Wow! A whole year has gone by since you decided on implementing a Traditional group insurance program for you and your employees…So, how much is it going to increase?
Well, if your Broker was doing as they promised, then you should have a rough idea of how much the Health and Dental rates may change. That promise would have been to provide you with Quarterly Experience Reports to let you know how much you paid the Carrier for the Health and Dental benefits vs. how much the Carrier paid out in claims to your employees.
The Carriers deliver Renewals to the Brokers approximately 60 days before the Renewal effective date. Your Broker should have let you know what the overall position of the Renewal is as soon as they received it and then scheduled a Year-End Review to go over the details, including the development of a negotiation strategy.
You should never feel like your being held for ransom because you are receiving your Renewal from your Broker a couple weeks before the effective date…or worse, after the effective date!
In a first year Traditional Renewal, it is not unheard of to have a +20% increase to the rates. This increase will be tempered by implementing a conservative plan design and/or your employees and their dependents not claiming like the Carrier predicted.
Sharkey Group Insurance‘s track record for first year Traditional renewals runs around +18% ranging from -12% to +82%. That +18% has successfully been whittled down through negotiation to +11%.
The idea behind the Annual Traditional Renewal is that the Carrier is afforded the opportunity to request adjustments to the rates in order to ensure that their risk is sufficiently funded to cover expected claims for the coming year. There are several factors that they will use in their calculation with the primary ones being,
- Change in Demographics – the age, sex, marital status, and occupation of your employees
- Experience – the premium you paid them vs. the claims they reimbursed your employees
- Target Loss Ratio – their cost of doing business
They will also look into their crystal ball and use other factors to create margin for their rating. These factors are:
- Credibility – if your group of employees is statistically “invalid”, i.e. too small, then the Carrier may lean more heavily on their book rates to set your rating vs. believing that your actual premium vs. claims trend will continue.
- Reserves – in the first year Renewal, the Carrier will set up a Reserve so that just in case you decide to terminate their services. By doing this, they will be able to pay for any claims incurred before the termination date but don’t receive until after the termination date. The Reserve is usually one month’s premium for each of the Health and Dental benefits. Year over year, the Reserve calculation will reflect only the change in Reserve.
- Weighting – depending on the number of employees, the Carrier may employ another margin tool and that is taking into consideration the previous years’ premium vs. claims with a heavier “weighting” or emphasis on the most recent year’s experience.
- Trend – the most common and oft-debated margin factor that the Carriers use to calculate Renewals is the Trend Factor. Essentially, this is a prediction of how much the average claim will increase next year. For the most part, the Carriers use a 10% factor for Health claims and 5% for Dental.
All of the above can seem rather complicated but if you have a Broker who specializes in group insurance, then they will be able to help you navigate and negotiate through what the Carrier can and cannot get away with.
Located in Cambridge, ON Sharkey Group Insurance provides independent Employee Benefits advice & counsel for Small Businesses across Ontario.