Capitalizing on Benefefits

Benefits becomes new business driver in traditional P-C firm

Northern Michigan agency's clients are seeking flexibility and cost containment

By Len Strazewski

Start with the cornerstone of your property/casualty insurance customers and build up a new and bigger agency that includes more employee benefits sales from the same client base. That’s the way many agencies have constructed a balanced base of revenues that isn’t vulnerable to insurance industry cycles.

But not every successful agency.

At Hetrick Insurance Agency in Marquette, Michigan, employee benefits is less than a third of the firm’s revenues; but it has become the platform on which the agency is cross-selling into new property/casualty and risk management revenues, says Scott White, CIC, agency manager and chief sales officer. And it is pointing the way to a new future in financial services.

Hetrick was the Rough Notes Marketing Agency of the Year in 2006, reflecting its local leadership and its comprehensive approach to sales. It didn’t get there by falling behind the times.

“In the past 10 years, employers have seen their group benefits cost increase steadily as the overall cost of health care has been increasing,” he explains. “Today, for our clients, group benefits expenses are more than double their property/casualty insurance expenses.”

As a result, it’s the prospect of new employee benefit solutions designed to help employers contain their costs that opens the doors for the agency—and can lead to more property/casualty insurance sales, White says. Not the other way around.

That’s quite a change from the old days, he notes. Hetrick Insurance was founded in the 1890s and, like most of the insurance agencies of the time, focused primarily on property and casualty insurance. It was an era before employers began offering health insurance to employees and long before new medical technology and prescription drugs began to drive up health care costs 20% or more each year.

In 1978, after an employee buy-out and a change in agency leadership, the agency began to expand the range of its services, says White, adding life and health coverage as an accommodation to its existing customers. But it wasn’t until 1997 that the agency began actively marketing employee benefits and including group benefits sales in its overall marketing strategy.

Times were changing, he says, and group health plans were evolving as it became clear that employee benefits costs were becoming everyone’s priority. Today, six of the firm’s 27 employees work exclusively on group benefits, and employee benefits business accounts for about 28% of the agency’s revenues.

From 2006 to 2007, employee benefits sales increased more than 25%, reflecting both new business and increased premium from existing employee benefits clients, White says, pointing the way to the future. In the next five years, he expects benefits to increase to as much as 40% of revenues.

The agency markets a full line of employee benefits, including group health insurance, group life insurance, group dental insurance and group disability insurance as well as long term care insurance and other supplemental coverages that can be purchased by individuals through payroll deduction of premiums.

Financial services for individuals, including annuities, individual disability insurance, individual long term care insurance and financial planning services complement the employee benefits coverage.

The agency is also expanding its financial services to include 401(k) defined contribution retirement plan sales and service to complete its comprehensive lineup.

“Our goal in group benefit sales is to help our clients offer a quality employee benefits package to their employees at a reasonable cost. In order for our clients to attract and retain the kind of employees they want, they need a quality benefits package as a component of their human resources strategy,” White says.

In terms of marketing strategy, White says the agency plan for employee benefits is not much different from its traditional property/casualty insurance sales strategy. Like its P-C business, the agency divides its approach into three areas: Main Street or small business, middle market or mid-sized businesses with fewer than 100 employees, and corporate or large businesses with a larger employee base.

Each size category has its own needs in both property/casualty insurance and group benefits, he notes, and each size category has its own set of options, based on their cash flow and premium base.

“Our employee benefits sales mirrors our property/casualty insurance sales in that when we have an existing property/casualty insurance relationship, we certainly can use that relationship to gain access and present options on the group benefits side,” says White.

“But more and more often, it is our employee benefits programs and solutions that are getting us access to chief financial officers and financial leadership to also present on the P-C side,” he says.

What are most of the Hetrick employee benefits clients asking about? Flexibility and cost containment, says benefits producer Jay Hillier, CIC, an 18-year veteran of the field and a Hetrick account executive since 2006.

For a growing number of Hetrick clients, that means the latest generation of consumer-directed health plans that puts more of the health care purchasing decisions into the hands of employees.

Hillier says that in order to succeed in building a solid book of employee benefits business, agents need to stay on the cutting edge of benefits plan design. The days of simply submitting group major medical or Preferred Provider Organization (PPO) insurance policies for renewal is long gone.

“Just in the past few years, the health care business has changed dramatically, and employers have made many changes in their health plans as they attempt to contain their costs. We have seen an increase in plan deductibles and doctor office co-pays. Most employers have gone to separate prescription drug plans with tiered reimbursement schedules. We have seen chiropractic co-pays for the first time,” he says.

But despite every adjustment to the traditional health plans, costs continue to increase, he says, reflecting overall medical industry inflation.

As a result, employers have been asking about more dramatic changes in their plan designs. Large employers have always looked to self-funding a portion of their health plan costs, Hillier notes, but now companies with as few as 50 employees are considering self-insuring. And smaller employers (those with 30 or fewer employees) are taking a close look at consumer-directed health plans.

Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs) have become staples of the Hetrick collection of health care plans, he says, as employers continue in their quest to contain costs and match employee needs with employer capabilities.

HSAs—employer-sponsored accounts owned by employees and managed by health plans or financial institutions—have gotten most of the hype as a wide range of plan administrators has entered the market, Hillier notes. They have become the plans of choice for small employers that want to increase employee responsibility for health care purchasing without increasing employer administration.

But HRAs—which are also employer-sponsored but can be managed by the employer as well—are more popular with larger Hetrick clients, he says.

Unlike HSAs which must be offered along with an insured high deductible health plan, HRAs can be combined with any kind of insurance or self-funded plans and can be designed to reimburse employees for any medical expense as well as long term care insurance—as defined by the employer. Also unlike HSAs, which must be funded annually by the employer and the employee, according to the terms of the plan, HRAs are funded only by the employer, who does not need to pre-fund the plan in anticipation of claims.

The HRAs provide much more flexibility to larger employers who can use the accounts to manage the limits of reimbursement and co-pays for prescription drugs and other ancillary benefits, fund wellness benefits and reduce employee out-of-pocket expenses under the limits of the group insurance plan.

Both HSAs and HRAs provide an immediate savings in the first year—up to about 20%, reflecting the increased deductibles—and 4% to 5% in ensuing years as employees pay more attention to their health care spending habits, he says.

“What continues to impress me is the commitment of our employers to continue to offer their employees quality health benefits,” Hillier says. “Despite the continued cost increases they have been seeing, they continue to look for ways to provide significant quality benefits to their employees,” he says.

Some employers—even the smallest—are actually increasing benefits, adding small life insurance benefits of up to $15,000 as well as dental and vision benefits.

While the agency has relationships with several of the nation’s largest health plan providers, BlueCross/BlueShield (BC/BS) of Michigan has become the agency’s lead health plan, Hillier says. BC/BS of Michigan manages the area’s largest preferred provider network, which provides discounts of 10% to 45% based on the size of the enrolled group.

Learning new plan designs is not the agency’s only challenge, notes White. Employee benefits sales and administration requires a deeper relationship with clients and their employees and a greater than ever commitment to technology.

The agency began offering Web-based benefits technology about five years ago and continues to explore new administrative tools to provide to their new client connection—the human resource executives who manage group benefits administration.

“As health plans evolve and head more deeply into the consumer-directed model, we have to learn more and provide more service. Health care consumerism is all about education and we have to communicate more with both the employer and the employee to prepare them for making their health care choices,” White says. *