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Executing a strong integration of benefits and property/casualty under a universal health care system<
By Len Strazewski
Canadians settled the problem of universal health care decades ago with a single-payer mandate, managed by its provincial governments. But that doesn't mean employee benefits aren't a serious concern for Canadian employers—and U.S. firms with divisions north of the U.S. border.
While U.S. Republicans and Democrats still feud over the Affordable Care Act that was ruled constitutional months ago by the U.S. Supreme Court, Canadian employers have little to worry about in government-paid primary health care. But employers still consider their comprehensive employee benefit plans critical components of risk and human resource management, explains James Madon, president of Fort Financial Group in Montreal, Quebec.
"Canadian employers are extremely competitive and concerned about recruiting and retaining the best employees. Employee benefits are the key to their human resources success."
And Canadian brokers—even those that specialize in property/casualty insurance (P-C)—are still called upon to help design strategically strong benefit plans that help their clients meet their human resources goals. And they still need their broker's help in containing rising costs, he says.
"We work strategically to assist our clients across the range of their needs. We have asked our clients how employee benefits fit into their business strategy and they have told us, 'It's vital!'" Fort can trace its roots back to 1927, and has 95 employees, including 11 in employee benefits services. Clients range in size from 2 employees to 2,000, but the firm focuses on employers with 50 to 200 employees who provide size and premium volume that can be used creatively and strategically, Fort executives say.
The client base includes not only Canadian employers with domestic operations, but also U.S. companies with Canadian operations. Madon says U.S. employers are drawn to the firm for help in navigating Canadian regulations, but also for help in designing and promoting employee benefits for Canadian employees.
"We work with a lot of U.S. human resource directors that want to have competitive employee benefits packages for their Canadian employees. And, of course, they often need our help with language." French is the official language of Quebec, he notes, and U.S. employers often require help in communicating and enrolling their Canadian employees.
Employee benefits account for about 15% of Fort's commission revenue, Madon says, and is an important component of a triumvirate of services that include P-C insurance, financial planning and executive personal lines. The three niches work synergistically in providing a stable revenue stream for the firm—and help build strong client retention.
Fort claims a 93% client retention rate, compared to an industry average of about 85%. "It is well known that the more policies a brokerage has with a client, the more likely it is to retain that client. By being a one-stop shop, we are able to build stronger relationships," says Madon.
"Not all brokers have the ability to provide the broad level of benefits services, but employee benefits are an important part of our product blend," he explains. "For most of our clients, P-C insurance and employee benefits are the responsibility of chief financial officers who make management and purchasing decisions.
"These senior executives are also the target clients of our VIP personal lines practice. If we can meet their business needs, we find that they are also inclined to turn to us for their personal insurance needs. I can't tell you how many times we have picked up a piece of business because our competition did not provide employee benefits service."
Employee benefits revenues also can help offset perennially soft P-C rates and eroding commercial insurance revenues, a motivation Canadian brokers share with U.S. counterparts. However, executives note that without big group health revenues, the offset is hardly sufficient on its own. Multiline growth is important for the firm, executives say, and cross-selling drives that growth.
Cross-selling P-C insurance customers is more than a marketing strategy at Fort, adds Michael Boxer, an ownership partner. It is expected of producers in all disciplines to introduce their colleagues to client executives and introduce the firm's employee benefits expertise into the strategic discussions.
"It's not easy and not common in most brokerages," Boxer says. "In most brokerages, producers are competitive, even if they do not work directly against each other. But we know it can work. We put P-C and employee benefits producers together for client presentations and address our services in a comprehensive way."
Producers share in the success, adds Madon. Fort isn't like most Canadian brokerages, he says."'If we are going to be partners, we need to be equal partners in our success."
This approach works and its success can be measured, Fort executives explain. One-third of employee benefits clients used to come directly from the P-C business, but since emphasizing cross-selling, benefits sales to existing clients have increased to 50%.
