Key Takeaways
- Traditional insurance models often present incurred losses, which include reserves for unreported claims, instead of paid claims, which are the actual dollars received by employees.
- In a typical insurance model, carriers and brokers retain an average of 75% of the total premium, resulting in 25% paid for employee claims.
- BeneRe’s model flips the equation, returning 60% of the total premium directly or indirectly to employees.
- Employers must ask the right questions: What percentage of the premium goes to actual paid claims?
Voluntary benefits are designed to support employees in times of need—whether facing an accident, injury, or critical illness. However, most traditional insurance models obscure the real value being delivered. Understanding the difference between paid claims and incurred losses is crucial for employers striving to be good fiduciaries.
What’s the Difference?
- Paid claims represent the actual amount distributed to employees for covered events. These are tangible benefits employees can use immediately.
- “Incurred losses” include estimated reserves for claims that have not yet been reported or processed. This figure can be inflated, making the financial loss ratio appear more favorable than it actually is.
If employers don’t ask specifically about paid claims, they may only receive a financial loss ratio that includes reserves, administrative costs, and other industry expenses—obscuring the real value employees receive.
A Closer Look at the Numbers
To illustrate the difference between paid claims and incurred losses, let’s examine a real-world scenario: Over seven years, employees at this company paid $7 million for accident coverage and got $1,610,000 in paid claims value. The carrier reported “incurred losses” of a little over $3.4 million, making the financial loss ratio 49%. That number doesn’t sound that bad at first glance.
However, let’s break out the paid claims and the incurred losses. The claims paid were 23% and the commissions ended up being 26%. Commissions are higher than the claims being paid, so it’s essentially costing more to sell this product to employees than the value they’re actually getting out of the product.
We give this a fiduciary grade of D. In this scenario, no one is looking out for the employees and the value they receive.
With BeneRe, the numbers tell a different story
We transparently disclose where every dollar goes. We have nothing to hide in our model.
With our program, we typically see a 10% premium savings and 60% increase in claims. The industry expenses are fixed at a maximum of 40% for broker and carrier income and captive expenses. Regardless of actual paid claims, there is no downside risk, and employers receive the difference in the form of a dividend at the end of each year with a complete accounting provided. The employees get 60 cents on the dollar value directly and indirectly from paid claims and distributions, which is a significant upside compared to typical traditional worksite plans. This program gets a fiduciary grade of A.
Why Transparency Matters
Most carriers don’t disclose these breakdowns unless directly asked. That’s why BeneRe provides reports detailing:
- Premiums collected
- Paid claims
- Carrier expenses and commissions
- Premium taxes and captive expenses
- Dividends earned
With BeneRe, employers see exactly where every dollar goes, making it easier to evaluate the true impact of their voluntary benefits investment.
The Fiduciary Responsibility to Ask the Right Questions
If you’re evaluating voluntary benefits programs, don’t just accept a financial loss ratio at face value. Ask:
- What percentage of my premium is actually being paid out in claims?
- What is included in the loss ratio—just paid claims, or incurred losses too? (Some carriers have been bold enough to slip commissions into their loss ratios)
- What percentage of premiums is retained by the carrier?
- Are commissions higher than the claims ratio?
If you don’t like the answers, there’s a better way.
Why Employers Choose BeneRe
BeneRe is the first and only voluntary benefits group captive providing full transparency and better financial outcomes. With us, employers experience:
- 10% average cost savings
- 60% increase in paid claims
- Potential for year-end dividends
- No downside financial risk
This is why 99% of our clients have remained with BeneRe since inception. Once an employer sees the substantial benefits for their employees and benefits programs, they don’t want to leave.
When you’re ready to increase the real value of your voluntary benefits, we’re ready to talk. Contact BeneRe today for a complimentary analysis of your current program.