I like to play a game when I drive to work – “what I would be talking to clients about right now if I were still an advisor?” I really miss client meetings, so sometimes I turn the radio off and have a fake conversation with a fake client…weirdo…I know. My hypothetical block of business would be made up of clients with both insurance and spending accounts, so we’d likely be focusing on inflation, trend, and interest rates right now. When I was an advisor, I never wanted to surprise a client at renewal, I wanted them to know what to expect. This means tracking all these macroeconomic factors that go into a renewal, not just claims experience. I could then frame the conversation on what may be in store in the future, while continually providing proactive solutions. Many business leaders are following these same drivers for their own business, so my job was to advise on how it may affect their benefit plan for the next 12 to 24 months.
Inflation:
There is normal inflation and then group benefits inflation. Common inflation follows the consumer price index (CPI) which prices a basket of common household goods. This has been relatively low for a number of years, but as of December 2021 it was 4.8% (12-month change). In the group insurance industry, there is inflation applied to health and dental insurance premium renewals. This can typically range from 2 or 4 times more than CPI. This group insurance inflation is called trend. Trend is applied to claims utilization so as this trend number gets bigger, so do renewal premiums, and therefore costs! As an advisor, I would plant the seed now, that if a business leader is watching general inflation trends you can connect the dots on how this will impact benefit costs in the near term.
There is also trend applied to dental. The 2022 dental fee guides were recently announced, and some provinces will see the biggest jump in dental fee guides they have ever experienced. If anyone went to a dentist in 2019 or 2020 and it felt more like a hazmat dressed scientist cleaning your teeth versus a hygienist, you know prices are going up. Their costs to operate went up and if general inflation is going up you can expect to see dental trend rising as well, which is what we see. Again, this means Dental insurance rates will be going up.
Interest rates:
I would be looking at and discussing interest rates. I just read today that the BOC is holding rates, but said this will not continue for long. For insurance companies, they have an easier time making money from high interest rates. They hold onto to people’s premiums and invest it to make money and cover future liabilities. High interest deposits are an ideal way to find returns, otherwise they must find riskier investments or other option, collect higher premiums from policy holders. LTD is a huge benefit impacting employers and employees right now. They are underfunded by insurers, and claims are increasing due to COVID. One positive with increasing rates is that it possibly takes the some of the pressure off insurers to produce a return to cover liabilities. This may mean they do not need to collect more premiums and might help pricing in the next few years. Does this mean rates are going down automatically? Probably not, because I think insurers have also have to deal with a big increase still in claims for LTD but it may lessen the blow that is coming for LTD premiums. Interest rates may be a great way to frame a continued conversation based on your claims experience as well as overall interest rates movement this year. LTD is also a benefit that employees pay for so if premiums are expecting to continue to rise you want to get ahead of this with a strategy for employee communication.
Wow what a fun meeting I just had with a pretend CFO and HR manager! Next time I need some real people to chat with…
Steve McEwan
myHSA
COO & Co-Founder