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Capitalizing on Benefits
Benefits are key to corporate risk management
J. Smith Lanier offers sophisticated solutions that go beyond insurance
By Len Strazewski
What’s the perfect ratio of property/casualty insurance revenue to employee benefits revenue? Many agencies strive for a 50/50 split, using the steady growth of group health insurance premiums to offset the cyclical boom and bust of the property/casualty underwriting cycle.
Few succeed in reaching that golden ratio, and J. Smith Lanier & Co. in West Point, Georgia, is no exception. However, the agency has built a thriving employee benefits and financial services practice; and it is a rapidly growing component of the agency’s revenue, fueled by the acquisition of new business and the development of human resources and employee benefits support services.
The agency has a long history—more than 150 years—of steady growth. Founded in 1868 as a local bank and insurance agency, J. Smith Lanier has been a cornerstone of the West Point business community from its inception. By the end of the 19th century, the firm had divested its banking operations and had become an insurance and financial services organization that specialized in the local textile and manufacturing industries.
Building a benefits presence
J. Smith Lanier made a strategic decision to diversify from an exclusive property/casualty orientation, says Chief Operating Officer Gary Ivey, moving toward a more sophisticated risk management approach to the needs of its evolving customer base. As the cost of employee benefits became an increasingly greater share of corporate expenses, benefits began moving to center stage as a component of corporate risk.
In 1980, the agency entered the employee benefits field with its first benefits producer, Bill Parr Jr., a former insurance company executive who left to build his own practice and eventually became a top executive and board member of the agency.
By the 1990s, employee benefits had grown to more than a quarter of total agency revenue, partly as a result of increasing group health premiums and also thanks to the agency’s decision to offer group life insurance, disability insurance and related components of employee benefit plans.
Medical cost inflation, Ivey notes, has steadily driven group health premiums upwards, not only generating increasing revenue for the agency but also leading clients to seek relationships that could assist them with cost containment strategies, new plan designs and strategic decisions about their employee benefits.
“The rate increases continue, but the employee benefits environment continues to change in other ways, with the prospect of greater government intervention and regulation and new understandings of the role of health management in influencing costs over the long term,” Ivey comments.
As a result, J. Smith Lanier has continued to invest in new technology and services to provide support for those changes and stay on the leading edge of employee benefits providers in its region, he asserts.
Good employee benefits producers are hard to find, Ivey observes. “The University of Georgia has a very well-known insurance and risk management program, but its majors take only one course in employee benefits!”
As a result, Ivey says, the agency must either grow its employee benefits sales operation from within or attract experienced producers from its competitors by offering better opportunities and more sophisticated support for their clients.
Strategic expansion
Thanks to an aggressive acquisition initiative, J. Smith Lanier now has 19 offices throughout the South and a full-service employee benefits and financial services group that provides group and individual benefits, human resources consulting, and advanced self-insurance and benefits captive management.
The agency also offers pension and retirement planning services, personal finance and estate planning, business succession planning including employee stock ownership development, and executive benefits such as supplemental life insurance and deferred compensation plans.
J. Smith Lanier is employee-owned and has 575 employees, including 108 in its employee benefits and financial services group. Annual employee benefits revenue per employee tops $800,000. For the past five years, employee benefits has averaged about 27% of agency revenue, and Ivey believes that growth will carry the division to about 30% of revenues as the agency expands its range of employee benefits-related services, self-funding services, and human resources management and compliance services.
Costs and compliance
According to Philip Saussy, director of employee benefits operations at J. Smith Lanier, the cost of group health insurance remains the number one issue for employee benefits customers. Though health care cost trends have moderated somewhat in the past year, clients continue to seek ways to contain their costs and develop programs that have the potential to reduce costs over time, including health management and wellness health screenings and health incentives.
Regulatory compliance has presented a second set of challenges for the agency and its corporate clients. “In the middle of all the cost management concerns, employers have been called upon to handle more compliance issues than ever, with the same or smaller human resource staffs,” Saussy says.
The expanded COBRA subsidy, one of the first employee benefit-related interventions of the Obama administration, both raised both employers’ costs and strained their ability to comply with the new regulations. A quick response on the part of J. Smith Lanier gave the agency a competitive edge, Saussy says.
Thoughtful and creative solutions have become a hallmark of the agency, he comments. Over the years, the agency has developed a team approach to employee benefits production, focusing less on selling insurance and more on providing custom solutions that support its clients’ corporate strategies.
Cross-selling is big
Cross-selling its large and expanding property/casualty client base allows the agency to identify a broader range of needs and to devise solutions that go beyond bidding and delivering group health insurance policies.
The majority of J. Smith Lanier’s employee benefits client companies range in size from 50 to 1,000 employees. The agency also has several clients with 1,000 or more employees and one client with almost 20,000 employees.
“Most of our business now comes from broker-of-record agreements that give us an opportunity to look at our clients from a broader perspective,” Saussy says. “We spend much of our early engagement learning about the business needs of the client. What are its issues? What are the solutions that we can bring to the relationship?
“Much of what we now do is about applying our knowledge to our customer needs and devising solutions or services that serve those needs.”
Menu of solutions
Solutions can range from broad changes in employee benefits funding to technological and service support for day-to-day employee benefits and human resources operations.
The larger the client, the greater the opportunity for the agency to use more sophisticated self-funding techniques, Saussy remarks, noting that self-funding some portion of employee benefits has become increasingly common.
“The minimum for self-insurance used to be 1,000 employees,” he says. “But now employers with 200 to 300 employees can self-fund using a range of mechanisms. As our clients evaluate their employee benefits costs as a component of risk, the self-insurance model makes more and more sense.”
The employee benefits team can help employers assess their ability to retain risk and provide whatever level of protection they need, Saussy explains, either through stop-loss coverage at the appropriate level or via contractual relationships with health plans or third-party administrators (TPAs).
Self-funding techniques can include administrative services only (ASO) agreements with the agency’s health plan partners, which include Blue Cross/Blue Shield plans in their regions, Aetna Health, United Health and Great-West Healthcare for small employers; pure self-insurance using TPAs for claims management and services and, for large employers, domestic group captive insurance companies.
Support services are key
J. Smith Lanier also continues to expand its range of non-insurance services that support human resources and employee benefits operations. The agency offers ZyWave online employee benefits support for clients’ human resources departments and a Web-based enrollment platform for employees.
In response to the needs of local manufacturing companies, the agency developed a benefits enrollment service that features live telephone customer service assistance as well as online enrollment.
“We discovered that many of the employees of our client companies did not have computer access at home or were not comfortable with benefits enrollment online,” Saussy says. “Our response was to create an in-house telephone option so we can personally guide our clients’ employees through their choices.”
Although its employee benefits operation continues to grow in both size and sophistication, personal relationships continue to be at the heart of J. Smith Lanier’s identity and mission, Ivey says.
“One of our most important differentiators remains our relationships with both our clients and our carriers. We work every day to maintain our personal relationships; and while we can be tough with our carriers on behalf of our clients, we strive to remain fair and reasonable.”
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