Finding the best group insurance plan for your company isn’t easy. Group Insurance Traps to Avoid as an SME is a series of articles to help you master this process.
Trap: Shopping around repeatedly
The group insurance industry is highly competitive. Insurers use a variety of methods to attract new customers, including offering low premiums in the first year.
As a result, some companies get caught up in shopping around every two or three years. In other words, their brokers try to lower their premiums by having insurers make bids.
We’ve met with various stakeholders to better understand this issue.
Audrey Girard-Lachapelle, Group Insurance Advisor
Sylvie Hamel, Director of Finance at CPA Montréal
Martial Laniel, Regional Marketing Director of the Chambers of Commerce Group Insurance Plan
Are there any side effects of shopping around frequently?
ML: Companies shop around to find lower prices. This often happens when a company’s policy renewal comes with a premium increase. If a company’s claims exceed its premium, the premium will increase in the following year.
A company will usually decide to shop around to counter the increase after a deficit year. This is a mistake. Shopping around certainly leads to lower premiums since an insurer will take a chance and offer lower premiums to attract the company. This situation will repeat itself at the end of the first policy year. Rather than having to assume the previous insurer’s loss, the company will see a significant rate increase to cover the two deficit years because its claim history doesn’t disappear. This postpones the problem but the loss will have to be made up one day or another.
AGL: We really shouldn’t be looking for the best possible price at all costs. The important thing isn’t knowing that the premium is the cheapest available. It’s understanding the insurer’s renewal process in order to compare renewal projections as well as rates. It’s about knowing the insurer’s prices and the financial factors used to calculate the premium the following year. This can vary greatly from one insurer to another.
Advisors should always explain this essential information so customers can make an informed choice of insurer. Your advisor should make a shortfall projection for the next renewal in the proposed bids, using past claim reports, and consider any associated costs that may increase the price. Insurer choice should therefore be based on the renewal projection rather than just the initial premium cost.
ML: Some insurers may also refrain from bidding simply because they aren’t in a position to improve the current agreement. So it would be a deficit for them. They may even refuse to bid if they believe the company is requesting too much market research.
How can we prevent premiums from constantly fluctuating?
AGL: Numbers definitely have a positive impact. So rather than being a single company with its own plan, it’s more advantageous for an SME to join a group such as the Chambers of Commerce Group Insurance Plan, which includes 33,000 insured companies across Canada. This plan is managed on a non-profit basis with a single renewal method and very low fees thanks to the number of insured people grouped together. This type of program provides great stability and savings in both the short and long term.
This makes it possible for SMEs to avoid significant fluctuations from one year to the next and, consequently, better manage their group insurance costs.
SL: Before joining the Chambers of Commerce Group Insurance Plan, we had experienced excessive increases with other insurers. Our advisor, Nathalie Marcoux, explained to us the plan’s distinctive factors. Stability is its main advantage. We were surprised to even have our premium reduced one year.
What other consequence can result from changing insurers too often?
ML: Shopping around too often can also be very time consuming. File management, transmission of documents, employee guide modification and training on a new claim filing system are all time- and labour-intensive tasks.
AGL: It’s better to opt for a medium- and long-term approach rather than quick short-term savings. Saving money in the short term by making decisions based on the lowest rate rather than on financial factors and renewal methods leads to financial deficit at the following renewal and, therefore, a significant premium increase.