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Guest Article

Explosive Growth In The Middle Market For Health & Welfare Consultants

by Ken Forrester


For many years the employee benefits middle market (500 to 5,000 employees) has being dominated primarily by a few national players (Marsh, Aon, Willis) and a strong contingent of local brokers. Within the past five years a few new national firms have emerged in that market space with objectives to capture significant market share and essentially dominate that marketplace. This article will attempt to provide some insight into who these firms are, what has attracted them to this market space, why they are achieving early business success and what the smaller firms must do to maintain their competition advantage in the middle marketplace.

The Firms

These new firms are (Lockton, Palmer & Cay, Cbiz) predominately successful property & casualty players who have grown into employee benefits players by acquiring a number of local employee benefits brokerage firms. There are three reasons why these firms are attracted to that particular market space; they understand the dynamics of doing business in that marketplace, they can very easily transition their services into that market space and they can create more new business development opportunities in that marketplace.

Business Dynamics

These firms understand the dynamics of doing business in the middle market, specifically that clients in the middle market are more motivated in doing business with the individual broker, not necessarily the name of the organization. Often, this intimate type of client relationship offers the broker more insight into the client's business and as a result make it easier for the broker to uncover additional needs that can be satisfied by products and services offered by the brokerage firm.

Easy Transition into the Market

These firms can be considered as new players from an employee benefits perspective, however they are not necessarily new in terms of doing business in the middle market. They have existing presence and established relationships with property & casualty clients and can provide employee benefit services to the same clients which will creates excellent cross selling opportunities for their consultants.

More Business development Opportunities

Compared to the limited amount of potential new clients in the high-end (Fortune 100 employers) marketplace, there are significantly more potential new clients in this marketplace, which translates to more business development opportunities, more sales for their consultants, more profit for the organization.

The two significant reasons why these firms are achieving early success in the middle market is because they are utilizing the same business model that has being successful in the high-end marketplace and they are also effectively utilizing the tools of technology to improve the delivery of services to clients.

Business Model

Consulting firms that focus in the high-end marketplace view their employees as their biggest asset; as such they seek to recruit the most talented individuals who understand the health care business; can develop relationship with the clients and effectively communicate the benefits of their services as solution to client needs. In the middle market, commission dollars generated from the sales of products is the generally accepted method of payment for service. However, employers have become very sophisticated health care consumers and as a result are demanding more services for the commission dollars generated by their brokers. They are placing more value on obtaining creative health care cost reduction solutions and are placing less value on the standard procedures of shopping their health insurance plan among the few remaining carriers for the purpose of obtaining lower rates. The secrete to achieving early success in the middle market lies in the fact that their brokers are providing consultative solutions as well as product sales for the same commission dollars.

Advancement in technologies specifically, web enabled tools (Benefitpoint, channelpoint, e-healthinsurance) offers smaller firms the same internal resources historically was only available to the national companies.

Given Stringent Competition from the new players, can the smaller brokerage firms survive?

To maintain a competitive advantage in the middle market, the smaller brokerage firms must upgrade the quality of services they can offer to clients. To accomplish this objective, it is essential that smaller firms place more focus on training & development of their technical staff. However, in order to develop a trained internal staff, brokerage firms must institute an aggressive recruitment strategy that focus primarily on attracting top talent from the firms (Towers Perrin, Hewitt, Mercer) that compete in the high-end (Fortune 500) marketplace. Recruiters who specialize in the "high-end" employee benefits consulting arena will agree that most health insurance professionals who are trained by the national firms are exposed to the latest web-enabled tools & technologies and other cutting edge health care cost reduction strategies. In addition, they bring a wide variety of relevant skills to the table including:

  • Underwriting;
  • Prescription drug carve-out & evaluation
  • Claim data analysis;
  • Cost projections;
  • Pricing plan design revisions;
  • Evaluation of funding arrangements and methodologies;
  • Preparation of bid specifications;
  • Review and analysis of vendor proposals to make appropriate recommendations;
  • Negotiation/coordinating activities of various vendors to meet client's objectives.

Finding Talent

Even though many brokerage firms are convinced that employing talented professionals is essential for sustaining growth and ultimately guaranteeing their survival in the marketplace, they face some challenges in accomplishing that objective. Some of the challenges are as followed:

  • How will they find brand name talent on their own efforts since they do not compete in the high-end marketplace?
  • What incentives can they offer potential candidates from the high-end market to seriously attract them to the middle market?
  • Do they have budgets necessary to pay the standard headhunting fees to third party recruitment firms?

The Solution

The solution to this dilemma is to identify the top recruitment firms in the high-end health & welfare consulting and partner with those organizations to accomplish mutual objectives. This approach is valid because many recruitment firms that specialize in the high-end health & welfare consulting arena will most likely have transferable knowledge of the business dynamics of the middle marketplace. They also have existing relationships with many qualified candidates from which they can easily identify specific candidates who will be most interested in exploring entrepreneurial type of opportunities. In addition, these recruitment firms will most likely have strong interest in expanding their client base since the high-end marketplace has become saturated because of consolidation among the national consulting firms. As a result of the consolidation, their client base has shrunk significantly thus there are fewer unique career opportunities of interest available to their candidates.

Listed below are additional headhunter fee arrangements that the smaller brokerage firms should explore when partnering with an executive recruitment firm:

  • Reduced percentage of the standard fee for multiple placements
  • Extended placement guarantees
  • Fee base as a percentage of annual revenue under management (paid monthly)
  • Fee base as a percentage of new business generated by the new employee (paid when received)
  • Research Projects (purchasing a list of names of qualified candidates)
  • Value search (purchasing names of qualified, pre-screened, interested candidates)

This article was written by Ken Forrester. He is the Managing Director of A.W. Forrester Co. He can be reached at (954) 722-7554, or ken@awforrester.com.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.
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