For many Alberta business owners, receiving an employee benefits renewal notice can bring an unwelcome surprise. A plan that seemed affordable when it was first established may suddenly come with a significant premium increase at renewal.

But why does this happen? Is it simply because employees used their benefits more frequently? Does the size of your group matter? Can you negotiate a lower renewal?

Understanding how group benefits renewals work can help employers make better decisions, manage costs, and avoid surprises when renewal time arrives.

Let’s look at some of the factors that can influence your employee benefits renewal and what options you have when rates increase.

1. Employee Usage: How Much Are Your Benefits Being Used?

One of the most significant considerations in group benefits pricing is claims experience.

Insurance companies collect information about how much a group uses its benefits, including:

• Prescription drug claims
• Dental procedures and treatments
• Paramedical services such as massage therapy, physiotherapy, and chiropractic care
• Vision expenses
• Other eligible healthcare expenses

When claims are consistently higher than anticipated, it can put pressure on the financial performance of a benefits plan.

For example, a group that has experienced substantial prescription drug claims or increased dental expenses may see those costs reflected in its renewal assessment.

However, one particularly expensive year doesn’t necessarily tell the entire story. Insurance companies may consider historical claims experience, the size of the group, the type of coverage, and other relevant factors when assessing future costs.

The important takeaway is that employee benefits are insurance. When the cost of providing coverage increases, premiums may need to adjust accordingly.

2. Target Loss Ratio (TLR): Understanding the Relationship Between Premiums and Claims

One term employers may encounter when discussing renewals is Target Loss Ratio, commonly referred to as TLR.

A TLR represents the portion of collected premiums that an insurer expects to allocate toward claims, based on its pricing assumptions.

For example, consider a hypothetical group benefits plan with $100,000 in annual premiums and a target loss ratio of 75%.

This means approximately $75,000 is allocated toward the expected claims component, while the remaining $25,000 accounts for other plan expenses, administrative costs, distribution expenses, risk considerations, and the insurer’s financial requirements.

It is important to understand that TLR is not necessarily the same as an individual group’s actual claims experience.

If a group consistently generates claims that exceed the amount anticipated under its pricing assumptions, it may create financial pressure on the plan.

Conversely, a group with relatively low claims compared to premiums may have a more favourable claims experience.

Why does TLR matter at renewal?

It helps illustrate why premiums cannot be evaluated by looking at claims alone. The overall financial structure of a benefits plan matters, including the costs associated with administering and distributing coverage.

TLR assumptions and calculations vary between insurance providers and products. Employers should avoid assuming that every insurer uses the same methodology.

3. Demographic Changes: Your Employees Can Influence Your Renewal

Your workforce isn’t necessarily the same from one year to the next.

Changes in employee demographics can influence the expected cost of providing benefits.

Some examples include:

Age changes: As employees get older, their expected healthcare needs and associated claims costs may change.

Family status changes: An employee moving from single to family coverage changes the amount of coverage being insured. Family coverage generally carries a different premium than single coverage.

Employee turnover: When employees leave and new employees join, the overall demographic makeup of the group can change.

Group size: A growing or shrinking workforce can affect how an insurer assesses the group’s risk and expected claims experience.

For example, a company that grows from five employees to ten employees may have a very different risk profile than it did when the plan was established.

Even if the business itself hasn’t changed, the people covered under the plan may have.

4. Inflation and Healthcare Costs

Another factor employers should consider is the increasing cost of healthcare.

Prescription drug prices, dental fees, medical services, and paramedical treatments can all experience cost increases over time.

Even if employees use their benefits at approximately the same frequency as the previous year, the actual cost of those claims may be higher.

For example, if dental fees increase or employees require more expensive prescription medications, the insurer may experience higher claims costs without a significant change in the number of claims submitted.

These broader healthcare cost trends can influence renewal pricing across the group benefits industry.

5. Plan Design: Are You Offering More Coverage Than Before?

Your plan design can also influence renewal costs.

A plan with higher reimbursement percentages, increased annual maximums, lower deductibles, or expanded coverage generally carries a different financial cost than a more basic plan.

Consider these examples:

• Increasing dental reimbursement from 80% to 100%.
• Increasing annual dental maximums.
• Expanding prescription drug coverage.
• Increasing paramedical maximums.
• Adding new covered services or benefits.

While these improvements can provide greater value to employees, they can also increase the potential cost of claims.

Employers should periodically review their plan design to ensure the coverage remains appropriate for their workforce and budget.

Sometimes, adjusting a benefit or introducing a more balanced plan design can help manage future costs without eliminating the benefits employees value most.

6. Can You Negotiate Your Employee Benefits Renewal?

The short answer is yes and no.

