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Group Insurance Quotes

I've been busy running quotes for a few new group clients, as well as marketing a few existing groups to ensure prices are competitive. This hasn't left a lot of time for blogging. So I thought I would just post the stuff I have been working on. Below you will find a quote comparison for a group of mine, name removed for privacy. The group is currently with Benefits By Design, they are getting a 13% increase in their renewal rates, which I think is somewhat unjustified. So I have marketed the group to a number of carriers, I have included 5 in the comparison (Manulife, Equitable Life, Sun Life, Wawanesa and Great West Life). I have worked with all of these carriers and have confidence in the service and support they provide. As you can see the rates do vary from carrier to carrier, with Great West Life being the most expensive, though still providing a savings over BBD's original renewal. Manulife looks artificially cheap because they declined to quote on Long Term Disability for this group, we would need to add about $600 or so, to their premium, involve another carrier, possibly double up on some Life Insurance etc. so they have been eliminated from the running.

Sun Life is next in line, they are actually providing a savings of $278 per month over what the group is currently paying. This concerns me slightly as I think this is too cheap, I believe there is some heavy discounting going on here and that at next renewal there will be a corresponding increase. If the client is ok with the fact that next renewal will be high, than I have no problem taking the discount, but the client has to be aware of what they are getting into.

Equitable Life looks pretty good, both rates and efficiency wise. You will notice under health and dental the Target Loss Ratio (TLR) field. These number show how much of the premium is directed to claims and how much goes to admin. Ideally you want higher TLR's as this provide more money to pay claims, and less to overhead. Equitable is running 77.8% for health and 78.8% for Dental, this is far better than the current 73.4% and 75% BBD is providing. Wawanesa is the most efficient at 79.7% for both Health and Dental.

A Good example for looking at TLR efficiency is to compare the Health Care rates of Wawanesa with Manulife. Manulife has the less expensive premium of $2069 for health care, but also a lower TLR of 76%. Wawanesa looks more expensive at $2344 but has a higher TLR of 79.7%. When you compare dollars to dollars,

Manulife comes up with $1572 directed to claims and $497 in admin.
Meanwhile
Wawanesa comes up with $1868 directed to claims and $476 in admin.

So while Manulife "looks" cheaper on the surface, Wawanesa will pay more claims, and also charges a little less in admin. At the end of the day having more money funneled to claims means better renewals and more stable premiums.

Assuming the client is comfortable with a sizable renewal next year I would be recommending Sun Life for a combination of best premium, meeting the plan design requirements, as well as having good service and support. If the client isn't comfortable with the idea of a large renewal then my fallback position would be Equitable Life.

More news on HST

Message sent on behalf of Nick Pszeniczny, Executive Vice-President, Distribution, and Rick Rausch, Senior Vice-President, Individual Retirement Investment Services.

Copies have been sent to regional directors, operation managers, Investment Managers and Consultants, Investments Administrative Coordinators, field management and administration personnel and staff associated with Individual Retirement and Investment Services.

Important information regarding the Goods and Services Tax and Harmonized Sales Tax – Impact on mutual funds and segregated funds

Effective July 1, 2010, expenses charged to investment funds and all investment management and advisory fees will be subject to the Harmonized Sales Tax (HST) in Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland and Labrador.

The HST, a federally-administered tax, combines the Goods and Services Tax (GST) and the provincial retail sales tax (PST) into a single sales tax. The HST is new in Ontario and B.C., while new rules now make the tax in the existing HST provinces applicable to all funds.

What are the tax rates?

Province(s)/Territories HST rate     
British Columbia        12% (5% federal and 7% provincial component) 
Ontario, New Brunswick, , Newfoundland and Labrador     13% (5% federal and 8% provincial component) 
Nova Scotia    

15% (5% federal and 10%

  provincial component)

(as of July 1, 2010)

     
Alberta, Manitoba, Prince    Edward Island, Quebec, Saskatchewan, Territories   5% federal GST only    

What’s taxable?

