When to change benefit carriers? The quick answer is only after you’ve exhausted all other avenues with your existing carrier.
Many brokers will paint this portrait of changing to their carrier will be less expensive, better service, greater satisfaction levels for employees and a vast improvement over your previous supplier. Reality is often a much different scenario. In fact, in a year or two, you’re in no better position than if you’d decided to stay with your current provider.
Too many brokers and benefit advisors are quick to push you to a new benefits provider. Why is that the case? Mostly, they don’t know how to fix the problem with your existing provider. They have an easier time convincing a new carrier to buy an account than to figure out the problems with the existing one.
Their own compensation drives them! There are better solutions than moving carriers but financially would mean the broker would take a hit. “Greed is good” if you don’t get caught. In the last month, I’ve had two cases that I’ve taken over with clients, and it made absolute sense to keep the client with the same carrier. Negotiating with an existing carrier is a lot easier when you’re working to keep the client to stay.
“Change benefit carriers only after you’ve exhausted all other avenues with your existing carrier”
In both cases, it made sense to change funding models from an insured format. So why wouldn’t the existing broker suggest this? In many situations, insured formatted benefit plans pay the most compensation to the broker. In the short term, they can negotiate a better price with a new carrier in an insured format instead of changing to a Retention Accounting or ASO format, or changing certain processes with the incumbent.
There’s a cost to changing carriers. Too often, I’ve experienced that brokers will understate the downside to the client because of the short term financial gain for themselves. In this age of transparency and access to information, how long can a client be duped for? Are some brokers bold or just plain stupid?
By the time you factor in the cost of changing, educating the employees on the new format, new employee enrolments are collected, increased workload to administrators and forfeiture of the IBNR reserve, it would have made more sense to try negotiating with the existing carrier. By the time you’ve changed to the new provider and the first renewal comes in and the IBNR with the new carrier has been factored in, there is significantly more cost added to the new program.
If the only objection to the client is the renewal cost, then exhaust that avenue first before going to market. That’s not to say that going to market every few years isn’t a bad exercise as it adds some leverage to negotiating with your current carrier.
If the sentiment from employees and administrators is that they like the claim submission process, the timeframe in which claims are paid and are generally pleased with the plan, don’t take this lightly. Frustration with the rejection of claims, slow payment processing and a format change will quickly erode any savings in the form of sacrificed goodwill.
We’ve moved companies to new benefit carriers when the difference in cost made sense and negotiated with existing carriers and kept companies where they were previously. The smoothest cases, by far, are negotiating with the existing provider. This is from the perspective of the employee, administration and ownership.
If you find your existing broker trying to switch you to a new benefit carrier, you may want to bring in someone else to negotiate on your behalf. Your ownership, employees, administrators and finance people will be glad that you did.