Capitalizing on Benefits

The important place of benefits in a small market

Strong revenues, tighter client ties and a base for future growth

By Len Strazewski

Bucolic Amish farms, horse-drawn buggies and picturesque communities are the most memorable sights in the rural areas surrounding Lancaster, Pennsylvania, the heart of Pennsylvania Dutch territory. Tourists flock to the area for relaxation, handicrafts and country cooking.

But beyond the religious communities and postcard images, the city of Lancaster shares the problems of the modern recession and the struggling Rust Belt economy of south central and eastern Pennsylvania.

Unemployment is high and small to medium-sized service and retail businesses struggle to replace disappearing industrial companies and cope with rising health care costs, shrinking employee benefit budgets and tough, small-group health plan underwriting.

History matters in this area, however, and businesses trust firms that have traditional ties to their community—like the Horst Group that provides construction property management services and a full-service insurance agency with a growing employee benefits practice.

The Horst Group history dates to the 1880s when Joseph Horst built the Trinity Evangelical Congregational Church in nearby Terre Hill and established the company’s construction reputation that continues today. In 1969, the company added property management services to its business and now operates commercial and residential properties, including Columbia Village, an assisted living facility.

Insurance and employee benefits are late additions to the services of the Horst Group, but the agency operations have long and strong local roots. In 1981, the Horst Group acquired Gingrich Stoudt Insurance Agency, a local leader that first opened its doors in 1917.

Several acquisitions followed, including the Jones-Zink Agency, Hershey-Gibbel Managing General Agency and Lovell Insurance; then, later, T.C. Hall & Company, Associated Professional Services, Eberle Insurance and Watson Insurance Associates. In the new century, the agency acquired suburban agencies including Peterson Harvey Associates, Witwer Insurance Agency and InsuranceMasters to give the firm offices in Chaddis Ford and Doylestown.

Horst Insurance President/CEO Dave King describes the employee benefits operations as a start-up, “or more accurately a start-over” as the agency evaluated and combined the small employee benefits books of business from each of its acquisitions and developed a comprehensive approach that fit in with the agency’s property/casualty insurance and risk management operations.

The combined initiative was launched 18 years ago when Director of Benefits Charlie Dielmann joined the agency, bringing employee benefits management experience into the Lancaster office and a strategic design to its approach.

Today, the employee benefits services division accounts for seven of the agency’s 42 total employees and about 20% of its revenue, according to King. While many agencies attempt to build their employee benefits practice to offset cyclical downturns in property/casualty insurance, King says Horst Insurance looks to employee benefits as a source of new growth, not a way of protecting against losses, and the agency’s benefits department is enjoying an average revenue per employee that exceeds that of the property/casualty insurance operation.

“We haven’t suffered so badly from the ills of property/casualty insurance cycles,” he explains. “Our employee benefits services provide an opportunity for new growth and another important service to our clients. Cross-pollination from our property/casualty clients is regular and frequent, and we have had good success, approaching 100%.”

Now the agency is targeting new employee benefits clients with a strategic approach that complements the risk management tactics of the property/casualty insurance operations, Dielmann says.

A member of Sitkins International, Horst Insurance has adopted the Sitkins “Total Benefits Approach” that uses a “discover, design, implement and continue” model, Dielmann says. The approach mirrors the agency’s risk management approach to the overall cost of risk and addresses a couple of key objectives, including management and control of the employee benefits budget and more effective and efficient plan administration.

“We begin by trying to understand the client company and help them not just to control their benefits costs but also to make an overall profit with their operations. We examine what makes their employees happy and the range of issues that the company faces in its strategic operations,” Dielmann says.

Small to medium-sized businesses dominate the Lancaster area, Dielmann notes, but many of the cost control and plan management techniques pioneered by large corporations are now available to the agency’s target market, employers with 50 to 200 employees.

“In the long run, our most important differentiator is our ability to help our clients contain their costs,” Dielmann says. “The advantage to our Total Benefits approach is that we focus on the cost of risk and build our strategy from service out” by analyzing each client’s claims history and administrative needs.

While the agency offers and administers self-funded health plans, Dielmann says most area employers combine fully insured plans with various support programs available from the local health plans and proprietary services available from the agency.

While pricing falls into a narrow range of rates, Dielmann describes the market as “very competitive” and open to the influence of a well-planned and communicated renewal. The agency begins the renewal planning process 90 days or more before renewal to “take the fire drill” out of the process and give the agency and its clients a chance to explore plan design options.

Leading health plans in the region include Highmark Blue Shield, Capital Blue Cross, and Health America Health Plan and, very recently, Principal Financial Group, Dielmann says. Most of the health plans provide various plan design options and health services, including preferred provider organization (PPO) networks and consumer-directed health plans.

Consumer-directed health plans have become popular components to local group health plan designs, specifically health reimbursement accounts (HRAs), which are funded by employer contributions but remain in the control of employees. For most Horst Insurance clients, the HRAs are easier to implement than health savings accounts (HSAs), which are funded by employee contributions.

About 80% of employee benefit clients offer HRAs that maintain better than 20% participation, according to Dielmann. Education is a big requirement for success of the accounts, but once the agency has educated employees, they understand their responsibilities.

“Employers love them because they can see immediate changes in their premium and their claims patterns,” Dielmann says.

Horst Insurance supplements carrier-based services with their own proprietary services, marketed as the agency’s Client Advantage Program (CAP), which is available to both property/casualty insurance and employee benefits clients.

King says CAP represents the agency’s investment in value-added services and technology. Among the CAP solutions available to employee benefits clients is a health claims advocate who can answer questions and pursue claims appeals for client employees; human resource and legislative compliance consulting; and wellness and health management services.

Technology is also a key component of the CAP, King adds. The agency has invested in online employee benefits and enrollment management services that target the needs of an overworked human resources community.

The agency provides clients with the Mywave online employee benefits portal from Zywave, Inc. The Mywave software allows employers and employees to access benefit plan information remotely 24/7.

The agency also provides CSR24 from Artizan Internet Services, a 24/7 online and telephone customer service support for client companies. The CSR24 system is a key differentiator, King says. With the system, human resource and employee benefits managers can terminate or change the status of employees, make claim inquiries, issue employee insurance identification cards and request group insurance forms.

In addition to group health benefits, the agency also offers group disability insurance, life insurance, dental insurance, accidental death and dismemberment insurance and voluntary benefits plans, as well as defined contribution retirement plan services.

Voluntary benefits plans are becoming increasingly important to the agency as employers look to add or replace employee benefits without adding additional costs. Dielmann expects that with the arrival of national health care reform and changes in the delivery and administration, the worksite enrollment and payroll deduction-based benefits will become valuable additions to employer-paid group plans.

Long term care insurance, for example, has not been a big seller for the agency as workers focus on their immediate needs during the recession; but as the economy improves and new tax breaks are enacted with health care reform, he anticipates a dramatic increase in interest and purchase.

Retirement services are also a small but growing portion of the employee benefits operation, Dielmann notes. “Central Pennsylvania is getting a little older—like the rest of the country,” he says. As a result, the agency tries to provide special outreach to senior employees, aged 62 to 67 as they work toward and prepare for retirement.

“We try to sit down with the pre-retirement group and help them sort out their retirement planning issues, including the value of their benefits and their needs in the future,” he says.

The agency presently manages about a dozen 401(k) plans for local employers and plans to add two or three new plans each year, Dielmann says.

“Defined contribution plans are an excellent business for building long-term revenue growth. They are a renewal business, like life insurance plans, that provide a steady stream of revenues each year that can offset cyclical declines in revenue from other areas,” he says.