Disruptors Series Part II: The Issue of Cost

This article represents our second in the Disruptors Series where we will provide additional information on each of the issues that we believe Disruptors are missing for employee benefits in the long term.  We offer the following information for your consideration around the first key issue of cost.  For more detail, read our initial article in this series from September 7, 2017.

More and more we hear references to the word Disruptors in various industries, including employee benefits.  Some new players are entering the market with promises to revolutionize benefits programs and thus make them more appealing to employees.  Other new players are promising to provide other human resource services for “free” if you purchase your employee benefits through them.  However, is what they are offering really all that new and can you really get “something for nothing” in the long run?

The Issue of Cost:

• Undoubtedly employees are looking for more from their employers, particularly in a tightening labour market.  But why would a Disruptor promote, for example, airline vouchers for vacation.  Isn’t that really what an employee’s regular earnings and/or bonuses are for?
• Employers have struggled to offer more because of the underlying cost as money is always scarce and employers continue to struggle to find additional funds and financing for various areas of their business.  In an increasingly competitive and uncertain world few employers have the luxury of randomly throwing additional money at employees so it is important to ascertain where a company can get the most impact and the best return on the money they are already spending.
• In fact, employers are struggling to simply maintain their current employee benefits programs given that costs are projected to increase by approximately 8-10% going forward.  Life rates continue to be pressured by the ageing population and Long Term Disability rates are additionally being pressured by the increasing prevalence and duration of mental illness claims.  Extended Health rates are suffering from the perfect storm – less healthy employees accessing their plans more often along with increasing costs of individual claims.  Dental rates continue to increase at rates higher than their annual fee guide increases due to higher utilization.
• Employers need to differentiate between traditional benefits and perquisites in their Total Rewards value proposition.  What role do benefits play in your ability to attract, retain and engage your employees.  Employers need to remember that Total Rewards includes many elements and benefits is only one element.  For example, if annual bonuses are valued more by employees and they can be tied to key business results, wouldn’t the employer’s scarce financial resources be better spent in that area rather than an additional “benefit” or, depending on what is provided, a “perquisite”.
• Employers need to communicate the value of benefits currently provided that their employees should hope to never take advantage of.  Regardless of an employee’s stage in life, loved ones will be left behind that will need financial assistance for funeral arrangements and related costs.  Employees do not realize that they are four to eight times more likely to be permanently disabled in their working lives than they are to die in their working lives, so the prospect of no working income until age 65 should be daunting.  Needless to say, high cost drugs are out of the reach of almost all Canadians – is it practical to pay for a $40,000 per year drug from after-tax earnings for the rest of your life.  All employees should hope to never need to draw on their Life, Long Term Disability and Drug benefits but they should sleep well at night knowing that they have coverage if something should go wrong.

Perhaps there is an underlying reason why many parts of the employee benefits offering have remained intact and connected to a broader HR strategy over the last 30 years.  Employers continue to provide benefits that include life and disability insurance along with extended health and dental benefits, and employees continue to value them for the most part.  Risks around income protection in the event of disability and cash payouts for beneficiaries in the event of death continue to be needed as the underlying risks are still unchanged.  Extended health and dental benefits are arguably even more important now as governments continue to download (or delay taking on) new drugs and services.

Note that at ZLC Financial we believe there is a better way for employee benefits, but we also believe the solution is not in “throwing the baby out with the bath water”.  We are concerned that these new Disruptors are attracting attention with flashy ideas in the short term but are missing the key issues for employee benefits in the long term.  Instead we recommend reviewing your current and future employee needs, understanding the financial reality for your company around projected inflation trends, and developing a benefits program that works for you in the long term and truly supports your broader HR strategy and business plan.

Each organization’s needs are unique and warrant a customized solution.  We would be pleased to discuss your specific situation with you to identify the best strategy with respect to your employee benefits program.  Should you have any questions on the above, please don’t hesitate to contact me or a member of our team.

ZLC Financial is one of the fastest growing employee benefits advisors in Western Canada and we are fortunate to have the best people, resources and clients.  Our goal is to work with you to find a better way for your employee benefits plan.  We provide this value to you by leveraging one of the most skilled benefits teams in the city – over 250 years of experience within our team of 13 employee benefits specialists.  We have been working with businesses ranging from 4 to over 10,000 employees for the past 30 years.

By Dan Eisner

Update: to follow this series and more, you can read subsequent articles where we dive into each of these issues further, such as the issues of Invincibility, Risk Management  Communication and Experience.