CAPITALIZING ON BENEFITS
Risk strategy spans benefits & P-C
Benefits expected to reach 40% of revenue within five years
By Len Strazewski
It's all about risk. All employers are subject to it and once they quantify it, they need to decide what to do with it. Should they pass it along, retain it or insure it?
Many agents and brokers take a "risk management" approach to property/casualty and workers compensation exposures, but Sinclair Insurance Group in Wallingford Center, Connecticut, treats employee benefits with the same sophisticated approach, says President David Sinclair.
"We are really a risk management company," he explains. "We specialize in loss control. Claims management, financial consulting and human resource management—and like many agencies, we developed these approaches for our property/casualty insurance clients."
But now the same approaches drive the agency's employee benefits services, too, he says.
Sinclair Insurance was founded in 1971 and today is the largest independent agency in Connecticut with about 60 employees in three hub offices, including Norwalk and Chester, Connecticut. About 15 employees work in group employee benefits and related services. The agency also has four employees in pension and retirement services, including a pension actuary to manage and consult on defined benefit pension plans and three defined contribution plan specialists and administrators. The agency also serves as a third-party administrator of 401(k) plans.
Sinclair says the agency plans for organic growth across all lines of coverage, but employee benefits is growing faster than other categories. He expects benefits will grow from about 30% of revenues to about 40% of revenues within the next five years. Employee benefits producers already average about $175,000 in revenues, a very good indication of productivity and growth, he notes.
Sinclair says the agency's comprehensive approach to risk is driving its growth. About eight years ago, after acquisition of a large employee benefits specialty agency, Sinclair Insurance began to develop a comprehensive branded risk management platform that integrates approaches to property/casualty insurance and employee benefits.
Now called the Risk Safeguard Advantage, the technique calls for analysis of 12 business metrics—including employee benefits risks. The agency then leads clients through a five-step program process: vision, evaluation, analysis, implementation and accountability, which identifies cost drivers and applies a broad spectrum of operational and risk reduction techniques.
"Our obligation is to protect our clients' balance sheets and improve their income," Sinclair explains. "To do so, we must look more broadly at our clients' financial issues and not limit our work to property/casualty insurance."
Sinclair applies the same procedures to employee benefits, he says, emphasizing self-funding, wellness and claims control and employee engagement in health consumerism.
Vice President Matthew R. Bauer is the agency director of group employee benefits. "Until just a few years ago, most employers handled their employee benefits cost issues by passing it on—raising deductibles and making employees contribute more of the costs," he says.
However, as part of its risk management approach, Sinclair introduced employers to a series of alternative approaches. By self-funding all or a portion of health care claims, employers reduce their administrative cost of risks—an approach adopted long ago by workers compensation managers.
Bauer says the agency has been successful in guiding employers with as few as 10 employees into a partially self-funded approach using stop-loss insurance to cap potential losses. About two years ago, the agency also developed a proprietary wellness program that guides employees to better self-management of their health risks and more educated health consumer choices.
The wellness program begins with an agency-staffed health fair, featuring eight booths distributing information on a broad range of topics, including stress management, healthful eating and home health safety as well as more traditional medical information from community health providers.
"We spend a lot of time in communications, educating employers and their employees about wellness and their personal approach to health," he says. The agency provides newsletters and other information resources and can provide online health risk assessments that can reveal personal health risk profiles.
The wellness program fits perfectly with contemporary consumer-directed health plans, he adds. More than 75% of Sinclair clients offer health savings accounts (HSAs) that allow employees to reserve funds against future health claims and save unused funds for future uses.
Bauer says, "It's important that employees have some skin in the game" and understand the economic consequences of their health decisions. HSAs provide a plan structure that rewards participants for making more consumer-oriented health decisions, he says.
President Sinclair agrees. "It's important that we educate employees about what is in it for them as well as what their actions can do to help their employer. We spend a lot of time communicating face-to-face with employees, helping them understand their choices and their opportunities."
Service drives customer satisfaction, and Sinclair says the agency has very high client satisfaction and retention rates because of its internal service structure. Joanne Spann is benefits manager and director of customer services, including annual policy marketing and renewal, open enrollment and day-to-day benefits communication.
Even though many employers self-fund a portion of group health benefits, they still require the services of group health plans. Leading health plans in Connecticut include Anthem-BlueCross/BlueShield, Connecticare, Aetna Health, CIGNA and United Healthcare (Oxford Health Plans). Small employers also have an additional option, an association health plan operated by the Connecticut Business & Industry Association.
Spann says the annual renewal is still a critical task for the agency, but its customer service by no means ends with the submission of renewal quotes. "What we do best of all is stay in touch on a continuing basis. Our clients can pick up the phone with a question any time about claims, eligibility, COBRA or other concerns."
Spann's department also manages the fund components of consumer-directed health plans. She says she has noticed an increased interest by employers in health reimbursement accounts (HRAs), consumer-directed funds contributed and managed by employers, often available in combination with HSAs using employee funds. Her staff also manages a growing number of voluntary benefits, including dental insurance, short- and long-term disability insurance and group life insurance. "There are still a lot of fully-insured plans that include life, disability and dental benefits, but more employers are making some or all of those benefits available on a voluntary basis to reduce costs," she says.
The most common questions from employers, however, are about health reform which becomes fully implemented in 2014. Many employers wonder about how the new law and regulations will affect their group health plan designs and their carefully designed strategies.
Spann says part of her responsibilities is to keep clients informed about the latest developments in health reform and the newest insights.
Sinclair says many agents fear that health reform will drive group benefits business away from independent agencies, as employers turn to state-operated exchanges to buy standardized health benefit plans. But he says Sinclair Insurance is more likely to thrive under health reform as employers find ways to use the new provisions to implement their risk management approaches to health benefits.
"Why do employers buy benefits?" he asks. "There are two reasons: to be competitive with other employers and to help their employees with their life needs. These reasons will not change under health reform. Employers that want to continue to implement comprehensive business strategies that include health benefits will stay with us. Those that don't will turn to the exchanges."
Health reform is not the only employee benefits challenge of the near future. The agency continues to expand its services to meet evolving needs, Sinclair says. In addition to the present retirement plan services staff, the agency will soon be adding a financial consultant with expertise in retirement annuities. "As Baby Boomers retire and take distributions from their defined contribution retirement plans, they will have an immediate need for personal financial consulting and advice on structuring their retirement assets for the most secure retirement," he points out. "Financial planning will be a natural extension of our employee benefits service as we continue to meet the needs of our clients' employees even after they have left the workforce."
Human resource issues have also become an important part of employers' risk profiles—and a necessary area of value-added services, Sinclair says. "Small employers in the 25 to 100 employee groups may never have had a full-time professional human resource manager—of if they did, they had to let that person go during the recession," he explains.
"Now, the proliferation of new regulations and compliance issues has become a tremendous burden on employers, particularly those without professional staff. We have chosen to support our clients with human resources professionals who can consult on those regulatory issues and help create the communications and procedures that the regulations call for."
Bauer agrees. "There are a lot of different reasons why companies have cut their human resource staffs, but there are many more reasons why they now need human resource consulting." Department of Labor audits have become more frequent, he says, and internal management issues have become more complicated as employers struggle with recruitment and retention, employee relations, family leave and other regulatory requirements.
With few other options, employers are turning to their agents for information and guidance about these issues as well as more traditional insurance services, he says.
Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.