How full disclosure helps everybody win
As brokers, we are responsible for providing customers with accurate information. And to give accurate information, we need to receive accurate information. This means asking customers and prospects the right questions to get access to their world and discover their needs.
But sometimes customers withhold information. Why? Common reasons include:
- They’re trying to reduce the value of their assets in order to lower their premium
- They have made an honest mistake
- Their broker isn’t doing their job properly
This last was the situation one of our prospective customers faced. His company has an employee benefits plan, and his broker was in the process of moving him to another insurer.
When insurers see that an organization has a group benefits plan, they ask to see how much the group members have been using the plan.
Based on the usage rate, insurers determine the organization’s “experience” rating which can either lower or raise the premium. Insurers must have the correct usage data to appropriately price the risk and policy.
If the organization’s employees don’t make much use of the plan, the team’s rates will be lower, and vice versa. High usage rates often lead to large premium increases at renewal. This had happened to our prospect.
His team’s rate had almost doubled at renewal because his team was using their plan very heavily. In fact, they were essentially abusing the coverage because the plan was poorly designed with 100% coverage. This means that employees had no accountability when filing claims because their plan simply provided a blank cheque for all medical expenses.
That’s not to say the employees were nefarious, it’s just that such a plan design lent itself to abuse and lacked accountability because the employees never had to pay for any portion of their expenses out of their own pockets.
Meanwhile, their broker was not helping either. He had in fact misleadingly represented the group as having an artificially low experience rating in order to avoid the premium increase and qualify for lower rates.
This was not sustainable at all because it forced the organization to get a new insurance provider for their group benefits every single year. And there aren’t that many doing group benefits – pretty soon, they would have run out of places to run and would have to pay the high premium.
So the broker was only postponing the inevitable as well as being dishonest and putting his customer’s coverage at risk. If they were to file a claim, the insurer would investigate their records and discover the false rating. The insurer would then cancel their coverage and deny the claim.
In other words, it was a complete mess: the broker really was doing his customer no favours at all. The “savings” they were supposedly enjoying would be irrelevant if they ever had a claim and were on the hook for the entire cost because their coverage had been cancelled.
Not to mention the fact that they were not developing any loyalty with any insurer that would have given them access to discounts over time.
We communicated all this to the owner and he was receptive when we presented alternate solutions. He moved his business to TSG. Our first step was reducing the coverage in order to encourage employees to be mindful of costs when using the plan.
This will create a plan that is protected against misuse while meeting the employees’ needs and ensure long term sustainability for all parties. Going forward, they will enjoy stable rates and will be able to remain with the same insurer without having to “shop around” every year.
Our customer can now focus on growing his business without worrying about his insurance.
Contact us today to design an insurance policy that will leave you free to focus on your business.