Capitalizing on Benefits

Poised for growth

R.I. Agency moves forward with expanded product line-up

By Len Strazewski

It’snever been a very big portion of the agency business, but the area of employee benefits has been steadily on the rise for the past five years at Starkweather & Shepley Insurance Brokerage, Inc., in Providence, Rhode Island.

And President/CEO Natale “Nat” Calamis says the firm’s diversified program of group health benefits, defined contribution retirement plan consulting, and voluntary benefit products is poised to blossom in the coming years as property/casualty insurance rates stagnate.

The agency was founded in 1879 by a manufacturing company owner, James Starkweather, and an insurance marketer, George Shepley, to provide commercial and personal lines of property/casualty insurance. Nearly 25 years ago, the agency began to market employee benefits and group health insurance as well—but never made much progress, Calamis says.

BlueCross & BlueShield of Rhode Island, the area’s largest health insurer, sold direct to employers for many years, limiting opportunities for independent agents and preventing many from committing to employee benefits marketing

But today, the agency provides diversified insurance and risk management services for general and niche industries in the Northeast. And while employee benefits accounts for only about 10% of the agency revenue, it is on the rise, Calamis says. The agency reported only about $1.5 million in benefits revenue in 2005 but projects about $3 million by the end of 2010, he says.

“I expect we will hit 15% of revenues from benefits within the next couple of years as our practice continues to grow,” he says.

The agency has 175 employees in three Rhode Island offices and one office in Massachusetts. About 10 full-time employees specialize in employee benefits

The agency’s employee benefits customers range in size from 50 to 500 employees, but agency executives note that their specialty is at the smaller end of the spectrum, 50 to 150 employees, who are large enough to be rated individually but small enough to receive personal attention.

“Our employee benefits expertise now opens a lot of doors for us, giving us access to new potential clients,” Calamis says. “Though we do a lot of cross-selling with our property/casualty insurance clients, we have found a greater acceptance of our organization overall.”

Health plan designs and wellness services

Competition is also on the increase, as the Tufts Health Plan and United Healthcare have joined BlueCross/BlueShield in working with agents to deliver more sophisticated health plan designs and wellness services that support cost control programs, Calamis says.

Ronald Stabile, vice president, joined the agency about three years ago, bringing new employee benefits expertise and a commitment to new health plan models such as consumer-directed health plans (CDHPs) that include health reimbursement accounts (HRAs) and health savings accounts (HSAs).

“For most of our employee benefits clients, we have become a part of their human resources department,” Stabile explains. “They look to us for expertise and creativity and for administrative resources in communicating with and educating their employees about their benefits.”

The trend to CDHPs drives some of the need, he says. Many Starkweather & Shepley benefits clients introduced HRAs after they were legislated in 2003—finding the employer-funded and controlled funds more compatible with full or partially self-funded health plans.

Now most are moving to or adding HSAs as the health plans recognize a greater potential for employee-driven consumerism and improved claims experience.

“The preferred provider organization (PPO) and point of service (POS) health plans and even the HRAs just aren’t working as well as they were in controlling cost increases,” Stabile says.

“Health insurers are providing better discounts for HSAs, and our clients are experiencing better renewals if they have HSAs in place. We have actually seen a few decreases in premium in the last year or so. Also, there are more options for wellness programs and health incentives inside the HSA structure.”

Kristie Hynes, assistant vice president of employee benefits, oversees many of the larger benefits customers who demand the most sophisticated levels of service. The new programs can be a challenge for the agency and its clients.

“The northeast region has some of the most lucrative employee benefits packages in the country, and employees are not used to change or increases in their personal costs,” she explains. “However, our employers are seeing the same double-digit premium increases as other employers around the country.

“They are seeking opportunities to slow their increases without upsetting their relationship with their employees.”

The CDHP platforms have allowed employers to introduce wellness and health education programs provided by the health plans or independent local wellness service companies and supplement them with incentives such as gift cards for meeting smoking cessation, weight reduction or other health goals.

Health screening programs are not as common in this conservative market, the benefits executives note, but more employers are thinking about instituting screening programs, annual physicals and premium incentives for participants in a health risk assessment program.

“Right now, our wellness programs focus on education, helping employees learn how to make good common-sense health decisions,” Hynes says.

Group health plans and related services may be the cornerstone of the Starkweather & Shepley benefits practice and the single largest contributor to benefits revenue, but the agency also has a diversified practice in other group life, health and retirement benefits and individual life insurance products.

Group term life insurance, dental insurance and long-term disability are the traditional companions to group health in all but the smallest benefits plans, Calamis notes. But the agency also steps beyond tradition with a thriving retirement plan practice and a growing business in group long term care insurance.

The agency manages about 35 401(k) retirement plans, a task that has become increasingly complex during the nation’s pro-longed recession.

Kimberly Muldoon is account executive for retirement benefits, overseeing the defined contribution plans and group long term care insurance. She says investment issues—plan choice and investment education—have taken the spotlight as the investment markets begin to recover from a prolonged drought.

Lifecycle funds that match investment term with expected retirement age have become increasingly popular as employers attempt to secure balances against market swings but maximize upside growth over time, she says. Fixed income funds, which were infrequent choices before the equity investment market declines of three years ago, have also become more popular.

Plan design and employer contributions have also changed in the past few years. Employer matches of employee contributions, usually up to 6% of pay, were common earlier in the 21st century. In 2008 and 2009, many employers reduced or suspended contributions. Employee contribution levels also dropped as employees struggled with shrinking family cash flow.

Rhode Island employers held the line, she says, most maintaining their employee contributions. However, the agency recently installed several new defined contribution plans that featured more conservative approaches to employer contributions—a 3% flat contribution.

“Our clients have generally maintained their retirement plan contribution levels despite the economy,” she says. “If their employees must deal with health insurance premium increases of as much as 30% and the prospect of no raise, they should at least feel secure with the well-being of their retirement plan.”

Muldoon also installed one cash balance hybrid retirement plan this year that combines features of a defined benefit plan, in which an employer is responsible for maintaining values, and a defined contribution plan which reports value as a single employee balance.

Employers have also asked the agency to re-market retirement plan administration among a broader range of vendors as they seek to contain rising investment and administration charges. These charges have come under increasing scrutiny since the passage of the Pension Protection Act of 2006.

Education is key

How can employees sift through plan variations and investment types?

“Education is the key,” she says. The agency assists its clients with providing employee benefit communications and investment education that can better prepare employees to manage and protect their retirement values, she says.

Long term care costs are also important aspects of employees’ future needs. Muldoon says a growing number of Rhode Island area employers are committing to basic levels of group long term care insurance and encouraging employees to increase their coverage as they come to understand the high cost of future care.

“There hasn’t been a lot of growth in group long term care plans or employee participation nationally,” she explains. “But we have installed a few group plans in our area that have been well received.”

A personal experience almost always drives the concept, she says. When a company executive first experiences the high cost of long term care for a parent or other family member, the executive becomes the advocate for the coverage and not only authorizes the group plan but promotes voluntary additional coverage to employees.

A common approach is a basic $1,000 per month benefit for a two- to three-year term without inflation protection, paid by the employee, with step increases available on a volun-tary basis paid though employee payroll deduction, she says.

The agency also markets other voluntary benefits available from AFLAC and other insurers, in-cluding short- and long-term disability insurance and dread disease coverage.

“As the benefits budget continues to tighten, voluntary benefit programs give employers the opportunity to be creative and offer employees some choices of benefits that meet their lifestyle needs,” she says.