What are you paying for?

I am often asked the following question: “How much should we be paying our insurance broker, and what should we expect in return?”

This is a tough question to answer without first looking at the dynamics of the Company/Broker relationship.

On the surface, your insurance broker/agent should be an extension of your HR Department.  Anything less than this and you are not getting your money’s worth. 

A good insurance broker is a valuable member of the team, and is resourced with helping with a variety of issues, from day-to-day service issues to strategic planning and predictive modeling to negotiating with the vendors for the best deal possible.

A good relationship goes much deeper than this though.

How does your insurance broker go about reducing your overhead and maximizing your profit margin? That’s the bottom line, isn’t it?  How much does your company pay for health insurance and employee benefits?  The numbers are staggering and are only getting worse.  So the underlying question should be, “What is your insurance broker doing to reduce costs, and how are they doing it?”

Let’s explore the compounding effect of a typical renewal increase over the past 5 years.  Medical trend has been averaging 14% over the past several years.  Assume that you currently pay $1,000,000 per year for your health insurance program(s).  At 14% per year, compounded over 5 years, you can expect to pay in the neighborhood of $1,925,000.  That is almost DOUBLE in just 5 years.

Now let’s assume that your average increase will be 8%.  You can expect to pay $1,469,000 after the same 5 year period – a savings of almost $500,000.

If your broker is able to accomplish this, are they worth their fee on this fact alone?  I imagine the answer would be a resounding YES!

So now the question becomes, how do we get from a 14% rate increase to an 8% rate increase?  There are many ways to accomplish this, and many of the Fortune 500 companies have mastered the process.

Future blog entries will address the many ways in which medical trend can be reduced, and in many instances, actually start bending it in the opposite direction.