Get the Most from Your Insurance Broker

As employers continue to reset benefits priorities in the wake of the economic recession and health care reform mandates, they’re turning to brokers and consultants to deliver cost-effective and competitive solutions.

“We’re seeing a lot of activity right now,” says William Stafford, vice president of member services for United Benefit Advisors, an Indianapolis-based alliance of more than 140 independent benefit advisory firms. He also sees brokers taking on comprehensive advisory and counseling roles as employers seek more for their money.

That assessment was confirmed in a 2009 study of 1,207 employers and 573 brokers by the Center for Strategy Research Inc., a Boston-based market research firm, and Prudential Insurance Co. of America.

In the study, 83 percent of the plan sponsors said they now use a broker or consultant to help with their employee benefits programs and 11 percent said they expect to begin working with an intermediary in the next five years, says Lori High, president of Prudential Group Insurance.

Those results, she contends, prove that “plan sponsors’ need for expert advice and guidance from a broker has never been greater.”

Benefits consulting currently makes up the largest market-share segment of outsourced human resource services—surpassing talent management and HR technology, according to HR Consulting Marketplace 2009-2011, a report by market analysis firm Kennedy Consulting Research & Advisory in Peterborough, N.H. Employers are expected to spend $12.5 billion on benefits consulting in 2011, notes Director Dan Daly. That’s up from $4.5 billion in 2005.

Choices Galore

HR professionals looking for a benefits consultant have plenty of options; Daly estimates that about 100 organizations nationwide do some benefits brokering and consulting, though roughly a dozen account for the majority of the benefits consulting market. Employers also seek benefits-related assistance from other sources, including accounting firms, insurers and lawyers.

Looking ahead, brokers foresee employers depending more on their brokers and getting more aggressive about changing benefits strategies, according to a 2010 survey of 1,268 individual brokers by Oliver Wyman, an international management consulting firm in New York, and Benefits Selling, an industry publication in Centennial, Colo. Within the group market, 54 percent of those polled said employers will be somewhat more aggressive in the coming year, with an additional 15 percent taking a significantly more aggressive approach to finding cost-effective benefits strategies, getting tough in vendor negotiations and insisting on improved service from their brokers.

This predicts a busy year for brokers and consultants—as a full 70 percent of the market could be taking a good look at their strategies, the study concludes.

How It Works, Who They Are

With such immense challenges, it makes sense for a lot of employers, particularly those with thin HR staffs, to work with benefits brokers that are familiar with carriers for all lines of coverage: health, wellness, dental, life, disability, long-term care and voluntary benefits. Such brokers can provide quotes from multiple carriers with different plan designs and risk-sharing ideas.

The terms “agent” and “broker” are often used interchangeably, but they are different. Agents represent insurance companies, while brokers represent insurance purchasers. Independent agents are not affiliated with any insurer; they represent a range of companies.

Which one should you use? Here’s a rundown of the two:

• Agents—or “captives”—typically sell only one product or for one company. They often have close relationships with their home offices. These relationships can give them more leverage to make plan changes. Their offerings may cost less, and they have access to markets that others may not have, such as workers’ compensation insurance in certain industries. Agents are typically paid by the insurers, so employers aren’t charged for their services.
• Brokers are independent. They sell for multiple companies—and typically can provide more options and a broader view of the marketplace. Brokers can evaluate the costs and plan designs of major insurance carriers in your region. They’re often paid on commission by the insurance companies—and such commissions can be reflected in premiums. But more often today, brokers are moving to a flat fee structure—such as a payment based on the number of employees and months covered—to avoid any perception that their recommendations could be tilted toward companies offering higher commissions.

Best of all, brokers’ services come at no cost for smaller accounts, typically those with fewer than 100 employees, explains Jim Edholm, president of Business Benefits Insurance, a benefits planning firm in Andover, Mass. Many, if not all, states have some form of small-group health insurance with state-approved rates. Those rates include a broker’s commission—whether or not the services are utilized.

Larger accounts can waive the commissions, giving them the freedom either to deal directly with the carrier and save the cost of a broker or to retain the broker on a fee basis and eliminate the commission. Brokers compete for business on both a cost and a service-delivery basis.

“The broker’s interests are seemingly congruent with those of the business,” Edholm says. “But that may not always be the case. Conflicting interests beset the benefits broker—and some of those interests aren’t necessarily the same as the company the broker is advising.”

How Brokers Are Paid

Brokers are generally paid in two ways: commission and bonus.