The HST will apply to GST-taxable services that are charged to investment funds as well as to any investment management or advisory fees that are paid outside of the fund. These services are currently subject to five per cent GST. The HST will also apply to other services already subject to GST, for example annual trustee fees for RRSPs, RRIFs and RESPs.

The HST will not apply to expenses or fees that currently are not subject to GST such as insurance premiums (including premiums paid for benefit riders on segregated fund policies).

You may have seen media coverage of a proposed change in the definition of a financial service for GST purposes that would have the effect of introducing GST on commissions related to the sale and service of investment funds. Industry associations have opposed the nature and timing of this change in policy. 

Federal Finance Minister Jim Flaherty has recently stated that no change in existing policy was intended, but rather just a clarification that all services previously taxed would continue to be taxed. This clarification was required following some 2009 court decisions against the Canada Revenue Agency (CRA) in this regard. We await confirmation from the CRA of the minister’s position.

What does this mean for investors?
The HST means a higher tax rate will apply to investment funds effective July 1, 2010. This will increase the costs incurred by the fund, where such costs are paid at the fund level, and for investors directly, where such costs are paid by the investor. Only half of the increase will be felt in 2010 due to the timing of the change.

How will the tax apply?
The specifics of how the HST will apply are not yet fully known. New rules defining what rates apply have been released for some sectors and discussed with industry representatives for others. We have been working with the federal, Ontario and B.C. governments for many months to try to address the challenges of applying various tax rates to a pooled product like investment funds. Industry associations continue to express concerns regarding the effects of this tax on Canadians’ ability to save and invest for retirement and other purposes.

We will provide further detail once the government publishes the final regulations.

Ontario Drug Reform

The Ontario government is bringing in some interesting new changes in connection with their pharmacy laws. Manulife has a good little writeup on what is happening. In a nutshell to get pharmacies to stock generic drugs over brand name drugs, the generic drug companies are paying kickbacks to the pharmacies. These kickbacks increase the cost of the generic drugs. The government is putting a stop to these kickbacks and as a result dropping the cost of generic drugs.  I think this is a great move by Ontario, and I would expect similar legislation to come to other parts of Canada in the near future if the plan succeeds.

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On Wednesday, April 7 the Ontario government announced plans to reduce the price of generic drugs*.

If the new rules are approved, the price the pharmacy will be allowed to charge for a generic drug will be reduced to 25 per cent of the cost of the brand name drug. Currently, generic drugs cost group benefits plan members (and cash paying customers) between 60 and 70 per cent of the brand name price.

The change will affect the generic drug prices paid by

• the provincial drug plan,
• employer-sponsored group benefits plans, and
• individuals who pay for their medications out of their own pockets.

For employer-sponsored group benefits plans and individuals without a drug plan, the price reduction will be phased-in as follows**:

Date	Generic drug price
April/May 2010	Prices reduce to 50 per cent of brand price
April 1, 2011	Prices reduce to 35 per cent of brand price
April 1, 2012	Prices reduce to 25 per cent of brand price

For the public plan, regulations will be posted for 30 days at which point it is expected that the prices will be reduced to 25 per cent. Further clarification is required to determine if there will be a period for pharmacies to dispense existing stock at the old price.

Drug use in Ontario:	Brand versus Generic
Brand name drugs	76 per cent of sales
Generic	24 per cent of sales

At the same time, the government announced the following:

• If approved, legislation will phase-out the professional allowances that are paid to pharmacists by generic drug companies. The government said these allowances have kept the price of generic drugs higher. Professional allowances will be eliminated on the public plan once legislation takes effect.
• Dispensing fees paid to pharmacists by the provincial drug plan (Ontario Drug Benefit Program) will increase by $1 to $8. In rural areas, the dispensing fee increase will be up to $4. The additional money for rural pharmacists is intended to help maintain easy access to medicine by residents in isolated areas.
• Dispensing fees paid by the provincial drug plan will then increase by 2.5 per cent annually over the next five years.
• A $100 million fund will be created to compensate pharmacists for new professional services that they will be allowed to deliver to patients. This is in addition to the MedsCheck program that already exists.