Fort provides a broad range of employee benefits services. Supplemental health and dental plans are important benefit components, executives say. Plan design services include financial analysis, including self-funding studies; benefit cost analysis, claims utilization and cost containment services; review and plan documents and summary plan descriptions and renewal marketing and analysis.
Though Canadian employers don't face the steadily increasing primary health care costs that are paid by provincial programs, health care cost management continues to be an important concern for Canadian employers, says Chris Payne, director of employee benefits. Prescription drug benefits account for about 80% of health-related employee benefits costs and are subject to the same demographic trends the U.S. is experiencing, where since the 1960s, health care costs have been increasing annually as the national population ages. Prescription drug costs increase dramatically as the aging population requires multiple drug therapies.
Payne says client concern over increasing costs have led Fort to develop comprehensive cost management programs. Though health care inflation trends upward about 15% each year, employer costs have increased about 10%, reflecting cost control programs, Payne says.
Fort provides cost containment tactics that include multilevel deductibles for individuals, families and specific services; coinsurance features for new and existing benefit plans; prescription drug card services; generic prescription drug incentives; coordination of benefits; utilization review and evaluation.
Wellness programs are a hot trend among U.S. employers, Payne notes, and are also becoming important to Canadian clients as well, though the volume of costs may be less. Many Canadian employers recognize the value of a healthy workforce and the need for maintaining productivity.
Payne adds: "Medical research has shown us all that many diseases, such as hypertension, diabetes and obesity are lifestyle-related. These same conditions have dramatic effects on productivity, absenteeism and health care costs. Canadian employers are also learning those lessons, though a little more slowly."
Fort is a member of Sitkins International and the St. Louis-based Benefits Growth Network (BGN), a consulting network of benefits specialists that follow a strategic system for client service. Payne says BGN has taught the firm to look deeper than surface cost containment benefit plan features, into underlying cost drivers. Wellness and health management programs address those cost drivers.
Madon agrees. Biometric testing and disease management programs are still a tough sell for Canadian employers, but walking and exercise programs, smoking cessation programs and flex time are popular.
"Canadian employers spend a lot of time and resources balancing life and work and we spend a lot of time educating our clients about appropriate programs that fit into their business strategy," Madon says. "Many employers with as many as 700 to 800 employees do not have professional human resource management, so they rely on us for advice."
Group life insurance, accidental death and dismemberment insurance and short- and long-term disability insurance are also important components of Canadian employee benefit plans, Payne says. Fort reviews employer-provided group plans, and optional employee-paid coverage and helps design short- and long-term disability plans that are consistent with government regulations.
Payne says demographic trends also affect life and disability insurance costs, which have also been rising steadily, though perhaps not as much as health care costs. As a result, employers are also searching for cost control methods that can influence those costs as well as health benefit costs. For disability programs, early intervention case management has become standard operating procedure.
For large employers, self-funding may be an option, Payne says. After a thorough claims analysis, employers that have identified a consistent claims pattern may be able to reduce their costs by self-funding and protecting themselves against catastrophic claims with stop-loss insurance, he says.
Retirement benefits are also a significant component of benefits services, particularly defined contribution plans. These include Registered Retirement Savings Plans (RRSPs) and Deferred Profit Sharing Plans (DPSPs), stock bonus plans, and money purchase pension plans. For some employers, these plans constitute the entire retirement program, executives say, but sometimes they supplement a core defined benefit pension plan.
Like 401(k) and 403(b) plans in the United States, the RRSPs and DPSPs have become popular for their salary reduction features that allow employees to accumulate funds with tax savings.
Unlike some U.S. agents and brokers, Fort Insurance has not dived into human resource services, such as compliance consulting, staffing and payroll services. Madon says Canadian insurance regulations limit the range of services that brokers can provide, but like the best agents and brokers in the U.S., Fort can provide some management advice and referrals to other service providers.
Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.