It goes without saying that companies that buy wholesale employee benefits plans benefit from the cost savings. Wholesaling is becoming more and more common in today’s marketplace. Boutique retailers have a place in marketplace for those one-off type purchases but wholesale is the way to go if you regularly buy a certain product. In fact, with the popularity of wholesalers such as Costco, more and more traditional higher-end products are now becoming accessible to the wholesale model. As specialists in Vancouver in employee benefits, we have done the same thing, we have taken a traditionally boutique product and made it available at a wholesale price.
How did we did do it? First, by specialising in Employee benefits to gain clout with the insurers, and then by re-negotiating with the insurers. We were able to pool many of our accounts to increase our negotiation leverage. As one of a handful of employee benefits specialist companies in Vancouver, we were able to negotiate with a few select insurers. In exchange for better rates for all of our clients, we committed to buy more insurance from them. Over time, this model proved very efficient because as we grew in business we were able to negotiate continually better terms for our clients. As we became a bigger and bigger client of the insurance company, we also demanded and received superior service for ourselves and our clients. This model proved to be a win-win all around.
So what does it mean for the average consumer? Because we have pooled our buying power, our clients get a better renewal formula. The renewal formula is called the Target Loss Ratio. Simply, this means the percentage of premiums the insurance company is expecting to pay out in claims. The larger the company (in terms of employee size), the higher the TLR or percentage of premiums they expect to pay out. For companies as small as 3 employees, the average TLR is 67%, and for companies in the 100+ employee range, the average TLR is 80-82%. Through our pooling model, smaller companies get the rates that 100+ employee companies would get.
What are the drawbacks of the wholesale model?
Diversity in insurance companies is the biggest drawback in the wholesale model. Just as a traditional wholesaler has a limited product shelf, we also have a limited shelf of wholesale insurance options. We cannot be all things to all people, and we cannot have wholesale agreements with all insurers. The wholesale model would break down because insurers would have no incentive to provide wholesale agreements. That said, the coverage options are the same. You would go to the same dentist and the only difference would be the colour of the insurers card. The dentist would be the same, the experience would be the same, and the only difference would be the colour of the card.
Another common challenge with the wholesale model is the lack of flexibility in design. The traditional wholesale model meant you could only choose among a few design options. In layman’s terms, you could only choose between option A, B, or C. To use a produce market analogy, you could only choose between a Gala Apple, a Valencia Orange, and a Russet potato. This model works great for companies that do not mind the limited design options, however, with today’s evolving workforce, this model proves problematic. Today’s employees are pickier than ever, and they want employee benefits that meet their needs. Because our relationships are directly with the insurers, we are able to offer more flexibility in design. While we can offer more flexibility in design, we still must operate under the insurer’s comfort levels of design protocol. For example, a small company of 5 employees could not get extremely high dental coverage. The risk of abuse by the employees and client company, would be too high of a risk for the insurance company. The insurance company will have maximum coverage allowances for each area of coverage, and our clients can work within that minimum and maximum range. This reduces abuse and allows for increased flexibility.
Why doesn’t everybody wholesale employee benefits plans?
Wholesaling only works when there is sufficient volume to demand wholesale. Just as a corner grocery store cannot offer wholesale prices for retail purchases, only companies specialising in employee benefits can negotiate with insurers to provide wholesale options. And just as corner grocers seem to be going the way of the dinosaur, We would not be surprised to see generalists go that way as well. In fact, when we started 11 years ago, we were generalists. We were the new kid on the block and insurers would not provide us the best rates or the best service. As we evolved and chose to specialise in employee benefits, the tables slowly turned. Many companies have not chosen to commit and specialise in employee benefits. In fact, there are only a handful of employee benefits specialists in Vancouver. We are happy to partner with complementary firms so that we stay true to our specialised focus: employee benefits for the building and construction industry.