Global Broker: Statement of Work (SOW)

As you negotiate your statement of work, engage stakeholders and incorporate guiding principles, detail level, strategic initiatives, and considerations for services, fees, metrics, database, reporting, service level agreements and performance guarantees.

August 20, 2020

This guide breaks down the process, from business case development to account management, and provides employer tools and lessons learned from utilizing this strategic relationship with global brokers.

Once you’ve selected your broker of choice, you’re ready for the next phase – contract negotiation. Just as having a robust RFP lays the groundwork for successful implementation, so does a detailed and clear Statement of Work (SOW). It is an agreement between an employer and broker that outlines what is included in the contract and at what fee/commission. It sets and aligns expectations from both parties, which is critical for a successful partnership.

A SOW can:

  • contain deliverables and process;
  • define what’s acceptable and what’s not;
  • identify what is in scope and out of scope (out of scope work can identify contemplated work that could be added later via a change order with corresponding additional fee for service);
  • clarify price, criteria, requirements, timeline and invoice schedule; and
  • provide flexibility as business priorities evolve.7

This SOW section discusses negotiation considerations in line with your company’s guiding principles; level of detail; stakeholders; services, strategic initiatives, fees, metrics and reports; benefits database; and performance guarantees.

Guiding Principles

If you developed and shared guiding principles as part of the RFP process, you will want to use them as a guiding star as you negotiate your SOW.7 If you don’t have guiding principles, you will want to build those out with your global broker. These principles assist the company and global broker in aligning expectations around your benefits and business strategies. Using the guiding principles, companies will want to articulate priorities (what is a must have versus nice to have), as well as what the company’s key markets are.7 Companies will want to share a summary of the guiding principles with all relevant stakeholders internally and with the broker to ensure everyone is on the same page.4

The strength of any partnership relies on a solid foundation. It is important to start any relationship by developing a complete understanding of a client’s strategy, vision, philosophy, programs and challenges and quickly determine their objectives for the relationship going forward.


Emerson Soma, Senior Vice President, Global Benefits, Aon

Different Approaches to Levels of Detail

Having a sufficient level of detail included in the SOW provides reassurance to the company as to what will be executed and establishes a shared understanding for both parties on what the partnership will deliver and achieve. The SOW is used to determine what’s in scope and what’s not. In employer discussions, two schools of thought emerged regarding SOW detail: high level or very detailed/lengthy.7 If your company has a preferred format for the SOW, make sure to provide it to the global broker.7

Some companies were highly specific and detailed within the SOW itself. Those who took the high-level approach focused SOW content on global guiding principles, how to utilize the strategic relationship and how to address main focus areas or previous challenges (such as responsiveness, timeliness, communications and reports). One company cited its legal department’s concerns about privacy as a reason it included less detail in the SOW.6 However, companies with a broader high-level approach still was able to capture detail. Sometimes it is a matter of which contractual document contains the detail, rather than whether it is defined.7

Requirements often differ by country and need to be addressed. Some examples of approach include:

  • 1 | Keeping the SOW more general and getting into the details at a local level within the local appendices or enabling agreements.7
  • 2 | Including the details in the Service Level Agreements (SLAs) sections.6 These SLAs are developed both at a global and individual country level.7 SLAs can be included in both the SOW and any associated local enabling agreement.6
  • 3 | Having the SOW contain all requirements that apply across countries, with local agreements referring back to the SOW to ensure consistency, and including additional language for specific, unique circumstances or additional services pertaining to that country.7 The companies who follow this approach find it is a best practice to manage broker performance.6

Stakeholders

When negotiating the SOW and SLAs, it is critical to have the right stakeholders involved in the process. Who should be engaged is based on a company’s structure and culture. Stakeholders come from corporate, global and local roles. Allowing representatives from roles that will be actively involved in the global broker strategic and operational relationship and to give them a voice in the SOW requirements is important for optimizing the SOW’s long-term success once implemented.5,7

Potential Stakeholders

  • Legal
  • Finance / Accounting / Tax
  • HR
  • Compensation & Benefits / Total Rewards / Well-being / Health and Disability Management
  • Procurement

Many employers described having a procurement team that was engaged in the SOW process; with some being heavily involved. The expertise and knowledge that a procurement department has with regard to benefit concepts is an important factor. One company worked with procurement for a year and a half on benefit issues in the U.S. before they teamed up for the global broker negotiation process. That allowed the procurement team to come into the global broker discussions with more expertise and familiarity than they otherwise would have had.7 Procurement departments, when aligned well to the benefits teams, can be an effective intermediary in the process.7

Role of the Stakeholders

Some stakeholders in the process may provide input and guidance for negotiation but may not be the negotiator themselves. Several companies find that leaving the actual negotiations to the procurement team is ideal. They are experts in this space and do not need to nurture a long-term relationship with the global broker parties. Described by one member as “good cop / bad cop,” allowing the procurement team to be the face of the negotiation helps preserve the relationship with the ongoing team for implementation and management.7

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Services

Employers will want to make sure the services outlined in the RFP process are reflected in the SOW. Services that may be included are the following:2

  • General consulting/strategic initiatives;
  • Renewals and remarketing;
  • Benefits inventory database;
  • Benefits administration;
  • Technology platform;
  • Global benefits management;
  • Analytics;
  • Communication;
  • Governance;
  • Mergers and acquisition support;
  • On-site services (e.g., someone available to answer claims questions); and
  • Regulatory updates – frequency and process.

