Moving On Up

No matter the industry, inflation is unavoidable. For the Group Insurance and Group Benefits industry, inflation has created an unstable economic environment — and insurance providers need to be proactive and understand loss trends. With the highest inflation rates seen since the 1980s, how will inflation impact total rewards and compensation strategies including retirement plans and group benefits?

Typically, inflation tends to disadvantage employees because employers are hesitant to negotiate or raise salaries. “Instability can work in your favour, if you've got an environment where people are concerned about long-term issues, but generally it doesn't work like that,” says Mark Kamstra, a finance professor at York University’s Schulich School of Business. Businesses are driven by financial results, “and keeping costs down,” says Kamstra. “The biggest cost for most organizations is labour.” 

But a tight labour market has created pressure in some sectors to increase wages to avoid workforce shortages. “And one of the ways that employers are going about providing a more competitive offering in this market is by thinking about their holistic pay strategy,” says Jessica Lewis, a director at PwC in financial services focused on the insurance industry. “So, not just salary and performance bonuses, but also the benefits that are offered to employees, particularly related to their wellbeing,” which includes group benefits with programs that support mental and physical health and a retirement program.

Historically, pensions were a relatively risk-free investment for employees. But most workers, Lewis says, are not in a defined pension scheme anymore; their money is being invested in the market. However, Lewis says that, “those returns have been a bit more volatile just because of the market. Inflation is more of a tool [that can help] people to still see the worth of allocating the money now [for retirement], rather than spending it, but you do see behaviours are changing.” In the UK market, for example, where inflation was in the double digits, employees stopped contributing entirely to simply cover their cost of living. In Canada, there is more stability in group retirement programs. Still, providers are increasingly reassuring employees that it’s safe to invest in their retirement programs.

Inflation is also impacting retirees. Some senior employees are staying on full-time for up to five years longer for financial stability and to contribute to their retirement plans. This impacts the cost of retirement plans, the use of benefits and the overall allotment of compensation across an organization. Other employees, Lewis notes, are transitioning to part-time or contract work where they may lose their benefits but maintain a salary without touching their group retirement fund. Generally, though, retirement plans and group benefits are more “protected and institutionalized,” says, Kamstra. Most plans for larger organizations are indexed to some rate of inflation. 

Inflation also means that your benefits have less buying power. For example, if your plan covers up to $2,000 per year for dental benefits, “inflation erodes your status quo benefits,” says Kamstra, meaning it doesn’t cover the increased costs of dental services. Ideally, employers don’t take advantage of this, “but many of us are in places where employees are facing a lot of pressure to manage costs, and inflation means that they're going to have disagreements with their employees about how quickly group benefit should be improving with inflation.” 

A positive shift, however, is that a competitive labour market means more small and medium-sized companies are offering group benefits to attract and retain talent, despite inflation. These benefits are also more robust than the basic access to health care services. Alongside life insurance, disability insurance, coverage for paramedical practitioners, drugs and dental, benefits can include a diverse set of services such as robust mental health coverage and practitioners once considered fringe. Employers are also investing in different types of employee assistance programs. “Even if employees don't have full access to a mental health care provider, there are also tools available to them to manage stress,” says Lewis. “So, things like having access to Calm or Headspace for employees or being able to access virtual mental health care providers,” like Inkblot, GreenShield’s virtual platform says Lewis.

Insurers’ who can navigate inflation risk and respond to customer needs as they experience less financial flexibility are perceived as more valuable. This new environment may inspire new, accessible products that reduce customers’ risk and loss prevention and provide more expansive care during difficult times.