What can give you that edge when it comes to fully insured renewals?

Renewal season is upon us, so get ready to make some magic and get your clients the renewals they want, even if they had two transplants and 10 heart events this year. Clients want the renewals they can afford, and they want you to make it happen or they will find someone who promises to deliver. What can give you that edge to help you get the clients what they want and keep them loyal to you? The answer is simple: an actuary.

You may ask why should someone use an actuary for fully insured renewals? After all, brokers are good negotiators, they have good relationships with the carriers and they can do enough “broker math” to get by, so why do they need to pay for an actuary?

Let’s take this step by step. Many brokers are good negotiators, but you can only negotiate as well as the information you have. Take carrier data, for starters. When did we start blindly trusting the carrier? Yes, they will run reports for you and give you some basic information, but will they even run those reports correctly? Time and time again I ask for specific data from a carrier only to find that they have run the report incorrectly. How well can you negotiate if you have bad data? Health plan data is actuarial in nature. An actuary can quickly tell when something looks off, like double counted claims or missing Rx claims, or what to do if different reports that should reconcile don’t.

Now let’s talk about the renewal itself. An actuary is trained to perform complicated analysis to punch holes in the carrier’s argument. An actuary spends hours evaluating incurral factors, group specific trends and large claim data to find you that leverage you need. So what’s the very first line in the carrier’s workup? It used to be paid claims, which they would then develop in a few steps into incurred claims. Nowadays, it’s simply incurred claims on the top line. Why? Because the carrier doesn’t want you know how they develop incurred claims because that’s where they can be conservative and hide margin. Keep in mind, paid claims are cash but incurred claims are a matter of underwriting opinion and that's what drives the renewal. Higher incurred claims mean more head ache for you. Again, it’s a trust issue with what the carrier is telling you, and the carrier is seldom on your side. As an actuary, I know this because I worked for one. But if you neglect to look at these crucial elements of the renewal, you can’t negotiate on those items no matter how good your skills are. By teaming up with me as your actuary we can make sure all the bases are covered.

Now back to broker math. I’ve talked to many brokers who have been doing this for a long time or have an underwriting background. While these qualifications make you a great broker for sure, they don’t make you an actuary. Broker math and rules of thumb may work in uncomplicated situations, but these days, which of your clients are uncomplicated? You’re gambling with your client relationship that a rule of thumb will work again this year, fingers crossed. If it was as easy as doing this and that, then there wouldn’t be a professional called an actuary and it wouldn’t take seven years to become a credentialed Fellow of the Society of Actuaries. But there is and it does, and big companies insist on using an actuary to address issues like spikes in utilization, large claims, enrollment migration, and consumer-directed plans. Getting to the right answer can be complicated and an actuary specializes in complicated.

Plus, having all the underwriting experience in the world isn’t going to be helpful if you’re stuck behind the carrier’s marketing rep so you can’t even make your underwriting points to the carrier. It’s a bit like a trip to the car dealership. The sales guy wants to know what it will take to put you in a new car today, if only you can both convince the big bad general manager to sacrifice his profit margin a bit. Notice how you never talk to the general manager and you’re forced to watch them “squabble” behind a glass window? Your guy comes out and says this is the best he’ll do, so I’m not the bad guy, he is, but the price is the price.

You’re getting stonewalled because you don’t have an actuary on your side. With us teamed up together, you stand a much higher chance of being able to speak actuary to actuary or actuary to underwriter with cold, hard analysis that’s very uncomfortable to ignore because it’s coming from someone with at least the same or better credentials and experience than the carrier’s actuary. I have a brother who’s a doctor and he tells me that if he wants to know what’s really going on with a patient, he’ll only talk with another M.D. and not the nurse. Same principle applies.

When brokers tell me that they don’t use an actuary, I ask them how they know they are not overpaying, and I have yet to hear a convincing explanation. How can they possibly know, because they aren’t trained or qualified to interpret incurral factors, group specific trend and expected large claims versus actual as an actuary is, so they can’t know if there is an argument to be made. They just don’t teach those things in group school.

On the other hand, I have worked on hundreds of renewals and only in a handful of cases was I unable to make an actuarial argument in favor of a lower renewal. Most times I save the client many, many times more than the fee for my actuarial analysis, which is typically just $4,000. Your 300-life key account is spending $2.5 million on premium. Do the math: an extra 2% saved means $50,000! And in that handful of times where I couldn’t justify a lower renewal, I was validating for the client that the carrier had put a fair offer on the table.

Another way to look at it is this: if you went to a bank and they said you could deposit $4,000 today and in two months withdraw $50,000 with no strings attached, would you do it? I think most people would do it. This is a good comparison for actuarial fees and the return on investment when it comes to paying an actuary for an analysis of fully insured renewals.

And if you think it’s hard to sell a renewal analysis for $4,000, try selling your client on a huge renewal increase of 47% as “fair” if you don’t have an objective review of it. We can work together to educate your client on the painful reality if there is one (hello, 132% loss ratio…), which allows you to say, don’t just take my word for it, the independent actuary we engaged to offer a second opinion thinks such and such is the case as well.

To heck with 47%, you might say, I’ll just market the case: somebody’ll buy it and solve my problem for me. Possibly, if the carrier and client don’t share board members or if you’re not restricted by geographic monopolies (and I’ve seen them both happen) but marketing alone for the lowest price is not enough; in fact, you could still be leaving money on the table. The marketing helps you figure out whom to negotiate with. Because only an actuary can know for sure what a fair price is, an actuarial review of their proposal can let you know if they’re giving you a good deal. Remember, even the new insurance company has an actuary on its side. Make it a fair fight for your client by having an actuary on your side to keep ‘em honest. Every point counts nowadays. When was your last “hero” moment?

Lastly, other brokers are using an actuary and they want your business. Surely you’ve heard the saying that your clients are someone else’s prospects. All it takes is your client being less than thrilled with their renewal and another broker to come in and claim that if they had your case they would have used an actuary and saved your client money. See how long your client stays with you. My skills don’t compete with yours, they complement them. Once you combine the analytical fire power of an actuary with your relationship and negotiating skills, you have a winning combination that will make your clients smile.


Office: 813.963.2420 Mobile: 813.230.8162 Fax: 813.925.4370
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Email jay@jayminiati.com