Health possibilities and pitfalls

Selling life and health is a natural progression for P-C agents,
but not without challenges

By Phil Zinkewicz

In today’s soft property and casualty insurance market, independent insurance agents are looking at various and sundry opportunities to attract new premium dollars. One area that has been explored largely in an ancillary way, thus far, is the life and health arena. However, that expansion is on the horizon and not without challenges.

The National Association of Professional Insurance Agents (PIA National) has reported to Rough Notes magazine that in 1985, only 15% of its membership was selling life and health products, while 25% expressed interest in expanding into the market. Ten years later, 25% of the membership was selling life and health products and there was a 40% interest level.

In 1997, 38% were selling life and health insurance and the interest level was at 87%. In that same year, 97% of PIA membership reported that more clients were asking them about these lines of coverage and a year later, 91% reported that they will expand into life and health over the next three years.

“Overwhelmingly, it’s in the small to mid-size commercial group area where these increases in interest in life and health insurance are taking place,” says Pat Borowski, PIA National senior vice president. “This makes sense given the extensive engagement PIA agencies already have with their small to mid-size business insurance customers in their property and casualty coverages.

“This is especially true because PIA members place and service the workers compensation business,” Borowski continues. “However, PIA agencies have also begun branching out into some of the individual life and health policies that are not connected to the employer-workplace.”

Borowski said that PIA members’ growing interest in the life and health arena is customer-driven. “It’s a natural progression in cross-selling,” she says. “The agents have already done all the work on the property and casualty side and they know the client and the client’s needs and wants.”

The problem, however, is that life and health carriers are not accust­omed to treating their producers as “independent,” according to Borowski. “Life and health insurance have always existed in an individual captive environment,” she says. “However, carriers have to realize that, while their agents in the captive movement are writing solely for the carrier, the independent agent is first and foremost a property and casualty agent writing health insurance.

“Therefore, under common law, when an agency is invited by a carrier as a subproducer and presents an individual to a health carrier to write health insurance, it is the agency that is responsible for that individual, not the carrier,” Borowski explains. “This has become problematic in the way carriers approach our members, and it presents a challenge to agents becoming involved in the life and health arena.”

Borowski continues: “Health carriers have to realize that they are contracting with the agency and not the individual agent. It is the agency that pays the individual. Things get even more complicated when an agency becomes involved in group benefits. Also, there are tax issues that need to be considered. Then, there is the errors and omissions situation that carriers need to understand. When the carrier is dealing with a captive agent, the carrier is on the line with an E&O claim. However, when the carrier is dealing with an independent agent, the agency is on the line.”

Another thing that independent agents must take into account when considering writing health insurance is that health carriers are not in an ideal market these days. Conning Research and Consulting has reported that, as health insurers struggle with pricing resistance from employers and decreases in enrollment in group health employee benefit plans, health insurer growth and profitability continues to be under pressure.

“We project health care costs to increase faster than premiums, which will prevent margins and statutory operating gains from approaching pre-recession levels through 2011,” says Terence Martin, analyst at Conning Research and Consulting. “The prospects for health care reform increase the uncertainty facing health insurers as they try to recover from the recession.”

The Conning report, “Health Insurance Forecast and Analysis 2009-2011,” provides a three-year forecast of the health insurance industry and its key lines of business—managed care, individual accident and health, and group accident and health.

“Medicare Advantage margins are also decreasing, and other individual accident and health programs, while producing better margins, are rela­tively small and somewhat volatile,” says Stephen Christiansen, director of insurance research at Conning. “Nevertheless, some opportunities may be emerging in individual health and small group health markets as insurers gear up capacity in advance of health care reform. Also, the recession increased Medicaid enrollment, creating opportunities for health insurers operating in the managed Medicaid market.”

Of course, at press time, the question is if and when health care reform will happen and whether or not there would be a role for the independent insurance agent, whichever reform might be passed. Charles Symington, senior vice president for government affairs for the Independent Insurance Agents & Brokers of America (Big “I”), says that all versions of health care reform have maintained a role for the independent agent.

“We prefer the Senate bill,” Symington says, “because it maintains state-based regulation rather than the House bill because it is national in scope. And we certainly support health care reform. Our number one job is to explain to legislators the role of independent agents in assisting small businesses.”

Symington says that, currently, 62% of Big “I” member P-C agencies sell health insurance and that health insurance represents 14.4% of revenues for those agencies. Fifteen percent sell large group health, while 25% sell individual health insurance, he says.