The heads of employee benefit brokerages in the United States that experienced the most growth year-over-year in the large-group client market agree, their successes lie with their consultants and employees.
In partnership with business intelligence data analytics firm miEdge, EBA presents its 2016 listing of top large-group employee benefit firms in the country, ranked exclusively on health and welfare revenue.
The listing is the only ranking of its kind using information not self-disclosed by the companies being ranked. The list is based on Form 5500 Schedule A data submitted to the Department of Labor as of Aug. 31, 2016 for groups of 100 or more. (Revenue numbers do not reflect groups under 100 lives, government entities and church plans that are not required to file. Any disclosure on Schedule C’s are also not contemplated in these numbers.)
At Fort Worth, Texas-based Higginbotham Insurance — which had the highest percentage growth year-over-year at 39.2%, rising to No. 33 on the ranking with $11 million in 2016 revenue from $7.9 million in revenue and No. 44 on the 2015 list — its people are the firm’s most important asset, says Rusty Reid, chairman and CEO of Higginbotham Companies, the brokerage’s parent company.
“Unlike in other business, they [take] the elevator every day,” he says. “Our business is very complex and full of ever-changing laws and very complex people issues.”
As a result, Reid says it was important to create incentives that exceed employer expectations, and the firm began an employee ownership program in 1989. Employees now own 75% of the company.
“We are very focused on business-to-business,” Reid says. “If we win, they win. We think that comes through in spades when it is related to clients. Knowing you are an owner, you go a bit above 9-to-5 customer service. The people dynamic is extremely important and [this] takes it a step further.”
Employee Benefit Adviser, in partnership with business intelligence data analytics firm miEdge, presents the 2016 list of the top employee benefit brokerages in the country, ranked exclusively on health and welfare revenue. Revealed in descending order, the listing is based on Form 5500 reporting data as of Aug. 31.
The rankings
In the 2016 rankings, Mercer Health & Benefits remained in the No. 1 spot of top revenue with $227.1 million in revenue. Both Arthur J. Gallagher & Co. and Aon Consulting moved down one spot each, to third and fourth, with $196.2 million and $172.1 million in 2016 revenue, respectively. Willis Towers Watson rose into second place from fourth with $203 million in 2016 revenue.
There is a lot of interesting movement within the rankings, explains Mark Smith, CEO of New Boston, N.H.-based miEdge, the firm that provides the data.
“The big thing that stands out is that consolidation in the employee benefits health and welfare space is continuing ... to be a dominant part of how people are staying competitive in the marketplace,” Smith says. “Go back to 2014, there was 30% of the market controlled by the top 50, now that is over 40%, and with the [Affordable Care Act], what you as a broker/consultant need to provide to clients has gotten more sophisticated.”
He adds, “The pressures on bringing that sophistication to the client often means you have to make an investment as a business into providing these services or partnering with and many times merge with larger firms that already [have] those things.”
Within the top 10 firms, Aon and HUB International led the pack in growth with 21.7% and 21% growth, respectively.
But, Smith cautions, growth also depends on size. “Mercer is still the No. 1 broker and consultant in the country. They have remained the dominant force in the United States,” he says. “It is also much easier to grow faster as a smaller organization, because if you grow $1 million on small versus $1 million on large, that percentage difference is [bigger].”
Changing business
The ACA is bringing many different requirements that employers must adhere to, requiring a consultant to be completely up to date on all the moving parts that relate to the workplace, and then find a compelling solution for the client, Smith explains. “This becomes even more burdensome when trying to do that with your own clients and on top of that, finding new clients,” he adds. “They key to the most successful brokers is that they have the ability to provide those capabilities to existing clients, but also have a sales culture to go and find new clients as well. That is not a skill everyone has.”
For those at the top, it is all about changing and adapting with the business. “All this change means for EPIC, and the industry, [is] that we too must change, evolve and invest to support our consultants in delivering the right solutions and capabilities to our clients, and to help them grow personally,” says Chris Duncan, chief growth officer at San Francisco-based EPIC Insurance, which moved up six spots to No. 15 on the list, with 21.8% growth on $30.5 million in 2016 revenue.
“Those that get it right are likely to reap the rewards of growth, as employers are looking for straight, clear answers that solve their problems,” he adds. “This also means that for benefit advisers specifically, scale matters, as you need scale to be able to financially support the investments and capabilities needed to deliver for clients.”
