NU Online News Service, July 3, 1:14 p.m.EDT

Smaller agencies selling employee-benefits services faceincreased compliance demands and lower commissions now that thehealthcare-reform law has been upheld by the Supreme Court, butagents are not throwing in the towel just yet.

"For years people have predicted the demise of one aspect of theindependent agency system or the other and we were going to go theway of the buggy-whip manufacturers," says Alex Soto, president andchief executive officer of Miami based InSource Inc. and formerpresident of the Independent Insurance Agents & Brokers ofAmerica.

"The fact of the matter is that agents are alive and well, andwe have an uncanny ability to find the niches where we can behelpful to our clients."

"The independent agent is an incredibly resilient creature,"says Andrew C. Harris, president of Liberty Insurance Associates inMillstone, N.J. and president-elect of the National Association ofProfessional Insurance Agents. "So many times, the small Mom andPop independent agent has been counted out, but they just keepadapting and changing and finding ways to be important to theircustomer. I think it is going to happen in this."

A major concern the executives point to is compensation. Becausehealthcare companies are obligated under the healthcare-reform lawto spend between 80 and 85 percent of premium dollars on payingclaims, carriers will be forced to cut administrative expenses,under which agent commissions fall according to the current medicalloss ratio formula.

Agents have unsuccessfully fought to have their commissionsexcluded from the limited administrative expenses.

Harris says while agents will make less money, they will have todo more work, as there will presumably be more compliance issues tomeet and more paperwork to file.

J. Patrick Gallagher, chairman, president and chief executiveofficer of Arthur J. Gallagher, made comments in May suggesting that larger brokerages like hiswould profit from dealing with the increased compliance demands.But he speculated that smaller agencies would be unable to keep updue to lack of resources.

Harris, though, says as long as clients turn to their agents foranswers, agents will have to find ways to provide them. "Thetakeaway is that our clients still want and need an advocate forthem," he says.

He adds that agents will have to compensate for the additionalwork for less money by finding other forms of compensation. Thatwill mean expansion of some services such as life products,voluntary benefits, disability, long-term care and other relatedproducts that will expand the agency's revenue stream.

Agents will also need to pursue more fee-for-servicearrangements with clients in lieu of commission.

Soto believes that one element that will need to be addressed isthe inflationary aspect of health insurance and the need to holddown costs.

He believes one way agents will be helping their clients is toaddress one of the drivers of inflation—employee wellness.

Within his own agency, the firm has begun a wellness programaimed at improving individual health through monitoring andpursuing a healthier lifestyle. The incentive is that thoseemployees who follow a healthier program see a greater percentageof their healthcare costs picked-up by the company.

But the need for the agent to be there as an advisor will not goaway, especially as new clients come into the picture needinghealthcare under the law's mandates.

At one of the larger insurance brokerage firms, Mike Brewer,president, Lockton Benefit Group, a division of the insurancebrokerage firm Lockton, says that the Supreme Court's decision willmean a lot of people will need to make decisions on how to providecoverage for their employees.

However, there are a lot of questions thatneed to be answered, he notes, such as how the healthcareexchanges, yet to be formed, could affect business. Lockton, notesBrewer, deals with larger clients with 500 to 5,000 employees. Hespeculates that, with the exchanges, the small-client business foragents could disappear.

Bobby Reagan, CEO of Reagan Consulting says there is still a lotquestions that need to be answered, especially for businesses with50 to 100 employees. He says agencies in this business are "veryanxious" about the future, but the prices for selling the agenciesare not there. Buyers, he says, are more interested in firms withclients of 100 lives or more.

He says instead of closing up shop, many of the smaller agenciesare hanging onto their business and waiting to see what thebusiness climate will be. They are also waiting to see if thisyear's election will ultimately change the course of healthcarereform.

"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 andtheir clients will be disappearing, and there is some help on theway in the area of technology that will aid agents with complianceissues.

"This will force us to be bigger and stronger benefit managersand not just healthcare [insurance] providers," says Harris. "Thatis the opportunity. If we look to be something new and different,let's not do it halfway, let's do it all the way."