The SOW should include clear expectations that address challenges raised by employers. Below are some challenges global employers have had:2,5

  • Lack of proactive strategic insights on part of broker;
  • Claims data availability;
  • Account manager(s) at global / regional levels not engaged enough;
  • Lack of depth / expertise by broker in certain countries;
  • Database maintenance / data integrity issues;
  • Timeliness issues with reports or renewals / remarketing;
  • Inconsistent reporting;
  • Governance enforcement – alignment of country/ and regional broker contacts with the global vision and process;
  • Insurer maturity may not meet global expectations; and
  • Service consistency across countries and Ineffective issue resolution.

Alternative Approach Consideration.

If using two global brokers, please make sure both partners are aware of the dual relationship and how it drives competitiveness on fees and service issues.6


Strategic Initiatives

The global broker partnership can be critical for effectively implementing global strategic initiatives, such as:

When negotiating the global broker SOW with other strategic initiatives in mind, it is ideal to have a high-level understanding of what elements of these initiatives fall within the scope of the global broker SOW and fees, and which will be out of scope under separate SOWs or change orders for an additional fee.7

The biggest pain point tends to be communication. Make sure the details illustrate how various stakeholders at the corporate, global and local levels share information to ensure that everyone is aligned with the expectations, including planned strategic initiatives as well as any changes to the strategy. Given that some global strategic initiatives are marathon efforts (such as minimum core benefits), make sure your SOW contemplates a reporting structure to capture what progress is made and documentation about the barriers to implementation where the effort is not possible.7,8

Companies’ transitioning to a captive will want to determine how their global broker relationships will evolve. The broker will move from a traditional broker arrangement to a more strategic consulting role, which can be contemplated within the SOW.7

Given that business strategy evolves faster than the benefits strategy, employers will want to work with their brokers to build some flexibility into the SOW where possible.7,9 The Service Level Agreement and Performance Guarantees may need to be adjusted to meet the new parameters. Both employers and brokers are constrained by finite resources and will have to adjust expectations as efforts evolve as needed. Consistent communication across levels is critical to this evolution.7

Fees

Companies have different approaches to broker fees: core brokerage, minimums and other services.7

While companies are interested in a global fixed fee model, no employer participating in this study has implemented it, other than where they are required at a country level.2,7 However, one company with a commission structure has negotiated a cap for the local commission. Another pays the local broker based on a fee per headcount rather than on a percentage of the premium. This helps avoid having commissions increase based on premium cost drivers, such as claims experience and medical inflation. If a company is using captives, the broker fee is decoupled from medical inflation.7

In countries with small populations, and thereby small premium costs, often minimum fees are triggered. This occurs when there is a minimum amount of fees or commissions that the broker requires in order to provide its service to a specific country. For example, if the premium is too small, the commission percentage may not be adequate to cover it, and the minimum fee is triggered. One company indicated that it has worked to negotiate this minimum down, or even negotiated to waive it in some cases. This leverage is often dependent on the amount of aggregate premium and commission opportunity under the contract. Some companies exclude certain small premium countries from the global arrangement if the minimum fee makes it prohibitive for local stakeholders to buy-in to the global broker. To avoid having this minimum fee become an obstacle to a true global governance solution, one company pays the minimum service fee at corporate for smaller markets, if the fee is too high to justify for the local business. The company’s business rationale is that the governance and consistency opportunities a global broker partnership offers well surpasses the cost of the minimum fee.7

With regard to fees for other services (such as coordination, technology and statutory requirements), some companies are paying additional fixed fees for these services on top of their local brokerage fees commissions. Other companies have negotiated that many of these fees be waived. Like with minimum fees, often this depends on the amount of aggregate premium and fee/commission potential under the contract.7

One of the benefits of a global broker is having a key consultant to leverage for other global initiatives, such as M&A integrations, harmonization, minimum core implementations and other such projects. While leveraging your global broker for these is ideal, these are additional projects that will likely be subject to a separate contract outlining expectations or could be included in a change order type document. Some companies, which expect to have to add these additional services down the road, include a section in the SOW for a retainer fee that can be used for these additional projects. By addressing this issue in the global broker SOW, the company avoids having to seek additional internal approvals when the time comes for a specific extra project.7

Depending on a company’s buying power and contract term, the negotiations should include services; such as benefits inventory database, global reports or which fees should be waived.

