Fully Insured Plans
Working with various insurance companies in most cases has become relatively easy for brokers because the choices within any geographic regions or within a given state are shrinking – this is especially true for fully insured plans. The likes of the Blues, Aetna, CIGNA, and United Healthcare (commonly referred to as BUCA) are throughout the United States and do a very good job of marketing their programs to brokers. As a result, brokers may not be selecting alternative markets for their clients that can be very competitive and highly rated financially.
In many cases, insurance company marketing by brokers may be motivated by the compensation that is paid by an insurance company rather than the best interests of the client. When a broker builds a large book of business and receives commissions on a book of business from a particular insurance company, the broker usually receives an override of additional compensation – an incentive to keep producing new business with that company and build an even larger book and earn even more money. It is important to ask how much business a broker has with various insurance companies how much they are being compensated and by what means.
Partially Self-Funded Plans
In a partially self-funded environment, marketing stop loss is an entirely different story. Most brokers don’t have a relationship of any kind with an underwriter or a reinsurance company. Therefore, they may rely on a Third Party Administrator (TPA) or administrator to do the shopping for them. It’s important to note that because stop loss is incidental to a self-funded plan, the TPA may or may not care who the stop loss carrier is, or what their prices are unless they are receiving a slice of the commission pie as well. A TPA may have their favorite reinsurers that they have relationships with, but they may be rather limited in number. It’s possible that their favorite reinsurers are probably the ones that are providing them with overrides in addition compensation, trips to the Caribbean, or some other incentive.
As a result of a broker’s reliance on TPAs to shop stop loss, most brokers do not have a relationship with an underwriter – either because they don’t what they’re talking about, or they are simply insulated from them. As you can imagine, it’s impossible to negotiate rates and terms with underwriters or examine contracts if you are insulated by a TPA, or have no personal relationship.
It’s very important for your broker to be supplying an underwriter with good, complete, current data. If it’s incomplete, or outdated, it may lead to uncompetitive quotes. Brokers are a funny breed, they tend to provide the underwriter with as little as possible rather than as much as possible. Worse yet, if you have several brokers quoting the same companies and the data isn’t exactly the same, you may receive an uncompetitive quote, or none at all. As a result, it’s garbage in garbage out.
When you are reviewing stop loss quotes it’s important to ask for the financial rating is of the company. You’re paying a premium to the reinsurance company to have them pay a claim in a timely manner and it’s important for them to have a high financial rating so that they can complete the promise. You also want to look at the type of contract (which is covered in another chapter) but it’s important to make certain that the company policy is has no lasers at renewal, is guaranteed renewable, no exclusions, etc. It must also be consistent with what is covered in your plan or Summary Plan Description (SPD).
Another thing to be aware of are (Managing General Underwriters (MGU). These are companies that have their own underwriters and are utilizing the paper and contract of a different licensed reinsurance company. The MGU simply has the authority from the reinsurer to determine the pricing. While MGUs are not financially rated the carriers that they utilize are. Again it’s important to make sure that the quote you receive has a financial rating even though it’s labeled under the MGU brand. MGUs must sustain a profitable book of business with a reinsurance company otherwise that reinsurer may terminate their relationship with the MGU and you don’t have a renewal. MGUs can receive compensation from the carriers which may or may not increase the premium for their contracts.
It’s important to know from your broker what sort of market access they have because with the quotes you receive are only as good as their access to those markets.
Unfortunately the brokerage businesses is one which is overpromised and under delivered. You don’t know what you don’t know.