Collective Purchasing Plans (buying groups) are relatively a new concept in the employee benefit marketplace, although they have existed in many other industries for decades. The concept is simple, harness the collective purchasing power of a group of policyholders while maintaining complete independence of the members.

Although the concept is simple, less than half a dozen of these arrangements exist in the Ontario marketplace. Why have they not proliferated the SME (Small to Medium Enterprise <250 employee) employee benefit marketplace? The answers are simple,

• Revenue and Profits – underwriters and brokers can generate greater revenues by maintaining independent relationships with policyholders.
• Supply & Demand – consolidation generates revenue growth that shareholders of these corporations require, this reduces the need to generate revenue by underwriting new policies.
• Critical Mass – underwriters require a good business case to put aside their drive for profits per account to turn their sights on lower margins but higher revenue growth and retention rates.
• Sophistication of the Brokers – many brokers are comfortable and successful without innovating within their markets, often SME’s policyholders count on the existing broker to bring new and innovative approaches to them for potential implementation.

How do Collective Purchasing Plans generate cost reductions?

• Reduced retention charges (administration rates).
• Improved plan design options and features (large case product offerings, claims management tools, and underwriting methodology/criteria).
• Portability (CPP members are willing to change underwriters to achieve efficient combination of price and service).

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