CAPITALIZING ON BENEFITS
Embracing the future
Recognizing opportunities for introducing new benefits strategies and services
By Len Strazewski
What is an organization's total cost of risk? Crunch the numbers and they reveal much more than the price of property/casualty insurance premiums, says Steven S. Williams, president of the employee benefits and financial services divisions of Heffernan Insurance Brokers, headquartered in Walnut Creek, California.
Employee benefits is a steadily increasing cost for most employers, he explains, and employers don't really understand their financial exposures until they can analyze medical claims, workers compensation benefits, the value of lost time and reduced productivity—all in relation to other business expenses. "For many years, property/casualty and health insurance coverage was always purchased separately—property/casualty insurance by the chief executive officer or chief financial officer and employee benefits by the human resources director. No one was looking at the entire picture and the range of costs," says Williams, who started with the agency as a property/casualty producer.
About six years ago, this revelation led Williams to switch specialties to lead the agency's development of an employee benefits practice that has become the firm's fastest growing business niche and its greatest opportunity to cross-sell across specialties and geography. "As a broker, how can we get synergy?" he asks. "How can I educate our clients about the comprehensive nature of their risks and get both sides together in one room to work with us and understand all of the costs and all of the opportunities for efficiencies in managing their total cost of risk?
"That's our challenge and our mission."
Williams says his training in property/casualty insurance and his growing interest in employee benefits has helped him see the connections between property/casualty risks, business risks and health costs—and made him a credible leader in developing a sales staff that can present the agency's comprehensive strategies and cross-sell its range of commercial clients.
"Because I was a property/casualty guy, I could speak with confidence about the link between employee benefits and other risks and the value of approaching both in a unified way," he says.
Moving into the benefits field
Founded in 1988 as a property/casualty insurance agency, Heffernan Insurance Brokers began selling employee benefits services in 1991, first as an accommodation to its commercial insurance and risk management customers, Williams says. By 2005, benefits were still only about 2% of top-line retail revenues, but the agency made a strategic decision to expand the practice as a part of its comprehensive suite of services, Williams says. Today, employee benefits accounts for about $300 million in premium volume or about 20% of agency retail revenue. About 50 of the firm's 400 employees work in the benefits division.
Agency employee benefit services include insured group health benefits, employee benefit plan design consulting, claims analysis for self-funding, voluntary employee-paid benefits, technology services and human resource management support, including compliance education and communications services. Williams says the agency would like to grow the benefits practice to about 50% of total retail revenues, and take advantage of an increasing range of opportunities for the firm's small to medium-sized clients.
"One of my biggest concerns has always been the lack of transparency in the reporting of claims costs," Williams says. "Many of our fully insured customers do not get comprehensive claims data from their carriers, which prevents them from considering various plan designs, self-funding, and other techniques that are built on the idea of understanding and controlling the biggest cost drivers."
But the agency is creating new financial strategies that allow small to medium-sized clients to self-fund or partially self-fund portions of their health risks after analysis of their large claims and loss history patterns—techniques that were often considered off limits to employers with fewer than 500 employees.
Heffernan is also preparing to launch a new resource early next year—a medical insurance captive program that would be used by employers with 50 to 500 employees. Williams says the captive insurer would allow participating employers to take greater control of their medical premiums, claims costs, and develop strategies to address the cost drivers that are identified by claims data. The self-funding approach would also relieve many concerns about imminent healthcare reform regulations that are designed to regulate group health plans.
In addition to the Walnut Creek headquarters, the agency has five other California offices as well as offices in St. Louis, Missouri, New York City and Portland, Oregon. Agency executives from outside California report some regional differences in client employee benefit needs, but they note that the most important issues remain the same: rising health care costs, coping with health reform, and designing strategies that address key cost drivers.
