Capitalizing on Benefits

A risk management approach to benefits

Analytical approach and year-round services bind clients to agency

By Len Strazewski

It’s not just the premium that breaks the bank; it’s the overall cost of risk that generates double-digit increases in employee benefits cost every year—and it takes a risk management approach to bring those costs under control, says Charles J. Rollins, president and co-chairman of Rollins Insurance Agency, Inc., in Tuckahoe, New York.

Most property/casualty insurance agents have already learned the lessons of risk management and apply strategic thinking to workers compensation, property and liability insurance; but few agents and brokers realize that the same approach saves money in employee benefits, he explains.

“Employee benefits service doesn’t begin and end with the annual renewal. In fact, the renewal should be a relatively minor event in the cycle of service that an agency—as a trusted advisor—provides to clients,” he says.

Rollins, who also directs the agency’s employee benefits practice, says the key to success in managing an employer’s employee benefits costs—and growing an agency’s book of employee benefits business—is analyzing the overall cost of risk and developing strategies to control it.

The Rollins agency was founded in 1910 and is still run by the family. Along with Chuck as president, Markham Rollins serves as co-chairman, chief executive officer and director of the commercial insurance divisions. The agency has 33 employees including three full-time employees in the employee benefits division in addition to Rollins.

Employee benefits clients range in size from two employees to more than 1,000, “but the middle market is really where we shine,” Rollins says. Small to medium-sized employers generally lack the human resources support of larger companies and the more sophisticated actuarial analysis provided by human resource and employee benefits consulting companies. The smaller firms rely on their agencies for broad-based business consulting and cost reduction strategies—and have the greatest need.

Rollins explains, “It’s not a soft market in employee benefits. Health insurance premiums go up every year and the politicians tell us that the reasons for the increases are all about increasing health care costs.

“But few employers realize that only about 60% to 70% of the insurance premium reflects actual claims costs; the rest is administra-tive costs and profit. Our goal is to analyze the real cost of risk and use all of the tools at our disposal to reduce the total costs of the employee benefit programs.”

Most agencies are content with moderating premium increases and, in some cases, that’s the best anyone can do. But in several client situations, The Rollins Agency has been able to produce total cost reductions using risk management techniques, self-funding and the tax advantages of consumer-directed health plans (CHDPs), he says.

For example, a client company with about 150 employees recently faced a 40% health plan premium increase at annual renewal—an increase of $600,000 from $1.5 million to $2.1 million insurance premium.

The agency conducted a full-scale utilization audit, analyzing hospitali-zation trends, prescription drug costs, outpatient claims and physician co-pays, and recommended a series of co-pay increases for most services.

However, the plan design changes did not result in increased employee costs, Rollins notes. The agency advised the employer to fund the additional co-pays with a health reimbursement account that allowed tax-free contributions to employee medical accounts. In effect, the employer increased its self-funding by about $200,000 with tax advantages, reducing the actuarial basis for the insurance premium and the total premium charge by $500,000.

The result was a total savings of $300,000 from the projected renewal and some benefits services improvements. The new plan was also an employee relations bonanza for the employer, Rollins says.

“It’s not often these days that an employer and its agency can stand in front of employees and tell them that that their costs are not going to go up and that they are receiving more benefits from their employer,” he says.

The agency also has had success in acquiring client employers from Professional Employment Organizations (PEOs) that group small employers into service arrangements that include payroll, human resources and insurance purchasing. PEOs, many of which were founded to consolidate small employers for lower workers compensation and health insurance premiums, no longer can produce the efficiencies of size that they used to and do not have access to the tax advantages of CDHPs. Many employers have gotten too large for PEOs and can do better for themselves alone—with the help of a sophisticated agency.

About 80% of its employee customers are involved in some form of CDHP, Rollins says, but few independent agencies dig as deep as Rollins and are using the CDHP tools as effectively, he says, and, as a result, employee benefits business has been booming.

In 2007, the agency reported about $6.1 million in total revenues, including $1.1 million in employee benefits commissions and fees. Rollins says the agency projects a steady 15% growth over the next three years to about $9 million in revenue, and an increasing balance of property/casualty insurance, employee benefits and personal lines sales to about one-third each of total revenues.

Rollins is affiliated with BenefitMall, a general agency in Dallas, Texas, and a regional human resource consulting company whose services are offered free to about 50 of the agency’s clients. Rollins is also a Sitkins 100™ Agency, a national group of independent insurance agencies supported by Sitkins International in Ft. Myers, Florida, and an insurance consulting company.

Rollins says the agency subscribes to the Sitkins risk management-based approach to commercial insurance, including the Risk Reduction Approach™ to property/casualty insurance and the Total Benefits Approach™ to employee benefits.

The employee benefits technique has paid big dividends for the agency and its clients, Rollins says. Seven years ago, the agency reported only $200,000 in employee benefits revenues and suffered from the traditional doldrums of competitive employee benefits renewal: bidding against other local agencies with submission to the same markets and similar quotes.

The Sitkins-trademarked approach, in addition to helping with traditional brokerage services, includes HRAssess, a risk management-style assessment of a client’s health care and related risks, a talent retention audit, sexual harassment prevention training, financial claims analysis, open enrollment meetings, employee handbook development and renewal analysis and assessment.

The Total Benefits Approach process takes one to two years to completely fulfill its strategic cycle, but begins with a client meeting, usually with a chief financial officer who oversees the benefits funding, human resources and other senior executives.

Rollins or other agency staff leads an in-depth discussion of the employer goals, asking open-ended questions about the employer’s long-term business and employee benefits strategies and leading the prospective client to expression of their goals for their employee benefits plan and their human resources-related costs.

“About 75% of the time, we come out with a broker-of-record letter” and a mandate to conduct a full-scale assessment of employee benefits risks and plan design and integration with human resources administration, Rollins says. The agency generally meets quarterly with its clients to discuss plan development and annually to present the results of the agency’s overall stewardship of employee benefits and related services.

The agency also conducts open enrollment meetings with its client employers, leading discussion of the entire employee benefits plan. In addition to health plans, the agency also offers a full range of other employee benefits products and worksite marketing of supplemental and personal lines, including short- and long-term disability insurance, group life, dental and vision care insurance and retirement plans.

Service throughout the year remains a critical component of the approach adds Nicole Butler, employee benefits services manager and an eight-year employee of the agency.

“Our goal is to ease the administrative burden of our clients, and that means we really have to provide personalized service based on our expertise in their employee benefits plan,” she says. “When we’re needed, we really have to step in and get things done.”

The open enrollment meetings are important service opportunities, she says, and the agency uses the occasions to develop relationships with both the client executives and the employees. But scheduled meetings aren’t the only points of contact, she notes. The agency is often called upon to help with the management of complex claims—the sometimes baffling situations that can often fall through the cracks of ordinary claims administration, leaving bills unpaid and employees angry and confused.

Butler says the agency also manages billing and administration of its various health plans, HIPAA and COBRA benefits for terminated employees, and keeps its clients up to date on local and national legislative issues.

“We become our client’s source for information and education,” she says.

The agency also provides a package of technology tools to employee benefits clients, including MyWave™, an Internet-based employee benefits portal and HRConnection, an intranet employer portal, both from Zywave, Inc., of Milwaukee, Wisconsin.

Rollins say the technology tools are important components of the agency’s employee benefits service and are not delivered just as add-ons and afterthoughts. Rollins delivers full-service training in the technology incorporated into the Total Benefits Approach and “gets the human resource executive’s hands on the mouse in our first training session,” Rollins says. “The technology isn’t just window dressing; it’s a set of tools we want them to use.” *