Pooled Registered Pension Plan (PRPP)

The Federal Government recently passed Bill C-25 also referred to as the Pooled Registered Pension Plan Act. while still in its infancy, and with many details still to be drawn up, this plan provides yet another method for Canadians to save for their retirement. Standard Life has put out a good summary of what we know thus far. I have linked it below. I have also summarized what I feel are the most important parts.

Rob's Summary

• All employers will be required to offer the plan to all employees working for at least 24 months.
• Employees will be "auto-enrolled" and can opt out.
• Employees can voluntarily contribute a percentage of their earnings to the PRPP by payroll deductions.
• The employer is NOT required to match or contribute (at this time, this could change)
• The suppliers of these plans will largely be existing financial institutions such as banks and insurance companies
• Investment fees are to be kept to a minimum <1%
• Since fees are to be kept so low there will be a very low level of service, there is no overhead to pay for extra service or pay advisors commissions.
• All contributions are LOCKED IN
• Access to the Home Buyers Plan and Lifelong Learning Plan tax free withdrawals/loans are not allowed
• Investments will presumably be a list of funds similar to today, but likely focusing more on Asset Allocation and Target Date/Retirement Date Funds
• There is currently no default fund selected but it is expected to be a Retirement Date fund targeting retirement at age 65.
• This is likely a good thing for Canadian, as our savings rate is abysmally low, however, as this is currently voluntary, it is doubtful that many employees will participate in the PRPP if employers don't match, and even then there are drawbacks to the PRPP such as the locking in provision and loss of Home Buyers Plan and Life Long Learning Plan when compared to the also voluntary RRSP.
• Broker are going to hate the PRPPs. They will pay little or no commissions. Pension managers with large blocks of business are already terrified that their commission stream is going to dry up. There will certainly be a shift in how we as advisors market and sell group savings plans. Many will switch to a fee for service model, provide little or no service, or exit the market all together. It will be interesting to see how the industry reacts to this new plan and its implications on our bottom line.
• Similar plans have recently been launched in Australia and the UK. in those countries the employer must match employee contributions, which some expect may come to the PRPP if adoption rates are low.

Everything listed above is correct to the best of my knowledge at the time of writing, as many details have still yet to be finalized they may change in the future. That being said take everything above with a grain of salt, as very little is concrete at this point in time.

Standard Life Summary


*edit; Spelling


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Long time no post, here is some marketing jargon I put together recently

A more affordable Health and Dental plan 

where you control the rates!

You may have heard of the recent bankruptcy of Nortel which left thousands of employees without benefits or pensions. This is because Nortel used a “Defined Benefit” plan. A Defined Benefit plan means essentially “you get this benefit, no matter the cost”. That’s how bankruptcy happens.

While the world of Pensions have long since made the switch away from Defined Benefit, and towards Defined Contribution plans. The land of Health and Dental insurance has stayed firmly in the world of Defined Benefit. A Defined Contribution plan is just that, a plan where you can control exactly how much you as an employer contribute.

Do you provide the same benefits as 10 years ago? But the price has doubled or even tripled? Double digit increases each year are becoming unsustainable for many businesses’. We have a way to put the control firmly back into your hands.

Health Care Spending Accounts  (HCSA) are the “Defined Contribution” plan of the Health Insurance world. Each employee receives a defined amount of benefit dollars each year, say $1000 or 3% of salary. The employee can spend these funds on healthcare, dental care, glasses, massage etc. There is no plan design, so the benefits are entirely flexible for the employee, no more “one size fits all” insurance plans.

While employees love the flexibility HCSA’s provide, employers love the ability to budget and control costs. Since the amount of benefit is not tied to an insurance policy, there is no insurance company to raise the rates year after year. If you have 10 employees and they each get $1,000 per year, you know your budget is $10,000 year after year. No surprises at renewal time. You can increase benefits to fight off the effects of inflation or decrease the benefits to keep in sync with the profitability of your business. You are in the driver’s seat.

Health Care Spending Accounts are low cost, and low administration. Administration fees are typically 10-15% of paid claims; rather than the 30-40% overhead build into the rates of most group insurance plans. Affordable stop loss policies are also and attractive option to reduce risk in event of a catastrophic claim.

If you would like more information on how a Health Care Spending Account might be right for your business, please contact me

Robert Reynolds, Certified Group Benefits Advisor

Hendry Swinton McKenzie Insurance Services Ltd.

