Benefits Agency

Flattening the cost curve

Indiana agency offers employers more control over their benefits costs

By Len Strazewski

Size matters—but only if the head count and resources are aimed in the right strategic directions. Shepherd Insurance and Financial Services, Carmel, Indiana, is growing fast, with both acquisitions and expanded services—all aimed at the employee benefits bulls-eye, executives say.

Employee benefits services is the agency's fastest area of growth, says president Jeff Kweder, and the trend is likely to continue for at least the next five years, despite the complications of health reform.

And as employee benefits sales increase, so will commercial property/casualty insurance volume, fueled by aggressive cross-selling of an expanding client base, he says.

"We're investing in technology, wellness and other services that are in demand by benefits customers," Kweder says, "as well as employees who can provide the level of service that has been driving our success."

Shepherd Insurance was founded in 1977, beginning as a personal lines specialist, but rapidly expanded into commercial property/casualty insurance. About 20 years ago, the agency also began to provide employee benefits services—primarily as an accommodation to commercial insurance customers, he says.

"The agency has been in the small group employee benefits business since the early '90s, but in that time, we have served more as a broker than an adviser," he explains. "We placed health insurance benefits for our commercial insurance customers, negotiating price and coverage, not necessarily focusing on advanced strategies.

"About five years ago, we decided to take our practice to the next level. We committed more to our employee benefits resources so we would be in a better position to provide expertise and more sophisticated services."

Since then, the employee benefits division has tripled in size to about 40 employees through strategic hiring and acquisitions, and employee benefits has grown to about $5.5 million in revenues, about 35% of the agency total, from about 10% five years ago.

The agency has about 120 employees and offices in five locations in Indiana. Commercial property/casualty insurance accounts for about 40% of revenue and personal lines about 25%.

"We're projecting 20% year-to-year growth in benefits, as we continue to change our business model from insurance sales to a more consultative role as a trusted business adviser," Kweder says.

As the benefits business grows, so do the commercial P-C lines, he adds. "Our property/casualty business used to lead to employee benefits business, but now it's the other way around. Our growing reputation for employee benefits service is driving new commercial customers to our door.

"And among our producers, cross-selling is the expectation, not the exception."

Steve Gregory, vice president of health and wellness and the benefits practice leader, says the agency "was at a crossroads" in 2008 in the way it approached employee benefits, so Shepherd embarked on a culture change within the organization, focusing on the development of intellectual capital.

"Things have changed significantly since then," he says. "A lot has to do with our people. We have had no turnover in benefits since 2009, but have continued to add good people who are passionate about benefits."

Recent acquisitions have added to the foundation of the agency's benefits practice, increasing the critical mass of clients; they also have contributed experience and specialized training. "We have been identifying small agencies that may benefit from our size and services but also add to our ability to serve our combined lists of clients.

"Our people—from producer to account manager—have to be well-rounded and well-grounded in a wide range of disciplines, including the implications of health care reform, wellness strategies, and on-site clinics. The business is getting increasingly complicated."

Health care reform is one of the biggest challenges, he says. Employers are scared of the new regulations and the changes that they may force in their benefits strategies. "We are sending out weekly e-mails to our community to explain the latest developments."

Keith DeTrude, a senior benefits producer, merged his own agency, DeTrude & Co., with Shepherd in late 2009. "Our clients' problems range from A to Z. No two days are alike. No two hours are alike," he says. "But most recently, understanding their place in health care reform takes the lead in their questions."

The law will create plenty of change in a marketplace that has been steadily evolving for decades, he explains.

"There are definitely fewer health insurers. In 1980, there were 30 or more health insurers available. Today there are five or fewer in any market. The carrier market will continue to evolve further, but I don't think there will be any additional shakeout. However, the small business market will see substantial disruption as state-based and federal exchanges enter the market. These may turn out to be detrimental to employers."

Employers continue to address long-standing issues including rising costs and the need to recruit and retain the best employees. Many have already reshaped their health plans with health care and wellness features such as health risk assessments and biometric screening that provide information on health goals.

More employers are also self-funding benefits, an approach that not only gives employers more direct control over their costs, but also exempts employers from much of the market reforms. DeTrude says employers with fewer than 50 plan participants can self-fund with stop-loss reinsurance.

The approach is consistent with what DeTrude says is the goal of contemporary benefits management—giving employers more control and stability over their costs and benefits strategy.

He says if the employer has a good risk profile, there is a solid chance that the agency can disengage costs from the funding structures. "If we do it, we should be able to demonstrate what it will look like and create an environment in which it will be effective. That is our value proposition."

There are multiple goals for a modern, self-funded health plan, he says, including creating a healthier workforce over time, developing a more responsible and productive workforce and, as a result, flattening the cost curve.

The agency helps an employer prepare for the new plan and use its tools to get to the source of their costs as well as help communicate to employees what to expect and how to make consumer-based decisions under their new plan.

"These plans roll out over a three-year period, so it is important to prepare employees to expect change over time. Employees need to have plenty of notice for how their plan and their responsibilities change over time."

Joe Guzman, director of employee benefits, joined Shepherd late last year after his agency, Ascend USA, joined the larger organization. Sophistication and knowledge are what his clients demand, he adds, and Shepherd provides it—whatever the context.

"If they have a need, we will step up to the plate," he says. Universally, employers are perplexed and frustrated about health care cost inflation and there is not a whole lot of confidence that health care reform will be the fix-all.

"As this relates to our own challenges, we have to get ahead of the problem for our clients. We have to take a step back and help our clients realize that rebidding coverage will not serve their intentions. We need to partner with our clients to solve their problems in a way that is consistent with their business strategy."

Like commercial property/casualty insurance clients, benefits customers must learn to apply the rules of risk management and loss control and take command of the patterns that drive their health costs. He says employers looking for answers outside of their own strategy and ability to control their own destiny will eventually be disappointed.

To support employer strategies, the agency continues to add to its benefits-related resources, Guzman says. Customers have access to a pharmacy purchasing coalition with more than 300,000 members that provides discounts and what Guzman calls "a pro-employee contract" that is not restricted to individual pharmacy benefit managers.

The agency also has access to deep reinsurance markets to support self-funded plans. The concentrated premium volume generated by agency clients gives the firm clout with underwriters who help employers structure their self-funding plan, he says.

Technology has also become an important resource for Shepherd's employee benefits customer base, executives say. The firm offers customers the Shepherd Platinum Portal that provides a wide range of insurance, risk management and human resources information, including legislative information, compliance and regulatory information and document forms.

The agency also offers the FormFire benefits enrollment system that allows employees to enter personal information online for multiple submissions to insurers. The software monitors and checks entries for accuracy and missing information.

Gregory says he recognizes growing client demand for additional services, including wellness programming, enrollment support and human resources services such as training and benefit communications.

In response, the agency continues to build strategic relationships with a range of service providers, including third-party administrators, human resource consulting and service companies, human resource and benefit call centers and professional employment organizations that can package workers compensation and benefits for contract employees.

The author

Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.