True Costs

Oct 09, 2012

I recently came across these comments in one of my client’s reception area:

Beware The Lowest Bidder

“It’s unwise to pay too much, but it is worse to pay too little.  When you pay too much, you lose a little money – that is all.  When you pay too little, you sometimes lose everything, because what you bought was incapable of doing what it was bought to do.  The common law of business balance prohibits paying a little and getting a lot – it can’t be done.  If you deal with the lowest bidder, it is well to add something for the risk you run.  And if you do that, you will have enough to pay for something better.”

I feel this relates very well to the Benefits Industry.  It is rational to be drawn to the best price but that will often cause problems.  We, however, draw our client’s attention to true costs rather than bottom line price.  For example, Health and Dental rates are often manipulated in order to show a favourable overall price.  What good is this if the premiums are not sufficient to cover claims and administrative costs in the short (1 year) or long (5 years) term?

The true costs for comparison of Health and Dental is the cost of administering the claims and excludes the amount allocated to claims as these are constant.  The pooled rates (Life Insurance, AD&D, Dependent Life, Long Term Disability) are also true costs because for the majority of Canadian businesses, these costs are not affected by their claims.

Please note the added indirect costs of making a carrier change, such as additional administrative burden, loss of partial reserves and the impact on morale, need also to be considered.

At TRG, we will consider all of these costs for you before recommending the best alternative, lowest bidder or not.

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