Toll Free: 1-888-592-4614 or rob@hmrinsurance.ca

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Lower EHC trend factor used for pricing

Sun Life has announced today that they are joining the party started by Great West Life recently of lowering their health care trend factors. Recently GWL dropped their health care trends from 15.5% per year to about 12% per year. Sun Life has just done the same and dropped their trends a similar amount. I fully expect the other carriers to follow suit quickly.

A refresher on what is a trend factor can be found here

Sun Life Press Release

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Sun Life is pleased to announce that we are lowering our Extended Health Care (EHC) trend factor used for pricing.

New Trend Factors

Our new trend factors vary based on the plan design, as indicated in this table:

	Annual Trend factor for EHC plans
No Deductible	11.5%
With Deductible	13%

Why are we making these changes?

Sun Life continually reviews our financial experience and emerging practices in the marketplace to ensure our products are priced competitively. We’ve identified a lowering of our actual experience of the EHC benefit as a whole – mainly due to reduced drug spending. The reduction in drug cost is primarily a result of two factors:

1. Market changes: As patents on ‘blockbuster’ drugs expire, generic drugs (made with the same active ingredient) replace them at a lower cost. Simultaneously, most provincial governments have legislated lower prices on generic drugs. Together this results in a reduction in overall drug pricing.
2. Cost management solutions: In January 2011 Sun Life launched our Provincial Integration program, to ensure that, on a systematic basis, sponsors do not pay for specialty drugs in circumstances where the provinces have created specialty funding opportunities. Additionally, our in-house pharmaceutical team has several new initiatives in development to help sponsors manage their drug spending more pro-actively going forward. Stay tuned for details.

Timing

These new trend factors are applicable to all renewals using an experience period ending on August 31, 2011 or later. Due to the renewal cycle process, these renewals have a renewal notice date on October 31, 2011 or later, and rate effective date on December 1, 2011 or later, depending on the renewal notice period. We are using these new trend factors in our quotes effective immediately.

Questions?

For more information, please contact your Sun Life Financial group benefits representative.

---

As I mentioned, here, the province of BC has recently struck a new deal on generic drug pricing, this is finally starting to kick in and impact rates. Furthermore, many of the mentioned "blockbuster" drugs are coming off patent, which means generics will soon be available. This is huge news for drugs the likes of Lipitor, the best selling drug ever, which brings in over $11 Billion in revenue per year. Lipitor's patent expired July 19th, 2010 in Canada. A month's supply of "brand name" Lipitor costs about $150, and generics cost about $10 per month.

TL;DR You should start to see health care rates stabilize or at least not increase quite so fast.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Worst Acting Ever

bring on the hate mail

Please forgive the wooden acting, there is obviously a good reason why these folks are in the insurance biz and not Hollywood.

Sun Life has started putting up some little videos on Group Benefits. There are two up so far, the first is mostly just an introduction to the video series, don't bother watching it. The second video actually has some substance to it.

Link to Video 2's Page - Plan sustainability – Series 2

Sun Life is surveying their plan members and seeing how they would react to changes aimed to reduce costs on their plan.

The main result were as follows.

1. Young people 18-34 just don't care.
2. Everyone else is in favor of managed plans (drug pre-authorization, generic substitution, maximum drug cost limits) but very unfavorable to reductions in co-insurance, lower dispensing fee maximums and raising premiums.

Makes sense, the only question it raises for me is the level of understanding on the behalf of plan members. Especially with drug pre-approval, as I have found any time this is used it drives employees crazy. I think they simply stated they prefer pre-approval, because they don't grasp how it works as well as something simple like a lower co-insurance. Prior pre-approval has led to some of the ugliest situations I have run into with drug plans. Green Shield has a program called a Conditional Formulary, where expensive drugs need to be pre-approved. The Dr. would write a prescription, the employee goes to the pharmacy to fill it, and the computer tells the pharmacist that the drug needs pre-approval, or the plan won't pay for it. I then get angry phone calls from the employee, HR and owners. 

Overall I have noticed similar reactions with my own clients, and have been recommending similar changes to help curb rate increases while keeping employees happy. My observations weren't scientific or by survey but it is nice to see them validated.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Dollar Cost Averaging

I highly recommend when talking to clients about investments, that they Dollar Cost Average. This is a simple strategy that can help increase your return, and lower your risk. Most people frantically try and dump a big pot of money into their RRSP right before the deadline. They buy all of their investments for the year on one day at one price. If the price is high, they buy high, if the price is low, they buy low. We all know we want to buy low and sell high.

