Case Study | April 2016
Canada’s Group Benefits Industry: Disruptions And Strategies For The Future
Canada’s group benefits industry has been remarkably resilient over the years. However, senior leaders in the industry are well aware of a number of ‘fault lines’ that suggest that the ground on which the industry stands is shifting. This Pivot Insight article puts these challenges in perspective and presents Pivot’s thinking and strategies on how to prosper in the new group benefits environment.

In recent years, growth in the group benefits industry has been slowing or even deteriorating on some measures. For example, growth of premiums as a percent of gross salary has plateaued and overall industry profitability has declined.

Mid-size group benefits players are growing faster than the market and have the capacity to challenge the dominant players. Large Canadian banks have moved into the group benefits market. They look at group insurance as an additional profitable service bundled into their SME offer and as a strategy to support customer acquisition and retention.


The rising cost of drugs, almost 40% of the total cost of benefits plans, is a major threat to the sustainability of benefits programs. In particular, specialty drugs (e.g. biologics), today cover just a handful of medical conditions but will play a much greater therapeutic role in the future. In 2014, specialty drugs prescribed to 2% of plan members accounted for 26% of cost. Looking at the pipeline of new biologics expected to reach the market in Canada, the cost impact will be dramatic.

With the growth in costly specialty drugs and cost controls in the public health system, carriers are concerned that they will be called upon to shoulder an even greater proportion of drug costs. Private drug plans cover more than half of total

prescription costs in Canada and it is expected that they will cover the bulk of the specialty drug costs.

As costs continue to rise, employers will seek to limit medications covered and shift the responsibility and costs associated with group benefits to employees. This is a trend that is firmly established in the US, where employers are moving from a Defined Benefit (DB) to a Defined Cost approach (DC), providing a fixed allocation to employees for their health coverage which they use to choose the appropriate coverage from a number of accredited suppliers.


In the past, benefit plans have revolved around a rewards and compensation model with benefits seen as part of employee compensation and as a cost of doing business for the employer.

There is a growing realization that the siloed approach to the management of drugs, disability and wellness, combined with an excessive focus on drug costs is not serving employers well. Changes in plan design will increasingly be driven by prevention initiatives built on an approach that encourages health and productivity. This calls for new benefits strategies that are increasingly integrated, bringing together drug management, disability and wellness to improve workforce health & productivity.

How should carriers meet these challenges? To begin with, they will need to break away from their traditional model and evolve from being a services aggregator, with a “cost plus” business model to a solutions provider, with a value-driven business model.


Customers value solutions that increase revenues, lower cost or reduce risk. Carriers today offer a range of products and services to meet specific needs of employers. They compete on the breadth of offer, often leaving plan design up to consultants and brokers. These different products and services are typically offered as a menu from which they can choose, creating bundles that fit their specific requirements. In the end, the best “meal” (at the best price) wins. The problem is that many of these services are delivered in isolation, within a specific silo, which limits the overall effectiveness of the plan to deliver targeted results for employers.

There is an opportunity for carriers to take a strategic approach to plan design and integrate their offer to deliver increased value to organizations. This calls for a benefits strategy that is closely tied to delivering specific benefits to the employers, such as reducing the cost of drugs or improving health and productivity of the workforce. This requires a much better understanding of the connection between drugs, disability and wellness through a data-driven approach to enable plan sponsors to understand the overall effectiveness of their benefits programs. It requires carriers to become much more strategic in their plan design, offering integrated solutions that address specific needs of employers and employees alike.

Specifically, Pivot has identified three solutions-based strategies that could create added benefits for employers and employees on which carriers are uniquely positioned to deliver.


One direction carriers could take in order to better manage cost is to adopt a more integrated Pharmacy Benefit Management (PBM) approach. The model for PBMs has been in existence in the US over the past 30 years. In the US, PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers as well as processing and paying prescription drug claims. More recently, they have developed additional services including disease & patient management. They work with employers and providers striving to maintain or reduce their drug spend while concurrently improving health outcomes.

In the US, drug costs represent approximately 15% of overall health care expenditures for employers or providers. In Canada, drugs represent approximately 40% of the cost of benefits plans. There is no single company in Canada with the scope and integration of activities to provide an integrated PBM offer (see fig. 1). The PBM value chain in Canada is fragmented across a number of different suppliers, each providing some element of an integrated solution.

  • » E-prescribing
  • » Point-of-care apps for members
  • » Patient profiling
  • » Waste, fraud, abuse
  • » High claimants
  • » Physician profiling
  • » Benchmarking
  • » KOL analytics
  • » Population health
  • » Co-pay
  • » Generic / therapeutic substitution
  • » Step therapy
  • » Length of therapy
  • » Claims adjudication
  • » Pre-authorization
  • » Drug adherence
  • » Specialty programs
  • » Disease management
  • » Patient education /navigation
  • » Health promotion
  • » Case managment
  • » High claimants management
  • » Specialty drugs
  • » Negociated markups and dispensing fees
  • » Cognitive services
  • » PPN
  • » Mail order pharmacy
  • » Disease programs

Carriers are uniquely positioned to act as integrators in providing a PBM-type solution for employers. The challenge is to integrate claim-related activities from point of service (doctor’s office, where the script is produced) to the point of service-delivery (pharmacy where the script is filled), ensuring that plan members are provided with the best drug at the best cost to deliver the best outcome.