Many employers assume that a renewal increase is simply a starting point for negotiation. While there may be opportunities to review or adjust renewal pricing, there is no guarantee that an insurance company will reduce its proposed rates.

Each insurance provider has its own underwriting practices, pricing methodology, and approach to evaluating group benefits renewals.

Some groups may have more flexibility than others.

For example, consider two hypothetical businesses:

Business A: Has maintained relatively low claims over several years, has stable employee demographics, and has premiums that adequately support its claims experience.

Business B: Has consistently experienced high claims relative to its premium contributions over several years.

Although both businesses may receive a renewal increase, their circumstances are quite different.

Business A may have a stronger basis for requesting a review of its renewal pricing. Business B may have less flexibility because its historical claims experience already puts pressure on the financial performance of the plan.

This doesn’t mean Business B cannot ask questions or explore alternatives. It simply means that an insurer may have less room to adjust pricing when the underlying financial experience does not support it.

Ultimately, renewal decisions are subject to the insurer’s underwriting guidelines and approval process.

7. Does Having a Broker Make a Difference?

This is another area where employers should understand the differences between distribution models.

Some businesses purchase group benefits directly through an insurance provider, while others work with an independent benefits broker.

Both approaches have advantages, and neither automatically guarantees better renewal pricing.

Working directly with an insurance company

When an employer purchases coverage directly, there is still an opportunity to communicate with the insurance provider, ask questions about a renewal, and request a review where appropriate.

Direct relationships can also provide a straightforward way to manage the plan without an intermediary.

However, employers may have fewer opportunities for independent market comparisons unless they approach other providers themselves.

Working with a benefits broker

A broker can provide additional services, including:

• Reviewing renewal increases and identifying potential concerns.
• Comparing coverage and pricing between insurance providers.
• Recommending plan design changes.
• Helping employers understand their options.
• Assisting with ongoing plan administration and employee questions.

Brokers may also have established relationships with insurance providers through their existing business relationships and client portfolios.

Those relationships can sometimes help facilitate discussions, additional reviews, or alternative proposals.

However, it is important to recognize that a broker cannot guarantee a lower renewal. Underwriting decisions and pricing remain with the insurance provider.

Understanding broker compensation and TLR

Broker compensation is another consideration when evaluating the overall economics of a group benefits plan.

Depending on the insurance provider and arrangement, broker compensation may be included in the overall pricing structure or otherwise reflected in the financial assumptions used to establish premiums and target loss ratios.

Because premiums must account for claims and the costs associated with administering and distributing coverage, compensation arrangements can influence the overall economics of a plan.

This does not mean that a broker automatically makes a plan more expensive or that a direct plan will always be cheaper.

The important thing is to understand what services are being provided, how the arrangement is compensated, and what value the employer receives.

A good broker should be able to demonstrate the value they bring through plan management, market knowledge, renewal reviews, and ongoing support.

8. What Can Employers Do When Their Renewal Increases?

Receiving a renewal increase doesn’t mean you have to accept the plan exactly as it stands.

There are several steps Alberta employers can take.

1. Request a renewal review

Ask your insurance provider or broker to explain the factors contributing to the increase. Is it primarily claims experience, demographic changes, healthcare inflation, or another consideration?

2. Review your claims experience

Understanding which benefits are driving costs can help identify opportunities for plan adjustments.

3. Evaluate your plan design

Would reducing certain maximums, adjusting reimbursement percentages, or changing specific benefits help manage premiums while maintaining meaningful coverage?

4. Compare alternative options

It may be worthwhile to explore other insurance providers and plan structures. Different providers may assess the same group differently.

5. Consider pooled benefits arrangements

Some group benefits products use pooled pricing structures that spread certain claims risks across a larger group of employers.

Depending on the product, this can help reduce the direct impact of an individual group’s claims experience on its renewal. However, pooled arrangements can still experience rate increases due to broader claims trends and healthcare inflation.

Understanding whether your plan is pooled or experience-rated is an important part of evaluating your renewal.

6. Look beyond the monthly premium

The cheapest plan isn’t necessarily the best plan.

Consider coverage levels, renewal stability, customer service, administration, employee needs, and the overall value being provided.

Final Thoughts: Your Renewal Deserves More Than a Quick Look

Employee benefits renewals are influenced by several factors, including claims experience, TLR, employee demographics, healthcare inflation, plan design, and the insurer’s underwriting approach.

While there may be opportunities to negotiate or review a renewal, not every increase can be reduced simply by asking.

Whether you work directly with an insurance provider or through a benefits broker, the most important thing is understanding what you’re paying for and whether your plan continues to meet your business’s needs.

For Alberta small-business owners, taking the time to review your renewal can help you make informed decisions, manage costs, and provide valuable coverage to your employees.

Don’t just renew automatically. Understand your renewal.