L O C K T O N C O M P A N I E S

Prince William County SHRM MeetingChris Bartnik, CLU, RHU, REBC, CLF, CHHC

May 6, 2015

Beneficial RelationshipsYou and Your Benefits BrokerWhat You Should Expect

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Agenda

Changing Landscape of Employee Benefits

What You Should Expect From Your Broker? Basic Services Building Out the Toolbox

How Much Do Specific Factors Impact the Employer’s Expectations

Odds and Ends How Do You Know You Are Getting a Good Deal? How Can You Feel Confident In Your Compliance With Today’s Laws? Compensation Arrangements

Brokers a Product Vendors

Zywave Broker Services Survey

Questions

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Questions

What Do You Want to Learn Today?

What Questions Do You Have That You Have Never Asked a Broker?

Are you just here for the CE credits?

Brokerage Landscape

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Reliance on External Business Partners (84%) Administrative Burden (79%) Plan Cost (79%) Need for a Multi-Year Strategy (68%)

Do We Need Brokers?2015 Metro DC Survey of Benefit Strategies & Trends

Admin

istrat

ive

Burden

Plan C

ost

Elig

ible

Em

ploye

es

Enro

lled E

mplo

yees

Comm

itm

ent to

Offer

C-Suit

e In

volv

emen

t

Nee

d for a

Strat

egy

Focu

s on

Wel

lnes

s

Relia

nce O

n Par

tner

s0%

20%

40%

60%

80%

100%

25%12%

4% 2% 6%14%

30%13%

51%

54%67%

20% 18% 10%

25%

38%

41%

33%

17% 17%

65% 68% 74%

49%

27%41%

13%1% 2%

1% 4% 1% 1%1% 1% 1%

1% 0% 0% 0% 0% 1% 1% 1% 1%

NADecreased SignificantlyDecreased SomewhatNeutralIncreased SomewhatIncreased Significantly

Increased Significantly or Somewhat

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Different Types of Brokers

Broker Represents the client in the marketplace Relationships with multiple carriers and specialty vendor partners Provides specific expertise related to insurance companies, products,

strategies, etc.

Brokers are often differentiated by: Ownership (Public, Private, Private Equity) Market focus (small, middle market, large employer) Business model (producer centric, team centric, resource centric) Scope of services (core brokerage versus specialty services) Investment model (national decision making versus local decision making) Service footprint (local market, national market, international market) Compensation model (commission, fee for service, hourly billing)

Pros and cons to each model based on client need or position in organizational life cycle

Key differentiator is people!

What Should You Expect?

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What Should You Expect From Your Broker?

Historical Service Delivery Model Basic Annual Strategy (?) Insurance Placement and Renewal Negotiation Claims Resolution Carrier Relationship Management Basic Underwriting Knowledge Open Enrollment Meetings Benchmarking Basic Compliance Questions and Answers (Q&A)

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Changing Landscape In Employee Benefits

Employee Engagement Consumerism Wellness

Increased Compliance (more to come?) Health Care Reform, ERISA, and Other Compliance Requirements

Healthcare Costs Continue to Escalate Specialty Drugs

Changing Delivery System Telemedicine Minute Clinics Accountable Care Organizations (ACOs) Narrow Networks

Health and Wealth Planning Health Savings Accounts Retirement Planning and Savings (the next big problem?)

Brokers becoming vendors instead of advisors

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Changing Landscape In Employee Benefits

• Metal Plans/Limited Plan Choices (insured, market size)

• Actuarial Value Requirements• Essential Health Benefits

What Can Employers Offer –

Plan Design

• Full-Time versus Part-Time• Spouse/Dependent Children Requirements

Who Employers Must Cover -

Eligibility

• Percentage of Salary/Household Income thresholds

• Unbundling of Coverages

What Employers Can Charge – Contributions

• Medical Loss Ratio• PPACA Fees and Taxes

What Carriers Can Charge –

Premiums and Taxes

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What You Should Expect From Your Broker?

Financial Compliance Risk Mgmt

Communications

Administration

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What Should You Expect From Your Broker?

Wellness or Population Health Management

Benefits Administration Outsourcing Solutions and/or Consulting Advice Be Careful with proprietary solutions – extricating yourself can be painful!

Compliance Services and Resources ERISA (most large firms employee ERISA attorneys) Health Care Reform (moved from financial impact analysis to maintenance) Document and Notice Support (SPDs, SBCs, etc.)

Communications Open Enrollment (multi-channel options like presentations, guides, videos,

etc.) Change Management (focused communications on consumerism, wellness,

health care reform, etc.)

Health Care Data Informatics (Data Mining)

Private Exchanges Proprietary Strategic Partnerships

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Factors That Impact Employer Needs and Expecations

Health Care Reform – stratifies companies from a broker perspective (under 50, Under 100, Over 100)

Employer Size Under 50 (2014) and Under 100 (2016) – healthcare products and

underwriting are mandated by Health Care Reform (metal plans and standard underwriting rules)

Over 100 – Service offering varies by broker and by funding methodology

Other Factors that Impact Expectations Domestic footprint (local only or across the country) International footprint (requires special knowledge and resources) Industry – Government Contractor with SCA employees (for example) Size of internal Human Resources Department

Pricing No real benchmarks Should have an annual discussion with your broker to determine value versus

cost Commission/Annual Retainer most prevalent in the small and middle market

How Do You Know You Are Getting a Good Deal?

