Together as a Group

When approached to write this column, I was asked to discuss our association’s “top priorities.” I began to jot down everything I could think of that was still relevant and that the association considered to be a current issue. I was amazed with how big that list was. I was also concerned about how many issues appeared to be lost in the maze. I am not inferring that we aren’t working on them, but with all the press and noise we make on certain topics, some issues appear to be overshadowed when in fact they remain quite important to us. I thought it was time well spent to delve into a few of those issues.

Group Rated Insurance Programs

Group Rated insurance programs are top of mind for the Insurance Brokers Association of Ontario (IBAO). It used to be that certain pockets of Ontario were more concerned about group insurance then others. However, it is clear that concerns about group insurance are becoming more widespread.

In our opinion, the industry has created a bit of a paradox. On the one hand, people are quick to point out the need for rate increases to offset an “unprofitable” sector. On the other, many seek opportunities to deviate from filed rates for what we would define as synthetic groups.

We have always understood the intent of a group rated plan is to allow for discounts in situations in which a group of 100 individuals share common characteristics. Discounts should reflect more favourable experience than standard risks on the street. The regulation defines these groups to be members, spouses and children of employee groups, credit union members, trade unions, professional associations, alumni groups and not-for-profits. We understand such groups must be approved by FSCO and group marketing plans must be submitted in these instances.

Over time, however, group business has become a lucrative endeavour for some, and competitive pressures have cast doubt on the legitimacy of many. One common example rests with Chamber plans (referring to Chambers of Commerce). Business owners are “members” of these Chambers, and group rates are offered not only to members (owners), but also employees, spouses, etc. These group rates are offered despite the fact that these individuals share no common characteristic other than the fact that their employer pays a membership fee to the Chamber in order to belong.

The problem does not appear to be limited to Chambers. We would argue the problem is more systemic than specific to one particular sector. In most cases, the common denominator appears to be the existence of Group Health & Dental Plan. Ironically, Ontario regulation specifically prohibits insurers from using the existence of medical, surgical and dental plans in their risk classification systems. We all know, however, that in many cases, these types of existing coverages are a fundamental reason for the existence of these group programs. Most of these existing coverages will become first payor of benefits, which reduces exposure and in the long term will reduce claims expenses for those in the group plans. As an industry, we should not take issue with rates based on performance. But we should concern ourselves with the significant disconnect that has created an obvious loophole benefiting one group of consumers at the expense of another.

When I look at Wikipedia, the free online encyclopedia, “group insurance” is defined as an insurance that covers a group of people, usually members of societies, employees of a common employer or professionals in a common group. Group coverage can help reduce the problem of adverse selection by creating a pool of people eligible to purchase insurance that belong to the group for reasons other than for the purposes of obtaining insurance. In other words, people belong to the group not because they possess some high-risk factor that makes them more apt to purchase insurance (thus increasing adverse selection); instead they are in the group for reasons unrelated to insurance, such as all working for a particular employer.

So what do we see as the problem and what is the solution? Again, we believe the problems are systemic. However, we also believe complacency at the regulatory level has also allowed group rated plans to expand well beyond their original intent. As of yet, we do not have a formal position on a solution. But we believe that, at the very least, first and foremost, FSCO needs to take a serious look at the definition of group in comparison to some of the basic principles of rate filing and rate classification systems.

A few other solutions might warrant consideration if and when group reform takes place. One might be changing who qualifies for a group-rated program — for example, increasing the number of individuals in a group or demanding a specific percentage of penetration. Another option might be mandating that, when offered to not-for-profit groups, group members must share common or similar characteristics other than just membership on its own. Making the auto policy the first to pay for injuries arising from auto accidents might be another way to eliminate the attractiveness of group rated insurance programs for those looking to skirt intent versus write legitimate groups.

Regardless of where this goes, clearly an in-depth conversation around group rated plans is long overdue. Going forward, we need to elevate this as one of our key messages with our regulators and our MPPs.

In Praise of Teamwork

Over the past few months, the Insurance Brokers Association of Ontario, the Insurance Brokers Association of Alberta and the Insurance Brokers Association of New Brunswick have worked in concert with the Insurer Advisory Committee, IBC and CGI to address our collective members’ concerns regarding the insurer-mandated Broker Sublicense Agreement. Put very generically, the agreement spells out ownership of information passing between insurers and brokers.

In the original wording of this agreement, the allowable uses of the information were much too restrictive, and the hold harmless provisions were too broad. We identified 15 issues, but there were two major concerns. CGI acquiesced to 13 of the 15 almost immediately; the real work involved agreeing to appropriate wording for the two specific issues. CGI has now improved the language on the permitted uses clause, allowing brokers to have more leeway within the brokerage. The hold harmless provision is now much fairer than previously written. We are very pleased that we have been able to work with the insurers and CGI to produce this revised agreement. They have been open to our input and have worked with our associations through each of the identified concerns. Without all parties working together to achieve a common goal, this would not have been possible.

In March, our member brokers received a notice from CGI that the new revised agreement was now finalized. This new agreement was presented to our brokers to sign. Accordingly, we advised our members that we were comfortable the revised agreement was fair and reasonable. As always, however, we suggest brokers seek their own independent counsel on any contract they sign on behalf of their brokerage.