Friday, March 28, 2008

Rat Race

Commuting to work on crowded roadways is a daily task I do not miss. Working a short distance from home has added two productive hours to my workday. Working for myself affords me the ability to set appointments to avoid peak traffic congestion most of the time.

Yet driving around a major city provides the opportunity to observe far too much road rage.
  • The evening news is full of traffic fatalities.
  • Tailgaters are everywhere.
  • Why some drivers seem to accelerate to a stop is beyond me but I see cars speed up to get to the redlight where traffic is clearly stopped.

It can be very reasonable for employers to consider a business travel accident policy that offer coverage for commuting to and from the office. The daily commute is the most dangerous task many workers undertake. Perhaps the hours I have spent with my teeenage daughter and her learning permit recently have made me appreciate the danger of a sressed out driver in traffic. The risk increases with annoyance and other distractions.

Friday, March 14, 2008

Save The Baby When You Toss The Bathwater

Its amazing to observe how often companies will decide to replace a vendor without considering an existing carriers capability to provide similar services or products much less the flexibility in pricing a long term relationship affords an insurance carrier.

Often brokers and consultants who are revenue and acquisition driven pursue make recommendations to change vendors when it serves their interest not their clients. Where service or problem solving skills fall short at a brokers firm the path of least resistance is often to change carriers or vendors.

Here are a few key points for employers to consider before changing carriers;

  1. Ask who benefits from the sales pitch as its detected. You need consultative problem-solving skills from an intermediary not pitches.

  2. Meet with your incumbent and price the same alternatives.

  3. If you have built up a track record with a health insurer and matured your run out changing insurers will result in another first year renewal where you are again facing both trend and a mature adjustment. It will be tough to negotiate that down with a new carrier but with your incumbent its far easier.

  4. Continuing to change carriers will limit the markets who will consider you in the future and limit your options. Carriers just decline companies that shop and change annually.

  5. Try to resolve issues directly with the incumbent before leaving them. Counseling is always cheaper than divorce. If your broker cannot or will not setup a meeting with the people who can resolve a problem that should be a telling signal to you that perhaps you need a new intermediary.

I spoke this morning with a client who had entertained a pitch from a competing broker suggesting a carrier change. The client has been with their health insurer for 4 years and has been treated very well and we were successful in negotiating a 13% renewal down to 4.5%. All of the plans being suggested are available through the incumbent without a carrier change. Yet that did not prevent a recommendation that the baby be tossed with the bath water which is never a good idea.

Wednesday, March 12, 2008

Ask for Lower Rates 12 months after Quitting Tobacco

Many Texans buy life insurance and file the policy away without an annual review. Those who have quit tobacco who were issued smoker rates can reapply for a safer risk classification and receive a lower premium.

John and Melissa are clients in their mid 20's who quit smoking 6 months ago. Since they smoked cigarettes within the last 12 months they qualify for preferred tobacco rates and their monthly premium outlay is $155. In 6 months they will be tobacco free for a year and can apply for standard non-tobacco rates which would drop their monthly premium outlay to $95. A 39% reduction in premium will save this young couple $720 annually. Over the remaining period of their 30 year term policy the savings totals $21,240.

It pays to re-evaluate your life insurance policy annually.

Mr Clean Loses His Shine

Sometimes a picture is worth a thousand words.
Mr Spitzer painted insurance brokers with a broad brush several years ago. Pride cometh before the fall Elliot.

Friday, March 7, 2008

Lose or Limit Sickdays to Boost Productivity

Yesterday I met with a bright CFO who was considering how to balance being the employer of choice to attract and retain the very best professionals via benefits with a slowing economy reeling from sub prime woes that is slowing new contracts as financing gets squeezed. This firm gave employees 7 sick days annually. Sick days used to be use them or lose them but this led to a very unproductive November and December as employees used them all up during the holiday season. This led to a policy which allowed sick days to accumulate up to 14 days maximum along with a carryover.

When times get tough look closely at the design of your sick pay plan and ask some hard questions. Here are yesterdays questions and answers for a group with 250 employees and an average salary of $60,000

  1. What did the sick days/personal days cost in 2006 and 2007? What was the year to year trend? Not sure of the cost but the trend went from 7 days used to an average of 6 days.

  2. How many sick days/personal days do employees receive and how many do they use on average? 6 days was average use.

  3. What type of return on labor is targeted in your industry? 3-1 is goal.

A $60,000 annual salary equates to $5,000 monthly.

There are 21 working days in the average month excluding weekends and 2 weeks vacation.

$5,000/21 working days = $238.10 as the direct cost of a sick day.

Since the company is seeking a 3-1 return on labor they are actually out the $238.10 in direct costs plus the value of a days pay to the firm which is 3 times the daily wage or $714.30

So the actual cost of a sick day to the firm is $238.10+$714.30 or $952.40.

250 employees using an average of 6 sick days generates an annual cost of $1,428,600
$1,428,600 is 9.5% of payroll.

A reduction for this firm of one sick day represents $238,100 annually or $952.40 per employee. Folks that's enough to buy major medical for an entire family in my market.

What is truly sad is that this employer like many believed they had insured the real risk which was long term disability which has a cost of less than 1% of payroll. Not to mention there is a gap between day 14 when sick days end and day 90 when LTD benefits begin.

Some may say there is no way to get a reduction of one sick day without taking away benefits or the cost of sick days is not a real expense since its buried in payroll anyway. Really? This is the black hole of STD I have previously written about. I would point such naysayers to what innovative and truly lean companies do to reward perfect attendance. Did you know Toyota employees with perfect attendance can win a free car?

The reality is that sick days are an entitlement. You do not manage entitlements. You do limit their scope and put into place incentives to drive the behavior you are seeking. It helps to have a benefit design aligned with your business objectives and that's precisely where our firm assists employers. We will assist this employer with a design that not only lowers costs but eliminates benefits gaps.

Wednesday, March 5, 2008

Could Have Should Have, Would Have...Too late

I had a call recently from a client I recently acquired. In reviewing their benefits package I had proposed $50,000 of employer paid group term life insurance and also pointed out the exposure the business had relative to several key people. Like many closely held businesse's this client stays very busy and procrastinated on a decision despite costs that looked very reasonable.

The sudden death of a key employee last week leaves a family with no life insurance and the company scrambling to fill the shoes of a key employee. Most life lessons are tough but life insurance lessons can be brutal.