The business has greatly changed over the past 6-7 years due to the “massive forces of healthcare cost increases and the ACA,” he explains. “Healthcare costs are now 18% of GDP, and costs continue to rise much faster than inflation, and the benefits financial impact has moved from what used to be the sole domain of HR, to such size and impact that the C-suite and boards are now heavily involved.”
As a result of the ACA, Duncan believes that brokers and consultants must expand their services, analytics, solutions, technology, communications and compliance capabilities and evolve their own personal skillsets to deliver ever more complex and sophisticated advice and solutions to clients.
The changing business means brokers are challenging themselves “daily to identify ways to grow [their] business outside the standard brokerage services,” says Liz Smith, president of Schaumburg, Ill.-based Assurance Agency, responsible for overseeing the firm’s employee benefits practice. Assurance rose eight spots on the 2016 rankings to No. 39, with 24.3% growth on $9.4 million in 2016 revenue.
“Our business has changed dramatically over the last five years,” she adds. “Pricing has obviously always been important, but today I would say clients are most interested in compliance and analysis. You need to invest in these areas to retain your clients and create that credibility.”
It is part of the “rapid change, consolidation and innovation of business models” in the industry, Duncan adds. “There was a time when if you were a good golfer and networker, you could be a successful benefits producer or consultant, operating inside a relatively stable world of benefits problems and answers. Today, you have to be as savvy as an investment banker, as paranoid as an attorney, as analytical as an actuary, as comfortable with a CFO as you are with a benefits administrator, a project manager like you’re going to the moon and back, and as good a communicator as an Oscar-winning actor. The internal and external environment for advisers has totally changed.”
Staying ahead
Staying ahead of the competition is a bit of an art and a science, says Tucker Sharp, Aon’s global chief brokering officer. “The science is straightforward. We develop people that are really good at listening, who talk to clients about their biggest challenges,” he says. “We stay in close contact with Washington and groups like the National Business Group on Health.”
But, he adds, there are two other pieces. One is investment in innovation. Aon has created several innovation centers around the world where teams of actuaries and thought leaders come together to work on innovations, such as data and testing with carriers and clients, Sharp says.
And just like other firms on the list, the other piece to success revolves around people. Over the past five years, the firm has thought of itself as ‘Aon united.’
“That may sound like a tagline, but the way we operate differently, rather than experts in retiree and health [in silos], we have people across all those areas that are trusted and can translate that,” he says. “One voice has forced us — in a good way — to look outside our traditional subject-matter expertise so we have people on the three areas our clients want: risk, retiree and health.”
When Aon and Hewitt merged in 2010 it allowed the newly formed company to take a step back and put a new focus on bringing those teams together, Sharp explains.
Organic growth or M&A?
These firms with the most growth are looking to grow any way they can. At Assurance, Smith says that her firm has been focused on organic growth for the past 15 years. “We focus on bringing on new clients one at a time, as well as targeting top producers,” she explains.
At San Mateo, Calif.-based ABD Insurance & Financial Services, which rose six spots on the list to No. 35 with 28.2% growth and $10.5 million in 2016 revenue, the basis of the firm’s growth has been organic. “To grow organically, you have to have a reputable group of people, a reputable firm and an aggressive sales force,” says Darren Brown, ABD’s executive vice president, employee benefits.
“We have a long tenure and track record in the markets that we serve,” he explains. “How we grow is by being laser focused on our current customers and building a strong reputation so they retain us as their consultant but also make recommendations and referrals. When we reach out to new opportunities, we can refer to our client base and we can refer to our market leverage and relationships to grow organically.”
Higginbotham’s growth is driven by cross-selling. The firm started its cross-selling initiative in 1989 and it continues to be embedded in their culture today, Reid says.
Cross-selling starts on day two with clients. The first day focuses on coverage and figuring out business plans. But, day two is about wellness and helping with healthcare costs. The firm has seven people across Texas who are wellness consultants. “Everything we do is client driven and if there is a need out there they have communicated, we try to fill that need,” says Michael Parks, COO of Higginbotham’s financial services practice, responsible for core benefits.
The firm also focuses on M&A. Some years, organic growth will outpace M&A, and vice versa. “What we don’t want to do is bring on a new partner for the sake of bringing on a new partner,” Reid says. “We want to find someone that is a partner, not an M&A candidate.” Since the firm launched its ‘Best in Texas’ initiative in 2007, it has brought on nearly 25 partners.
