- Scottish Oil and Gas sector, with its widespread cost cutting, is particularly in focus
- HRDs, FD’s and businesses can better understand insurance claims costs driving benefit spend
- Typically four key health risks face employers: cancer, musculoskeletal, mental health and heart problems
- Aon’s Risk Forecaster analyses and quantifies health data and premium trends, benchmarks performance, projects future premium spend and then models alternative scenarios for improved performance enabling delivery of return on investment strategies
- Overall benefit spend in health and risk increasing because of demographic, economic and market conditions
LONDON, 12 March 2015 – Aon Employee Benefits, the UK health and benefits business of Aon plc (NYSE: AON), has developed a modelling tool which helps companies to understand potential future benefit expenditure and to put in place strategies to help control health risk costs. One client was shown benefit spend could increase from c£8m to £15m in three years if recommended actions were not taken and sustained due to its particular risks and resulting price rises (see case study below).
Aon’s newly developed tool, the Risk Forecaster, analyses and quantifies health data and premium trends, then benchmarks performance and projects future premium spends. With this information, it is possible to model alternative scenarios and recommend strategies that deliver ROI projection. In turn, it also increases the likelihood of better employee engagement and supports governance processes.
Matthew Lawrence, Head of Broking and Proposition for Health and Risk for Aon Employee Benefits, said, “HRD’s and FD’s are moving health and wellness up the strategic agenda as they focus on employee engagement. They acknowledge the link between good health and improved productivity, reduced absenteeism, higher profitability and sustainable benefit spend. Typically, the four key health risks that significantly impact insurance claims are cancer, musculoskeletal, mental health and heart problems. Tied into the problem is that overall benefit spend in health and risk is increasing because of employee demographics, economic and market conditions.”
Richard Strachan, Scottish regional director of Aon Employee Benefits, added, “This is especially true in the Oil and Gas sector where the reduction in price has led to widespread cost cutting. Due to the breadth of costs associated with these issues, no company can afford to ignore the effect of health cost risks that impact the bottom line.”
The Risk Forecaster has been developed by working with the Aon Centre for Innovation and Analytics. It makes the process around the collection of fairly standard data – from major health related benefits - as simple as possible for clients, so the audit can be completed quickly.
Lawrence continued, “There are three main ways of controlling spend – 1) Financing by broking, or utilising alternative financing methods 2) benefit re-design and 3) improving performance by taking action to improve the underlying employee health risks.
“The merits of positive intervention are understood by most employers but putting strong financial metrics around this is crucial. Such activity does not necessarily require significant additional resource and spend. Often the most appropriate course of action for many is one that potentially involves a degree of redesign activity with short-term savings reinvested into the programme to improve performance so that future pricing remains sustainable.
“Building the business case for specialist providers to maximise the impact of any such spend to help target key health risks - either new or existing - is vital. Core to our approach is improving the employer’s health management position.”
Case study overview:
Aon Employee Benefits conducted a risk profiling exercise on behalf of Client Y to support its wider employee health strategy and project future benefit expenditure. It was carried out by using data obtained from major health related benefits: Private Medical Insurance, Income Protection, Group Life Assurance (lump sum and death in service pension) and the Employee Assistance Programme.
Aon used its range of modelling tools, market knowledge and consultancy expertise to reveal a number of key findings:
- Total spend across these insurances in the last complete accounting year (2013/14) was c£8,400,000.
- Informed projections suggest that costs for 2015 are currently coming in at £11.7million, and that by 2017 on a like for like basis could almost double from present levels to nearly £15,000,000 if action is not taken and sustained.
- Broking has proven to have had a significant impact on keeping historical pricing in check across all lines. But for a number of reasons this is proving harder to keep current pricing sustainable if conducted in isolation.
- The proposed price increase from the risk insurer on the IP Scheme was almost unprecedented for a scheme of this size and a three-tiered approach to the renewal (broking, redesign, improvement to future process) was recommended as priority.
- Similar exercises also warranted on PMI and Life Assurance benefits.
- Ongoing governance and data management will play an important role in the future sustainability of these benefits.