By Kimberly Patlis Walsh, President and Managing Director of Corporate Risk Solutions.
As global financial, investment, and insurance trends continue to drastically shift with an economic and political scope, companies and their individual employees cannot help but focus on their respective plans to combat an uncertain future for their financial outlook and individual wealth accumulation. Both privately held and publicly traded corporations are focused on these outlooks and future operational and business impacts of the current monetary variables. Evaluating their ability to transfer, eliminate, accept, or mitigate risks and exposures, based on particular tolerance levels heightens another focus. Similarly, individuals are conducting their own evaluation of current and future pay, as well as financial stability by applying the known variables in an attempt to predict their future income or asset value.
Both US corporations and their individual employees are being bombarded by the exponential rising costs year-over-year (YoY) relative to health and welfare benefits – a top five cost and rapidly climbing the ladder of corporate expenses. The current environment is forcing companies to look beyond traditional insurance products to help mitigate ever-increasing costs and uncertainty. With carrier indications of double-digit medical inflation in the near future, companies will not have the ability to sustain this compounded level of increase YoY, which will force companies to ask the question “what should we do?”
- Taking on higher levels of stop-loss insurance, thereby taking on greater risk?
- Reduce benefits offered to employees?
- Increase cost sharing to employees?
- All of these or more?
As financial plans are developed, corporations are forced to also look outside the box to divert or redirect claims away from the major medical plan offerings – every dollar diverted is direct savings to the company. Increasingly popular programs such as Direct Primary Care (DPC) are used to fill that gap.
Management consulting firm McKinsey & Company recently cited that telemedicine has increased over 38 times (3,800%) in participation since the beginning of March 2020 when the COVID-19 pandemic caused shut downs and isolations. DPC programs pay for themselves and offer employees simple and cost-effective paths to obtain basic medical services while providing significant savings to employers by diverting basic medical claims. The program works in conjunction with the existing major medical plans so no current benefits are affected.
“The success of these types of programs has been fueled by global events – including and especially the COVID-19 pandemic – over the last two years,” states Paul Selsor, co-president and pre-eminent benefits broker and consultant at FM Financial, a member company of Foundation Risk Partners. “CFO’s need to look at alternatives on how to combat these escalating costs.”
Beyond rising costs on health and welfare, businesses are also seeking tools to mitigate rising costs and diminishing protections relative to personal lines insurance and commercial insurance availability. The level of available protection for high-net worth homes, art, cars, planes and other luxury items has become precipitously constricted. Those in catastrophic zones that experience frequent tornadoes, fires, mudslides, hurricanes may notice billions of dollars of loss costs to both global insurance carriers and to individual insureds. At the same time, insurance capacity has shrunk significantly, especially in affluent communities, but the need for other protections has widened. The uncertainty surrounding the environmental and financial risk impact on individuals and respective family offices is changing how foreseeable future budgets are created and how they are significantly changing decisions. Stress is compounding as risks evolve and continue to climb, with assets becoming more digitized, healthcare costs continue to surge exponentially with an aging average population, and volatility exists in virtually every market.
“What we are seeing in rising H&B costs are also flowing to other areas of protection, further complicated by reduced capacity,” added Selsor.
High-net worth individuals, and their respective family offices, are now having to determine viability between self-insurance and/or other alternatives to more traditional insurance protections that years ago were more easily secured. On a broader scale, due to rising costs and uncertainties of the future, over the last few years individuals and companies alike are leaving tax heavy states and flocking towards more tax friendly states like Texas, Florida, and Nevada.
Companies and individuals cannot rely on their investment and insurance strategies of the past, rather they need to seriously evaluate if self-insurance or diversified protections may work better into the future.