Disruptors Final Installment: Disrupt without being a “Disruptor”

You don’t need to be a so-called “Disruptor” to disrupt an industry – you just need to stay focused on the changing needs of your clients.

Throughout our recent “Disruptors” Series we provided information on each of the issues that we believe “Disruptors” are missing for employee benefits in the long term.  To follow this series or see a summary of the information provided in previous articles, visit our blog.

More and more we hear references to the word “Disruptors” in various industries, including employee benefits.  However, we do not believe that what they offer really is all that new and we do not believe that you can really get “something for nothing” in the long run.  We also believe that it is possible to disrupt in the employee benefits industry without having to be a, so called, “Disruptor”.

Like in many other industries that have seen “Disruptors”, technology is not the real reason for disruption but rather disruption is often driven by a lack of focus on client service.  For example, Uber has not revolutionized the taxi industry simply because of their “App” but rather they took advantage of an industry that was providing terrible service and no accountability to customers.  Likewise, traditional retailers like Costco and Walmart have not been displaced by online retailers like Amazon given their strong focus on their customers’ needs.  We agree that the employee benefits industry can at times be stale and dated and that there may be a reason for change, but ultimately the bottom line should focus on client service.

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.  Disruption is really about changing the way we think about and find solutions for the key issues for employee benefits in the long term.

Cost

• Employers are challenged to offer more in their employee benefits program because of the underlying cost.  Money is always scarce and employers continue to struggle to find additional funds and financing for various areas of their business.  As such, it is important to ascertain where a company can get the most impact and the best return on the money they are already spending.
• Organizations need to disrupt internally and work with their benefits advisor to educate senior leadership around current costs, projected inflation, market trends and competitive pressures.
• Plan sponsors then need to reassess what role do benefits play in their ability to attract, retain and engage employees and develop a benefits program that works in the long term.

Invincibility

• Over the last decade we have seen new attitudes and preferences from younger employees symptomatic of their perceived invincibility.  However, employees may not necessarily appreciate the impact to their surviving family members and caregivers given the inevitable and significant costs related to a funeral, the lack of income in the event of disability or the extreme costs of some catastrophic drugs.
• As well, plan sponsors should see this as an issue of “reputational risk”.  For example, 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.
• Organizations need to work with their benefits advisor to better communicate the value of employee benefits that their employees should hope to never need.  In an increasingly stressful world, employees should be confident that their benefits program has them covered in difficult times.

Risk Management

• In the employee benefits industry about 80% of benefits plan costs are driven by 20% of employees and, in turn, 80% of employees drive only 20% of plan costs.  As such, insurers rely on receiving premiums from group plan members, the majority of which do not use the plan heavily, in order to pay the costs related to those that do.
• When healthy employees elect to not pay premiums into plans, we encounter a significant underwriting risk referred to as “anti-selection”.  By allowing employees to opt out of core insurance coverage or limit their coverage in order to move funds to other non-insurance areas (e.g., wellness spending accounts), plan sponsors are effectively doing the same.  The reality is that you simply can not get insurance once you are sick or, if you do, your current medical illnesses will not be covered.
• Organizations need to work with their benefits advisor to better understand the underlying fundamentals of the group benefits insurance industry and understand how some decisions in the short term could adversely affect them in the long term.

Communication

• Employee benefits plans need to be designed specifically for the business’ needs.  As such, businesses should understand the needs of their current and future employees but employees also need to understand why the employer has structured the benefits plan the way it is and how this strategy fits into the broader business strategy of the company.
• Time must be taken to not only craft the communication but to determine the best way to get this information to employees.  Organizations need to remember that different demographic groups like to receive messages in different ways but the underlying messages should still always be the same.  As well, employee benefits need to be communicated more frequently – not just at the time of hire, not just by relying on the booklet given to employees, and not only at the time a change is being made.
• Organizations need to work with their benefits advisor to develop and implement a communications strategy that conveys to employees the intent behind the plan design and that conveys this information regularly and consistently.

Experience

• Some of the new ideas being generated in the employee benefits industry are being generated by individuals with little or no experience in the group benefits industry.  As well, many of the current “Disruptors” in the employee benefits industry have one thing in common – they are software companies or they were founded by individuals who ran software companies.  Without trying to sound rhetorical, would you hire a plumber to fix your car?
• Do these “Disruptors” truly have the expertise and market presence to add value to your employee benefits program?  Do you expect them to be there in the long term given that many of them have been founded by entrepreneurs who have founded, developed and ultimately sold companies in the past?
• As an employee benefits advisor, we pride ourselves on being independent in the market as our clients hire us to represent them, not to represent an insurer or provider of any kind, and to be free of any conflict of interest.  However, some of the “Disruptors” in the current market have insurers as major investors in their businesses, so how can they ultimately be independent.  How is it that they can claim to be a “Disruptor” when they are partially owned and/or supported by major companies in the very industry that they claim to disrupt.
• Organizations need to be confident that their benefits advisor is going to be there for them in the long term, through the good times and the tough times.  Organizations should also be confident that their advisor truly provides independent advice.

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.  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 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.

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.  We provide value to you by leveraging one of the most skilled benefits teams – collectively over 300 years of experience within our team of 14 employee benefits specialists.  We have been working with businesses ranging from 3 to over 65,000 plan members for over 30 years.

By Dan Eisner