I prefer to drip money in on a regular basis, firstly becuase you barely notice a small amount from each paycheque, and secondly to take advantage of Dollar Cost Averaging.

Because I am buying units every month, I buy a small amount based on the price that day. Some days it goes up, some days it goes down. What happens over a year is that the highs and lows average out. This average unit price is what my return is calculated on.

click to enlarge

Take this example, If someone invests $500 per month for a year, and the market falls, they are buying more units for the same $500. If the starting unit price is $10, but over a year the market drops as shown,their average price works out to around $8.75. If the market comes back up to the exact same starting value of $10 per unit, you are actually up 13%, as your average price is $8.75 and the new unit price is $10. you made a profit but the market is at exactly the same point as it was a year prior.

Gains are also multiplied, if the market increases by 10%, you are actually up 21% as your average price is low. Dollar Cost Averaging works wonders for investing in a down market. Rather than a lost year, you are up double digits.

The power of Dollar Cost Averaging can be reduced if you already have a large nest egg, and you are dripping in a comparatively small amount each month. The small drip just can't adjust the average much. It often makes sense to pull the nest egg, and redeposit it in chunks over a period of months or years. This works well when you expect a prolonged down market. I did this for several clients in the fall of 2008, when the market was in a prolonged down trend. We were able to reduce the average cost per unit, so when the market came back up to its starting point we were ahead of the game, rather than just back to square one.

TL;DR - drip money into your investments regularly, and you don't need to worry about timing the market.
--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Insurance and LGBT

   

I have a few clients who are Gay, Lesbian, Bisexual or Transgendered hereafter referred to as LGBT. Each time I work with an LGBT client, I find there is a lot of incorrect assumptions or misinformation about if they can get insurance.

The simple answer is YES of course you can get life, disability, critical illness insurance.

Canadian insurance companies make no distinction between any sexual orientation, and neither do I. I have clients and close friends who are LBGT and I am always happy to meet new client and make new friends. I did want to touch on a few bits of the misinformation that I have heard over the years, and just shed some light on a few points.

Do I have to reveal my sexual preference when I fill out an application?
No, there are no questions asked about orientation. The only thing that might give a hint is the beneficiary designation, as you have to indicate relationship and gender of the beneficiary. I will often use the words, “partner” or “spouse”, however, you can put down “friend”, “companion” or whatever term you like.

Do I need to be legally married to get a “joint” policy?
No, as long as there is an insurable relationship (someone stands to lose something if the other dies) anyone can get a joint policy with anyone else.

Are there any special medical questions I have to answer?
Nothing that everyone else doesn’t need to answer. Each insurance company has a list of medical questions they ask and everyone applying needs to answer the same questions.

Are there any questions that I might have a problem with?
I hazard to say it, but the only thing remotely possible is the questions regarding exposure to HIV or AIDS. As long as you have made wise choices over the years you shouldn’t have any greater exposure than anyone else. Everyone has to answer these questions.

What if I am Transgendered, what do I put down for gender?
Insurance rates are primarily based on two factors, age and gender. If you are transgendered we use the bits you were born with.

What if I am undergoing hormone therapy?
You would need to disclose that you are taking medication, you would need to provide, dosage, when you started the program, and if there have been any complications. The underwriters may rate (charge more) or decline the policy, as there are other serious medical issues which can arise from hormone therapy. I haven’t run into this situation yet personally, so I can’t say for sure.

While I am not of that persuasion myself, I am happy to work with anyone who is LGBT.

I also want to say a special Thank You to my friends Kelzey and Tryce who helped vet this post. 


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Money back guarentee

Equitable Life, a company I have a good relationship with and have enjoyed working with in the past has a new offering I wanted to touch on briefly.

They are calling it Rate Shield, and it is essentially a mini “Refund” plan. Normally Refund is reserved for 100+ member groups, and only one of two carriers still offer it. Equitable will do a Refund plan on your first renewal of a small group starting at 10 members.

It works like this.

If you claim less than your Target Loss Ratio (TLR), you get a refund of the difference. You will recall that the TLR is essentially the ratio of administration expenses and Claims Paid. So an example of a TLR of 80.5% means:  19.5% of your premium is going to admin, and the rest, 80.5% is going to pay claims.

Let’s say your Extended Health Care premium is $30,000 per year, your TLR is 80.5% and at your first renewal you actually claimed 76.5%. You claimed 4% less than budgeted (80.5% - 76.5% = 4%) so in reality you overpaid by 4%. Not any more, Equitable Life will refund you 4% of your premium (4% x $30,000 = $1200).

