Sizeable P-C firm uses multi-faceted benefits strategy
Health management and TPA divisions provide strong returns for clients
By Len Strazewski
Don’t just hand your clients a health insurance policy at annual renewal; give them the tools to control their costs in both the short- and long-term. And then show them some new ways to move their employee benefits programs forward.
That’s the employee benefits business philosophy at Cottingham & Butler in Dubuque, Iowa, an agency that has been in business for 120 years, but keeps itself on the cutting of 21st Century health management and employee benefits sales, service and consulting.
“Like most agencies, we started exclusively as a property/casualty insurance firm,” says President and Chief Operating Officer David O. Becker. “But we have been in the employee benefits business since 1980 and have found that employee benefits is not only a great sales opportunity, but an important service that our client base requires.”
And as health care costs continue to increase, the agency has found that the need for increasingly sophisticated and forward-looking services has increased, driving growth and diversification at the firm, he says.
Voted Rough Notes’ 2007 Agency of the Year, Cottingham & Butler is the 54th largest insurance broker in the country, reporting revenues of $49 million in 2006. The firm has nine offices, including Davenport, Waverly and Iowa City, Iowa; Naperville, Illinois; Neenah, Wisconsin; Minneapolis, Minnesota; Folsom, California; Chattanooga, Tennessee; and Orlando, Florida.
Employee benefits accounts for about 35% of gross revenues, a level that has been consistent for several years, Becker says. However, the stable percentage hardly reflects stagnation.
Overall, agency revenues grew more than 17% from 2005 to 2006, with employee benefits tracking with comparable increases in property/casualty and risk management consulting revenues.
The agency brings a wide array of employee benefits-related services to its customer base, including a traditional health and retirement benefits sales and consulting practice; SISCO, a third-party administrator (TPA); and HealthCorp, a health management, medical case management and utilization review service.
John Ottavi, vice president of client development, employee benefits, notes that the development of the divisions and the resources they represent was driven by the evolving needs of Cottingham & Butler clients since the early 1990s and recognition of the increasingly complex role of employee benefits programs.
“As our large self-insured clients continued to see their health benefits costs increase, they became increasingly aware of their need to make better use of the corporate claims data they were accumulating,” he says. “Moreover, they became more aware that they were seeing the same cost patterns developing in both their health benefits and workers compensation claims.”
By consolidating health claims management within a single TPA structure, employers are now managing health-related claims in a unified consolidated way and identifying situations that may benefit from better utilization review or more stringent case management.
Employee health has also become a critical and contemporary issue, adds employee benefits sales executive Kim Beck, driving use the of the agency’s health management divisions.
As an increasing number of clients look to consumer-directed health plans, they also perceive the critical connection between employee health and employee benefits plans costs.
“Employers have come to realize the need to address their health care costs problems at their roots with employee wellness programs, work site health screening, incentives for preventive care and better employee benefits communications tools,” says Beck. “To meet these needs, it is important that we offer them the tools and resources that make these programs work, including the actual health management services through our division, but also the knowledge and technology tools that deliver the information employees need to manage their own health activities.”
Cottingham & Butler provides the MyWave employee benefits portal, as well as WebMD online health information, among other information services that are designed to provide health care consumer information to plan participants. These employees need more information than ever to successfully utilize the executive participant-controlled portions of Health Savings Accounts (HSAs) or Health Reimbursement Accounts (HRAs), she says.
According to the agency’s 2006 annual report, the most recently published business summary pending 2007 results, each of the employee benefits-related divisions has made significant contributions to the resources the agency can bring to bear on its clients’ individual benefits management strategies.
The agency’s employee benefits consulting practice has 28 employees and works with more than 350 employers representing more than 120,000 individuals. In 2006, the department moved about 7% of clients into consumer-directed health plans, a trend that accelerated into 2007, executives say.
The department also helped more than 10% of clients implement health risk assessment and wellness programs, a program that has become an essential component of all new consumer-directed health plans last year.
