How to get extra value from benefits providers

If you read nothing else, read this…

• As competition gets fiercer, employers have become more demanding about how they spend their benefits budget.

• Employers keen to get added extras, such as helplines and roadshows, should get these written into contracts or service-level agreements.

• Experts advise employers to negotiate on price, but not to screw providers to the wall. Come launch time, they may find communication leaflets cost extra and their main contact is a trainee.

• If using a broker to negotiate with providers, it is important to compare brokers’ fees on a like-for-like basis. Ask what will be delivered, the price you will pay and commission structure.

Case study: Brokers help Henmans lay down law to benefits providers

Strong relationships with brokers help law firm Henmans get the most from its benefits providers. The Oxford-based law firm uses brokers for its insurance benefits, pensions and employee assistance programme (EAP), but sources childcare vouchers directly.

Viv Matthews, head of HR, says: “We have one main contact with our broker for pensions and life assurance, and another for private [medical] insurance and the EAP. We have regular contact with both and have built up a sound rapport over several years.”

Matthews says the firm’s pension broker explores the market fully and checks regularly on providers’ performance. “The broker is also very proactive in arranging pensions surgeries and has helped us prepare for Nest [the national employment savings trust],” she says.

Henmans, which has 130 staff, also uses brokers to get results in tricky situations. Matthews adds: “In the case of private [medical] insurance, they can bring some weight to bear in difficult situations where the provider might be difficult about covering a full claim. This is certainly more powerful than us trying to deal with it direct.”

The firm also sets up service-level agreements around staff surgeries, costs, timescales and additional benefits. “In all of our benefits, we also receive lots of posters and materials to spread the knowledge,” says Matthews.

Case study: Mouchel engineers a good deal on perks

Consultancy and engineering services group Mouchel ensures that its benefits package remains competive through effective provider management.

Kate Moore, benefit adviser, says: “We use Thomsons Online Benefits for our risk and healthcare brokerage, as well as for sourcing new benefits, carrying out a voluntary benefits review at renewal, and updating us on changes to legislation.”

The company, which has 9,000 employees, also communicates with providers directly. “We have liaised directly with our providers as we have good historic relationships with them,” says Moore. “Most of our voluntary and company-funded benefit providers are happy to attend any benefit roadshows we run.”

She says brokers are a boon at renewal and when launching new benefits packages. “Brokers are in a key position within the market for new benefits and to arrange competitive premiums. They have experience of what benefits and arrangements will and will not work.”

Mouchel’s procurement department is setting up service-level agreements for its brokers. “Timelines for delivery at implementation and throughout the year are a must for SLAs, as well as expectations around how you expect a broker to manage benefits throughout the year,” says Moore. “Failure to deliver will affect annual renewal and have cost [implications].”

Employers are in a strong position to demand maximum value from their benefits providers and brokers can help swing some extra special deals, says Jenny Keefe

To keep on top of benefits schemes, employers have realised they need to keep on top of their providers. As the economic gloom deepens, organisations are increasingly making more demands on providers to ensure they get the best possible value for money.

One employer keen to get the best from its providers is software maker Access UK. Jo Sims, head of HR, says: “We do not accept a ‘computer-says-no’ mentality in our organisation, so we expect nothing less from our providers. They also need to be flexible, because we are an agile, growing company. Due to our ongoing merger and acquisition activity, we are evolving, meaning we are demanding more of our providers as we bring more staff on board and have to integrate, or phase out, legacy schemes.”

As competition among providers gets fiercer, employers hold all the cards. The Employee Benefits/Alexander Forbes Benefits research 2011, published in May 2011, found that 46% of employers had reviewed their providers to get a better or cheaper deal during the previous year. Robin Hames, head of technical, marketing and research at Bluefin, says: “Longevity is the key to profitability for providers, and employers can easily underestimate their own value as a client. If they use a consultancy, then it has no excuse for failing to ensure that providers fulfil their duties.

“If organisations deal directly with a provider, they should not be afraid to be clear about the consequences of poor service. Plenty of other providers are eager to capture market share and moving is not as difficult as many imagine.”

But before employers start investigating new providers, they should ensure they are getting the best from their current ones. There are things employers can do to make providers’ job a little easier – and boost benefits schemes. Rick Wilkinson, senior consultant at Towers Watson, advises benefits professionals to take the time to explain the objectives behind schemes, giving providers a clearer idea of the organisation’s aims.

“The key to provider engagement is communication,” he says. “Ensuring that a provider buys into a scheme’s importance and the objectives behind it increases provider engagement and leads to active participation at roadshows and support on employee communications.”

Engaged providers are more likely to go the extra mile. Richard Roper, managing director of JLT Benefit Solutions, says: “Providers can assist with communicating benefits through their extranet sites and literature, using posters, flyers, CDs and wallet membership cards. Employee assistance programme (EAP) providers are excellent at this and can also provide free helplines, bereavement services, or face-to-face counselling sessions.”

