REDEFINING THE PEO
Independent agents and brokers are always on the look-out for innovative ways to offer value-added service to their small- to medium-sized commercial insurance clients. Anticipating client needs, and having solutions to those needs, goes a long way toward maintaining the relationship with the client.
At Roach Howard Smith & Hunter, a large independent agency with 70 employees and offices in Dallas and Ft. Worth, Texas, one of the solutions the agency offers is human resources management, says Chief Executive Officer Karen K. Farris.
In addition to offering full service commercial and personal lines and employee benefits, the agency also provides human resource management consulting and administrative services to small- and medium-sized employers.
The agency partners with Advantec, a Tampa, Florida-based professional employment organization (PEO) and human resource outsourcing company, formerly AdvanTech Solutions, Inc., Advantec provides comprehensive payroll, benefit administration and human resources services in Florida, Georgia, Illinois, North Carolina, and Texas, and is planning a national expansion.
PEOs, which often provide property/casualty insurance and employee benefits as well as human resources administrative services such as payroll administration, training and recruitment, are not new to Texas, Farris says.
Developed in Florida more than 20 years ago, PEOs were originally conceived as a way to consolidate the workers compensation risks of small employers and remarket the coverage to insurers as a larger organization, enabling them to obtain lower rates. PEOs usually enter into a co-employment contractual agreement with their client companies.
The concept quickly spread into Texas, Farris recalls, and it was competition from PEOs that came after the agency’s property/casualty insurance clients that led her to seek ways to expand the agency services.
“It seemed to make sense that if PEOs could offer insurance and employee benefits services as well as employment administration services, brokers could find a way to provide human resources services to their insurance clients,” she notes.
Roach Howard first developed some of its own human resources expertise and now employs two human resources consulting specialists. The agency began working with Advantec more than two years ago to provide the technology-based administrative services, she says.
The partnership enables the agency to provide a complete human resources management package to client employers with 100 or fewer employees. “These companies need to provide everything that larger employers provide to employees-workers compensation, employee benefits, 401(k) retirement plans, fiduciary liability insurance, all that. But they generally don’t have the management leadership or the information technology platform to provide them.”
The partnership with Advantec has given the agency a preferred competitive position with the small, entrepreneurial companies in the area, Farris says, as well as “reverse flow firms”-U.S. operations of international employers that need help with U.S. government compliance and with providing American-style employee benefits.
Advantec has been a valuable partner in these relationships not only because of its human resources administrative expertise, but also its unique understanding of agency operations, Farris says.
Agency Solutions, Inc., the predecessor company of Advantec, was founded in 1997 as a PEO, specifically to provide human resources and technology -rich administrative services to the small business clients of independent insurance agencies, says Chairman Chuck Davis. But its roots go back to 1991 when Davis and his partner Lowry Baldwin formed their own Florida independent agency-DavisBaldwin, Inc. The agency, which was sold to Wachovia Bank in 2000, grew from $3 million to $18 million in revenue under Davis’ and Baldwin’s leadership.
Davis and Baldwin say it was their agency experience with small business clients that led them to explore PEO services as a way of helping agents retain small business clients and develop relationships that would allow them to cross-sell commercial insurance to a new group of clients.
In 1995, the agents began to assist some PEO clients in Florida with property/casualty insurance and learned the value of the administrative services the organizations provide, Baldwin, now vice chairman of Advantec, recalls.
“We started to wonder what kind of new value proposition we could offer to small- and medium-sized businesses that combined the traditional resources of the independent agent with human resources administration capabilities available in the PEO relationships,” Baldwin says.
They also began to explore the idea of using independent agents who had already developed sales expertise and a commercial customer base, as a marketing force for PEO services, he says. The result was a “human resources-centered PEO,” Davis says, an organization that was created not so much to aggregate workers compensation risks and market insurance, but to deliver the administrative services and employment management that had become so crucial to entrepreneurial companies.
“We chose not to have our own sales force,” Davis says, “but rather to look to the independent agents for our marketing, while we invested in technology and human resources expertise needed to deliver these services.”
By leveraging independent agents as a sales channel, the new company carved out a niche within the traditional PEO marketplace serving small employers. Davis says the average size of the typical PEO client is about 15 employees, and notes that larger firms usually seek non-co-employment relationships where they outsource only portions of their administrative services on an a la carte basis.
He says the company also recognized another more sophisticated set of needs among larger employers of 100 to 2,500 employees. These companies require a higher level of technology to manage their administrative needs as well as more sophisticated consulting to manage productivity and business processes.
This level of service, targeted to larger organizations in a non-coemployment environment, and known simply as “human resource outsourcing (HRO)” became the company’s next target.
In 2003, James Murray III, formerly the chief financial officer, was named president and chief executive officer, and began to spearhead the next stage of the company’s development, including the acquisition of additional capital and expanded technological resources needed to launch the HRO product line.
Earlier this year, the company completed its latest round of financing, raising more than $21 million in equity, Murray says. This new financing will help the company complete its strategic plan to expand its agency partnerships from about 50 to 150 nationally in three years, as well as launch the HRO services.
Advantec plans to offer its new product including exclusive access to PeopleSoft, the leading human resource management enterprise database system.
“While our agency partners and potential partners have dominated their market in providing property/casualty insurance and employee benefits, they are always looking for ways to differentiate themselves from the largest brokers and other insurance sales organizations,” Murray says.
The new human resource outsourcing product will allow agency partners “to leverage their trusted advisor status” with their existing customers to sell a new service as well as gain access to decision makers of a new category of potential customers who are growing in their need for administrative services, he adds.
Farris of Roach Howard says the addition of the HRO product line is particularly exciting for the agency. The expanded service takes the agency into a new era of integrated services by allowing it to not only offer insurance and PEO management services, but also the more sophisticated business consulting services via the HRO.
Kent Nelson, president and CEO of T. J. Adams Group, LLC, a risk management and insurance broker in Lombard, Illinois, is also looking forward to the new comprehensive human resources outsourcing capabilities. Nelson says the brokerage, which is the exclusive Illinois Partner of Assurex Global, and one of the largest independent agencies in the Chicago-area with 150 employees and $22 million in annual revenue, has been looking for a way to provide human resources and consulting services for the past few years to accommodate the growing needs of its customer base.
Large corporations build their own human resources infrastructure and leadership, he explains, but smaller employers of 50 to 1,000 employees “really have no place to go for the level of human resources support they need to compete with big companies,” he says.
While very small companies may benefit from the co-employment relationships that PEOs offer, this next tier of employers generally isn’t interested in that kind of service, he notes. But they are very much interested in improving their overall business processes with state-of-the art human capital management.
“Many of these companies have done what they can on their own in terms of the management of their employee benefits and workers compensation, but to do any more, they need the data resources of a comprehensive human resource information system,” Nelson says.
The Advantec expertise with the addition of the PeopleSoft enterprise database software is particularly valuable to this category of employers, he notes. “PeopleSoft is very attractive to our clients. It is the gold standard in the human capital management industry and by making it available to smaller employers, we can meet an important need.”
Nelson, who previously held senior leadership positions at Aon, Arthur J. Gallagher & Company and Marsh, was recently named to the Advantec board of directors and will assist the company in its development of a national agencybased marketing force.
For more information:
Web site: www.advantec-hr.com
Copyright Rough Notes Co., Inc. Aug 2004
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