Tools to rein in SME group insurance plan costs are out there. Much more education is required, however, before businesses can optimize their use, experts say.
Martine Hébert, senior vice-president and national French spokesperson, Canadian Federation of Independent Business (CFIE), says that insurance costs are one of entrepreneurs’ constant concerns. According to the CFIE’s Business Barometer, one-third of small and medium-sized enterprise owners cite insurance costs as a main factor that drives their business costs upwards.
“The need for predictable premiums is clear because SMEs don’t have the liquid assets of larger firms to face steep rises in insurance costs,” Hébert explains. The CFIE encourages members to review their perception of insurance and to be wary of huge premium rebates. “What you don’t pay for today, you will pay for tomorrow, or you risk having to pay it later,” she says.
Just like larger firms, SMEs are grappling with scarce labour. Working conditions offered in the public sector are also pressuring the private sector, Hébert adds. She thinks the industry must promote insurance guarantees as an employee retention factor. “This could offer potential savings for businesses that lower their turnover rate. It’s an avenue to explore in some sectors,” she points out.
Consumers will normally avoid products that exceed their needs; SME owners are doing the same, says Carl Laflamme, senior vice-president Group Insurance at SSQ Financial Group.
“There’s not necessarily great potential for business development in all sectors. The costs are very high and we are extremely concerned with cost increases, due to the aging population, of course, plus new drugs and disability cases. Unless we manage to pool all cases together for all industry players, we will not find a viable solution, and plan costs will continue to climb,” Laflamme explains.
Martin Papillon, CEO of AGA Benefit Solutions, says that group plan members need a lot of education. Cost control systems can generate gains. Among his firm’s thousands of client companies, the use of generic drugs is mandatory for only 60% of groups. By urging participants to shop around for drugs, by reimbursing only the equivalent of the price of a generic where possible, and by favouring 90-day prescriptions for drugs associated with chronic illness, 80% of participant companies can cut their costs, Papillon says.
The industry should learn self-discipline, he adds. At contract renewal time, groups see their bills soar by 40%. Group advisors then scour the market and find an insurer that is offering a 5% rebate. “This does not favour premium stability; the new insurer enters very low to acquire the client and the next year they see another 40% increase and they have to sit down and do it all over again,” he says. SMEs are more inclined to hunt for bargains than large businesses are, he adds.
If advisors propose a sizable premium hike, entrepreneurs’ first reaction is not to review the plan, but to sound out competing insurers. Laflamme says, “If we can keep the essentials of a plan at a lower cost, businesses will most often change insurers,” he says. “On average, insurers’ client retention rate is 88% in Canada.”
Advisors are working hard with clients to manage plan costs effectively, but there is a limit to how much they can save, Laflamme says. After all, 75% of claims are linked to drugs and disability.
Laflamme would like to see physicians take more than 10 minutes before prescribing six weeks’ sick leave. In some disability cases, participants seem to need an accountant more than a psychologist, he adds. At the doctor’s office, it is easier for a patient to talk about stress at work than to recognize problems they may be having with their partner or their personal finances. “Statistics show that, in general, people have never been so deeply in debt,” he observes.
Despite all the prevention efforts, the proportion of psychological disabilities in claims has remained the same, at about 35% of long-term leave, he says. The rate of psychosis has not gone up, he says, but anxiety is escalating. More employees are having trouble adapting to changes in the organization of work.
Martin Papillon agrees with Carl Laflamme. “People need support. Absence from work is often the culmination of a series of problems.”
About 3% to 5% of the workforce needs support, Papillon says. In a group of 1,000 employees, advisors may consult the human resources staff and analyze claims before suggesting that an employee assistance program (EAP) be put in place. “Generally, they understand the importance of the employee assistance program, even a larger program, like legal assistance or financial advice,” he says.
This type of program is more difficult to sell to SMEs, Papillon adds. If services included in an EAP are not used, the entrepreneur will be tempted to trim them to reduce costs the following year. “It is not because no one needed the service this year that they won’t need it next year. It’s like saying the house didn’t burn down this year so we don’t need to insure it next year.”
Laflamme says that the only time of year when SME executives really think about group insurance is at renewal. “Once it is taken care of, once the premium has been accepted, nothing else matters.”
Papillon believes in better targeted education for participants. Mass communication is ineffectual, he says. “Hanging a poster in the cafeteria to encourage people to use generic drugs is not enough. To change behaviours, you have to contact participants directly,” he says.