capitalizing on Benefits
Benefits—Lockton's fastest growing business segment
Nation's largest private broker bulks up its benefits support services
By Len Strazewski
“Big brokers have it easy. They have all the resources they need to manage both property/casualty insurance business and build an employee benefits portfolio.”
That’s what many small to medium-sized agents and brokers believe about their larger competitors with national and international offices and thousands of employees. As a result, they may tend to shy away from employee benefits plan design consulting, actuarial services, health and wellness services and retirement plan services—all of the key components of a comprehensive benefits practice.
But even the largest brokers need a long-term strategic plan to acquire the resources and relationships to do it all successfully, says J. Michael Brewer, president of Lockton Benefit Group, the employee benefits division of Lockton Companies, LLC in Kansas City, Missouri, the nation’s largest privately held insurance brokerage.
And even though Lockton has a national and international employee benefits practice generating nearly $130 million in employee benefits revenue, it continues to develop and expand its capabilities around the country, he says.
The parent company is a huge insurance operation with $667 million in revenues in 2006 and more than 15,000 clients served by 45 total offices, including 19 in the United States. Founded in 1966, the company boasts 41 years of continuous growth and 14% overall growth last year.
Employee benefits is a relatively small portion of the total—about 18% in 2006 increasing to about 23% in 2007—but it has been the fastest growing segment of the business, increasing an estimated 28% in revenues in 2007, Lockton executives say. The overall revenues from employee benefits jumped from only about $50 million four years ago.
“That may not seem like a huge increase in revenues but in light of the property/casualty insurance market conditions, the employee benefits operations have been extraordinarily successful for the company,” Brewer says.
The growth, however, didn’t arrive by happenstance; Brewer attributes the firm’s benefits growth in the past few years to three factors: great product and service teams, assembly of the resources and support appropriate to the field, and the evolving employee benefits marketplace with steadily increasing prices and client demand for cost control techniques.
Ross Reda, senior vice president and chief operating officer of Lockton Benefits, points to the brokerage’s independent business model and private ownership. The largest publicly held brokers have developed a business operations model that is focused on shareholder value rather than service, he says.
“It is apparent to us and our clients that many of the bigger brokers have lost their energy and passion for service,” he says. He says Lockton has also witnessed a shift in the size of its client base, which a few years ago ranged from about 500 employees to a high of 5,000 employees. Today, the brokerage attracts larger employers, from about 1,000 employees to 10,000 employees.
“We are still primarily a middle market company,” Brewer says, “but it is apparent that employers are turning to us for a more personal and committed level of service.”
Reda also attributes the growth to the company’s strategic assembly of resources designed to meet the broadening range of client needs. The company has steadily invested in the development of employee benefits consulting and support services with both specially trained personnel—including two medical directors—and experts in actuarial services, plan design and compliance issues.
And while the company brags about its “organic” overall growth, achieved through increased sales rather than acquisition of smaller agencies, part of the employee benefits strategy has been the attraction of experienced employee benefits executives and experts to lead the charge.
For example, Brewer joined Lockton as the executive in charge of the employee benefits operation in 2004, with more than 30 years of employee benefits sales experience and 20 years of experience with Gallagher Benefit Services, a division of Arthur J. Gallagher, Inc., and one of its acquired agencies.
Reda is a Certified Employee Benefits Specialist and has more than 13 years of employee benefits experience in various positions with Lockton after periods with Unum and Aetna Health.
The Lockton Benefit executives note that employee benefit services must go far beyond managing the health plan submission and quotation process. To be in the 21st century employee benefits business means to be in the health management and wellness services business, they agree.
Bruce Sammis, executive vice president in the Lockton Benefit Dallas office, says costs and affordability continue to the most important employee benefits issue for clients—but their approach to managing those costs has changed over the years.
“How can they keep the benefit plan affordable for the company and its employees? That’s their key question,” he explains. “In the 1980s and 1990s, the answer was cost shifting,” but the increased deductibles and higher co-pays have run their course as tools for managing annual increases.
