As we peer into the future, one question often raised is how national brokers can continue to maintain their revenue growth. This question poses both new risks and new opportunities for the broker and insurance carrier. Over the past several years, many national brokers have primarily grown through acquisitions of independent agencies. Looking at the market there is a limited supply of regional agencies to acquire, which means the pace and volume of M&A activity will decrease over time. National brokers have already begun to acquire General Agents to run all their business through the General Agent to increase their compensation. Aside from expense reductions to increase margins, one of the few remaining ways to increase revenue is to sell more products to customers. Benefits administration platforms like Employee Navigator are a major beneficiary of this trend since their efficiency of offering benefits to employees is unmatched. This will allow brokers to drive additional revenue by adding more ancillary lines and at scale can have a meaningful and long-term impact on a national brokerage’s top line revenue. Beyond increased ancillary and worksite penetration the pressure for additional revenue will force insurance brokers down two possible paths: becoming a Professional Employer Organization (PEO) or offering insurance products.
It’s clear that most large national insurance brokers already offer many of the same services as a PEO such as HR consulting, HR handbooks, workers compensation insurance, 401(k) plans, and association plans to name a few. A national broker running a PEO can offer a single medical plan across state lines to thousands of employers in the U.S. This strategy simplifies the administration of plans for brokers, provides a new stream of revenue growth well into the future, and allows brokers to run their own private exchanges. The only thing missing is a payroll offering to tie everything together for their clients. That type of offering would allow brokers to capture all the worker’s compensation premiums, a revenue stream for the payroll administration, and a fee-based income from employers, which is often represented as a percent of salary. The real benefit lurks behind the curtains for brokerages: streamlined benefits administration.
In addition to the PEO route, we also anticipate some national brokers to become insurance carriers. The market has begun to see some risk assumption by brokers with the creation of white-labeled worksite insurance programs and medical captives and we believe it is only a matter of time before a national broker with 50,000+ customers offers their own insurance plan. Some argue this is unrealistic, and others have commented that the current trend of national brokers concentrating their business with a few insurance carriers essentially gives them de facto control of the carrier. The revenue opportunities may outweigh any risk associated with creating channel conflict with other carrier partners since the insurance brokers need to maintain high growth levels to maintain their valuations. While some of these options are easy to implement, integrating with thousands of partners will take a specialization that can only be matched by architecturally focused benefits administration platforms. Regardless of what the future holds, Employee Navigator continues to adapt to the ever-changing insurance broker landscape to support both the national and regional broker.
