While the recession is putting a strain on the earnings produced by the employee benefits business of independent agents and brokers, there is a consensus among at least three top firms that the segment remains a major generator of revenue, and that clients are leaning on their agents for additional benefits services.
“This year has been extremely tough–tougher than any year I can remember,” observed Phillip Saussy, senior vice president and employee benefits practice leader for J. Smith Lanier & Company, from his office in Waycross, Ga.
Employee benefits “is a fantastic business and great profit driver for us and agencies in general,” added Charlie Rosson, chief executive officer of San Francisco-based Woodruff-Sawyer & Company. “We are still bullish. We think it is a great business.”
“We feel [our benefits practice] will grow fairly aggressively over the next few years, and clients are asking for more services,” noted Tom Minkler, president of the Clark-Mortenson Agency in Keene, N.H. “We consider it a very high-growth area for us.”
Both J. Smith Lanier (2008) and Woodruff-Sawyer (2009) have been named “Champions” in the annual National Underwriter “Commercial Insurance Agency of the Year” award program, yet both emphasize the significance of their group health and employee benefits operations to complement and bolster their property and casualty business.
Indeed, Mr. Rosson of Woodruff-Sawyer is a board member of the Council of Employee Benefits Executives, which represents the benefits community as part of the Council of Insurance Agents and Brokers.
In addition, Mr. Minkler, besides running his agency in New Hampshire, is an executive committee member of the Independent Insurance Agents and Brokers of America.
All three say the economy is putting strains on their clients, which in turn threatens the revenues that benefits sales and services produce. Layoffs and cutbacks mean clients buy less insurance and are keeping a keen eye on expenditures.
Mr. Saussy noted that clients are having “more conversations” about producer compensation than ever before, adding that they “are looking at every piece of the equation.”
Having a set formula for compensation, he said, “helps with the conversation.” Detailing to clients the extent of services the firm provides and the amount of work that goes into the delivery of products and services makes for a powerful argument to defend the agency’s compensation, he pointed out.
Those services the firms provide are a shift from much of the work being done internally by human resource departments, and instead are now being handled by insurance agencies such as J. Smith Lanier and Woodruff-Sawyer.
“Clients use us as their HR resource, not just for employee benefit [brokerage] but as a complete human resource service,” explained Mr. Saussy.
Mr. Rosson said more of his California clients are turning to Woodruff-Sawyer for benefits administration support as human resource staffs are thinned. “[They ask] us to perform a lot of the functions that were not done by us in the past. They look at us as an outsource for their benefits department.”
Mr. Minkler said that in New Hampshire and Vermont, while clients are not seeking to outsource their HR departments, they do look to his agency to provide best practices guidance, proper training, benefits explanations, and help with regulatory matters and other tools to manage human resource and benefits issues.
This expanded relationship with their clients, the agency executives stressed, makes them more than just insurance policy providers. “We like to take salesman out of the conversation and look to be their business partners,” explained Mr. Minkler. “We like to consider ourselves more like their lawyer or accountant–a provider of professional services.”
“It demonstrates our value beyond the transaction and better positions us in the fee discussion,” observed Mr. Rosson. “We can back up our discussion with real activity that is important to the client, and it helps us differentiate ourselves from our competition.”
“The more services we provide, the more of a leg up it gives us on our competition,” agreed Mr. Saussy. “We are large enough that we have the resources, but small enough that we can be flexible and cater to our client’s needs.”
Besides the economic pressures on payrolls, there is the issue of increasing health care costs for agents and buyers to cope with.
Mr. Saussy said clients are seeking ways to manage benefit costs, which means more plan design changes and additional financial contributions by employees to cover the expense of their insurance. This, he noted, requires much more time educating and communicating the changes and determining the best ways to manage plans.
“We see the squeeze on both employee and employer,” he pointed out. “We show them the road map of where they are going and the steps they need to take now.”
Meanwhile, the contentious debate in Washington over health care reform is a black cloud hanging over the heads of agents doing a significant benefits business.
The worst-case scenario seen by agents is a total government takeover of health insurance–eliminating that revenue stream. There is also concern that added taxes on employer-sponsored programs could have a detrimental effect on providing comprehensive benefit plans.
From his standpoint, said Mr. Saussy, no one has figured out where reform is going to go, but he believes his clients see both good and bad, and all are watching carefully.
“Right now it is anyone’s guess,” observed Mr. Rosson, adding that whatever comes out of Congress, the insurance component should be private-market driven.
“We have got to resist the temptation to panic in this environment and not think that reform in any form is inevitable,” he said. “We clearly recognize some reform needs to happen, but feel it should be market-based.”
Mr. Minkler said his clients are nervous about the direction the health care reform debate is going in, and believe there should not be a rush to vote. “The vast majority of my clients are not interested in going to a public option,” he said. “They don’t want government intervention.”
As for the economy, Mr. Saussy and Mr. Rosson are not optimistic that 2010 will see a quick recovery.
“It will take all of 2010 to get back on our feet,” said Mr. Saussy.
“We haven’t seen a turnaround yet–we’ve seen stabilization,” said Mr. Rosson. “It’s not getting a whole lot worse, but we’re not seeing it getting much better. Clearly, there is a sense that the worst is behind us.”
What has been unchanged throughout the economic crisis is that employee benefits remains a revenue generator, despite the massive rise in unemployment. The three agents said benefits still provides a big revenue stream for their firms.
For Mr. Minkler, his agency’s increased focus on employee benefits over the past five years has shown that benefits sales help commercial insurance agencies expand writings and retain clients, no mater what the state of the economy.
“Through the economic crisis, [benefits] has grown,” he said. “I don’t know if we are insulated because of where we are, but we have done well and continued to expand our writing and service. We have not seen the impact other folks have seen across the country.”
That does not mean that his New England agency has not been impacted by the economic downturn, noting that typically his region of the country is the last into the recession and the first out.
“The number of clients we have has gone up, but is has been more difficult to grow revenue because of the crisis,” he observed.