NU Online News Service, July 3, 1:14 p.m. EDT
Smaller agencies selling employee-benefits services face increased compliance demands and lower commissions now that the healthcare-reform law has been upheld by the Supreme Court, but agents are not throwing in the towel just yet.
“For years people have predicted the demise of one aspect of the independent agency system or the other and we were going to go the way of the buggy-whip manufacturers,” says Alex Soto, president and chief executive officer of Miami based InSource Inc. and former president of the Independent Insurance Agents & Brokers of America.
“The fact of the matter is that agents are alive and well, and we have an uncanny ability to find the niches where we can be helpful to our clients.”
“The independent agent is an incredibly resilient creature,” says Andrew C. Harris, president of Liberty Insurance Associates in Millstone, N.J. and president-elect of the National Association of Professional Insurance Agents. “So many times, the small Mom and Pop independent agent has been counted out, but they just keep adapting and changing and finding ways to be important to their customer. I think it is going to happen in this.”
A major concern the executives point to is compensation. Because healthcare companies are obligated under the healthcare-reform law to spend between 80 and 85 percent of premium dollars on paying claims, carriers will be forced to cut administrative expenses, under which agent commissions fall according to the current medical loss ratio formula.
Agents have unsuccessfully fought to have their commissions excluded from the limited administrative expenses.
Harris says while agents will make less money, they will have to do more work, as there will presumably be more compliance issues to meet and more paperwork to file.
J. Patrick Gallagher, chairman, president and chief executive officer of Arthur J. Gallagher, made comments in May suggesting that larger brokerages like his would profit from dealing with the increased compliance demands. But he speculated that smaller agencies would be unable to keep up due to lack of resources.
Harris, though, says as long as clients turn to their agents for answers, agents will have to find ways to provide them. “The takeaway is that our clients still want and need an advocate for them,” he says.
He adds that agents will have to compensate for the additional work for less money by finding other forms of compensation. That will mean expansion of some services such as life products, voluntary benefits, disability, long-term care and other related products that will expand the agency’s revenue stream.
Agents will also need to pursue more fee-for-service arrangements with clients in lieu of commission.
Soto believes that one element that will need to be addressed is the inflationary aspect of health insurance and the need to hold down costs.
He believes one way agents will be helping their clients is to address one of the drivers of inflation—employee wellness.
Within his own agency, the firm has begun a wellness program aimed at improving individual health through monitoring and pursuing a healthier lifestyle. The incentive is that those employees who follow a healthier program see a greater percentage of their healthcare costs picked-up by the company.
But the need for the agent to be there as an advisor will not go away, especially as new clients come into the picture needing healthcare under the law’s mandates.
At one of the larger insurance brokerage firms, Mike Brewer, president, Lockton Benefit Group, a division of the insurance brokerage firm Lockton, says that the Supreme Court’s decision will mean a lot of people will need to make decisions on how to provide coverage for their employees.
However, there are a lot of questions that need to be answered, he notes, such as how the healthcare exchanges, yet to be formed, could affect business. Lockton, notes Brewer, deals with larger clients with 500 to 5,000 employees. He speculates that, with the exchanges, the small-client business for agents could disappear.
Bobby Reagan, CEO of Reagan Consulting says there is still a lot questions that need to be answered, especially for businesses with 50 to 100 employees. He says agencies in this business are “very anxious” about the future, but the prices for selling the agencies are not there. Buyers, he says, are more interested in firms with clients of 100 lives or more.
He says instead of closing up shop, many of the smaller agencies are hanging onto their business and waiting to see what the business climate will be. They are also waiting to see if this year’s election will ultimately change the course of healthcare reform.
“It has always been the election that has been the big driver,” says Reagan.
In the meantime, Harris says he is not sure smaller agencies and their clients will be disappearing, and there is some help on the way in the area of technology that will aid agents with compliance issues.
“This will force us to be bigger and stronger benefit managers and not just healthcare [insurance] providers,” says Harris. “That is the opportunity. If we look to be something new and different, let’s not do it halfway, let’s do it all the way.”