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In some respects, the world of employee benefits seems to be on a roll. The Indepen-dent Insurance Agents & Brokers Association (IIABA) reports that about 26 percent of the U.S. agencies examined in its “2002 Agency Universe Study” earned commissions from selling employee benefits last year.
By contrast, in 2001 only three percent of the agencies were offering employee benefits. Even though income derived from employee benefits remains a fairly small piece of the overall revenue pie, a 23 percent jump in the number of agencies bringing in a new source of income over the course of one year is fairly significant.
Additionally, according to the “Employee Benefits Study” conducted by United States Chamber of Commerce, employee benefits comprised more than a third of company payroll costs in 2001, up slightly from the previous year. The study found that benefit costs averaged 39 percent of total payroll costs among the 400 employers surveyed, a four percent increase from the previous year. And 2001 saw an increase in the percentage of benefits received by employees, despite the economic slowdown. As Chamber executive vice-president Bruce Josten noted, “The increase in benefits shows that employers have continued to make benefits a priority and recognize the importance of benefits in retaining employees in their companies.”
And employee benefits are …
The term “employee benefits” can encompass a wide variety of products, services and offerings. According to the U.S. Chamber, the most common benefits offered by employers include health insurance, paid vacation, holiday benefits, and retirement and life insurance benefits. Tom Daly, managing principal with Hartwig Moss Benefits, a division of New Orleans-based Hartwig Moss Insurance Agency Inc., considers the basics to be group health, life, dental and disability insurance. Some agencies may offer a broader range of products and services, including financial instruments like 401Ks, as well as travel and accident coverage, group auto insurance and pre-paid legal services.
Other benefits may include those specifically designed for executives, such as key-man life insurance, or they may be a range of voluntary products that employees may or may not choose to purchase. Voluntary products, sometimes called worksite products, are those benefits that employers may want to offer their employees but are unable to pay for. “The employer perhaps can’t provide all the life insurance, they can’t provide disability,” said Judy Scott, senior vice president of Nieman Hanks & Puryear Benefits in Austin, a division of Frost Insurance Agency. These are “voluntary products that the employee can choose if they want… Because so many of the employers are being faced with ever-increasing premiums, the ability to let employees have access to the product has become very important. So they look to us and say ‘We can’t provide it but we want to be able to make it available.’ A lot of the employers really like that, simply because that way the employees can … choose what’s important to them.”
Medical benefits are by far the most widely offered employee benefit, and they represent the largest portion of an employers’ cost of providing benefits. The Employee Benefits Study found that health-related benefits account for 11 percent of employers’ total gross benefits expense. Madeline King, vice president of John Burnham Insurance Services Inc. in San Diego, said it’s the benefit that most employees look at when they decide whether or not to work for a given company.
“That’s the one that employees look for when they’re being recruited,” King said. “‘What kind do you have? How much do you pay? How much do I have to pay?’… That’s sort of the driving one in employee benefits … How much D&O you have, who your work comp carrier is, (employees) don’t care about that stuff.”
Should you go there?
Given the expansion of benefits being offered to employees, as well as the increasing numbers of independent agencies making the leap into the employee benefits arena, is now the time for property and casualty firms to jump onto the bandwagon and start mining this additional source of revenue? It’s up to the individual agency, of course, and its plan for growing the business.
According to Madelyn Flannagan, VP of Education and Research at IIABA, many agencies are “beginning to realize that diversification of product is a great way to grow your business.” She cautioned, however, that for agents who know and are comfortable with standard PC lines “entering into the employee benefits markets … can be a little bit scary… But beginning the proper training and making sure that you have a staff that understands the customer service issues associated with working with that kind of business will go a long way to making sure that you’re successful at it.” Flannagan also stressed the importance of having a plan. She noted that a huge pitfall for an agency would be to enter into the employee benefits field “without a business plan of how you’re going to grow that business gradually and successfully.”
Agencies should also be aware of potential E&O issues. Having the proper training and the right personnel is essential not only for the sake of service to the clients, but in order to protect the agency from potential E&O problems, as well.
“You need to make sure that your E&O carrier knows that you’ve entered into this business,” Flannagan said. “That you’re starting to do something different than the typical PC business… There are specialized coverages that address the E&O of employee benefits, and absolutely without the proper training you’re going to open yourself up to E&O.”