Over at EPIC, the company is focused on all forms on growth. “If you look at the EPIC story, it started in California, and grew to the fourth largest brokerage firm in California pretty much all organically by hiring good people,” Duncan says. “The two founders, John Hahn and Dan Francis, did it block-by-block for eight years.”
An investment by Carlyle two and a half years ago took the show on the road, expanding the firm “both in California and eastward, into the Southeast, Northwest and Southwest, organically, [by] hiring good people, and inorganically, through acquisitions,” Duncan says. “We have a dual focus on getting the right acquisitions that can buy into the EPIC culture, client focus, entrepreneurial spirit and finding great producers, consultants and teams of people that leverage the same.”
EPIC closed its largest employee benefit acquisition to date with Ascende in Houston this year. “They brought to the table several key specialty areas EPIC was light on, including prescriptions, global benefits and retirement, but more importantly, a ton of really great talent and leadership we could build around,” Duncan explains. “Our acquisitions are seldom about just buying revenue and clients; we really look for a strategic opportunity we can invest in.”
But with that growth, agencies know they need to find clients that are a right fit for their agency. At Associated Financial Group in Minneapolis— which rose eight spots to No. 22 on the list with 26% growth on $15 million in 2016 revenue — the firm sees its growth coming from decision-making and new clients. “We are not the right answer for everybody,” says Dean Hildebrandt, CEO of Associated Benefits and Risk Consulting Group, Associated’s brokerage arm. “If somebody doesn’t value health and wellness of their staff, we are probably not a great fit for them.”
“There is somebody that will try to do it cheaper,” he adds. “But for folks that value wellness and value improved performance for their group, we are a great fit.”
About the people
But in the end, it comes back to the people. “My experience has proven to me that this business has changed … much faster in the past 5-6 years than the previous 15,” says ABD’s Brown. “The one thing I truly believe strongly that separates us from other firms is we work really hard to create a leadership culture where everybody within the organization is empowered with transparency around results.”
“They are empowered to think like leaders and make decisions,” he adds. “So when they work with clients, they can act quickly and be accountable for the decisions they are making.”
This is different than the previous producer-centric days, where the focus was on making calls and closing deals. “Our firm has always been about the team approach,” he says, “a very robust set of resources associated with those teams and by creating a leadership structure and a large group of people committed to each client engagement that they have.”
People are important because anybody can bring a product to bear and show it to a client, says Pattysue Rauh, executive vice president and national benefits leader of Daytona Beach, Fla.-based Brown & Brown Inc., which held steady at No. 12 on the list, with 30.4% growth on $77.3 million in revenue.
“What is more important is having an individual willing to invest time and effort to stay ahead of the curve with compliance,” Rauh says. “It is constantly changing in the industry. You need an individual who wants to continually improve and make sure they are a top-notch executive meeting with clients and prospects.”
“They understand the issues and can bring solutions to the table that aren’t just product solutions, but truly compliance- and advice-driven on issues facing employers today,” she adds.
The future has never been brighter, EPIC’s Duncan says. “All this change going on, from ACA to insurer consolidation to healthcare delivery, means that we as advisers are needed more and more, in more strategic and tactical ways, than ever before,” he explains. “Combine this with the massive pressure on over-worked HR functions being asked to do more and more with less and less, and CFOs focused on costs they can impact means that trusted advisers and specialists that really understand the issues and levers in 18% of the GDP and can translate chaos and uncertainty into a plan that delivers on an organization’s needs, making HR and the CFO look good, is a great place to be.”
““We’ve placed a major bet on massive change meaning material opportunity for EPIC and its people,” Duncan says. “And we’re seeing the results of this bet in our own growth in benefits.”
ABD’s Brown agrees: “I have an extremely positive outlook for this industry and my firm. There has been a ton of disruption in health care. It’s not just the ACA, but a challenging industry … and a big part of the economy.”
Something so large is ripe for disruption, but also ripe for opportunity, Brown says. “As a traditional benefit broker/consultant, one thing we do know to be true is that our buyers are looking for great advice and counsel,” he explains. “Look at the true definition of an independent broker/consultant that is what we do, assuming you have the resources to support those recommendations and provide that guidance.”