“Commissions are largely coincident with that of the employer—that is, it rewards the broker for keeping the company happy, servicing the account, resolving questions and expediting claims settlement,” Edholm says.

Bonus programs are different. They tend to have little to do with the employer’s interests. “Bonuses primarily benefit the broker and insurance carrier, and they’re paid to reward the broker for new sales, total carrier premium and renewal percentage,” Edholm explains.

His advice? Check your Form 5500—the annual report or return of your employee benefits plan, which is required under the Employee Retirement Income Security Act and the Internal Revenue Code. This form shows both the commissions and bonuses the insurer paid to the broker servicing your account. “If you have more than 100 employees, you can easily find out if your broker is being ‘over-bonused.’ The [Form] 5500 spells out his compensation—and will let you know quickly enough if he’s being tempted,” Edholm says. “Then, ask your broker what percentage of total income his practice gets from bonuses vs. commissions” and verify the answer.

For smaller companies, determining if they are overspending gets trickier. Companies with fewer than 100 employees don’t receive Form 5500, so they don’t really know what their broker earns.

Going Commission-Free

Regardless of company size—but especially for small employers—Edholm recommends that HR professionals ask their brokers “What percent of your total income do bonuses, as opposed to commissions, represent for your business?” Other price-conscious strategies: periodically having another broker compete for your business and opting to compensate consultants directly with fee-only, commission-free rates, he says.

Indeed, the flat fee concept is a growing trend in broker compensation. “Leading brokers recognize the value of ‘bend-trend’ services and are abandoning commission-based compensation for consulting fee-based models,” says Michael Main, a Chicago-based partner with the Health and Life Sciences practice of Oliver Wyman. “They’re taking these important steps toward more-robust employer-broker partnerships.”

Many brokers and consultants, for example, are beefing up educational programs, pushing health plans on costs, leveraging technology to improve service and reducing administrative costs.

Room for Improvement

In general, brokers get mostly high marks on employer satisfaction—but there are exceptions, according to the Prudential study.

Nine in 10 plan sponsors surveyed reported overall satisfaction with the support they receive from their brokers or consultants, with 40 percent indicating that they were “highly satisfied.” Respondents from companies with 5,000-plus employees gave somewhat lower ratings to their brokers or consultants, while 12 percent of them were unsure about their levels of satisfaction—underscoring the opportunity for intermediaries to better understand and meet their needs.

Candace Walters, president of HR Works Inc., a Fairport, N.Y.-based consulting and outsourcing firm that works with employers on benefits administration, has seen this firsthand. She says employers are changing brokers more frequently today—“but they aren’t always jumping for money reasons. They switch because they’re dissatisfied with the value of the services they’re getting.”

That’s exactly what spurred Debbie Bronson, SPHR, senior vice president and HR director at Cascade Bank, based in Everett, Wash., to change benefits consultants in 2004, shortly after joining the 22-branch bank.

Dissatisfied with the customer service and compliance guidance of a previous broker, she partnered with Seattle-based ClearPoint—the U.S. representative of ASINTA, a global network of independent employee benefits consulting firms—to manage benefits strategy for the bank’s 240-employee plan.

Bronson says that since then she has come to rely on the broker and consultant for much more than just contract negotiations and plan design recommendations. ClearPoint provides employee benefit advocate services, claims resolution assistance between employees and insurers, open enrollment events and communications, health fairs, and educational breakfasts.

ClearPoint acts as “an extension of our benefits staff,” she says.

Her bottom-line advice? “Shop around—not all brokers are created equal,” she says. “And ask for exactly what you want. Even if it seems like a lot, you might just get it in today’s climate.”

The author, a business journalist in the Washington, D.C., area, is a contributing editor of HR Magazine.

Web Extras

• Article sidebar: Making the Best Choice--And Leveraging Your Relationship
• Article Charts & Graphs: How Benefits Brokers and Consultants Forsee HR Engaging Them--2009 vs. 2014
• Article Charts & Graphs: Employers; Current and Future Use of Benefits Brokers and Consultants
• Online sidebar: Changing the Model
• SHRM research article: Selecting an Insurance Broker or Agent
• SHRM article: Renegotiate Benefit Contracts and Cut Costs
• Web site: National Association of Health Underwriters
• Web site: Council of Insurance Agents & Brokers
• Web site: Independent Insurance Agents & Brokers of America
• Web site: United Benefit Advisors
• Web site: International Foundation of Employee Benefit Plans