Smaller agencies selling employee-benefit services face increased compliance demands and lower commissions now that the health-care-reform law has been upheld by the Supreme Court, but agents aren’t throwing in the towel just yet.
“For years people have predicted the demise of one aspect of the independent agency system or the other and [said] we were going to go the way of the buggy-whip manufacturer,” says Alex Soto, president and CEO of Miami-based InSource Inc. and former president of the Independent Insurance Agents & Brokers of America. “The fact of the matter is that agents are alive and well, and we have an uncanny ability to find the niches where we can be helpful to our clients.”
One major concern resulting from the new health-care environment is compensation. Because health-care companies are obligated under the health-care-reform law to spend no more than 15-20 percent of premium dollars on administrative costs, carriers will be forced to cut expenses—under which agent commissions fall, according to the current medical-loss-ratio formula. Agents have unsuccessfully fought to have their commissions excluded from the limited administrative expenses.
Andrew C. Harris, president of Liberty Insurance Associates in Millstone, N.J. and president-elect of the National Association of Professional Insurance Agents, says while agents will make less money, they will have to do more work, as there will presumably be more compliance issues to address and more paperwork to file. He adds that agents will have to compensate by finding other forms of compensation. That will mean expansion of some services such as life products, voluntary benefits, disability, long-term care and other related policies that will expand the agency’s revenue stream.
Agents will also need to pursue more fee-for-service arrangements with clients in lieu of commission.
Harris, though, says as long as clients turn to their agents for answers, agents will have to find ways to provide them. “The takeaway is that our clients still want and need an advocate for them,” he says.
Meeting these new challenges, he adds, “will force us to be bigger and stronger benefit managers and not just health-care [insurance] providers. If we look to be something new and different, let’s not do it halfway—let’s do it all the way.”
Indeed, those agencies that successfully reinvent themselves as key consultants could see new business, driven by clients that now need to start offering health care under the law’s mandates.
Mike Brewer, president of Lockton Benefit Group, a division of the insurance-brokerage firm Lockton, says the Supreme Court’s decision will mean a lot of people will need to make decisions on how to provide coverage for their employees.
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