2010 Best Practices Study

Analysis of Agencies with Revenues Over $25,000,000

Mgmt. Perspectives

Adjusting to Health Care Reform If there is a general consensus, it is that Health Care Reform (HCR) is not going to mean the end of the group, employer-based health insurance business, but it is going to change it dramatically. Most of these Best Practices agencies feel the small group business (under 100 lives) will be most affected. On the larger group business, the employers will need agents and brokers more than ever which will result in more demands for services with simultaneous pressure from carriers (and perhaps insureds) to push agent and broker compensation down. Agents will need to be more adept at selling the value of their services and getting compensated through fees instead of commissions. To meet the needs of customers, the services provided will need to be expanded and producers will need to become more adept at consulting rather than simply marketing and closing the sale to the customer.

clients and take advantage of the many opportunities as they present themselves.

Profile

Revenues

Expenses

Top Challenges (Top 5 Listed in Order of Frequency Mentioned )

Profitability

Facing Challenges Soft P&C pricing and a bad economy are creating real challenges for the largest firms in the country. As evidenced by their results, commission revenue growth is tough to achieve. If you add to that a decline of 9.2% in contingent income, it is easy to see why profits are tough to come by. In spite of these challenges, this group of agents saw as their biggest problem their ability to attract talent, which supports their belief in the future of the industry and their need to properly position themselves for the future. With over 20% of their revenues coming from group health insurance, it is also no surprise that their ability to respond to health care reform is something that they are all dealing with. There is a general sense that health care reform will create more work for agents (and their insureds) and there will be pressure to reduce commissions paid to agents. In the world we are heading into, agents see fees in lieu of commissions as a necessity. With depressed operating results and the difficulty of attracting talent, it is really not surprising to have these firms identify succession planning and perpetuation as one of the biggest challenges they are facing. Foundational keys to perpetuation are growth, profits and the next generation of producers, managers, and leaders. 1. Attracting top talent 2. Dealing with soft P&C market and bad economy 3. Negative organic growth and lower profits 4. Dealing with Health Care Reform 5. Succession panning and perpetuation

Employee Overview

Producer Info

Staff Service Info

Technology

Insurance Carriers

Appendix

Top Adjustments (Top 5 Listed in Order of Frequency Mentioned)

1. Expand capabilities: > compliance > communications > wellness

> actuarial / tax / plan administration 2. Train producers to consult, not sell 3. Leverage size, scale and clout 4. Shift to fee based compensation 5. Be prepared to do more for less

There is a sense as well that the relationships between carriers and their agents are going to change. As has been the case on the P&C side, carriers will tend to favor their larger and more successful producers. This may affect access and compensation. We are also hearing that carrier compensation will more often be based on a per life/per month basis as opposed to a percentage of the premium. There will be challenges but all agree that there will be new opportunities as well. This is clearly not the time to "circle your employee benefits wagons". The best are going to stay on the forefront as HCR unfolds and position themselves to respond for the benefit of their

2010 Best Practices Study

Agencies with Revenues Over $25,000,000

“To be effective in the new health care world, our producers are going to have to elevate their game. They are going to have to learn to be health care consultants and advocates for the clients.”

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