HR: Are one-size-fits-all employee benefit models relevant?

Issued by Fedgroup Financial Services
Johannesburg, Jul 14, 2017

Modern society is characterised by diversity, where uniqueness and individuality are considered admirable traits. Accordingly, people tend to over-value the importance of individualisation.

However, in the context of employee benefits, particularly group life insurance products, individualisation can be costly, inefficient and, in general, is largely unnecessary.

While a one-size-fits-all solution that considers all people as the same and offers no differentiation is definitely not a suitable offering to companies of any size, an appropriately structured solution that offers the right combination of medical benefits, retirement savings with group life, critical illness and/or disability insurance, along with the right combination of options to offer a degree of appropriate choice, is better.

Employer's discretion

It falls to employers to determine the appropriate mix of products in the basket of employee benefits, which align with the specific needs of each company, the industry in which it operates and the characteristics of the workforce. There are, of course, central themes that apply to all people, such as the need to save towards retirement, for instance.

The question of appropriateness should therefore centre on cost - determining how everyone can maximise their retirement savings, no matter how much, and get appropriate life insurance cover through a product that charges the lowest possible fees. This is what ultimately delivers long-term value by ensuring more of what is paid to product providers gets invested, and to further benefit from the power of compound interest and deliver the appropriate long-term return, and provide adequate insurance cover.

In this context, product flexibility and options such as member choice add layers of complexity, which increased administration, fee and other related costs and therefore erodes long-term value. As such, individualisation is not always the answer, especially for big groups that are price sensitive, such as companies composed primarily of low to mid income earners.

True, meaningful benefits

To deliver true, meaningful benefits, many providers have worked hard to create employee benefit schemes that yield long-term value. However, when providers offer members too much choice and flexibility, customers tend to make poor choices because people tend to think and act according to short-term views and sentiments and their investments and decisions around money-related matters are all too often influenced by emotion. This is why member choice is a poor option in the context of long-term savings and employee benefits.

To combat perceptions that individualisation and attributes such as member choice are indicative of premium offerings or key differentiators, which is just a hollow marketing ploy, providers in the employee benefits industry should aim to communicate better with their customers, with particular focus on upfront education to teach them what group products are and what they can offer if used correctly. Employers should insist that providers engage with staff in a language that they understand, with open, proactive channels of communication to ensure that a constant flow of information is provided to help make customers more aware of the ways in which their choices and decisions impact their financial futures.