Cross-over clients
At first glance it seems logical that clients of the property/casualty side of the agency would be perfect client candidates for the firm’s initial foray into employee benefits. Companies that are already clients of the firm are presumably happy, so why not provide them with expanded services? For some firms such an approach may work well, but for others it’s not necessarily that simple.
“A property and casualty client is not always a life and health client, an employee benefits client,” Daly said. “They both serve corporate needs, but a group can be very capital, product-type intensive and [have] very little in the way of employees. Or they can be very intensive in their employee assets.”
While Hartwig Moss began in 1871 as a property casualty agency, the employee benefits division was established just under two years ago. Daly noted that different clients “are going to be attracted to different segments of our business.” He added that “the employer client is who I’m looking for. People who have a need to attract and retain employees… I’m looking for groups of 25 employees or more typically. That’s how I define things. Not necessarily companies with a lot of physical assets or a lot of liability exposure potentially, or anything like that.”
In Daly’s view, it’s important for the benefits division to be able carry it’s own weight and bring in new-to-the-business clients. He said the cross-sell is a continuous struggle for PC/employee benefits agencies. “The attraction is always ‘we’re a property and casualty agency that’s been around a long time and we have lots of clients for you to potentially get.’ When in reality if they would be that easy to get somebody you would have gotten them already,” Daly said. “The expectation should be from the person coming in that this is the place to hang their hat and build something, but they’ve got to go out and build” the business themselves.
Scott, meanwhile, sees a fair amount of cross-over of clients between Nieman Hanks Puryear Benefits and it’s affiliated property/casualty agency, Nieman Hanks Puryear Partners. She noted that within the two affiliates, each side concentrates on their own “specialty with the understanding that if there is a need out there … we have a direct resource within our organization. … You cover them on the property and casualty side and create some financial stability there. You do the same with employee benefits, bringing some value to what they provide their employees. That is a huge portion of an employer’s cost per employee. And when you add the element of life insurance and executive planning and things like that, then what you’re doing is bringing all that full circle and creating financial stability for the employer.”
King noted that clients may have different expectations of the broker on the benefits side compared to the property/casualty side. “I share some clients with some of our commercial brokers and … what (clients) come to get from the employee benefits side they expect from commercial and it just doesn’t work that way.” She added that on the benefits side, she and her fellow benefits brokers get “real warm and fuzzy sometimes” with the clients, especially at the executive level, due to the personal nature of things like medical, life and disability insurance.
“On the benefits side, we have the same rates as every other broker in town,” King said. “On the commercial side, they have their certain markets and they bring in their markets with their rates to compete with other brokers in other markets. On the benefits side, especially for the under-50 employee groups, those rates are filed with the state of California, you can’t even dink around with the commissions. In larger groups you can mess around with the commissions, but it’s such a minimal part, you don’t see a lot of that. So basically what we have on the employee benefits side is customer service.”
Service, service and more service
Daly and Scott agreed that customer service is where the difference is made in the world of employee benefits. Not only knowing state and federal regulations, but knowing how to deal with them is an important part of providing service to employee benefits clients. Daly, Scott and King all have personnel within their agencies dedicated to handling things like benefits administration and compliance issues.
“We’re very involved,” Daly said, “on a weekly, monthly basis with our clients from a standpoint of ongoing communications, ongoing administration, ongoing compliance issues. All of these things are not historic roles of brokers.”
Scott said her firm is “very deep in service. And so in addition to your typical benefits, we assist people with things like the federal legislation, the COBRA, the HIPAA.” She added that her firm provides the same level of service to her smaller employer clients as it does to the larger group clients.
Even so, Scott noted there are “challenges in the small group market that we don’t have in the large group market. Pricing certainly is an issue,” especially when it comes to medical benefits. The good news is that in Texas, legislation specifies that for small group employers—those with two to 50 lives—there is guarantee issue when it comes to health insurance. “Meaning that if you’ve got a group of 10 people and you’ve got a cancer and a heart condition, there was a time when we wouldn’t be able to place that insurance,” Scott said. “But now through legislation, that is something that is out there.” The price, however, may not be competitive.
