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Health insurance brokers are polishing their pitches as they vie for what many perceive as the last remaining piece of the lucrative commission pie: middle-market business.
Competition is fierce because income opportunities for insurance brokers are shrinking as insurance buyers seek lower-cost benefits options such as self-funding, and as insurers cut commissions in order to meet new minimum medical loss ratio requirements set under health care reform.
Middle-market business has long been described as “bread and butter” by many insurance brokers because so many of these employers still purchase health insurance, unlike larger employers that self-fund.
As such, it's an insurance buyer's market for midsize employers, which never before have had so many potential broker suitors, each of whom brings something a little different to the table.
In a series of interviews conducted late last month during the 2012 Council of Insurance Agents and Brokers' Employee Benefit Leadership Forum in Colorado Springs, Colo., brokers described how they are responding to middle-market employer demands for services.
Also during the conference, a group of five smaller, regional brokers made a formal announcement that they have formed a strategic partnership that will enable them to extend their geographic reach and service capabilities to middle-market employers (see related story).
Marsh Inc., for example, is touting its expertise with helping midsize employers transition to a defined contribution approach to benefits, in which voluntary benefits options like employee-pay-all critical illness coverage are offered to supplement high-deductible health insurance programs.
Previously, “cost was No. 1” for most middle-market firms, said Greg Arms, co-leader of Mercer Marsh Benefits based in New York. “Now it's about how to weave in voluntary benefits.”
Mr. Arms predicts that in the future, “most, if not all, benefits will be voluntary” as employers move away from employer-paid benefits in response to rising costs and the Patient Protection and Affordable Care Act. “Health care reform is a catalyst,” he said.
While acknowledging that “voluntary is becoming bigger,” William F. Ziebell, executive vp, North Central region at Gallagher Benefit Services in Itasca, Ill., said “that's not what we're getting hired for. Most middle-market employers are looking for ideas and solutions to better align their spend on health care” with their business strategy “to get more productivity” from their employees, he said.
To this end, GBS has developed a “workforce evaluation tool” that provides a diagnostic of an employer's benefit plan to find out where it may be out of alignment with the company's business goals, he said.
In addition, middle-market employers are seeking GBS' legal and compliance resources so they meet the requirements of PPACA, the Health Insurance Portability and Accountability Act and other federal laws governing employee benefit plans, Mr. Ziebell said.
New York-based Willis North America also has been promoting human capital management consulting services, offering to assist middle-market employers in developing “total rewards” compensation packages that align benefits, pay and other performance-related perks with their overall business strategies, said James Blaney, Philadelphia-based CEO of the broker's human capital practice.
With the economy turning around, “employees are no longer being held hostage” by their employers and are starting to look for better employment opportunities, he said. “So the middle-market employer has realized they had better pay attention to things like compensation if they want to acquire and retain the right talent.”
IMA Inc. is getting more requests from its middle-market employer clients for health care cost containment solutions “outside of the insurance industry,” which means self-funding, said John P. Kirke, president of IMA Inc.'s employee benefits and health management division in Denver.
Using its data collection capabilities and analytics, IMA has developed targeted, evidence-based solutions for managing health risks for self-funded employers with as few as 200 employees, said Cathy Sims, vp of employee benefits at IMA.
Hub International Ltd. has been working with midsize employers to help them develop a benefits strategy that is integrated with other human resources concerns such as disability and workers compensation costs, said Joseph Torella, a member of Hub's national employee benefits executive team based in New York.
“Most companies have a sales strategy or a growth strategy, but not a good, comprehensive benefits strategy that marries all of these concerns in an integrated approach,” he said. In addition, “many middle-market employers look at benefits separate from their business, yet it's probably the second-largest spend” after compensation, he said.
J. Michael Brewer, president of the Lockton Benefit Group, a division of Lockton Cos. L.L.C. in Kansas City, Mo., said his middle-market clients primarily are interested in two things: guidance on how to comply with health care reform and solutions for improving their “risk profiles” to ultimately reduce health care spending.
“It's all about identifying your at-risk population. Claims follow risk,” he said. To identify and manage those risks, Lockton has created a data warehouse with claims data from insurers on more than 500 employer clients, he added.
The Horton Group in Chicago also targets health risks, but from a slightly different angle. Horton Health Initiative, a wellness program available in 21 states, uses behavioral change techniques to encourage employees to adopt healthier lifestyles, said Kenneth R. Olson, president of Horton Benefit Solutions.
“Our director of worksite wellness has a background in behavioral health,” he said. “So it's essentially a behavior-change program” that also incorporates employee assistance program services, he said.
The Horton Group also is working on a captive to fund stop-loss coverage for middle-market employers with as few as 100 employees, Mr. Olson said.
In an effort to expand their geographic reach and to deliver more creative and innovative benefit solutions to middle-market employers, five regional independent health insurance brokerage firms have formed Collaboration Centric Solutions.