Group Insurance… the power of control

Insurance profits are up over 700% and the industry is expecting increased premiums for 2004. With over 2.6 billion in profits for the insurance industry, where is all the money going?

In 2000, premiums of more than $15 billions were paid to insurance companies in Canada. The direct operational cost to insurance carriers was on average 23%. This represents more than $3,5 billions spent on administration, development and other fees.

If we add to this amount the premiums for self-insurance and their management cost, were are looking at some $20 billion in premiums with more than $4 billion of that amount tied into the direct operating cost.

Surprisingly, of the estimated 4$ billion in cost, we have not taken into consideration the indirect cost for the enterprises, governments, unions, group insurance advisors / brokers or independent actuaries / consultants. It can be easily estimated that this new cost could easily account for an additional $2 billion to the insurance industry. If we then take into consideration the escalating cost of premiums and the increased demand for coverage these costs become a heavy burden to accept let alone manage.

Considered by many as a necessary evil, the cost of managing group insurance benefits is becoming a luxury. In the face of an aging demographic population requiring increased medical and social services needs the costs associated with the development and management of these programs continue to grow. Requiring increased internal resources for the managing of their insurance programs the insurance industry is caught in a vicious circle of increased demand for developing services, increasing management efficiency while making a profit. So who pays the final bill? It all boils down to a question of information control. He who has the information has the power of control.


Donald Provençal MBA, professional consultant