For many independent property/casualty agencies, one bright spot of opportunity in an era of otherwise lackluster growth has been the health and benefits market. Over the course of the past four or five years, savvy P/C agents have been investing in resources necessary to remain competitive in the health/benefits area as a way to counter the effects of an extended soft market and economic downturn.
Growth in most independent agencies is largely coming on the employee benefits side, opined Jon Loftin, president and chief operating officer of Indianapolis, Ind.-based MJ Insurance, whose firm has added marketing, sales and service personnel in its benefits unit in the past year.
“I’ll speak specifically for our firm, the growth there has been pretty substantial for the last five years,” Loftin said. “I think on the P&C side you got hit with the soft insurance market as well as a poor economy. On the benefits side, it hasn’t softened. Certainly, prices have come down a little bit but there’s not been any softening.”
Like other agency principals who have invested significantly in the health/benefits sector, Loftin said successful agencies recognized the need to move from being a seller of insurance products to being more of a consultant, a role clients both need and expect.
“It’s a value-added game on the employee benefit side no ifs, ands, or buts. You have to demonstrate value now like never before. There’s a lot of value-added positions being developed on the benefits side, like wellness coordinators and HR consulting and actuarial consulting and communication specialist and things of that nature,” Loftin said.
It’s also higher margin business that generates a return on the investments, he added, “so that’s where people are allocating their resources and hiring.”
Group health and benefits historically have been a focus for M3 Insurance, a large Wisconsin-based agency with offices in Madison, Milwaukee, Green Bay, Wausau and Eau Claire. Rich Twietmeyer, M3 executive vice president of sales – employee benefits, said in the past three-to-five years, the employee benefits side “has expanded to where it’s about 52 percent of the total revenue of the firm.”
He said M3, which experienced a 13.5 percent growth in the area of employee benefits last year, saw the writing on the wall several years ago, before the passage of the Patient Protection and Affordable Care Act (PPACA) in 2010. While many view healthcare reform as the impetus behind what some describe as turmoil in the health and benefits sector, Twietmeyer said economic factors have influenced revenue compression on the benefits side as much or more than reforms.
“When the economy began to take a downturn you saw commission-based benefits revenue begin … to compress,” he said. “Employers were not maintaining the employment levels they were at. On a per member, per month basis, or on a percentage of commission, if an employer went from 200 employees to 100 employees they’re not generating that much premium or revenue,” he said.
While reform may have increased focus on revenue compression, agencies that had large concentration in employee benefits, like M3, recognized early on the need to “move from a more product placement broker to one that is more consultative,” Twietmeyer said. M3, he said, has added and continues to seek talent on the benefits side, such as consultants, business generators and account management personnel.
Likewise, IMA Employee Benefits, a unit of the diversified financial services firm, IMA Financial Group, embarked on a growth strategy about five years ago based on integrating a health risk management practice into its employee benefits team, said John Kirke, president of IMA Employee Benefits and Health Management.
IMA Financial Group, founded in Wichita, Kan., has additional offices in Dallas, Denver and Kansas City. Kirke, who’s based in Colorado, said health and benefits comprise about 15 percent of the agency’s business. But, he added, benefits revenue is a significant percentage of new business.
Last year, he said, “we formalized a specific director inside of our employee benefits consulting practice and his sole function is to support our existing clients with supplemental benefits strategies and execution of them. Also he is tasked with helping our producers source new business using supplemental business as a strategy.
“We believe at IMA that supplemental benefits — critical illness, accident — those types of products, are a tremendous opportunity for our clients who really haven’t seen those benefits inside of traditional benefits strategies. As medical premiums keep going up [and] contributions keep going down, adding a supplemental benefit, I think, cushions the blow for a lot of our employer clients who are seeking innovative solutions,” Kirke said.
The integration of the risk management team into the employee benefit consulting practice “has provided incredible lift to our sales and our services. It’s a big differentiator for us and our markets. It’s not product-driven; it’s strategy-driven. Meaning, we don’t have a wellness product, we have a health risk management philosophy,” he said.
Addressing Client Concerns
Going forward, benefits brokers say, clients and their employees just want to know what all it means for them
“This has been a tremendous investment in time and resources for us, but we were happy to take a leadership position,” IMA’s Kirke said. “Specifically, our team developed a pay-or-play analyzer for those organizations in 2014 who wake up to, as of right now, the choice between paying the penalties and avoiding coverage or maintaining that coverage. So we built a very sophisticated analysis tool that’s proprietary to IMA and only available to our clients. It walks them through, gosh, 15, 16 different inputs of how to analyze taking away a health benefit. Not just from a benefits perspective but from a financial company impact.”
M3, too, has invested heavily in tools and personnel to help their clients navigate the fluid benefits market.
“As an organization we are aggressively investing in what I would call analytical tools to allow us to support that decision making process,” Twietmeyer said. But, he added, “we also have to make sure that our people have changed to the point that the market has changed — in their behavior and how they approach their client from one of four years ago, from product placement, to one being more consultative.”
Many agencies, especially those with large-employer clients have been shifting their revenue model from a commission-driven strategy to a fee-based approach. That model, Loftin, Twietmeyer and Kirke said, has been well-received by clients, who appreciate the transparency of the transactions.
“Our philosophy has been migrate to a fee basis because that takes any and all conflict out of the realm of things and puts us more in a true consultancy role,” Loftin said.
Business owners prefer the fee-based approach, Tweitmeyer said. “They want to know what they’re paying for, and they’re willing to pay for it if they feel that their partner [consultant] is holding themselves accountable.”
Kirke said IMA Benefits clients appear to be “delighted” with the fee-for-service model in that they are able to purchase insurance services “just like they buy other goods and services for their companies.”
For a look at what property/casualty industry leaders in other regions of the United States are doing in the area of health and benefits, see:
- East: Agents Seek Diversified Role in Group Health/Benefits Arena
- South Central (Podcast): Health/Benefits Sector Offers Potential Growth for P/C Agents
- South Central: Some South Central Agencies See Potential in Dynamic Health, Benefits Market