Throughout my career I am always amazed at how great ideas and proven strategies are not seriously considered by prospective clients because they were not presented by their broker.
An insurance broker by definition is one who places insurance – they ARE the distribution source for insurance companies. They search the market on behalf of their clients looking for the lowest price they can find. They are “transactional” by nature and they get paid commissions for placing the insurance with any given company. They also get a pay raise through a larger commission every time their clients’ premiums go up at renewal.
I recently had occasion to consult with a Public Entity about their health plan and what opportunities could be explored to lower their costs – without cost shifting to employees. Their costs were already approaching the Cadillac Tax levels and rising. Admittedly, the group was reluctant to talk to me because they felt their broker as doing a “good job”. Really?
Most employers don’t have any real, specific expectations of their broker except perhaps, to help employees with a claim, assist with an administrative billing issue, quote different health plans with different deductibles, or educate the employer and employees on the benefits of a HSA or HRA. Anything outside the broker’s comfort zone gets deferred to the insurance company or claims administrator.
After reviewing my findings with the Finance Director and members of their “Insurance Committee” I was confident that the savings to the group was compelling enough for them to proceed over the next couple of years and begin to implement strategies to dramatically lower their costs by almost 33%! I couldn’t have been more wrong!
Instead, they told me that they decided to do nothing and were going to stay the course with their current program and broker. What they had actually done in the meantime was to go to their broker and ask what they could do to lower their costs. Their current insurance broker is the one who put them with their current plan, providers, and vendors; the one who recommended their current benefits to employees and created their employee contributions – clearly the one who had already “done everything” they knew to lower their costs. Wouldn’t you think that if the broker had any knowledge of additional programs to assist the Public Entity, they would have already offered them to their client? At least I’ll give them the benefit of the doubt and think that they would have.
The reality is that their broker had no knowledge of programs until the Entity may have given them some ideas about my recommendations and asked what they could do. And the Entity thinks their broker is doing a “good job”? And the broker is getting paid a handsome sum for doing a “good job”?
Several things are disturbing about this situation:
- Taxpayers would be, and should be irate at the historic excessive costs that have needlessly been absorbed by the Entity and recommended by their broker.
- With the Employees and Staff having such high deductibles and high contributions, they would be furious knowing that the Finance Director and Insurance Committee hadn’t done something sooner, or on my recommendations, to reduce their costs – especially continuing to employ the same broker who has had no solutions.
- The Entity may not have kept my information confidential, as requested. However, if their trusted broker is so good, then:
- Why hadn’t they recommended programs previously so that the Entity didn’t have the escalating costs that they do?
- Why did their broker only “wake up” and react when their client asked them for ideas?
- Instead of researching alternative programs and understanding the implications of the programs they installed for the Entity, why did the broker rely on the insurance company and administrator to implement their programs at the expense of the Entity with no knowledge, oversight, or scrutiny?
- Will the broker have trouble implementing the actual programs I recommended due to lack of familiarity?
- And lastly, in my opinion, shouldn’t a Broker only get paid when they bring solutions to their clients – not more commissions when their clients get a rate increase?
I can only try to imagine why the Entity continues their loyalty to this broker – there are all kinds of things that could be going on – above or under the table. But one thing is for sure, the Entity’s trusted broker – the one who is doing a “good job,” will certainly have a tough time finding solutions that are foreign to them. That’s because they rely on the insurance companies and claims administrators to bring solutions – they have very few of their own that affect COST.
The Entity shouldn’t be so convinced and closed minded about how “good” their broker really is. Or, maybe it’s all just sour grapes on my part.
Unfortunately, the brokerage business is one which is over-promised and under delivered. You don’t know what you don’t know.