How Group Insurance Really Works in Canada

Executive Summary

For many employers, group insurance feels like a black box.

Premiums go up, explanations stay vague, and despite employee appreciation for the benefits, plan sponsors often feel like they’re flying blind—especially when it comes to what’s driving costs, how insurers make money, and what levers they can actually pull.

This article demystifies how group insurance really works in Canada. We’ll walk you through:

• How insurers price your plan

• What happens behind the scenes with claims, risk, and underwriting

• How premiums are calculated—and why they rise

• The difference between pooled and experience-rated benefits

• Insider tactics for negotiating renewals and controlling costs

If you’re an HR, Finance, or business leader managing a benefits plan, this guide will arm you with real knowledge—and real power—when it comes to your next renewal.

1. The Four Core Insurance Mechanisms

At its core, group insurance operates through four mechanisms:

Most Canadian plans use a hybrid model combining all four.

2. Understanding the Plan Sponsor–Insurer Relationship

As a plan sponsor (employer), you enter into a group insurance contract with an insurer. You typically:

• Select plan design and coverage levels

• Pay premiums or fund claims

• Provide eligibility data and updates

• Communicate the plan to employees

In return, the insurer:

• Adjudicates claims

• Pays benefits

• Manages risk and reserves

• Produces financial reporting

Your advisor or broker sits between you and the insurer—ideally advocating on your behalf.

3. How Pricing Really Works

Pricing is based on expected claims + expenses + margins. For example:

Experience-Rated Health/Dental Premiums= Projected Claims

• Trend & Inflation (typically 8–12%)

• Credibility adjustment

• Pooling charges

• Insurer expenses and profit margin

Pooled Benefits (e.g. Life, LTD)

Pricing is based on:

• Age/gender demographics

• Occupation and industry class

• Disability incidence rates

• Provincial mortality or morbidity tables

Note: For groups under ~50 lives, insurers apply more pooling, less experience. For larger groups, pricing becomes more “credible” (data-driven).

4. What Underwriters Actually Do

Underwriters are actuaries or analysts inside insurance companies who assess your risk and recommend premiums.

They analyze:

• Historical claims data

• Demographics (age, gender, occupation)

• Industry and geography

• Plan design impact (e.g. co-insurance, deductibles)

• Stop-loss thresholds and pooling history

They also consider manual rates (standard tables) when your group is too small to be credible.

5. Pooled vs. Experience-Rated Benefits

Understanding which parts of your plan are pooled vs experience-rated helps you know where you can negotiate.

6. The Life Cycle of a Claim

Let’s break down what happens when an employee makes a claim:

1. Eligibility Check: Insurer confirms member is covered.

2. Adjudication: Insurer reviews coverage limits, co-insurance, deductibles.

3. Payment: Claim is paid (or denied), often within 24–48 hours.

4. Claim Feed: Data is stored and rolled into monthly/quarterly reporting.

5. Renewal Impact: Claims form the basis for your future pricing.

In ASO models, you pay claims directly (often weekly), with reporting done monthly.

7. Anatomy of a Renewal Report

A renewal package usually includes:

• Claims summary: 12–24 months of claims by category

• Premium vs. claims: Loss ratio (claims ÷ premiums)

• Trend & inflation assumptions

• Credibility factor: How much your data drives pricing

• Proposed rates

• Surplus or deficit: For ASO groups

Pro Tip: Most advisors focus only on renewal rate changes. You should also challenge assumptions, pooling charges, and trend rates.

8. How Insurers Make Money (and Where You’re Overpaying)

Insurers earn margins in three ways:

1. Underwriting profit: When premiums exceed claims and expenses

2. Investment income: From holding your reserves and pre-paid premiums

3. Administrative charges: Especially in ASO models or pooled benefits

Where employers often overpay:

• Pooling charges for small claims

• LTD rates that don’t reflect improving experience

• Trend rates that exceed real inflation

• Passive renewals with no negotiation

9. Renewal Tactics: What Works, What Doesn’t

What Works:

• Benchmarking your plan and rates against similar employers

• Challenging trend and inflation assumptions

• Marketing the plan every 3–5 years

• Using quarterly claims reports to pre-empt surprises

What Doesn’t:

• Arguing based only on rate increases

• Accepting pooled rate hikes at face value

• Letting brokers “soft-market” without documentation

10. The Truth About Marketing Your Plan

“Marketing the plan” = Going out to other insurers for quotes. It’s a time-consuming but powerful tool.

It should include:

• Formal RFP or data pack

• Clear objectives (e.g. cost, service, tech)

• Decision matrix

• 3–4 insurers minimum

Avoid: Going to market too often. It weakens your negotiating power and creates fatigue with insurers.

11. When to Change Insurers (and When Not To)

Good Reasons to Switch:

• Poor claims service or delays

• Better pricing for equivalent coverage

• Stronger digital tools or employee experience

• Broker conflict of interest with current carrier

Reasons to Stay Put:

• Marginal savings not worth implementation pain

• Strong advisor relationship tied to insurer platform

• You’re under contract (multi-year ASO deal)

Changing insurers is disruptive—use it as leverage, but not as a default.

12. Insider Tips from Former Underwriters and Advisors

• Underwriters rarely defend pooling charges—ask for a breakdown.

• Trend rates are negotiable—especially in dental and vision.

• Insurer admin fees vary wildly—especially in ASO. Audit them.

• High LTD rates can mask outdated incidence assumptions.

• Claims data > broker “opinion.” Demand quarterly utilization reports.

Conclusion: Knowledge = Negotiating Power

Once you understand how group insurance really works—from pricing to pooling to underwriting—you gain control over one of the largest non-salary costs in your business.

You can:

• Push back on unjustified renewals

• Choose the right funding model

• Ask the right questions at the right time

• Maximize employee value without overpaying

And perhaps most importantly—you’ll never again feel blindfolded walking into a renewal meeting.