You get a cheque for $1200, well not quite, they do charge a $100 admin fee so the cheque is for $1100.Still pretty good. It is a shame they will only do it for the first renewal, I would love to see it as a permanent feature.



On a side note, I have always found that Equitable Life's renewal are very fair, the rates they come up with are almost always dead on what I calculate independently. This basically never happens with any other carrier, except possibly Wawanesa.


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

How to spot a crappy advisor

Every so often I am asked to review someones current personal insurance. This is a service I gladly provide for free. In some cases people are well taken care of, in others they got royally screwed by their last agent. Such was the case this week. Lets look at the situation.

Young couple mid twenties, just married, just bought a house. Mortgage of $500,000 which is co-signed by a parent. No kids yet, but perhaps down the road. No other savings, or assets, on a tight budget as they are "mortgage poor".

What immediately stands out to me is they need life insurance for the mortgage, as well as disability insurance and possibly critical illness insurance. The husband is working out of the country, so we can't insure him at the moment. If the wife dies, the parents are left with a house and a huge mortgage they cannot pay, same goes for a disability or serious illness.

What this client needs:

1. Affordable term life insurance to pay off the mortgage. 
2. affordable disability policy with maybe a 24 month max benefit
3. affordable critical illness policy covering a year or two's income in the event of a serious illness such as cancer.

MY solution

1. $500,000 of Term 10 life insurance,  Premium $20 a month
2. Disability isn't available due to occupation, so substitute with Critical Illness
3. Two times annual income ($50,000) of Term 10 Critical Illness with Return of Premium after 15 years. Premium $40 a month.

The other agents solution

1. $150,000 (not enough) permanent Universal Life (expensive) paid up in 10 years (REALLY expensive) life insurance policy. $90 per month
2. $250,000 (way too much) Term to 100 (expensive) Critical Illness. $180 per month.

Stuff like this makes me rage. The client is WAY underinsured for life insurance, yet they are paying nearly 5 times the premium. The policy they get doesn't fit their need as it is designed for people in their retirement and estate planning phase of life. This client has NO NEED for a permanent life insurance policy, other than possibly $25,000 for final expenses. While the life insurance coverage is way too low, the Critical Illness is crazy high. Why do they need a quarter million dollars of Critical Illness Insurance? If you are diagnosed with Cancer, you are off your feet for a year, maybe two. bonkers.

My solution, which provides them the amount of coverage they need, in the form of affordable policies and costs the client about $60 per month, rather than $270. The client could use the extra $210 to pay down their mortgage faster, save in an RRSP or TFSA, or improve their lifestyle.

Now why in the world would the other agent set this client up like this? COMMISSION.

Total commission for my solution $828.00

Total commission for the other guys solution $4,076.24

In my opinion, my solution provides better, more appropriate, and vastly less expensive coverage for this client. I get rewarded with an appropriate compensation of $800 or so dollars. I also have the opportunity to set up an investment account for this client, which can be worth much more commission down the road. 

On the other hand, the other advisor's solution, leaves the client, over and under insured, costs far too much, and pays an exorbitantly high commission.  

I can see the temptation to sell the big expensive policies, they provide a big commission, which feeds your family, but it does it at the expense of someone elses family. I see this stuff all the time, far more often than I like. It is usually from younger, new agents, and in the vast majority of cases, agents with a captive insurance company (Clarica, Sun Life, Freedom 55, London Life, Primerica), I am not saying all captive agents do this, but that is where I see it the most. New agents survive on new sales commissions since they have no trailers to rely on. They up-sell to more expensive policies which pay themselves more. Their managers push for higher sales, and higher commissions, so agents push these products on their clients. 

How does a consumer know if they are being taken for a ride? It can be hard to know, especially since the advisor can usually make a case for the product they are selling in any situation. The best tips I can provide are:

1. Ask to see a market survey so you can compare rates between companies. Like this
2. Ask why the advisor is recommending a specific company. Is the product better, is the price better or are they beholden to only one carrier.
3. Ask for a second opinion. This will drive your advisor crazy, myself included, but it is the best way to be sure you are getting a fair deal.
4. Ask what the advisor is getting paid. If it seems extreme it probably is.

TL;DR Nice young couple gets hosed by a sleazy insurance salesman.  not me ;)

---

Commission Calculations Below I have talked about Commissions before here

My Solution

Term 10 life insurance pays 40% of first year premium, I also get a bonus of around 130% of the base commission.


