefit Advisor will ‘Work Your Data’ if necessary to get your business”
Fact: ‘Working Your Data’ refers to the purposeful altering of your company’s underwriting data to get a better or different quote from an insurance carrier. We alluded to this earlier and will explain it in greater detail in this section. Our experience has been that most companies are disgusted and stunned when they hear this revelation. It unfortunately is true – there are some people out there who will do absolutely anything to get your business. Examples range from changing of your census (changing dates of birth to show a younger employee population), or changing of your claims numbers. Other times it takes the form of a ‘convenient withhold’ of critical information which they know to be true about your company.
The consequences to your company can be numerous, but here are 2 warning signs that this just happened to you:
1. The price changes right before you sign the paperwork to move forward – The reason the price changed is that once the advisor had your commitment, they knew they must disclose the truth to the insurance carrier prior to executing the contract. Your advisor then blames this on the ‘bad insurance carrier’, and tells you there isn’t anything that can be done. By now you are out of time, and must move forward. Something other business item grabs your attention, and you don’t explore all the details of why this happens. Another client duped!
2. Your claims are denied – This is the nightmare scenario of having a large claim denied. Your employee has a large medical claim, dies or becomes disabled, and you discover you don’t insurance to cover that claim. The employee reacts by saying, “Well I don’t care – you told me I had this coverage so guess what, someone had better pay me or I will sue you”. Of course you can sue your advisor, and have their errors and omissions insurance to pay for the claim (Assuming you made sure of the financial quality of the insurance carrier in question. This is important because errors and omissions insurance often only will cover insurance carriers with an ‘A’ Financial rating or better. If you happen to be with a ‘B’-Level or below carrier, you have no protection from this type of exposure).
So what can you do as a company? Better an ounce of prevention than a pound of cure. Only use a advisor, if they and their company have demonstrated a superior ethical commitment over time. Actions speak louder than words when it comes to this item. Ask around in the marketplace, since this type of action has a way of becoming public knowledge. It often is not an isolated event, but a consistent pattern and way of doing business. Keep an eye out of the ’special deal’, since it in fact could the type of ’special’ that isn’t so good for your business.
#9: “Your Benefit Advisor CANNOT Control Your Healthcare Costs”
Fact: Your costs will be what they will be! Claims are claims, and claims determine what your cost is. Has an advisor told you that they can control your healthcare costs? Normally what is meant by this statement is that they can bring you a lower rate. This is significantly different than controlling your healthcare costs (see # 7 above about rate stability). Think about it logically; if an employee has a terrible auto accident how can that possibly be impacted by advisor. Employers too often forget that it is their healthcare claims determine what they will pay in the form of premiums.
You might be asking yourself, what about wellness programs. Yes, these programs definitely can help control your healthcare costs in the long term. However, we would argue that this rarely is a function of the advisor. Most of the credit for wellness programs should be given to the employer itself, not the advisor. With that being said, there are about 5% of advisors who can actually help you in this way, but the trick is learning who is the 1 out of the 20.
As discussed earlier, most advisors do not have not committed themselves to the training necessary to even understand healthcare delivery systems and pricing. They would not know a DRG analysis or CPT code analysis from a SPD compliance check. You simply don’t know what you don’t know.
So what can you do about it? See your free White Paper on How to choose an Employee Benefit Advisor. Better yet, download our Employee Benefit Advisor Competency Test and see if you are getting what you are paying for.
#10: “Your Benefit Advisor WILL Tell You they have a Special Exclusive Product Through an Insurance Carrier”
Fact: In reality, this is extremely rare. The truth is unfortunately this is often just a bait and switch technique. A advisor calls a company and tells them they have a “Special Association Only Medical Insurance Product” and they want to talk with them about it. The company is of course desperate, because their insurance costs have gone up and up for years and they would love to save some money. Often advisors will tell them that they can get them into a “Special Pool”. Think about this in reality though – you are already in a pool. For instance, if you are with a large insurance carrier in your state, you quite possibly could already in the largest pool of employees for that state (based upon their market share). 99% of the time these are only marketing gimmicks that get them in the door so they can sell them whatever product is the cheapest, regardless of the carrier. What is shameless about this approach is that the association often puts the advisor up to it, and if they are successful at selling the “Special Product” the association will get a kick back.
The bottom line is that companies need to be smart, and ask a lot of questions. Feel free to call the insurance carriers and ask them about the product being offered. You will likely discover that what is being sold is only a unique plan design (For Example, an insurance carrier might say you can only purchase a $350 deductible plan through XYZ Organization. However, you can purchase a $300 or a $400 deductible through anyone. This doesn’t exactly pass the sniff test of being a “Special Association Product”).
In Summary:
It is unfortunate, but the reality is that Companies Must be Smart about who they choose to partner with. When you are hiring your employee benefit advisor, spend at least as much time with them (if not more) as you would when hiring a new employee. The fact is they will help you spend much more money. Be Careful and Smart – Get What you Pay For!
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