Carriers have implemented a number of measures to better manage the cost of drugs, including generic substitution and specific initiatives around specialty drugs. They have also announced plans to evaluate the cost-effectiveness of new molecules and are increasingly vocal about being included in bulk-buying initiatives sponsored by provincial payers.

These initiatives are often fragmented, offered as options to employers and delivered by different suppliers seeking different, potentially conflicting outcomes and benefits.

For carriers, adopting a PBM approach represents a significant shift in terms of how they work with employers and employees and how they are eventually compensated for their service. More importantly, it addresses key concerns of employers by managing the cost of benefits and ensuring sustainability of benefits plans for employees.


Carriers have a distinctive opportunity to address issues of health & productivity for employers. They have a wealth of data across drugs, disability and wellness activities that can be leveraged to provide employers with valuable information about the overall health status and risks of their workforce. In this way, carriers can design more effective plans that meet specific needs of employers and more clearly demonstrate effectiveness and value-added benefits.

The next frontier for carriers in providing an integrated health & productivity solution is to break the silos between drugs, disability and wellness and leverage data analytics capabilities to improve and demonstrate the overall effectiveness of their plans.


For instance, this could help employers gain a better understanding of health risks through the analysis of drug use patterns, which could improve the impact of their wellness efforts. It could also help employers better manage absence by having an integrated approach across non-motivated absences, drug utilization patterns and disability. This approach could deliver a better understanding of how their wellness programs are being used and their overall impact on health & productivity.


Historically, the primary customer for group benefits in large and small organizations has been one person, generally in the HR department (with oversight from Finance), who chooses benefits for the entire organization. While this has worked well in past years, there are strong indications that the focus on plan members will become increasingly important in the overall group benefits model, with clear benefits to both employers and employees.

With the cost of benefits on the rise, employers are looking to limit their cost by shifting more of the cost to employees, moving from a Defined Benefit (DB) to a Defined Contribution approach (DC). This will likely take the form of more flexible programs, where employees can choose different coverage based on their specific needs.

In a DC model, employers will be more open to complementary offers directed at employees that can provide them with the coverage required for their specific situation.

For many employees, the benefits provided by their employer represent the foundation of their insurance protection. Be it for health, dental, disability, travel or life insurance, most plan members think of group benefits as the cornerstone or even the total answer to their insurance needs. However, in many cases, the protection offered is not nearly sufficient to cover the needs of employees who face a major illness, disability or death.

Carriers that will help employees understand their insurance gap (the gap between their current protection and their true needs) and provide competitive financial protection solutions to cover their needs will deliver significant value-add to both employers and employees.

If well executed, the B2B2C business model (see fig. 3) can significantly improve the value proposition and deliver benefits for employers, employees and carriers. It has been applied in other sectors of the financial services industry very successfully as in the case of credit card issuers working with large retailers. The application of the model would require some adaptation for carriers, employers and intermediaries but, in the end, could work insofar as it better meets the needs of the different stakeholders and customers.

  • » Access to a new customer base
  • » Availability of quality data on prospective clients
  • » Enhanced value for money for employers
  • » Enhanced employee value proposition
  • » Improved cost management for benefits
  • » Enhanced perceived value of benefits
  • » Improved choice and flexibility for employees
  • » Improved employee loyalty
  • » Convenience
  • » Access to a broad set of products and services
  • » Preffered pricing

Carriers that can develop a strong B2B2C model to better serve plan members can become real winners. But make no mistake, it involves a complete rethinking of the plan selection process to help plan members identify their needs, understand potential gaps in coverage and greatly improve the process, ease and experience of selecting appropriate benefits and coverage. It also involves leveraging the abundant data provided by plan members on a day-to-day basis to update customer profiles, as well as to identify and respond to new needs as they emerge.

The development of a solid B2B2C model within group benefits, powered by technology, could become a significant game changer for the industry. In addition, as group benefits increasingly becomes a customer acquisition channel, the profitability model will shift from group premiums to individual sales premiums, eroding further the core profitability of the standalone group business while increasing the overall profitability of the B2B2C model.


The group benefits industry has been highly resilient over the years. However, history has shown that old business models can quickly topple when they are not aligned with the needs of their ultimate customers.

The business model for group benefits, which has been very stable over the years, has served the industry well although it may not have always been to the advantage of employers and employees. The traditional business model for group benefits has essentially been transaction-oriented and based on a ‘cost plus’ model where insurers are paid a percentage of premiums for the services they provide. This business model may not be best suited for employers and employees in the future.

Knowing when to undertake deliberate strategic transformation, that is, when to change the company’s core business model, may be the toughest decision an organization ever faces. Though there may be no immediate urgency for the group benefits business, companies alert to the future should be thinking of building the capabilities required to enable them to flip the switch on their business model when the market is ripe.


For further information on how Pivot Strategy can help develop innovative growth strategies, please contact

Michel Bernier

Founding Partner


Pivot Strategy is a strategy boutique specializing in the financial services and healthcare sectors.

Pivot’s ‘Disruption in Banking & Insurance’ articles explore the impact of important disruptions in the Financial Services sector. We offer insights regarding ‘early warnings’ in the industry that may be signalling disruptions on the horizon. Our goal is to help executives focus on the most critical issues and how their organization can seize the opportunities that change presents.