Creating a private exchange helps Tennessee brokerage find its niche

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The Crichton Group, one of the largest independent agencies in middle Tennessee, launched a private benefit exchange in late 2013 as a way to keep up with the competition. But, to date, the firm is not writing much exchange business. Of those clients who initially went on the model, many have left. Despite that, the company would do it all again, Austin Madison, the Nashville-based brokerage’s senior vice president, says.

Why? Because it has opened doors and conversations with many new prospective clients and led to the creation of a new technology division for The Crichton Group. EBA spoke with Madison about the company’s development in the last four years since creating the exchange. What follows is an edited version of the conversation.

EBA: Why did you launch an exchange?

Madison: Ultimately, there were two main reasons. One was our membership in Assurex Global Corp., which is made up of large privately owned brokerage firms that have an entrepreneurial spirit. The owners of these organizations got where they are today by being forward thinking and innovative. There was a desire to be innovative and stay on the leading edge.

The second thing was the point of having to play defensively a little bit. We had to play defensive because private exchanges were the buzzword and everybody was talking about them. Competitors were talking about it. If you were not talking about [the option with] your client — whether it is right or wrong for them — there was going to be a problem.

EBA: Private exchange enrollment is below expectations, according to Accenture. What are you seeing in your exchange?

Madison: What was interesting was when we first launched this, we went with the approach of people were asking about this and wanting to talk about it. But our approach was we got a lot of meetings because of our private exchange, just the exposure we had. A vast majority of those meetings ended with us asking, ‘Why do you want a private exchange? Let’s talk through this.’

We picked up a lot of new accounts based on those conversations. The fact of the matter was once we talked about what a private exchange was, a lot of folks realized what they were looking to accomplish was not necessarily a private exchange. It was understanding how they can better control risk and cost and improve benefits and communication to their employees.

We definitely wrote a handful of clients during that time that ended up being on the private exchange, but there were a lot of clients that we ended up picking up that did not have a ben admin platform or did not have an automated process. That was step one to get them to that point.

EBA: What happened next to those clients?

Madison: Of those clients, two remain on the private exchange, one client was sold to a larger organization and had to move to their system. One client stayed on the exchange until just recently and pulled off of it because of the administrative expense. The per employee, per month expense on the exchange started to not make sense for them and they had shrunk in size.

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We had a couple of clients pull away from the exchange. The main reason for that was because the way private exchanges were launched. When it was first launched, there were set plan designs and these were the only plan designs employers could choose from. There was no flexibility around that. At first, you were talking to employers about that and they thought it didn’t seem like that big of a deal. But, [for] employers who [have been used to being] able to make changes, that can feel pretty restrictive.

EBA: Looking back, would you launch a private exchange again?

Madison: I would do it again. What happened was this whole buzz about private exchanges created a new midmarket segment (100-1,000 employees) that for a long time did not have benefit administration platforms.

These ben admins that had been out for a while, they were telling folks, ‘We need 90 days to roll something out for open enrollment.’ Well, that is just never going to happen.

Then all of a sudden, these private exchanges came out and promised things a lot faster. As a result, these payroll and ben admin platforms started feeling threatened, so they adjusted their technology and improved their technology. A lot of private equity money came into play and things started changing.

Out of that, we saw that we needed to change what our brokerage’s platform and core competency was. We created an entire technology team. We didn’t have that before. We now have a technology team where we consult with employers around their HR and technology needs. We would have never made that investment or realized we needed to make that investment if we hadn’t gone through this whole private exchange.

EBA: What is the future of your exchange?

Madison: It died off for a little bit, and we really weren’t pushing it or talking about it as much. Now, we are starting to get a little bit of a resurgence of employers asking us about it. I had a meeting with a group a few weeks ago and the CFO was dead set on wanting a private exchange. He was with a former employer that was on the verge of adopting a private exchange. So, private exchanges 2.0 is just like anything else, the technology will have faster build time, better technology and the ability for employer to have more than two or three plans.

I don’t think it is dead. I just think it has evolved.

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Practice management Private benefit exchanges Benefit management Employee benefits Advisor strategies Healthcare issues