Insurance for the Underdogs
A model for any business providing a social good
👋 to all the folks curious about systemic change so that more can win in the game of life.
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You’ll get the answer to today’s focus: What expectations should we have of businesses that we rely on for our basic needs and how is Beneplan leading the way?
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Opening Spiel
*I hate buying insurance*.
I’m never quite sure if I’m covering myself for all potential disasters (despite asking 10,000 questions) and I always feel like I’m getting ripped off (and therefore having to call each year to renegotiate my plan).
I’m sure we all have our own personal experiences with insurance that have given us the feeling at one time or another that it is a necessary evil as opposed to a social good.
That’s why I was particularly keen to dive into Beneplan, a co-op for employee benefits. Speaking with Yafa Sakkejha, Beneplan’s CEO, about their business model made me see there is light in the industry.
What’s more - Beneplan’s game changer model is a great example for any company rooting for the underdog.
You see, we rely on a whole suite of companies to fulfil our most basic needs, including education, child care, health care, water, heating, food, shelter and more. But, we all don’t have equal access to these products and services nor do they always meet our most important needs. So it’s worth noting what Beneplan does to see how their model could make other social goods more accessible to all.
PS. I wrote a brief history of insurance, Rule Breaker style, to explain its role in society and how it is a social good. This wasn’t essential to today’s reading but it adds extra flavour if you have the time and desire.
Employee Benefits 101
First, let’s all get on the same page of employee benefits. If you’re an employee, chances are you have an insurance plan your employer pays for. It covers all your health and dental costs that the provincial government doesn’t, such as prescription medicine, dentist visits, chiropractors, and travel immunizations.
Typically, an employer will pay a fixed amount per employee. Let’s say for easy math $2,000 per employee per year.
In a given year, your claims may only be $1,000 but your colleague’s might be $2,500 (poor chap, had an unlucky year with a root canal). So between the two of you, after deducting $300 for commissions and admin fees, the insurance company still profited $200.
Math recap:
Revenue from premiums = $4,000 ($2,000 x 2 people)
Expenses to cover benefit claims and admin fees = $3,800 ($1K + $2.5K + $300)
Profit = $200 ($4K - $3.8K)
This system works because each party gets something valuable.
The insurance company gets the profit on premiums. As well, they can invest a portion of premiums and make money off of that too.
The employer gets to attract good talent with health benefits, doesn’t have to administer the claims themselves, can write off the costs under CRA guidelines and are covered in case some employees rack up huge fees (like our root canal buddy).
The employee gets good health coverage for free or a fraction of the cost and their employer doesn’t know they need root canals, antidepressants, or other health private information.
The Kinks in the System
When Yafa’s father, Mark Faiz, founded Beneplan in 2000, he saw the industry charging more and more for less and less. Most of the insurance companies were moving away from their traditional co-op and mutual structure (that structurally put members first) and becoming publicly traded companies (that structurally put shareholders first). This happened so frequently a term “demutualize” was born.
A 2014 study on the inefficiency of private health insurance in Canada published in the Canadian Medical Association Journal showed exactly what Mark was seeing.
First, the study noted that Canadians were paying among the highest per capita in the OECD for health insurance. So much for that universal system…
Second, there were widening gaps between the money paid to insurance companies for premiums and the money paid out for benefits.
I should note, the data was contested by Stephen Frank, who advocates on behalf of insurance companies, but then shut down by the original authors - so take this with a grain of salt. Either way, it’s pretty clear the game was shifting in favour of insurance providers.
Among the employers buying insurance for their companies, the small businesses felt the biggest pinch. Here’s why small businesses can lose out the most in the insurance game:
They don’t have the buying power to negotiate good deals. It’s not like they can say: “Knock the price down a few million and then we’ll consider buying coverage for our 10,000 employees.”
They don’t have HR Benefits leaders (or maybe HR at all!) to be on top of how much they paid out in premiums vs. employees claimed to see if they are spending too much
Because they are small, their insurance broker isn’t likely going to spend as much time reviewing their plans and renegotiating rates each year for them either
And turns out, we’ve got a whack ton of small and medium enterprises (SMEs) in this country. 99.8% of businesses have less than 500 employees in Canada and they employ 85.6% of Canadians. So while we all know the big banks, retailers, telcos and oil companies, we’re far more likely to work for the little guy.
That meant there was room in the market to innovate and better serve small businesses in getting a fair value for their health benefits.
Insert Beneplan
So - what did Mark do about the decreasing power of SMEs to get good insurance? He built an employee benefits co-op. This co-op makes one big buying group with all their members, instead of company A, B, and C negotiating a good rate on their own.
Just like Costco, where buying a lot gets customers a better deal, Beneplan’s buying power gets their admin fees 5-15% lower than the other guys.
Plus, they return any unused premiums back to members of the co-op. After covering claim costs and Beneplans admin fee, if there is still money in the pot, the employer gets it back. So there is no need to worry about overpaying or adjusting rates each year.
And - if your company claims more than what you paid in premiums, then the Beneplan co-op covers you. That’s the insurance bit - a company gets guaranteed support in case things get really really bad. It’s a nod to the olden days of insurance when there wasn’t a financial transaction, just a community of neighbours committed to helping you rebuild your house in case of fire or other tragedy.
