Let’s be clear about this; transparency and disclosure of compensation is a sign of the times. Some industries work on this premise. It helps to earn trust with clients and ensure that you’re making recommendations because it is in your clients’ best interests and not your own. So how much do benefit consultants get paid?
I’m not going to allude to the fact of knowing and understanding all compensation models in the employee benefits world, but I am privy to my own. I’m not the only benefit advisor that believes that transparency in this business is not only necessary; it makes good business sense! It’s also a growing trend among leading advisors in the industry.
I’ve come across too many client cases recently that the client is getting completely screwed because of broker greed. Clients aren’t stupid, but they can be too trusting of the advice they’re sometimes receiving. That trust can vanish instantly, along with all the residual income that accompanies it. Last time I checked, 100% of nothing is still nothing!
In the benefits industry, we get paid on renewals. It’s in my best long term interest to ensure the plan I design is not only responsible but sustainable. I have to be communicative and proactive. As long as my client is informed about trends and strategies surrounding the benefits marketplace, I can help them to make the best decisions for their employees and the company’s bottom line. The better job I do at this, the longer my client will continue to work with me, and I will continue to get paid.
I work with a Third Party Administrator for the reasons that I believe support my business and those of my clients’. If I didn’t work with a TPA, it would entail me bringing onboard additional staff. Due to me working with a TPA, I share that compensation. A TPA also gives me clout to negotiate on behalf of my clients. My TPA works on hundreds of cases with all the major benefit providers, which gives my clients and I leverage. Something else it gives me is benchmarking information which is important in negotiating Target Loss Ratios, rates, pricing levels and renewals on behalf of my clients.
“So How Much Should I Pay Myself Today?”
Something that many clients aren’t aware of, certain carriers give us the ability to determine our own compensation levels. On ASO funded plans, many carriers give us the choice of how many percentage points we can make on each paid claim. We are told to choose between 1-5%. Obviously, depending on the size of the group, this can become a tremendous cost factor. Ask how many percentage points are marked up on top of your company’s claims. A TPA will often put from 2-5% points on each claim and/or may put a flat fee per employee per month. Many carriers will outsource claims adjudication and payment to third party payers. There is a cost of using these companies of 3-5% of claims. Don’t forget that the government wants their piece of the action. They add a 2% premium tax to every dollar of claims.
When it’s all said and done, there can be an 11-20% additional cost to every claim that’s processed.
If It’s Broke, Why Fix It?
Because our compensation is related directly to claims, the more a company increases its claims cost, the more the broker, claims payer and insurance carrier will earn. Does this seem fair? The worse job we do in managing claims, the more we get paid. So where’s the incentive to fix the problem if it harms what we are compensated.
There’s a growing trend toward not only disclosing fees but also capping fees. Fees will be locked in for a period of time to help price protect the client. This is the right thing to do and important for our industry moving forward.
So wonder why your broker isn’t motivated to negotiate a little harder?
It Must Be Renewal Time Because I Just Received A Call From Our Benefit Broker
Insured plans not only pay more compensation to the broker, but in most cases, don’t disclose how much the benefits broker makes. A common complaint that I hear from clients is they only hear from their broker once a year around renewal time. They are told that they’ve had a lot of claims made and that the renewal is going up significantly. No proactivity, no suggestions and no long term solution. They say that they could take it out to the marketplace and see if another carrier could bid on it but suggest against it as that was only done two years prior. They go back to the incumbent carrier and negotiate a discount, gets the client to accept it, and the conversation doesn’t happen for another year. I hate hearing this story, but it occurs far too often.
The renewal document is confusing, using insurance vernacular and over-inflated numbers which don’t really mean a lot to clients and the numbers only tend to go in one direction, UP!
What would make a lot of sense to customers would be this equation?
The premium received – Claims Made= Amount of Money made by Insurance Company & Broker.
The renewal reports aren’t this easy to understand, though. Insurers make it as difficult as possible to understand, so the imbalance between cost and claims isn’t so transparent. Factor in trend (inflation factor) and IBNR (reserve fund) and it makes a lot of the difference between premium taken in, and claims paid out easier to justify.
Standing There Naked With Your Wallet Hanging Out
So why isn’t what we earn more transparent? We could put a line item on a proposal disclosing our compensation. So what’s wrong with that? We go to a lawyer, and we know the hourly rate. You sell your home, and the commission is understood and often a point of negotiation. Perhaps the broker, in many cases, is embarrassed to disclose to the client how much money they make or is it how little effort goes into earning his/her commission.
I Double Dare You
So I challenge you to ask your broker/benefit advisor what does he or she earn on your account. All too often the only time that they’re motivated to sharpen their pencil is if they’re caught or after they’re in jeopardy of losing your business. Unfortunately, keeping your business for the long haul should be motivation enough, but it’s rarely the case.
Transparency of fees is important to understand what drives certain behaviours with benefit brokers. It is also a motivator for some consultants to not negotiate as hard as they otherwise would. Discover some drivers for this behaviour and other things that you should arm yourself with when negotiating your best renewal in this FREE eBook revelation.
