Competition breeds hostility in some people,” he said. “Bottom line: There aren’t any brokers who offer what we offer………….
By Kathy Robertson
A new company in town is shaking up local insurance brokers by offering to take a free look at what employers pay for benefits, to see if it can get them a better deal.
If Liberty Benefit Insurance Services of San Jose can’t save the employer money, it doesn’t charge a fee. But if Liberty finds savings, it keeps 30 percent.
The pitch has helped the company launch several local audits since it entered the Sacramento market in January, enough to fuel plans to open a regional office within a year.
Local brokers see the pitch as an aggressive challenge to their livelihood. The sales strategy is hitting the market at a time when employers are exasperated by double-digit premium increases, even as for-profit HMOs post multimillion-dollar annual earnings. Liberty’s 29-year-old lawyer-turned-salesman Craig Gottwals is finding a rapt audience of business owners at their wits end over rising costs.
“We’re just trying to bring this back down to a reasonable degree of fairness,” he said.
The target is employers with 100 or more employees.
Digging deep: Volk Scherle, director of human resources at Coherent Inc., liked the company enough to make Liberty Benefit its broker. Based in Santa Clara, Coherent has 1,300 employees, including more than 400 at local offices in Auburn. The high-tech company makes and sells lasers, laser systems and precision optics.
“I wish I had found them years ago,” Scherle said. “I thought we had very competitive rates. These guys dug deeper and found better ones.”
Liberty Benefit pitched its business, looked at current benefits and studied the demographics and other underwriting indicators among Coherent’s workers. The company came back with a proposal to combine life and long-term disability coverage for projected savings of $60,000 a year.
Scherle agreed to make the changes and signed Liberty Benefit as its benefit broker. Other changes in the works will save an estimated 20 percent on another type of employee benefit. Scherle wouldn’t discuss the specifics.
“Coherent rates well. They know the entire market,” Scherle said.
How they do it: Liberty Benefit Insurance Services was founded in 1995. A full-service benefit consulting firm, it offers everything from healthcare coverage to cafeteria plans and advice on satisfying regulations.
The audit piece of the puzzle is a booming portion of the business that now brings in about 30 percent of Liberty’s overall annual revenue, said shareholder Dixon Greer. The company estimates it has saved employers more than $100 million in premiums so far.
The business has paid off for Liberty, too. Greer wouldn’t talk about the privately held company’s specific numbers, but said Liberty’s gross revenue doubled in 2002 and is well on its way to doing so again this year.
A core staff of 14 works at the home office in San Jose. There are about 50 consultants and salespeople in the field. A new office is expected to open in Los Angeles after Sacramento gets up and running, followed by a fourth in Las Vegas.
Liberty says its success stems from digging deep into the wide range of premium rates and benefit packages offered in the state.
Northern Californians pay very different rates from their neighbors to the south. Age, health status, gender and other factors are considered, too, and competition between insurance carriers means deals here and not there, for these people and not those.
“The way insurance carriers were computing rates was subjective,” Gottwals said. The company has an in-house auditing team to look at how to trim benefit costs for employers. Proprietary computer software was developed to determine appropriate rates based on risk — and identify discrepancies between these rates and the ones employers pay.
“There’s a ‘richness factor’ — what the company can afford — ‘underwriting adjustments’ and ‘discretionary factors.’ It’s fuzzy math at best,” said Gottwals, a lawyer who looked over contracts during a two-year stint with Downey Brand Seymour & Rohwer before he opted out last summer to audit “the Wild West of insurance rules and brokering.”
Liberty Benefit uses the differences it detects in an audit to get carriers to renegotiate rates, or plays one carrier’s underwriting formulas against another to get better quotes.
The company claims it typically gets a 20 percent to 30 percent reduction in long-term disability and life insurance rates, and between 5 percent and 15 percent on health insurance.
“We deliver the savings first,” Gottwals said. “Then you decide if you want to use our services.”
Brokers alarmed: Local insurance brokers agree there are many different insurance plans. Cheaper options might not include the same network of doctors or other services an employer wants.
There are other ways to trim costs — like stripping out broker commissions the first time around to get the business — but somebody’s got to pay for service over the long-haul, observers say. Often this is done after the fact, through special fees billed for added services — services that brokers typically give away to keep the client happy.
“I’d wait until the other shoe drops,” said Sacramento insurance broker Dale Waters. “This is not the whole story. Will employers still receive the same quality of service? To do this on the come raises lots of questions.”
A licensed life insurance agent and active member of the State Bar, Gottwals knows he’s shaking folks up. He counters that he does not charge extra fees except for consolidating billing, because that particular task takes a lot of work. He claims he does not typically cut commissions, although he does identify them to the employer if he considers them to be inordinately high.
In at least one case, Liberty Benefit identified broker commissions of 20 percent on a contract.
“Competition breeds hostility in some people,” he said. “Bottom line: There aren’t any brokers who offer what we offer. And once we do this, they’ll look like they weren’t doing their job.”
Take the savings and run: Not everybody drops their broker when they get a deal from someone else.
Power company Calpine Corp. in San Jose agreed to an audit. Liberty identified potential savings of $865,000 a year for three years if Calpine changed its insurer for life and long-term disability coverage.
Faced with the possibility of losing the account, the carrier came back with cheaper rates. Liberty got 30 percent of the change and that ended that.
“We had a broker, as many companies do, who searches far and wide for deals,” said Tom Glymph, Calpine’s vice president for industrial relations. Approached in what was essentially a cold call from Liberty Benefit, Glymph agreed to an audit.
“I thought it appropriate to have a look over the shoulder,” Glymph said. “Up front, I told them the likelihood of our changing brokers was pretty slim — and the likelihood of changing providers even slimmer, but said I was willing to pay a fee to have them look at it. They did it and we paid them their fee.”
No-lose proposition: Laurie Slater, human resources manager for Slakey Brothers Inc. in Elk Grove, recently signed on with Liberty Benefit for an audit.
A plumbing and heating/air conditioner wholesaler and distributor, Slakey has a geographically diverse work force of about 450 employees. The company typically sees health insurance rate increases every year of 10 percent to 50 percent.
“I’m interested in the audit because I think we owe it to the company and the employees to be prudent about the cost of their insurance,” Slater said.
