Managing Risk VS Servicing Risk

Brokers who survive in the long run will adopt both strategies by aggregating best in class services on a private label basis as a single source comprehensive branded model……………………..This will enable independent brokers to effectively compete with the big boys…………………….

By Bill Rusteberg

As a broker in the health insurance business are you assisting your clients in managing risk or servicing risk? There are important distinctions.

Managing Risk includes (1) Document review,  (2) Compliance review,  (3) Claim auditing,  (4) Risk tolerance assessment,  (5) Direct contracting,  (6) Actuary services. Under each are subsets of risk management components.

Servicing Risk includes (1) Enrollment services,  (2) Customer service,  (3) Communications,  (4) HR Technology,  (5) Claim advocacy,  (6) Playing golf with the owner

Both managing and servicing are important to plan sponsors. If you’re a broker that does both you are the exception and you win more than you lose. If you only service risk you lose more than you win.

Like many other professions, our industry is composed of general practitioners and specialists. The former service risk only while the later manage risk, a far more challenging discipline. In most professions specialists earn more than general practitioners.

Quantifying costs to manage risk is relatively easy. For example, document review can be done for under $1,000. Compliance services can be as little as $750 per year. Claim auditing can be a percentage of savings of 15-25%. Risk tolerance assessment will cost $500 or less. Actuary services can be anywhere from $3,500 to $10,000 depending upon the scope of work to be done (thus there are subsets under each risk management service). 

Quantifying costs to service risk is not so easy because brokers traditionally have relied on commissions tied as a percentage of premiums. Thus there is really no correlation to the cost of servicing and there is almost never a servicing agreement between the broker and the plan memorializing duties and responsibilities and the cost to provide those services.

Thus brokerage for servicing risk is more financially rewarding than managing risk. Contrary to other professions,  general practitioners in our industry earn more than specialists.

Brokers who survive in the long run will adopt both strategies by aggregating best in class services on a private label basis as a single source comprehensive branded model. This will enable independent brokers to effectively compete with the big boys.

Brokers who aggregate these services under a single brand would be wise to develop a standard fee/commission structure to encompass all elements needed to manage and service risk.

RiskManagers.us is one example of aggregating services with a transparent fee schedule from which clients can pick and choose the services they need. We compete with the big boys all the time winning through branded quality and competitive fees.

Recently a municipality in Texas sought proposals seeking brokerage services for their health insurance plan. Multiple agents responded:

CITY OF LEON VALLEY REQUEST FOR PROPOSALS INSURANCE AGENT OF RECORD

PARTICIPANTS JUNE 13, 2018

  • Agora Benefits Solutions LP
  • Crandall & Associates
  • Cuellar & Associates
  • Employee Choice Benefit Advisors
  • FBMC Benefits Management
  • Gallagher
  • Holmes Murphy & Associates
  • IBTX
  • IPS Advisors Inc.
  • Jaramillo Insurance Service
  • Newkirk & Newkirk
  • SWBC Employee Benefits Consulting
  • US Employee Benefit

Which of these offer the best package? The city’s decision most certainly should be based on value received. Who are the risk managers and who are the service managers in the list above? And who are both? The point here is we are in a competitive business indeed. To succeed we must be positioned to offer quality, competitive and comprehensive services or we won’t survive very long.

 

 

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