A group benefit plan quote is affected by a myriad of factors, from the demographics of your workforce to the current interest rate in Canada and, of course, which benefits you choose to include in your plan.
There are two main categories of group benefits: pooled and experience-rated.
- Pooled benefits: Includes long-term disability, life insurance, and accidental death and dismemberment. Pooled benefits are influenced by the group your advisors work with, rather than by your individual company.
- Experience-rated benefits: Includes health care, dental care, vision, and short-term disability and the costs of these benefits are influenced by your individual company’s usage.
As far as pooled group benefit plans, as a Benefits Consultant article states, “Under a fully pooled underwriting arrangement, the insurance carrier does not review the claims experience of any one particular group, however, focuses on analyzing the experience for their entire block of business to determine required premium rates and rate adjustments annually”.
Think of pooled benefits like a grade bell curve—your premiums are determined not by your usage or demographics as an individual company, but by the larger group you're part of.
Here are some of the factors that may influence the cost of pooled group benefits:
Demographics of your carrier’s pool
This includes an aggregate average of data, such as age, gender, geographic location, and occupation. For example, if there’s little employee turnover in your carrier’s pool and much of the staff remains the same, this would result in a +1 for the age demographics (meaning everyone is a year older).
That could lead to a 5-10% increase in rates. However, employee turnover makes this calculation more complicated. The average occupational demographics also influence pooled group benefit plans cost and premiums. If the majority of your carrier’s pool work in high-risk industries, your life insurance and long-term disability premiums are likely to increase more than if the majority worked in safer, low-risk industries and occupations.
Current interest rate in Canada
Although the impact of the interest rate on benefits premiums tends to be relatively small, it is still worth noting. In general, a low interest rate means higher premiums.
Here are some perks of pooled benefits, according to Inc.
- A community premium rate tends to be lower than individual rates.
- In many cases, premium increases are capped for the first several years of the policy.
- Centralized administration of the policy results in savings in work hours and paperwork.
- Standard rates and benefits do not fluctuate according to company size or workforce health history.
Unlike pooled benefits, the cost of experience-rated benefits are determined solely by your company’s individual data. The overall demographic data of your provider’s pool makes no difference.
Similarly to pooled benefits, with experience-rated benefits health and dental costs are determined by employee demographics. However, costs are also influenced by your organization’s claim history as well as inflation trends. The factors determining the premiums of experience-rated benefits can seem more complicated than pooled benefits, as there are so many of them.
Here are some of the factors that influence the cost of experience-rated benefits:
Type of billing
Does your plan use traditional billing, refund accounting, or administrative services only (ASO)? ASO plans tend to be the lowest cost, but are also the highest risk. It’s important to understand which type of billing is right for you. Learn more about ASO here.
Turnover of employees and company growth
Because the cost of experience-rated benefits is influenced by plan usage, high turnover can increase your fees. Therefore, a company that is in rapid-growth or has to replace employees is likely to have higher premiums at each renewal.
Similar to pooled benefits, experience-rated group benefit plans cost can be influenced by factors such as age, gender and personal life choices. For example, if the average age of your employees is under 30, you’re less likely to see as many dependents (spouses or children) than with an older workforce.
Lifestyle/health of workforce
Are your employees leading healthy lifestyles on average? If so, it could be saving you thousands of dollars per year in group benefits premiums. Healthy employees tend to require fewer medical treatments, meaning that your premium rates won’t increase.
Generally speaking, if your company operates in a high cost-of-living area, then your premiums will be higher than if you live in a low cost-of-living area. Check out this list of most expensive cities in the world to see where yours ranks. We’ll spoil it for you: Vancouver and Toronto top the list.
This one may seem obvious, but the design of your plan can have a huge effect on your premiums, and it’s one of the few factors you can actually control. Changing the copay or deductible rates can reduce claims and premiums.
Service Industry Code (SIC)
The industry you work in has a Service Industry code and that code can determine the cost of your experience-rated benefits. For example, if your SIC shows that your industry is in technology or computer science, you’re likely going to have a cheaper rate than groups in industries like logging, mining, or forestry, which tend to be higher risk.
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