SISCO, the TPA division, introduced the Bloodhound cost control service, which, the agency says, resulted in a 350% increase in savings related to physician billing errors and excessive charges. The division also beat medical cost trends in 2006, recording a third straight year of less than 3% percent increase in costs per covered employee—with a 1.8% increase in 2006.
The division also rolled out its Comprehensive Enrollment Wizard, an online enrollment system that provides a comprehensive employee benefit management process for employers.
HealthCorp, the health management division, posted a better than five to one return on investment for its wellness and disease management system services, according to the agency, saving clients more than $10 million through utilization review, case management and disease management programs.
The number of client employees with chronic medical conditions covered by disease management programs increased 25% in 2006, accelerating into 2007.The division implemented its Impact Pro predictive modeling system that is used to focus disease management services on employees most likely to benefit from them and was also recertified as a URAC Accredited Case Management Program, an important health care industry qualification.
And, as agency executives point out, the divisions work synergistically in helping clients manage costs, utilization and employee health—tasks that transcend their employee benefits plans and departments.
“Part of our employee benefits mission is to help people see the connection between their health-related activities and their overall results,” notes Ottavi. “In this way, all of our services contribute to the health and economy of our clients. Workers compensation is a good example.
“As employers concentrate on health activities such as health risk assessments and other preventive programs, they see the health component of workers compensation also improves.”
Mark Kaczmarek, vice president, is the latest addition to the agency’s employee benefits division. A 20-year veteran of insurance brokerage conglomerates Aon and Willis, Kaczmarek is now the resident expert on retirement and executive benefits and business opportunities—areas that many agencies ignore in their race to manage and deliver basic health insurance renewals.
“Most employee benefits clients fall into the large group category of 1,000 or more lives,” he explains. As a result, they are already engaged in health and claims management and cost control practices, using the tools the agency provides in its health and claims-related divisions.
Most already have established retirement benefit plans, including older defined benefit pension plans and more recent defined contribution plans such as 401(k) programs, he says.
However, these employee benefits clients and property/casualty insurance clients who are not yet employee benefits clients present sales and service marketing opportunities.
“These large enrollment bases provide great potential for business expansion. Many employers with mature employee benefits plans continue to search for ways to communicate their benefits more effectively and improve employee recognition of their value across the board,” he explains.
Cottingham & Butler offers these clients communications and employee financial consulting in business partnership with Sageview Consulting in New York and Financial Network Investment Corp. in El Segundo, California, among others, and additional insurance-based benefits through the agency’s network of insurers.
Kaczmarek says the agency has had success in providing executive estate planning services and voluntary benefits, including key executive supplemental disability insurance, executive life insurance, corporate-owned life insurance for non-qualified deferred compensation plans and guaranteed universal life insurance.
And while most clients are rather settled in their retirement plan design, the agency still assists in retirement plan design and management. The firm recently completed two new 401(k) plan start-ups for existing clients and has helped other clients restructure their retirement platforms for efficiency and cost savings, he says.
“Many employers continue to offer defined benefit pension plans and defined contribution employee savings plans and have never considered managing them in a single, unified way,” he says.
Working with financial service partners, the agency has been able to offer clients a single management platform for DB/DC retirement plans which helps reduce actuarial fees and simplify retirement planning communications.
On the agency’s employee benefits agenda for 2008, Kaczmarek says, is cross-selling the firm’s property/casualty insurance captive clients. As the captive insurance company concept continues to find places in employee benefits, notably disability and life insurance, the agency needs to be ready to provide tools and opportunities for its captive insurer clients to make more efficient use of captive operations.
“This is a tremendous cross-selling opportunity in a potentially very rich environment of clients who seek opportunities for innovation and efficiency in the use of capital they accumulate with their captive insurers,” Kaczmarek notes.
“We need to be ready to provide them those opportunities and the tools they need to take advantage of them.”