| It's
happening more and more often as the rising costs and increasing
sophistication of employee benefits coverage lead to smaller returns for
agencies accompanied by greater and greater demands for service, notes
Melody S. Hope, principal and director of employee benefits at Hausmann-Johnson
Insurance in Madison, Wisconsin (http://www.hausmann-johnson.com).
"Specialization has become
increasingly important," she explains, "and if you are going
to continue to grow as an agency, you need to put your resources into
the lines of coverage and clients that can become the most
profitable."
More than five years ago, the 60-person
multiline independent insurance brokerage adopted a segmentation growth
strategy, dividing its client base into tiers representing its revenue
growth potential.
The bottom tier, primarily small
businesses or small accounts related to larger clients, was traded down
from experienced producers to a new department in the firm that was
focused on small accounts.
Employee benefits service, however, posed
a difficult problem, according to Hope. Small employee benefits accounts
don't require less service; they need more, she says.
"Small employee benefits clients
rely on us even more than larger clients. Many of our small clients
don't have full-time human resources departments to administer employee
benefits. For some of our clients, we are the human resources
department," she says.
In 2002, Hausmann-Johnson made a tough
decision: to turn over its smallest employee benefits tier of
business--employee benefits clients with 15 lives or less--to a new
specialist service company in order to focus its producers and in-house
service on larger clients.
"It wasn't an easy decision and we
put it off as long as we could. No agent wants to give up a client and
it was personally difficult for me," Hope says. "I gave up the
first group I ever signed at Hausmann-Johnson many years ago."
The firm chose Digital Insurance, Inc.
(http://www.digitalinsurance.com), an Atlanta-based employee benefits
service company launched in 2000 to specialize in small business
accounts. The company has about 55 employees and 57 agent/broker
partnerships representing about 7,100 small business clients.
The company provides a Web-based and
toll-free telephone employee benefits service center as the centerpiece
of comprehensive account service, according to Chief Operating Officer
Adam Bruckman, a former sales and marketing executive with ChannelPoint,
a health care provider, and Prudential Insurance Co. of America.
The company also provides account renewal
management, HIPAA claims management, COBRA alternatives and additional
coverages, including group life insurance, disability insurance, dental
benefits and individual supplemental coverage including accidental death
and dismemberment insurance.
Service is now available in about 40
states and will be nationwide by the end of 2004, according to Bruckman.
While the service center can handle
employee benefits groups of 200 or more lives, Bruckman says the company
was founded specifically to solve a common problem for agents and
brokers: providing service to the smallest employee benefits clients,
groups of 25 or fewer lives.
He notes, for example, that some agents
and brokers may specialize in property/casualty lines of insurance and
provide employee benefits as an accommodation or ancillary part of the
relationship.
"Agents and brokers always indicate
that 80% of profit comes from only 20% of their clients, and everyone
wants to maximize those most productive relationships," he
explains.
"Brokers that specialize in
property/casualty coverages may have clients that are large, important
risks requiring extensive risk management and paying substantial
premiums. But their employee base may be small and their employee
benefits group size may be smaller than the broker can service
effectively.
"These agents and brokers need to
retain those clients for their property/casualty business as well as
provide their traditional level of high service for employee
benefits--which requires a different set of resources," he says.
"These firms can't really afford to
operate their own call center with extended hours, make proactive
service calls, or even handle the account renewal management--which in
these days of increasing health care costs, may require extensive
re-marketing."
However, while agents may feel like they
are giving up the clients, Bruckman says the relationship is more of a
partnership than a complete transfer of the book of business.
He says Digital Insurance partners with
these agents and brokers to function as an extension of their employee
benefits department--providing the service that the agents and brokers
can't, and continuing to share revenue with the originating firm as
co-brokers of record.
Mike Sullivan, executive vice president
and chief marketing officer of Digital Insurance, says partner producers
may also benefit from new business and an improved client relationship.
"It's not just a question of
bringing the client service up to grade, but also providing a whole new
way to manage the client relationship for these small businesses and
possibly generating additional revenue from new business," he says.
Small businesses are one of the fastest
growing segments of the U.S. economy, he notes, adding employees and
expanding benefits as they compete for skilled workers. Digital
Insurance provides access to expanded group coverages as well as
individual or voluntary benefits for employees.
The company also plans to expand its
services to include other services for small businesses, including
payroll management and flexible spending accounts management.
For Hausmann-Johnson, the relationship
has gone well, Hope says, with only a few glitches. The brokerage
provided an introduction to its regional insurers to simplify the
transition, and some clients did miss their personal relationships with
their producers.
"There are still some clients who
want to call us for all of their business and some producers that can't
leave their long-standing clients, but it has generally gone well--with
client retention of 95%," she says.
In April, Digital Insurance announced
contracts with five new agent/broker partners: Armstrong/Robatille,
Inc., in Fullerton, California; Barney & Barney in San Diego,
California; Harbor Benefits Group in Ann Arbor, Michigan; Hylant Group
in Cleveland, Ohio; and Scheer's, Inc., in Countryside, Illinois.
Barney & Barney, one of the 40
largest privately owned brokers in the United States made the decision
after "putting it off as long as possible," says Kathy
Ybarrondo, principal and manager of employee benefits.
"For a long time, we did not have a
strategic approach to small business; but in the past few years, we have
become very aggressive with smaller accounts--which for us means
accounts under 50 lives," she says.
A local leader in association programs
and professional liability insurance, Barney & Barney wanted to ride
the tide of rising small businesses and develop cross-selling
opportunities with employee benefits. The brokerage now offers extensive
employee benefits brokerage service and a small business accounts
department.
However, Ybarrondo says, Digital
Insurance provides an opportunity for Barney & Barney producers to
focus on the larger employee benefits accounts without neglecting the
needs of the smallest accounts.
"By passing the small business
employee benefits to a partner, we can expand the small business unit to
focus on the property/casualty risks for small business and
cross-selling those accounts," she says.
"So far, so good," she says, of
the relationship. *
The author
Len Strazewski has been covering
employee benefits issues for more than 20 years and is employee benefits
editor of Human Resource Executive magazine. He has an M.A. in
Industrial Relations from Loyola University. |