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How Do You Know You Are Getting a Good Dealfrom Your Insurance Carriers/Vendors?

Hard to quantify if you are getting a good deal – not purchasing a commodity, although some ancillary coverage purchasing is strictly price driven (life, disability)

Several market factors impact pricing (MLR, PPACA fees/taxes, mandates, underwriting methodology, etc.)

Employer specific issues (claims, size, location, etc.) impact pricing

Key is the value your broker partner brings to the process

Remember any deal that is too good to be true = large increase the next year

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How Do You Know You Are Getting a Good Dealfrom Your Insurance Carriers/Vendors?

Providing Value in Carrier/Vendor Negotiation Relationships, relationships, relationships

Advisory Committees Have we worked together? Strategic pricing arrangements

Carrier book of business Do we have a lot of business together? Are you a partner that is a source of potential future growth for us? Do you send us lots of quote requests but never place any business with us?

Underwriting expertise Negotiate from a position of strength – data, facts, information (don’t just bang your

fist on the table) Benchmarks of current and historical client data

Agency Management System Large enough sample size for comparison (administrative fees, reinsurance rates,

other fixed costs, etc.) Carrier’s need/desire to keep the business – level of realism required Are you a preferred business partner/broker?

Carriers evaluating and reducing their distribution channels (Innovation Health)

Staying Compliant with All of These Laws

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How Can You Feel Confident In Your Compliance With Today’s Laws?

Broker is a strategic partner to help you understand your responsibilities as the plan sponsor

Remember, laws are changing rapidly and regulations are often late or delayed (short period of time to read, interpret, and react)

Broker can provide specific compliance services Form 5500 Filing Discrimination Testing (may use FSA vendor) Document drafting and updating Annual Notice Drafting and Support Legislative Updates Calculation of PPACA Fees and Filing Assistance

Plan Sponsor is Ultimately Responsible for Being Compliant Select a partner with in-house ERISA attorneys (are they accessible? an extra

charge?) Include specific compliance service requirements in your RFP Include specific service in your annual service calendar

Compensation

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Compensation Arrangements

Commission on insurance placements Medical: 3.5% to 5% Dental: 5% to 10% Life/Disability: 10% to 15% (some products may be a sliding scale) Voluntary benefits: Varies, often have a higher first year commission and a

small trail

Fee for service (hourly billing) – varies by firm and level of resource

Annual Retainer Fee – often pegged to historical commission figures

All options may include or exclude specific hard dollars costs Claims advocacy services Printing Data mining

Contingent/Persistency Compensation Disclosed on Schedule A Reinvestment opportunity for brokerage firm Key focus has to be what is best for the client regardless of impact to annual

bonus

Brokers Become Vendors

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Concerns with Broker Carrier Exchanges2015 Metro DC Survey of Benefit Strategies & Trends

0%10%20%30%40%50%

28% 30%37% 40%42% 42%

37% 35%

Very Concerned Somewhat Concerned

ZyWave Broker Services Survey

2014, ZyWave Inc.

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ZyWave 2014 Broker Services Survey Data

ZyWave – software as a service vendor for the insurance industry (compliance, administration, surveys, etc.)

Annual survey of 3,000 employers representing various industries and group sizes across the country

Key findings Employers are expecting more than just placement of insurance from their

broker Employers looking for more than just a relationship, they are looking for a

Trusted Advisor Employers want to hear from their broker monthly about Human Resources

and Compliance issues Biggest factor leading to a broker change is not providing prompt and

effective service or answering questions in a timely manner Over 1/3 of respondents said lack of communication, not providing trusted

advice, and not offering compliance resources would cause them to change brokers

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ZyWave 2014 Broker Services Survey Data

Service Important Unsatisfied

Answers our compliance-related questions (PPACA, COBRA, FMLA, etc.)

97% 28%

Provides updates/guidance on PPACA and other legislative changes

97% 22%

Offers employee communications to help employees make better decisions and understand the benefits we provide

95% 40%

Benefits Expected Services

Area of Opportunity Important Unsatisfied

Offers benefit statements to help our employees understand the value of their benefits

90% 63%

Provides online access to policies and compliance and HR tools

89% 56%

Provides health and prescription drug claims analysis

88% 56%

Benefits Areas of Opportunity

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ZyWave 2014 Broker Services Survey Data

Client Need % of Respondents

Answers our compliance-related questions (PPACA, COBRA, FMLA, HIPAA, etc.)

97%

Provides updates and guidance on health care reform and other legislative changes

97%

Offers employee communications to help our employees make benefit decisions and understand the benefits we offer

95%

Offers employee communications to help our employees understand how health care reform affects them

94%

Offers employee communications to help our employees improve their health and become wise consumers of health care

93%

Top Five Criteria Ranked in Selecting an Employee Benefits Broker

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ZyWave 2014 Broker Services Survey Data

Top Employee Benefit Challenges % of Respondents

Managing health care costs 73%

Keeping in compliance and up to date on the changing legislation, including health care reform

50%

Benefits administration and employee benefits education

34%

Attracting and retaining employees 29%

Helping employees become better consumers of health care

27%

Human resources issues 21%

Educating employees on health and wellness 18%

Worksite wellness programs 14%

Managing prescription drug costs 12%

Helping employees prepare for retirement 9%

What Keeps Employers Up At Night?

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Our Mission

To be the worldwide value and service leader ininsurance brokerage, employee benefits, and risk management

Our Goal

To be the best place to do business and to work

www.lockton.com

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