Annual Premium $240
Base commission 40% of $240 = $96
Bonus commission 130% of $96 = $124.80
Total commission: $220.80


Critical illness insurance pays 55% of first year premium, I get the same bonus of 130%


Annual Premium $480
Base commission 55% of $480 = $264
Bonus commission of 130% of $264 = $343.20
Total commission:  $607.20

Other Guys solution

Universal Life pays a commission of 70% of the first year premium + 3% of excess contributions, plus a bonus lets stick with my bonus level of 130% for consistency.

Annual Premium $644.40

Base commission 70% of $644.40 = $451.08

Bonus 130% of $451.08 = $586.40

Total commission $1037.48

Since the UL policy is paid up in 10 years, they are over funding the policy this over funding is commissioned at 3% of excess contributions but paid for each year. So over the life of the policy the commission looks like this.

Excess Deposit over 10 years, $4440

Base commission 3% of $4440 = $133.20

Bonus commission 130% of $133.20 = $173.16

Total commission 306.36

Critical Illness insurance pays about 55% of first year premium, lets use the same bonus of 130%.

Annual premium  2160

base commission 55% of 2160 = 1188

bonus commission 130% of 1188 = 1544.40

total commission 2732.40

Total commission for the other guys solution, $4076.24

---

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Bonds for dummies

Stocks are easy to understand, you own part of a company --> company makes money --> you make money. easy-peasy.

Bonds on the other hand confuse the heck out of just about everyone, even (especially) those that sell them. I have read countless dry, boring pages on how bonds work, prices, yields, jargon, and almost all totally uncomprehencible.

So how do bonds work? Well I think I have a understandable, if not exactly technically perfect, method of explaining bonds, here goes...

"My word is my bond"

You have all heard that saying. What does it mean? A bond is a promise, more specifically a promise to pay back borrowed money.

Say it's lunch time, your friend Jon comes up to you and asks to borrow $10 for lunch money. He promises to pay you back $11 tomorrow. His promise is his bond, he might even write it down on a piece of paper.

"I Jon will pay back Steve $11 tomorrow for a loan of $10 today."

Boom we just created a bond.

We have all the parts of a bond in the example above, we have a bond price, $10. We have a interest rate, $1 per day, and we have a maturity date, tomorrow.

Now what if you only had $10 to lend, but your other buddy Jack, also wants to borrow $10 for lunch, but Jack gets his allowance tomorrow, so he offers to pay you $12 tomorrow. The bond you bought from Jon just lost value, as the $10 you loaned to Jon for $1 could have earned you $2. On the other hand if Jack only offers $0.50 you look like a star with your bond from Jon. So as you can see the value of your bond changes with the interest rate being paid, as interest rates move higher, your bond is worth less, if interest rates move lower, your bond is worth more.

What makes interest rates go up or down? Supply and demand, mostly, but also risk. Say Jon and Jack are both competing for your lunch money loan. The one who offers the best interest rate is probably going to win; as long as they are equally trustworthy.

But what if they aren't equally trustworthy? what if Jon is a stand up, honorable, prompt, courteous and trustworthy guy and you know he is going to most likely pay you back (government bond). On the other hand Jack, is a unreliable, jerk who always breaks his promises. You might think twice about lending to Jack (Junk Bonds). Because people are not as trusting of Jack, and they know they might lose their money, they are less likely to lend to him, that is, unless he offers a higher interest rate. If you know your money is safe with Jon you might lend it to him for $1, but since Jack is less reliable, and you are taking a bigger risk lending to him, you want $3 from him before you are willing to lend to him. The quality of the borrower has a big impact on the interest rate they have to pay to attract investors.

So that's bonds, not so hard right?

TL;DR: I would gladly pay you Tuesday for a hamburger today.


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Sound off in the comments

Google Analytics is telling me I am getting about 500 unique visitors per month, wow!

Most are being driven here through Google Searches, and most are in Canada, using Internet Explorer during office hours. Who is out there? Human Resources people? other insurance advisors? employees? business owners?

Are you finding what you are looking for? Is there something I haven't touched on that you would like to see more information on? Are you in British Columbia and you want to try me out as your benefits advisor? [shameless plug] ;)

Let me know in the comments below, you can post anonymously, no need to sign in.
--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

What is the absolute cheapest way to run a benefits plan?

1) You need to be big. Rates improve dramatically when you get to above 50+ lives. Size also opens up additional funding methods such as Refund or Self Insurance.

