When it’s time to renew your employee benefits plan, and rates have gone up, it’s easy to be tempted by promises from other suppliers of lower rates. But don’t be fooled. Generally speaking, rate increases are triggered by higher-than-anticipated usage or initial underpricing. Some insurance providers or brokers will offer you lower rates to win over your business, and then surprise you with higher renewal rates to compensate for the losses they incurred in your first year. It’s a perpetual cycle that may never end, and eventually even get your company on the blacklist of prominent insurance providers.
While it’s not pleasant to be faced with increasing renewal rates, here are three factors that can help you better understand what might be affecting the rate stability of your employee benefits plan:
1. Rates Tend to Stabilize After 3 Years – Getting a benchmark for what’s normal in the industry normally helps clients deal with renewal rate increases. From our experience, a normal renewal increase should be around 5%, accounting for inflation and reserves. Generally, renewal rates will stabilize after about 3 years. It’s the right amount of time for a company to establish a claims history which helps the insurance company anticipate employee benefits plan usage and fair rates.
2. Hiring Many New Employees Can Get Costly – Young start-up companies, high-growth organizations, or those with higher-than-average turnover tend to have more instability on renewal of an employee benefits plans. This is because new employees coming onboard tend to generate more usage from a benefits plan. This in turn increases overall claims which will be reflected upon renewal.
3. Pooled Plans Are Not Always What They Seem – At BenefitDeck, we offer pooled plans because when managed properly, they can offer tremendous benefits to our clients, including rate stability. However, it is important for clients to understand that not all pooled plans are created equally. Some insurance providers and brokers will entice you to pooled plans with promises of more stability; but if they are new programs, or attract high-claiming companies who jump onboard looking for cheaper, more stable rates, then participants may end up with unreasonable rate increases. Asking about the plan start date, history of renewal rates, and client references can help you ensure that the pooled plan is established and working in the favour of all invested parties.
A Better Way to Manage Rate Stability – Choose the Right Consultant
At BenefitDeck, we don’t like surprises. So we understand why our clients are not happy with rate increases on the renewal of their employee benefits plan. That’s why we always go out of our way to help our clients anticipate any changes. We provide quarterly reports on the performance of the employee benefits plans, and extend our time to talk through the results. We have found that the clients that are most engaged in reviewing the quarterly reports are less bothered by slight increases, as they understand why they have been applied. Before the renewal rate is presented to our clients, we also make sure that any rate increases are justified. If we feel they are not, we will work on behalf of our client to negotiate a better rate, and in some cases, if necessary, find a provider with fair rates.
If you have any questions about your renewal rates this year, please reach out to our team. We would be happy to provide an assessment and present a strategy for your employee benefits plan that has your company’s best interest in mind, over the long term.
Whether you are with a business, association, or owner operator, we have the solution for your needs.