Advice for sale: employers are expecting more service from their employee benefits professionals than ever before.

Once upon a time, an agent selling health insurance to employers might have had a successful business by simply placing the policy, collecting the commission and relaxing until next renewal season.

Today, being a health insurance agent, broker or consultant is a year-round job, and the emphasis is no longer on selling insurance. On a daily basis, these professionals answer questions from employers related to claims and billing, and offer advice about the employer's entire compensation plan--not just health insurance. Most employee benefits agents and brokers handle additional lines, including dental, vision, disability, retirement products, pensions, 401(k)s, life insurance, business travel insurance, employee assistance programs and even property/casualty lines such as workers' compensation.

"Agents do a lot more than sell," said John Nelson, vice president of Thousand Oaks, Calif.-based Warner Pacific Insurance Services and vice president of the National Association of Health Underwriters. "Agents are always trying to add value to their service. They have answers and information about all kinds of laws and insurance regulations that pertain to the products they are selling."

The competition among agents is fierce, and employers receive one to two calls a month from agents hungry for their business, Nelson said.

"If an agent did wait until renewal to contact a client, with a stroke of a pen, the agent could lose their commission to another agent," Nelson said. "Woe is the agent who doesn't stay in touch with the client and do the job they are expected to do."

Agents, Brokers and Consultants

In the world of employee benefits, words like agents, brokers and consultants can be used almost interchangeably.

"There are a lot of terms out there: agent, broker, consultant. Each term might have a slightly different connotation, but at the end of the day, whether yon are working with a broker, agent or consultant, the advice you are getting is what you are paying for," said Sean LaBorde, vice president, Employee Benefits Division of Mortenson, Matzelle & Meldrum Inc. of Madison, Wis. Mortenson, Matzelle & Meldrum is a member of RiskProNet, a network of 28 independent insurance brokers in the United States and Canada.

LaBorde, who also chairs RiskProNet International's employee benefit practice group, said, "You may work with an agent and expect them to do consulting. You may work with a consultant and expect them to place coverage."

"Both small employers and large employers the looking for people who the giving them the best advice and counsel, not just how to structure their health benefit plans, but how does that fit into the broad spectrum of attracting and retaining quality employees--salary, vacation time, health care, culture and employment," said John Zern, senior vice president of Aon Consulting, the third-largest global consultant.

Smaller employers usually can't afford consulting groups, and it forces them to use brokers because commissions are built into fully insured products and provide for the costs of serving the account, including evaluating what types of products are needed, identifying who has the most competitive products, and answering claims problems and administrative problems, said Ivy Silver, president and founder of Commonwealth Consulting Group, Jenkintown, Pa.

Sometimes, however, the client needs a detailed analysis that the broker's commission might not cover. In that case, a broker could charge an additional consulting fee, she said.

"Our account executives probably spend 75% to 80% of their time working with existing clients and 20% to 28% looking for new clients," said LaBorde.

Higher Profile

While employee benefit consultants deal with many lines of business, the biggest product in terms of premium is health insurance, said Richard Stephens, executive vice president for Willis Benefits North America. Medical insurance may account for 80 cents of the employer benefit dollar, with disability--both long- and short-term-taking about 8 cents, Stephens estimated. Rounding out the dollar is 5 cents each for dental and life insurance, with vision accounting for about 2 cents.

Health insurance benefits are the second-largest cost to employers behind actual salaries. In recent years, the double-digit growth in medical inflation and health insurance premium increases have raised the profile of benefits--and put more pressure on agents, brokers and consultants to deliver results.

"There's more of an awareness on the employers behalf that they can't continue to do business in the traditional fashion," said Stephens. "There's a lot more interaction on the employer side between human resources and the C-suite--CFO and CFO. The issue has become so problematic that it's bubbled up into the expense level that can't be ignored."

Brokers have been involved with helping employers control costs, shifting the costs to employees, and developing new programs such as consumer-driven health care.

"We have to look at renewal not just in terms of expense, but try to decipher the renewal into its components and attack those areas that have the largest bearing on the financial results," Stephens said.

For instance, it's estimated that about 15% to 18% of employees drive about 80% of the claims volume, Stephens said. "What's being done more and more to curtail cost increases is an effort to partner with the carrier and employer to better understand and control that segment of the population. You can't have an adversarial relationship with the carrier, which is the way it's been in the past," he said.

Disease management has been one tool used to help the most expensive and needy employees receive preventative care earlier in order to stop more expensive and more invasive care in the future.

Also, employers that use the same insurer to provide short-term disability and medical coverages save more money, and get their disabled workers back on the job sooner, according to a study by Cigna. The study found that many of the main drivers of cost for medical insurance also drive the costs of short-term disability. By looking at 60,000 short-term disability claims, Cigna found disability durations were 12% shorter, an average difference of seven days, for employees covered by both Cigna short-term disability and major medical. For all employer with 3,000 employees, this could equate to $100,000 to $200,000 in direct disability-cost savings per year, and up to $500,000 in indirect costs, such as lost productivity and the cost of hiring and training temporary workers.