The latest approach to managing costs over the long term involves a combination of plan design changes and population health care management. Employers are examining new alternatives in plan design that place more responsibility on employees to choose value-based health care.
Instead of paying less, employers may actually be reimbursing more for preventive care and testing under these consumer-based health plans than they did under the eroding major medical plans, Sammis notes.
“In the short run, frequency of claims may increase,” but in the long run the cost of care may be moderated as employees moderate their utilization and live healthier, he says.
However, the new plans need to be accompanied by health management programs that contribute to the employees’ understanding of their own health risks, adds Dr. Larry Levy, one of Lockton’s medical directors.
“Health care is certainly more costly than ever before, but about 70% of costs are related to lifestyle issues—individual behaviors that directly affect long-term health,” Levy continues. “Can we change those behaviors? If we get to employees early enough, we can stop many of the chronic diseases before they manifest and reduce the costs that are driven by these diseases.”
These kinds of health care support programs, however, require both employer support and special resources at the health plan and client service level, he says. “What I like to see is a chief executive officer who values and understands that the problem is in lifestyle management as well as plan management.”
To make these plans successful, someone has to provide the wide range of related medical services, such as biometric testing, health risk analysis, follow-up behavior management programs and health care consumer education. A broker needs to either provide those services directly or identify providers for their clients.
In February, Lockton announced an alliance with Revolution Health Group in Washington, D.C., the consumer health company co-chaired by AOL founder Steve Case.
“We want to help our clients and consumers see the long-term benefits of lifestyle changes,” Brewer says. “The Revolution Health alliance will help drive those changes because it provides practical tools and information to help people monitor their health, reduce the impact of chronic disease, evaluate physicians, compare hospitals and earn rewards for health[ful] activities.”
The alliance will make the Revolution Health Web-based health information portal “Revolution Health at Work” available to more than 2,200 Lockton employee benefits clients. The site will include medical information updates from Dr. Levy and other Lockton medical directors.
The alliance will provide a health risk assessment tool, “Know Your Risk,” which can provide immediate test results and health improvement advice based on basic medical screenings. Also, supporting the screening and assessment tools, the alliance will offer Revolution Health Coaching Service, Nightingale Health Concierge, a health information and decision-support service and Revolution Rewards, a wellness incentive program.
“As consumers demand more control over their health care, our alliance with Revolution Health affords Lockton’s employee benefits clients the unique opportunity to empower and educate their employees, thereby enabling smarter, more cost-efficient utilization of health care,” Dr. Levy says.
Retirement benefits service poses more and different challenges, Lockton executives say.
While Lockton already offers retirement services around the country, including plan design consulting, compliance filing and investment policy advising, Brewer admits that the practice is still a work in progress as the company builds depth in its various regions.
In the past year, the brokerage opened a registered securities broker/dealer division, Lockton Financial Services LLC, and an SEC-registered advisory firm, Lockton Investment Advisors. Both new divisions allow the company to advise and manage retirement plans that involve purchase of securities and securities-based funds and provide financial management education to employee participants.
The brokerage also continued to increase its regional expertise with key hirings around the country. In April, for example, the broker made managerial additions in its regional offices, launching its retirement consulting services in Atlanta and Denver.
The Atlanta office is led by new hire Vice President Rusty Lamb, a former vice president of New York Life Retirement Services. The office will provide both retirement consulting services to large and mid-market corporate and nonprofit employers, including plan design, benchmarking and compliance consulting, employee communication, investment policy statements and executive deferred compensation.
Lockton also added to its Denver retirement services operation with new unit manager Scott Adams, a former senior client relations manager with Great-West Retirement Services. Adams will oversee the office’s entire practice, including administrative consulting related to 401(k), 403(b) and 457 retirement plans.
The brokerage previously opened a retirement services office in Chicago. *