2) Break out lines of benefits. The carrier that provides the best Life Insurance rate, may not have the best rate for Health Care. Some carriers have sharper pencils or specialize in certain areas. RBC provides really good LTD rates and coverage, but has no health or dental. Green Shield has good rates with health and dental but no pooled benefits such as life insurance. If you want the best rates the market has to offer you need to place the benefits with the carrier that can offer the best rate. This usually results in 2 carriers at least, one for pooled lines and one for health and dental.

3) Manage it yourself as much as possible: With more than one carrier this can get complex. Sure there are Third Party Administrators (TPA) which will help organize and manage the complexity but they will want a slice of the pie. Also, If you advisor doesn’t have to renegotiate renewals or fight over getting claims paid, why pay full price? Negotiate a flat annual fee, or a dollar per hour rate.

4) Embrace volatility. Pooled rates might be slightly lower if you take a shorter guaranteed of 12 months over 24 or 36 months.

5) Self Insure. Health and Dental benefits have big margins in premiums for risk premiums. By self insuring you take the risk and save the charges. You will want a stop loss policy for big health care claims however

6) Fee for service or percent of paid claims. Self insured plans are usually priced as a percentage of claims paid. IE: if a health care claim of $100 was paid, the administrator charges 10% or $10 to process the claim. Most plans use a percent of paid claims. Bare bones paper pushing can get as low as 6-8% before advisor compensation. Health care is usually more expensive than dental care. A less popular but equally valid approach is a flat fee per claim. With this method it doesn’t matter if the claim is $5 or $500 the administrator charges a flat cost to process each claim. Dental claims are usually a buck or two, pay direct drug claims are a few cents. Something more time consuming like a paper paramedical claim might be $5-$10 each.

TL;DR

• Be big
• Shop each line of benefit individually (Pooled lines: RBC Insurance, SSQ, IAP. Health and Dental: Green Shield, Blue Cross, Claim Secure)
• Take some risk.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Potential conflict of interest

I just wanted to get this out of the way, I have a potential conflict of interest with regards to new Great West Life insurance policies. As I have talked about here in the past, I am paid primarily through commission for selling polices. The way the commission structure works is shown below in an example.

Say I sell a Term 10 Life policy, which has an annual premium of $1000. I get paid a basic commission of 40% of the first years premium, or in this case $400. Now, this rate is pretty standard for all carriers, they pretty much all pay the same basic commissions.

Term 10 = 40%
Term 20 = 50%
Living Benefits (CI, LTD) = 55%
Whole Life, Universal Life, Term 100 = 70%

There is a slight conflict if one were to try and up sell to a more expensive carrier for an equal product, but that doesn't really ever happen as the market pressure for the lowest rate keeps the least expensive policies on top.

Now the part where the conflict comes in, is that there is a second layer of compensation, sometimes called a Bonus or Over ride. The issuing company decides on what Override they would like to pay to an advisor, it usually ranges from 100% to 150% of the basic commission. With GWL I used to have an override of 130%. So on the sample policy above, I would make $400 in base commission and then get a bonus or override of $520 for a total compensation of $920. The override is tied to a level of production, if you don't produce for the company you get a lower bonus. If you produce a lot you get a higher bonus. I received word that my production has not been high enough recently and my override with Great West Life has been reduced from 130% to 0%. Ouch.

I would love to say that the compensation doesn't determine where I place business, and to the most part it is true. I have companies I like dealing with, which includes GWL, and others which I can't recommend. All things being equal, I will always recommend the best product at the best price for my clients, however, I have to eat, and pay my bills as well. Taking more than a 50% pay cut for the same amount of work is hard to overlook. I have put a good amount of business with GWL over the years, I like them as a company, I like their product line especially their Group, Term and Living Benefits products. However, I like Equitable's Term just as much, I like RBC's Living Benefits just as much, and I like Manulife and Sun Life's Group just as much.

So if I have an equal product from another company which will pay me twice as much I am going to have to recommend the one that pays me better. Now this is not to say that I would ever recommend an inferior product just because I get paid more. I am talking strictly apples to apples, comparisons here. Manulife's group product is just as good as GWL's, RBCs Disability policies are just as good as GWL's. The rates are often nearly identical as well. So is it wrong to recommend an equal product to a client on the basis that I know I will make twice as much commission?

In short, I won't be recommending Great West Life policies any more unless absolutely necessary.

I think the only way to solve this is to provide total disclosure on what I get paid. In the next few days I will be working on a new disclosure statement which breaks down my commissions and bonus rates for all the companies I deal with.


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.