Disruptors Series Part III: The Issue of Invincibility

This is the third installment of our “Disruptors” Series where we 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 key Issue of Invincibility. To follow this series and more, visit our blog. You can read the original article here, as well in our last installment where we covered the Issue of Cost.

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?

Over the last decade we have seen new attitudes and preferences from younger employees symptomatic of their apparent invincibility.  But why would a “Disruptor” allow an employee to opt out of, for example, drug coverage only to see that employee subsequently unable to afford their annual $30-40,000 bill for a drug therapy not covered by the government?

The Issue of Invincibility:

• With respect to Life and Long Term Disability benefits, employees may not necessarily appreciate the impact to their surviving family members and caregivers.  There are inevitable and significant costs related to your own funeral but these pale in comparison to the lack of income in the event you can not earn an income due to disability.  How does a “Disruptor” expect someone to care for the disabled employee indefinitely without any income replacement while trying to manage their own financial affairs.
• Some “Disruptors” may be contemplating the idea of allowing employees to choose which insurance coverage to purchase.  However, we know from the history of, for example, group Optional Critical Illness insurance that there is little take-up by employees unless the benefit is mandatory and/or company-paid.  If you make it voluntary, you should likely anticipate that it will not be purchased as most employees do not appreciate the value of these benefits.

• We have also seen the re-emergence of ideas like including Pet Insurance to the benefits offering from some “Disruptors”.  How is it that we can be considering removing or reducing some benefits for employees and their families or making them optional while at the same time as considering providing a health care benefit to our employees’ pets?
• Employers need to communicate the value of employee benefits that their employees should hope to never take advantage of.  For example, we should have no problem paying for fire insurance but never see our home burn to the ground.  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.

• The concept of “paternalism” comes to mind for many when speaking about what benefits to provide to employees – what does the company deem necessary to take care of employees.  Perhaps plan sponsors should see this as an issue of “reputational risk”.  How would the company respond to a story in the media or rumours around the water cooler if, for example, an employee needs a $40,000 per year drug but they opted out of the drug plan without having any alternative (i.e., spousal) coverage.  How does the company respond if the story casts the employer as being morally responsible.  While the company may not have done anything wrong, the public perception and damage to the company brand may not be possible to repair.

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 Risk Management  Communication and Experience.