Agents Seek Diversified Role in Group Health/Benefits Arena

In recent years, a growing number of independent property/casualty agencies have begun offering group health/benefits services to their clients. In interviews with Insurance Journal, agency executives in the Northeast cited several reasons why their firms got into this arena: a chance to offer more complete, diversified risk management and consultative services for their corporate clients and to create cross-selling opportunities and boost revenue streams. Executives also pointed out that employee health/benefits has become such a major cost of doing business — with corporate clients needing a lot of hand-holding to navigate through the maze of complex options — that their agencies had no choice but to get into the group health/benefits space.

There are challenges though. Many agents see lowered commissions in the group health sector, a trend that accelerated due to the medical loss ratio requirement in the healthcare reform law. Agencies say they are responding to this problem by embracing a fee-based model and offering more consultative, value-added services, as well as marketing more ancillary/voluntary benefits. Executives described how they got started in this space and why they believe the future looks bright. Here are their comments:

Tim Dean, president of Poughkeepsie, N.Y.-headquartered Marshall & Sterling Enterprises. The firm has 350 employees, with $50 million in revenues, and 14 offices in New York.

In the past three years we have made a decision to invest in the group benefits space to further serve our clients. We have grown this area of our revenue from less than 1 percent to around 10 percent in that time period while increasing staff in the division from 5 to 50. This was through acquisition of three group benefit agencies as well as in organic growth.

We agree that there will be strategic opportunities to help firms navigate the ever-increasing complexity of providing health benefits to their employees.

We also agree that this will be more focused on larger employer groups. Carrier offerings for smaller groups will continue to see increases in automation and efficiency of distribution that will reduce products available and thus the need for agent/broker interface. Pressures from the government to cap profits will cause carriers to reduce agent/broker commission as a way of preserving their own profitability in the small group market.

We see the agents’ role in large group as becoming more consultative and important moving forward.

Mark G. C. Lacher, partner at Souderton, Penn.-based Lacher & Associates. The agency has 32 employees and nearly $5 million in annual revenues, growing at 7-10 percent year-over-year.

We’ve been in this space since 1996, but we’ve been much more serious about this space since 2005. We’ve really advanced it and made much more significant strategic investments into the employee benefits area. Why? One of the main reasons why is simply to diversify revenue. And secondly, making sure that we are delivering to our larger corporate clients a whole suite of risk management and employee benefits products and programs, rather than just simply focusing on property/casualty.

One of the things we did was to completely change the way we engage the clients. We’ve become much more process-oriented and not as product-driven. And we are now focused on ways that we can stand beside organizations and help them figure out the employee benefits and risk management space.

This relates to how brokers are paid because employers are investing dollars in us as part of their investment in employee benefits. Thus we’ve changed to a fee-based, consulting model where we can. In our large group segment, we’re almost 100 percent fee-based at this point in time. We’ve experienced substantial growth of our benefits division. Now, it’s around 40 percent of our revenue. We have seen some decrease in commissions, mainly from our smaller clients, but we’ve been able to offset the decreases by adding larger clients.

Lewis Bernstein, CEO of Valley Stream, N.Y.-based B&B Coverage. The agency has two offices in New York, with 55 employees.

Two months ago, we partnered with a group benefits expert to run our health and benefits division called B&B Benefit Consultants. We decided to make a conscious decision, that after years of being a P/C agency (third-generation) we had to develop a benefits division. We did this knowing that revenue streams were being diminished and nobody really knows where healthcare is going to be in the near future. We see a tremendous potential to generate consultative revenues in that segment, as opposed to just commissions. So our benefits division will be our first step towards evolving into a full service consulting firm. We are offering a customized client portal where we will be able to allow an intranet service to our clients for communicating with their employees on benefits, risk management, and HR issues. This is an effective tool to keep our clients educated on all areas of risk management.

After many years of outsourcing to third parties, we have decided to bring these opportunities in-house, with our own branded segments. Benefits are currently about 10 percent of our business, but we see great potential for growth, at least to become 35 to 40 percent of our total revenue.

With the current political scene, we will greatly enhance our services as a trusted advisor to help navigate and direct our clients as laws evolve.

Gerald Brown, senior VP at Kingston, N.Y.-based Ulster Insurance Services. The firm has 30 insurance professionals, with the premium volume of $50 million.

We have three divisions: life/health, personal lines and commercial lines. We wanted to serve all the insurance needs of our clients. We didn’t want to leave anything else hanging out there that someone else had to come in and fill.

In group health, definitely there is a change. The advent of the medical loss ratio has put a lot of pressure on companies to cut their administrative costs and we are part of that, so commissions have suffered. However, commissions are still there and they are still an important part.

Furthermore, though, several companies are paying what we would call in the P/C world contingency commissions. In the group health, life/health world, we could call them incentive bonuses. You reach a certain benchmarks, they give you payments. Some group health companies give you persistency bonuses.

Now furthermore, in the life/health area, getting beyond the group health, what we’ve done recently and what many agencies are doing, is focus on the ancillary group: group life, group dental, and group long-term disability. These are things that many agencies have not paid as much attention to in the past because the commissions are not as big as group health. But now, people need to focus on that because there are fees and commissions to be made there.

Definitely there is a market for voluntary benefits. Employers maybe cutting benefits or they want to control their cost. What they can offer is a whole suite of voluntary benefits such as accident and critical illness insurance.