Make extras a requirement

Canny employers, such as Chelsea and Westminster Hospital NHS Foundation Trust, make these extras a requirement when selecting a provider. Amber Payne, employee benefits manager, says: “We ensure that added extras are written into the contract. Key things we try to include are freephone helplines for staff and a designated point of contact for those administering the scheme. I have never found a problem in getting providers to provide these – benefits companies are generally only too happy to provide help such as attending roadshows.”

So if employers want to land the best deal possible when they renew or launch a benefit, what should they do? Procuring most schemes is more complicated than the monthly online supermarket shop, so employers will usually have to engage at least one broker or consultant to help.

Access Group’s Sims says brokers can help to haggle around contract details. The company, which has 350 staff, uses brokers for pensions and insurance benefits, but negotiates its own deals on employee discounts and voucher schemes. “The advantage of brokers is they have more leverage in the market because of the volume of business they introduce and generate,” she says. “The most important thing is to go to market with more than one broker and keep an open mind as to what benefit options are available.”

Another employer that values the services of a good broker when sourcing benefits is Oxford-based law firm Henmans. Viv Matthews, head of HR, explains: “We have built a bond of trust with our brokers and know that they have our best interests at heart. We have tried to negotiate better deals with private health providers ourselves, but find that a broker can always get further discounts due to its purchasing power.”

Towers Watson’s Wilkinson adds: “When choosing a broker, detailed knowledge of the market and strong relationships with providers is key. There are numerous ways to measure the success of broker involvement. Cost savings is one, but there are other factors to consider, such as access to specialist providers and specific services or enhancements that employers cannot always obtain directly.”

Determine cost of broker’s services

Organisations should also find out exactly how much the broker’s services will cost them, discussing topics such as what will be delivered, the price they will pay and any commission structure. Bluefin’s Hames says: “Although we saw a shift towards fees in the early part of the 2000s, the pendulum has swung firmly back in favour of commission during the downturn.

“Where commission is being paid, it is crucial to establish the ground rules at the outset and ensure that the commission structure established by the consultancy mirrors the expected services and relationship. Some brokers heavily gear their commission, so it is mostly paid up front. Unfortunately, this means they can be less incentivised to maintain a high service standard in later years.”

Many employers negotiate their own benefits, cutting out the middleman to save money. These days, a number of flexible and voluntary benefits schemes can be set up quickly and easily. Towers Watson’s Wilkinson says the best benefits to arrange directly include childcare vouchers, bikes for work and gym membership. The same goes for EAPs, retail vouchers and some newer perks, such as Taste card discount schemes.

“A direct approach from employer to provider tends to work best where providers are well set up and experienced in working directly with employers, for example having a variety of marketing material, employee communication materials and implementation checklists ready for employers to tailor and use,” he says. “Employers also tend to go directly to the provider, without using a broker, where the benefit structure is relatively fixed and there is limited scope for negotiation on either design or price.”

Employers should also negotiate on fees, but they should not necessarily pick the provider that pitches the lowest price. JLT’s Roper says: “While there may sometimes be flexibility, particularly where competition is involved, always make a fair and honest assessment of the quality of work you expect to receive. There will always be someone willing to present a cheaper price to win the business. The question is, will they deliver a service reflective of this lower fee?”

Roper adds: “This can also mean the provider feels it has been driven too low on costs and could cut back on services or the seniority of personnel to provide the service. It can also mean that it looks for every opportunity to identify work which is out of scope and charge additional fees.”

What should be included in service-level agreements (SLAs) is an important question asked by most employers planning to introduce a new perk. Tower’s Watson’s Wilkinson says: “SLAs are becoming more common as the provider selection process broadens out into areas of service delivery. Providers normally have standard SLAs that can be obtained on request and then adapted to specific requirements. An adviser with experience of this process should be able to offer insight into the design and appropriateness of the SLA.”

Setting up an SLA is not enough on its own, says JLT’s Roper. “Regular review of performance against the SLA and, where appropriate, ensuring financial penalties are paid, is key,” he explains. “Ensuring that an SLA is appropriate is also crucial. There is little point in an SLA that does not challenge a provider’s service delivery model.”

Finally, do not overlook other ways to save costs. Salary sacrifice arrangements can deliver substantial savings in the right circumstances. Employers can also tweak the contract terms of health and risk benefits, such as excesses, coverage and the period that benefits are paid, to save on costs.

Bluefin’s Hames adds: “Both product providers and consultancies are operating in extremely competitive markets, so it is important that employers use this opportunity to review the services they are receiving and the prices they are paying.”

Ten questions to ask a broker

1. What kind of experience does it have in sourcing benefits?

2. What organisations does it work with or has it worked with?

3. Does it work with organisations that are similar to yours, and has it found what works for them?

4. How much will services cost?

5. How does it apply charges?

6. How independent is it – will it trawl the whole market for the best deal?

7. How do your benefits compare with other organisations in the same sector?

8. Do your current benefit providers offer value for money?

9. How could you save money without cutting existing schemes?

Read also Will rebroking group risk save money?