At this time, Manulife Financial is reviewing the implications the changes might have on plan designs. Manulife Group Benefits commends the province of Ontario for taking these actions to help

• control drug prices and give the people of Ontario access to affordable medicines,
• deliver better value for tax-payers, and
• protect employer-sponsored drug plans and the coverage they provide to millions of Ontario residents.

For more information visit the Ontario government website
Ontario.ca/drugreforms

*Generic is the term used to describe a drug product that has the same active ingredients as a ‘name brand’ drug but which is sold at a lower price. Laws prevent generic drugs from being manufactured until a name brand drug’s patent protection has expired.

** Based on information made available to the Canadian Life and Health Insurance Association at the time of publication.


© 2010 The Manufacturers Life Insurance Company. All rights reserved.

Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.

Target Loss Ratio?

In a nutshell a TLR is the ratio of administrative expenses to claims payments. Every plan has expenses, paying claims, paying commissions, printing booklets, etc. These expenses are part of the overall premium you pay. At renewal time the insurance company seperates these expenses from your claims to determine your new premiums. Aside from plan design changes, the biggest impact you can have on premiums is reducing your administrative expenses, this translates into a better or higher TLR.

As a group grows they start to benefit from economies of scale and the TLR improves. A group of 10 members might have a TLR of 70%, which when flipped around means that expenses were 30% of premiums paid. A larger group of 100 might have a TLR of 85%, so expenses were only 15% of premiums. The higher the TLR the better.

Each insurance company has a differnt level of expenses, some of the more "value added" carriers like Great West Life, and Manulife tend to have a lower TLR becuase they provide more services and benefits all of which cost money. Some of the more basic providers such as Wawanesa, who dont have as many bells and whistles, can do things for less and have a better TLR.

For example I often find the big 3 (GWL, Sun, Manulife) will have the same TLR for health care and dental care.But if you actually look at claims settling expense dental care is FAR cheaper to administrate than health care. Furthermore, dental care doesnt require a stop loss charge in the event of a catastrophic claim.

One thing I really like about Wawanesa is they are one of the only carriers I am aware of, that charges a different TLR for Health Care vs. Dental Care. The Target Loss Ratio for Health might be 80%, while the Dental Care TLR is 85%. Most carriers would charge 80% for both, and pocket the difference.

So aside from the cost of expenses, what does a Target Loss Ratio mean to you the client? It can mean lower premiums.

Lets assume that we had a group with $50,000 of health care claims. Their current carrier has a Target Loss Ratio of 75%, in other words they require 25% to administrate the plan.

We can work backwards from the claims, and the Target Loss Ratio to find the premium the group would pay. The Total Premium for the group would actually be (50,000 / 0.75) = $66,666

75% of the premium is $50,000 in claims, and 25% of the premium is $16,666 in admin.

Given the same claims of $50,000 how much could the client save if they had a better TLR of 82%?

($50,000 / 0.82) = $60,975.60
By switching to a carrier with a better Target Loss Ratio the client would save $5,691

A trick I sometimes see inolves this same princple but working backwards. I will get a quote from a competing insurance company, which is cheaper than the existing coverage, however, the TLR is far poorer than the current carrier. Even though the premium looks cheaper, there are be fewer dollars directed to paying claims. This often results in a higher renewal next year.

Example:
Current premium $10,000
Current TLR = 72%
Dollars directed to claims = $7,200

Competing premium $9,500
Competing TLR = 65%
Dollars directed to claims = $6,175

So while the competing quote looks to save 5% over the current plan, the drop in TLR actually results in fewer dollars being used to pay claims, assuming the claims were actually the $7,200 budgeted in the current plan, the competing plan would need to raise rates by $1025 (ignoring trend etc) which makes the new carrier actually MORE EXPENSIVE than the current plan.

Take a look at your Target Loss Ratio and what you are getting for your premium dollars. If you don't need all the bells and whistles you might want to look into a more budget carrier who charges less.