Companies may want to consider having a retainer with the global broker to meet unexpected needs, especially if there are budget restrictions.4 Make sure the retainer has clear guiderails to keep the broker from always pushing the retainer.4

Alternative Approach Consideration

For companies with captives, the broker fee is decoupled from medical inflation.7


Metrics and Reports

Companies will want to determine cost savings metrics in their SOW. Some companies have described the anticipated cost savings achievable with implementation of a global broker at 10%-15% of the premium. Exactly how to measure this, however, is still seen as a challenge by some companies. One company is reviewing its global broker’s methodology for premium savings.7 Plan design changes, harmonization, vendor consolidation and carrier negotiations can all play a part.2 Cost avoidance versus cost savings and adjusting for confounding variables such as employee headcount growth can make it challenging to ensure clarity in comparisons.7 It is a journey that will take time to get where the employer wants to be. Keep in mind that some countries may not meet the company’s expectations for data reporting based on the maturity of the market and other factors.

Beyond process reports for key work about the partnership, companies may want to see what additional resources they receive from their broker:7

  • Regulatory updates;
  • Market trend;
  • Benefit inventory database reports;
  • Claims reports;
  • Recommendation reports; and
  • Global benefits management report and analytics.

Database

As companies negotiate their SOWs, they will want to include a process and metrics for database maintenance.7 Stale data is one of the largest challenges that employers face, along with the timeliness of reports.2 Most brokers have technology systems for the inventory database and analytics, some with ongoing enhancements. It is important to understand the features of the technology system, its capabilities and what will be available at the time of launch, as well as future enhancement possibilities. These systems can come with an extra price tag, or for some companies (depending on several negotiation factors, including premium size), the technology system may be included as part of the overall broker arrangement without an additional fee.7

Service Level Agreements (SLAs) and Performance Guarantees

As for measuring the effectiveness of the relationship, creating and tracking against effective SLAs is key. One way employers evaluate service is through surveys. In the SLA, some employers identify a minimum score value that is expected to be earned in such surveys.7

The frequency of the surveys varies by company (quarterly, annually). One challenge with an annual approach is that issues raised earlier in the year may not be reflected in the satisfaction survey results, as they are no longer top of mind. To combat that problem, some companies require a satisfaction survey to be completed once an escalation case is closed. For other companies that conduct quarterly surveys, they review the satisfaction survey results as part of their quarterly review process.7

Recommendation: Include survey results as an SLA with a Performance Guarantee.7

One thing to consider is management of the survey process. A concern raised by one employer is that its global broker owns the satisfaction survey process, leaving open the possibility that only positive notes will be highlighted. In other companies, the supplier management department owns that process, so there is assurance of transparency of all results.7

Work with local and regional colleagues to ensure the SLA reflects the work the global broker has to do at the local level and includes issues like benefits administration and claims inquiries.

Performance Guarantee Examples

Below are examples of some performance guarantees that have been negotiated by companies in their SLA:2,7

  • Recommendation report— Includes a defined outline of expectations that will be contained in the report, such as prior year premium costs, quotes from bidders, pooling impact, recommendation, unique references, etc., with a timeliness and quality metric and a percent of fee or commission due if not met for impacted quarter.
  • Project management – Metric including meeting all milestone dates, without any incorrect or incomplete information, a percent of fee or commission due if not met.
  • Regulatory guidelines – Presented and highlighting where review vs action is needed.
  • Claims information – Provide quarterly claims data where regulations allow and where claims ratio had changed by a certain percent; suggest actions to consider. Metric includes timeline and other specifications, and a percent of fee or commission due if not met for impacted quarter.
  • Invoice reconciliation – Actions required laid out as the metric, a percent of fee or commission due if not met.
  • Analytics / inventory database – Current information and updating within a certain number of days, a percent of fee or commission due if not met for impacted quarter.
  • Reports – Certain reports specified delivered on a timely basis.
  • Customer satisfaction – Metric where a certain percent at a certain level is achieved. A consultant credit is available if not met.
  • Cost avoidance as part of financial returns.
  • Service delivery quality and timeliness.
  • Local expertise and consultative advice quality.

Employer Tool: Statement of Work (SOW) Appendix Charts

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TABLE OF CONTENTS

  1. Guiding Principles
  2. Different Approaches to Levels of Detail
  3. Stakeholders
  4. Services
  5. Strategic Initiatives
  6. Fees
  7. Metrics and Reports
  8. Database
  9. Service Level Agreements (SLAs) and Performance Guarantees
  10. Performance Guarantee Examples