Low fees, returned premiums and coverage in really bad times. This is the kind of coverage typically only the big guys can ask for but now available to the other 99%.
This is the glorious model of Beneplan. And it’s got lessons for all industries, too.
Charge just enough to keep yourself going
There is a term ”economic rent” which means a company is taking more earnings than is necessary to keep their company in operation. Just like rental prices in downtown Toronto (or now Barrie as people flee the city), landlords charge what the market can bear and not what it costs to offer this service.
Mariana Mazzucato, a brilliant economist, talks about the ills of financial services, insurance and real-estate in her TED talk. She explains that these industries are profiting significantly more than producers, such as farmers or website designers, and should stop taking more than their fair share.
Beneplan’s model of returning unused premiums is their way of self-regulating and ensuring that they don’t overcharge their customers.
If the employees don’t use the insurance, then why should Beneplan profit off that? Makes good sense to me.
It made even better sense last year during COVID. In 2020, they gave back $5.9 million of unused premiums. According to their annual report, that’s 136% higher than the year before. Why? Because people went way less frequently to the dentist, doctor, physio or for that massage during COVID.
If Beneplan had a traditional model, profits would have been 36% higher than last year because the world was in a global pandemic. Instead, the model Beneplan sets up prohibits itself from taking undue economic rent.
Let people know where the money goes
I looked at the financial reports of the major Canadian insurance companies and couldn’t find a clear explanation of how much they make from health benefits.
Beneplan, in contrast, shows it right in their public website. Didn’t even have to go fishing in an annual report!
I took the data and made a graph similar to the ones from the study above. From information they make fully accessible, I know exactly how much of the money members pay is used to cover claims and how much is returned to them at the end of the year. Look at that nice, small gap between what’s collected in premiums vs. what’s used for employees claims or surplus that’s given back. Glorious.
This transparency of where the money goes is used in other industries too.
Everlane, a clothing company, shows the price for every article they sell and their own margin. You’ll know how much they spent on material, labour, transport and duties.
Tidal, a music streaming rival to Spotify that was started by a ton of artists we love (founders/investors include: Alicia Keys, Beyoncé, Coldplay, Madonna, Nicki Minaj, Rihanna, Shawn “JAY Z” Carter, and Usher), has similar pricing transparency. They show exactly where their costs go and how much the artist gets in return. Jack Dorsey, Co-Founder of Twitter and Square, loved this transparent, artist-first model and bought the company for $300 million.
Everlane makes sure that the people that make the clothes and the consumers get a fair shake. Tidal makes sure that the artists and listeners get a fair deal. Beneplan makes sure that employers and employees get good value.
Simple, transparent pricing can apply to all companies in all industries and allows consumers to evaluate if the company is taking excessive rents on our economy.
Purpose-first decisions
What we consider good health continually evolves as do the solutions to keep us healthy. Therefore, we expect our health benefits coverage to evolve as well.
Typically, this comes from either the insurance providers upping coverage in their existing plans or an HR leader pushing for a better plan. Of course, things don’t always work out as ideally as that.
Insurance companies have been late to add and increase coverage to plans because it’ll hurt margins. As for the small businesses, often there isn’t an HR Benefits person thinking about what employees fully need.
Naturally, Beneplan has said to heck with that. They’ve devised their own minimum standard of what good coverage looks like. As of May 1, 2021, basic coverage now includes smoking cessation, fertility drugs, mental health and other things typically not included in base plans.
Some of what they include, you don’t even get as part of some of the best health benefits plans. Breast pumps are almost non-existent in Canadian plans, although common in the US. Yafa has been a champion of including this for years now and finally got it in without raising rates. Most employers don’t provide fertility coverage and there is a campaign to awaken employers to this issue and get them to change. Again, Yafa just knew it was the right thing to cover, so she included it.
Beneplan doesn’t ask employers to act like a health care policy expert nor are they waiting for insurance companies to get with the times. They realized they could increase coverage without raising fees - so they did and targeted the areas which have often been ignored or left out.
They’ve taken the burden of increased choice and cost away from customers and are doing what’s needed to keep people healthy - which is exactly their purpose.
Parting Words
Health insurance is a social good, not a necessary evil.
The UN Declaration of Human Rights Article 25 states:
“everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including... medical care… and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.”
Like other social goods - such as education, heating and electricity, water - what you pay and what you get for those dollars matters a lot. Oftentimes, the government will step in and regulate the pricing and business models.
In this instance, Beneplan has regulated themselves and ensures their market-based model serves people in a just and responsible way.
Through transparent pricing, maximums on profit and clever negotiating on behalf of the smaller guys, Beneplan provides better insurance for SMEs than they’d likely get otherwise.
While most of what we produce and sell in modern markets won’t make it on the UN Human Rights list, much will fall in the lower levels of Maslow’s Hierarchy of Needs. It is worth considering how Beneplan’s example informs the expectations we should have for the pricing and business model of anything that fulfills our most basic and psychological needs.
Many many thanks to Yafa for lending me her time and brain. And to Dan, Glenn and Elan.
Liked this post? Here’s are some more fun ideas…
🦦
Jess