Finding the right voluntary benefits broker may be trickier than clients realize

Jay Schmitt, ASAThought Leadership

When it comes to selecting a provider for voluntary benefits like life and disability, AD&D and financial wellness, small to midsize companies often take the “path of least resistance” by turning to the same broker that serves their medical or retirement plan needs.

But that’s a problem. Many plan sponsors don’t realize that brokers who are perfectly reliable partners when it comes to medical and retirement benefits may lack the knowledge or impartiality required to deliver optimal service in the voluntary benefits space.

For instance, many brokers work for a large insurance provider, so they steer customers only to choices from that provider. When brokers do work with multiple providers, they often specialize in one type of benefit. Those that offer a broad array of options across multiple benefit types may only have a superficial knowledge of each choice.

It can be difficult for smaller employers, whose benefits teams already have a lot on their plates, to choose the right broker. One approach is to enlist the help of a third-party to evaluate and choose one or more insurance brokers. This is a sensible tactic on paper, but in practice, broker searches are commonly performed by companies that have an interest in bidding for the same services they are supposed to be objectively evaluating.

So what’s a plan sponsor to do? The safest bet for small and midsize companies is to engage an unbiased third party that neither sells insurance products nor receives commissions when its clients select insurance products. A truly independent company can perform the unbiased broker search and evaluation services plan sponsors deserve — and plan sponsors should be explicit in outlining the terms of the broker search.

The process should begin with a thorough current-state analysis of each benefit or service under consideration by the plan sponsor. An experienced search provider will ask questions like:

· How long has the current program been in place?
· What is the plan sponsor’s level of satisfaction with the current program?
· Are participants complaining about some aspect of the vendor’s delivery?
· Are there tasks the plan sponsor wishes the vendor performed?
· How would the plan sponsor rate the relative strength of the vendor team?
· Has there been a lot of turnover in vendor personnel?
· Are there known compliance risks that need to be fixed?

The search provider also should evaluate the current program fees and help plan sponsors understand whether or not those fees are in line with the level of effort being asked of brokers. It’s also important to understand how potential broker partners get paid, because it’s not always transparent. Does the broker work for a company or parent company that sells insurance products? How many companies does the broker represent?

The answers to all these questions will help define a baseline service set — the criteria that a broker must meet to satisfy the plan sponsor’s needs — as well as a wish list of additional services and behaviors valued by the plan sponsor that will factor into the final selection. Together, these are the key buying criteria that determine how each prospective broker will be judged.

Next, the search provider and plan sponsor should work together to create a list of potential brokers. The search provider can add value here by educating the plan sponsor on market developments, emerging vendors and new benefits trends. Comparing potential brokers against the key buying criteria will help pare the list down further. From there, the search provider will contact each broker to explain the RFP process and desired services and assess interest. A truly objective search provider can even play an active role in broker evaluation and selection, including attending and facilitating finalist workshops.

Once the “broker of choice” is identified, the search provider should offer guidance on negotiating contract terms and service-level agreements. It’s important to establish terms that are fair for all parties; brokers should be held to standards that are realistically attainable but that also have teeth to ensure long-term plan sponsor and participant satisfaction.

When a plan sponsor engages an unbiased search provider, the combination of reduced broker fees, expanded broker services and meaningful service-level agreements should far outweigh the direct fees charged by the search provider. Moreover, having clear documentation of a thorough vendor evaluation and selection process will help the HR and procurement teams avoid headaches down the line.

This article originally appeared in Employee Benefit News.