As far as medical providers go, Scott said “there’s no doubt the market choices have shrunk.” She attributed the situation mostly to consolidation of carriers and noted that while three big, basic carriers operate in central Texas—Blue Cross, United Healthcare and Humana—there are another eight or nine options available. That’s a little better than both Louisiana and California, which are pretty much limited to four or five carriers, according to Daly and King, especially when it comes to HMOs.
More competition exists among providers of ancillary benefits—life, dental, disability, etc. Daly noted that there are a lot more ancillary benefits providers in the marketplace competing for the same business. As a result, the prices have been driven down. In addition, Daly said, “the companies that just do life, dental and disability typically do it a little bit better. It’s priced a little bit better—they’re not using it as a way to buffer their health insurance … losses or something like that.”
Scott agreed that “on the ancillary side there are a lot of carriers.” She pointed out that some carriers that were once active in providing medical benefits, “because of the challenges that we have today with health insurance, a lot of them are actually focusing on some ancillary products. So for dental insurance, life insurance, disability insurance, access to those markets are abundant.”
The client, then, is likely to end up with a mix of providers to handle the benefits needs. Daly said that “after a true, honest shopping of benefits,” the client may end up with one carrier for their health insurance, “maybe a separate dental carrier for their dental insurance and probably the same carrier for life and disability.” On the other hand it may be “the same carrier for life, dental and disability or different for all of them.”
How does an agent keep up with the markets? “You’ve got to keep your eyes and ears open as to who has entered the market,” Daly said. “Who’s left, who has a new product that they’re approaching right now… I probably stay on top of 20 ancillary benefit carriers and, say, 10 health carriers—just kinda’ who’s doing what and when, and that changes every month.”
Sharing resources
Both the Hartwig Moss and John Burnham agencies are members of Intersure Partners, a consortium of agencies that represent “in excess of 100,000 clients domestically and internationally,” according to Intersure’s Web site. Daly said that Hartwig Moss was one of the founding partners for Intersure when the network was initiated in 1965, primarily as a resource for P/C agencies. “Now we share resources for a whole host of things, down to support staff and attorney resources, the whole administrative stuff,” Daly said. “It’s all about sharing resources.”
Membership in the network is limited in order to diminish the overlap of the partner agencies’ territories. King noted that the partnership works together in such a way as to allow the smaller, local firms to compete with the likes of Marsh or Aon.
“Intersure allows independent companies like a John Burnham to link up with other companies around the different states,” King said. “I have a client in California; the broker is actually in Minnesota. She called me and said ‘it’s tough for me to get licensed in California, will you write this, I’ll split it with you?’ And I would do the same–maybe I’ll have a client in Louisiana, and I’m not that familiar with the market so I’ll call an Intersure partner and they share information. Sometimes I’d split the case, sometimes they’d just help me with the information.”
Scott said Nieman Hanks & Puryear Benefits serves clients throughout Texas, and some of her employers have employees throughout the United States. Through its relationship with Frost Insurance Agency, which is owned by San Antonio-based Frost Bank, Scott’ s firm is able take advantage of the resources of other Frost Insurance affiliates located throughout Texas, as well as those of the bank itself. “Our strength comes from large accounts and self-funded accounts,” she said. “So, many times we will partner with some of our other business associates in other towns.”
It’s all about the relationship
According to Judy Scott, the big challenge in the employee benefits world is that “you need to know what you’re doing. You can’t go out there and sell a product or represent a carrier unless you know them and know your product really, really well. You do a disservice to an employer by selling just on rates. There’s obviously a whole lot more to that. We personally try to create relationships not only with our employers but with our carriers as well, because it’s really important for us to know that when our employer needs help, hopefully the fact that we have a good relationship with our carriers will allow us to get them through whatever the problem is.”
Madeline King agreed. She said her firm, John Burnham, prides itself on treating its clients “with kid gloves.” She added, “We like to be the middle person because then the employee, or the HR manager, doesn’t have to deal with the insurance companies to try to get things solved. Because we normally deal with the sales side of employees benefits carriers and those people want to keep us happy so we’ll sell their products.”
“At the end of the day,” Hartwig Moss’ Daly said, “it’s still a person doing business—a company that has a need that’s doing business with somebody that they feel comfortable with. And it’s not as much a company that they’re buying, it’s that personal, consultant-type relationship.”
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