Why do the big health insurance carriers need brokers? There are only four majors left in the market, Aetna, Blue Cross, Cigna and United Healthcare. All have fully operational account reps. eager to service business. Each has in-house sales reps to solicit new business. So why are independent brokers necessary? What value do they bring?
By Bill Rusteberg
Years ago when I worked as a salesman for Blue Cross of Texas we didn’t broker business. We were salaried, captive agents. I started out earning $840 a month before taxes. Life was good.
The brokerage community hated us. Then around 1981 the powers to be in the Home Office (known as HOSOBS) decided it wise to allow independent brokers to compete with in-house salaried captive Blue Cross agents. That didn’t sit too well with the troops.
A few of us quickly figured out we could earn more acting as an independent broker than working for the company.
A Blue Cross company sales rep in West Texas was the first to bolt. He solicited his Blue Cross groups while still working for the company asking for Agent of Record letters, explaining he was planning to strike out on his own but could still service his Blue Cross clients as an independent broker. “It won’t cost you anymore, your rates will remain the same” was his message.
He left Blue Cross with enough business on day one to staff an office and off he went. He quickly established a successful health insurance brokerage in West Texas and is still active to this day.
Others followed. The best left, the rest stayed. At a level 10% commission life was good for these millionaires in the making in the 1980’s – 1990’s Golden Age of health insurance brokerage.
The HOSOBs soon realized more sales were coming from the brokerage side of the house than in-house sales. Their decision to broker had proven to be a wise one after all. It effectively expanded the original 17 Blue Cross marketing offices across the state to hundreds of independently owned offices at the stroke of a Home Office pen and it didn’t cost Blue Cross a dime. “Our customers will pay the brokers, just load up the rates.”
So why do the BUCA’s use brokers? Because independent brokerage is a effective distribution channel. Brokers have relationships the carriers don’t have. That’s worth something. And the BUCAs pay nothing for influence peddling by passing the cost on to their customers. That’s smart business.