"Clearly there are some geographical differences in the way employers think about their employee benefits strategies," says Robert Stumper, senior vice president of the employee benefits practice in the agency's New York office. "We've become accustomed to seeing business trends move from the left coast to the right coast and, historically, many of the health plan innovations have started on the West Coast and moved east." But the steadily rising health care costs have made even the most conservative East Coast employers reexamine their options and their broker relationships. Stumper says double-digit increases in health insurance premiums remain common, and some mid-sized employers are paying up to 30% of their revenues in employee benefits costs. "In today's quickly changing benefits environment, the brokers that will survive will be those who can adapt and insist on accountability."
The health care reform conundrum
Health care reform—despite challenges and the threat of repeal—is also a drain on employer resources and an ongoing concern. The result is that increasing numbers of senior executives are taking a stronger interest in new techniques and in finding a return on investment from their years of premium costs.
"We encourage all clients and employers to look closely at the dollars they allocate on their broker as an investment," Stumper says, "and that investment should have a return. Employers should seek a financial return on the strategies they adopt at the direction of their broker." As a result, Heffernan focuses on researching and identifying individual client cost drivers and building the strategies that will continue over time to reduce health claims and their costs, he explains. The result should be an ROI of 2.5 or 3 to 1 for investment in strategies that include benchmarking data, predictive plan modeling, wellness initiatives, financial audits and alternate-funding alternatives.
Simonne de Villiers, assistant vice president in the Heffernan St. Louis office, agrees. Health care costs are the single biggest concern among Midwestern clients, with average increases of about 12% a year and some cost spikes up to 40%. The challenge, she says, is understanding each client's unique business strategy and matching that strategy with appropriate techniques that address their concerns: self-funding options, health reimbursement accounts (HRAs), health savings accounts (HSAs), and wellness programs, among others.
She says that Heffernan truly functions as a consultant with a broad range of expertise, program resources and business partners that can provide all of the tools to execute these programs. "Heffernan also practices what it preaches," she says. In all of the agency offices, including her own, the firm models best practices in wellness and health management. However, Williams notes that contemporary employee benefits strategies involve more than financial maneuvers. "The future of the employee benefits broker is not just about plan design expertise. It is a technology play—bringing the latest interactive technology to employers and their employees."
A new technology platform
Brian Conner, vice president of operations in employee benefits, leads the implementation of HeffConnect, the agency's comprehensive benefits administration technology platform. HeffConnect, he says, is designed to provide small to medium-sized employers the same high level of employee benefits management systems used by Fortune 100 companies.
The platform provides an automated, self-service paperless management of benefits enrollment, and information changes driven by open enrollment and life events, available to employees 24 hours a day, seven days a week. Also, the system provides benefits eligibility management, premium collection, FSA, COBRA servcies and payroll deduction management. The online system also connects to an employee hotline that allows client employees to ask questions and get answers specific to their employer's benefits offerings and even helps the employees with claim resolution.
Conner says the system also supports employer compliance needs, generating real time reports and documents for human resource departments. In addition to eliminating many of the errors that result from inconsistent enrollment techniques, the platform also assists in claims management for self-funded employers, reducing "claims leakage" expenses, errors that can increase costs as much as 1% to 4%. The system was first rolled out in October and will be available to all clients with an employee population of at least 100 employees. For less than 100 employees they provide a scaled down version called HeffConnect lite, Conner says.
In the future: financial services
Financial services are the next big growth area for the agency, Williams says. A natural extension of the employee benefits practice, the agency's financial services division includes retirement plans, rollover opportunities, individual life insurance, wealth management and asset management. The division is still small relative to other agency divisions, contributing less than 5% of revenues, but it currently has over $850 million in assets under advisement, he notes. And, the services fit perfectly into the agency's strategic plan to provide comprehensive insurance and wealth management services.
"It's important that our clients see us as a source of a total solution for their financial needs, and these services complete the resources we can provide both employers and their employees. This business is bound to grow as more Baby Boomers reach retirement age and seek our assistance with retirement plan rollovers and their individual wealth management needs," he says.