More than a quarter, or 26%, of medical episodes leading to a disability claim stem from chronic health issues such as heart disease, diabetes and low-back pain. While only representing one in four short-term disability claims, these types of claims account for 56% of short-term disability medical costs, and many could be prevented with proper treatment.

Disease management and looking at disability and medical claims together have great potential, Stephens said. "If you have disability, pharmaceutical and medical coverage all being handled by the same administrator, you can help shape the care pattern," he said.

While consumer-driven plans are a hot topic, they aren't the answer to every employer's needs, said Zern of Aon.

"Just like when HMOs [health maintenance organizations] became popular 15 years ago, everyone thought they were the answer, but they weren't the right fit for everybody," Zern said.

Carving a Niche

Some brokers have responded to the increased competition and pressure in the marketplace by narrowing their focus on particular markets.

For instance, Silver said her Commonwealth Consulting Group specializes in nonprofit arts organizations and the architecture, construction and building industry.

"My firm understands that an arts and cultural organization has to live within grant cycles. We know what their compensation structures are," Silver said.

LaBorde said his agency serves a broad and diverse client base that ranges from private and public manufacturing and service firms to municipalities and school districts.

"The marketplace is evolving in terms of baseline service levels and specialized industry knowledge and expertise," LaBorde said. "When an employer conies to us, we are focused on their basic and specialized insurance needs. At [Mortenson, Matzelle], our client needs fall into tree of five main areas: insurance placement, risk management, communications, client services and people. Within each of these areas, we deploy specialized expertise to address a client's needs."

It would be a mistake to view a niche as a limitation, said Nelson of Warner Pacific, a general agency that acts as a "middle man" between agents and carriers, and specializes in the small group health-insurance market.

"Agents the always trying to find a niche: they are always trying to find something that is unique that they can offer their client," Nelson said." Often they will develop a niche through referrals ... but that doesn't preclude him from selling other types of business and he's always looking for other niches."

Zern of Aon said the company focuses on market segments." We believe the needs for an employer with 100 lives will be different from an employer that has 5.000 lives vs. 30,000 lives," Zern said.

Team Approach

As the industry becomes more focused, its more and more difficult for an individual to be expert in all types of insurance. Larger agencies rely on the diverse expertise of their staffs. Smaller brokers have to rely on networking partners, technology or general agencies that act as middle men between agents and carriers to help keep needed answers at their fingertips.

At Mortenson, Matzelle & Meldrum Inc., which also offers property/casualty coverages, account executives are supported with specialized software and staff. "Instead of being a jack-of-all-trades and the master of none, we need to give account executives enough support," LaBorde said. For instance, his office now has a team of six risk managers to work with clients.

Also, as a member of RiskProNet, Mortenson, Matzelle & Meldrum Inc. can tap into a much larger resource--RiskProNet's 27 other agencies. "We get access to insurance expertise for many different niche areas. And for employers with more than one location, we can tap into one of our RiskProNet partners," LaBorde said.

In addition to understanding laws and regulations and various products, brokers also have to bc familiar with dozens, if not hundreds, of different carriers. At Mortenson, Matzelle, a single point person oversees carrier relationships and keeps account executives informed of new players and products in the market.

Warner Pacific offers its independent agent customers, among other things, education and training. Its revenue consists of "overrides"--commissions--from carriers who pay the agency only when agents place business through the general agency. The carriers benefit by not having to pay for a full-time sales staff, and pay only when the business has been placed. Agents benefit by being able to tap into Warner Pacific for information on a multitude of carriers and their products. Warner Pacific also acts as a warehouse of information for independent agents or brokers looking for health benefits.

"If the client is expecting the broker to provide COBRA benefits, then we do what we can to make sure the broker has access to that information. We do everything we can to equip the broker with tools to make his job easier. We provide training, classes and easy and quick access to information," Nelson said.

Aon assigns an individual account manager to act as a point person on accounts, and that person leads a team of three to 30 people in dealing with the client, who can range from having fewer than 100 employees to more than 100,000. If an account manager is an expert in health care, but not workers' compensation, he or she has access to other experts on the team, said Zern.

"It's a marriage of financial information, legal information, human motivation, employee practices, and then you get to deal with all of the specific industries themselves," Silver said.

Shopping Around

Nearly two-thirds of all employers shopped for a new
medical plan for their employees in 2003, with about a
third of them switching carriers. Brokers, agents and
consultants are often called upon to compare benefit
plans and facilitate any change in carrier.

                               Shopped for     Changed Health Plan
                                a New Plan     Types or Insurance
                                                     Carriers

All Small Firms
(3-199                              62%                 33%
Workers) *

Midsize Firms
(200-999                            58%                 37%
Workers) *

Large Firms
(1,000-4,999                        43%                 42%
Workers) *

Jumbo Firms
(5,000+                             37%                 61%
Workers) *

All Firms *                         62%                 33%

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2003

* Estimate is statistically different within firm size

Note: Table made from bar graph.