Top 50 brokerages eye mid-market sweet spot
Large national firms and independent practitioners alike are finding strength in numbers amid deepening industry consolidation, suggests the fourth annual ranking of 50 largest employee benefit brokers by Employee Benefit Adviser. The list is produced in partnership with business intelligence data analytics firm miEdge.
These firms serviced and administered 68% of the marketplace last year from about 60% in 2010, reports Mark Smith, founder and CEO of miEdge, whose data is based exclusively on health and welfare revenue involving large-group employers with 100 or more employees.
“Premium volume has increased dramatically in that period of time, but so have commissions and fees,” he says, predicting more consolidation on the way. Indeed, there was a 90% increase in employee benefit firm acquisitions in 2017 over the previous year, Optis Partners found.
With data gathered through the Department of Labor’s Form 5500 process, Smith says miEdge's data is “the only marketplace ranking that’s truly independent.”
Mercer Health and Benefits was No. 1 for the fourth straight time with 12.46% annual revenue growth to more than $255 million in 2017 from $227 million in 2016. Rounding out the most recent top five spots were Willis Towers Watson, USI Insurance Services, Arthur J. Gallagher & Co. and Aon Consulting.
“What makes Mercer particularly impressive is that they have maintained their market-leading position, but they haven’t been anywhere near as acquisitive as some of their smaller competitors,” Smith says. He also cites Lockton and OneDigital, which came in at No. 7 and 13, respectively, for choosing a similar approach that favors hiring new producers, retaining clients and chasing new business over acquisitions.
However, with large players squeezing smaller brokers, Smith has seen an acceleration of acquisitions and partnerships. One such example involves Alera Group, an amalgamation of smaller boutique firms that didn’t exist a year ago and debuted at No. 17 in 2017 with $37 million in revenue.
Another notable development was USI landing at No. 3 after acquiring Wells Fargo Insurance Services USA, which Smith says had been declining dramatically in recent years. USI posted a 73.80% revenue growth, moving up four spots from the previous ranking. In addition, he says NFP claimed the No. 10 spot with the help of both acquisitions and organic growth.
A closer look at some of the year’s biggest success stories reveals deeper insight into what makes some of the nation’s top benefit brokerages tick:
Flexing Mercer muscle
Todd Renner, U.S. health and benefits enterprise and midmarket leader for Mercer, attributes his firm’s consistent ranking atop the list to a strong midmarket penetration involving groups of 100 to 5,000 employees. “What makes us successful is our ability to translate the successes that we’re seeing in the jumbo market and bring that to the midmarket,” he says.
Driving forces include a down-market flow of intellectual capital and practical innovation, as well as the technology and consumerism embedded in Mercer Marketplace, the brokerage’s private health exchange solution. Renner also references strong local teams with a keen understanding of their regional healthcare market with support from national and global resources, a deep bench of more than 50 experts in the life, accident and disability areas, and 28 compliance officers.
A final piece of the puzzle involves flexing what’s known internally as Mercer muscle. “Because of our size,” he explains, “we have a lot of leverage with carriers, create purchasing collectives, bring volume and scale down to the middle market and improve the price point.”
The brokerage’s comprehensive toolbox includes a stop-loss center of excellence and stop-loss coalition to help manage high-dollar claimants. It also offers group purchasing options in the pharmacy area to help drive greater discounts and technologies that produce high-quality, low-cost employee benefit communication material for midmarket clients.
OneDigital’s strategic partnership
Like Mercer, OneDigital also earned a significant amount of middle-market business. Mike Sullivan, the company’s chief growth officer, credits a strategic partnership with Zenefits involving an HR and benefits technology solution.
It was an organic move considering OneDigital started as an outsourcer that partnered with others and acknowledgement of the challenges associated with brokers taking a one-stop shop approach. A strong belief in partnerships is part of the brokerage’s DNA, he explains.
The Zenefits pairing has produced newer, more user-friendly tech platforms involving significant investments to the staffing and deployment of technology downstream, according to Sullivan. As part of that effort, OneDigital is aligning teams to handle various silos from sales to technology deployment to benefits consulting.
OneDigital invests in a broad spectrum of specific solutions aimed at this segment, acquiring a pharmacy consulting practice that’s supported by an analytics team, actuaries and underwriters.
Sullivan believes it’s easier to move up market, which OneDigital has done, rather than down market like some of the industry’s largest firms and involves more authenticity for clients.
“We’re trying to build a different kind of employee benefits company with fresh thinking,” he says. “Our middle-market business is the majority of our revenue today, and it really is a significant part of our focus going forward.”
Alera Group sums up its parts
A year ago at this time, 24 independent agencies with like-minded cultures formed Alera Group, which is poised to announce more M&As in the next month or two. They were united in a desire to see the sum of their parts grow beyond boutique practices in employee benefits, property/casualty, risk management and wealth management. The goal was to build on specialty services and skill sets within each agency and scale it in a collaborative organization.
“If truly you want to elevate your ability to deliver service, performance, grow and have capital to reinvest, it’s difficult to do by remaining independent,” says John Clark, the company’s employee benefits practice leader who used to be with Assurex Global.
He stresses the importance of having a diverse revenue model to sustain organic growth driven by cross selling of retirement plans, life insurance, property and casualty, loss control, work comp, employee benefits, captive insurance, etc. The sharing of best practices is a totally open and transparent process, Clark adds, which generates excitement among the firm’s managing partners and yielding positive results.
One such example is the development of a self-funded product with bundled solutions called lead2health whose backbone is a care coordination model. He describes it as “health advocacy on steroids.” Not only does it help bend the healthcare curve, Clark explains, but also produces high patient satisfaction scores.