Shifting a medical insurance intermediary business from broking to consulting can bring significant benefits. But, with potential hurdles standing in the way of those considering this route, it takes determination to make the move.
There are certainly plenty of advantages for those prepared to embrace consulting. Perhaps most importantly, it can lead to a more stable and profitable business. “Consulting is about educating a client so they can make a better decision about their healthcare strategy,” says Buck Consulting senior consultant James Love. “Anyone can compare premiums, especially with the internet, but if you can identify ways to reduce sickness absence or improve employee engagement without necessarily driving up costs, this can give you a real advantage.”
Being able to demonstrate value in this way leads to improved client retention as the employer’s perception of you changes. Rather than being seen as a salesperson, a consultant can be regarded as part of the HR team, delivering expertise that can drive savings and help to shape business strategy.
Having this relationship with a client can also make you less open to attack from other intermediaries. This is something seen by Advo Group chief executive Larry Bulmer, who has successfully moved his broking business into the consulting space. “If all you’re competing on is price, you don’t really have much in the way of armoury. Business can be won on price but it can be just as easily lost on price,” he warns.
Employer benefits
Another factor that can give the consulting model the edge is the fact that clients also benefit. Being able to turn to a consultant for advice on healthcare and wellbeing throughout the year can transform an organisation into an employer of choice.
Healthcare Partners healthcare manager Tim Smithers explains: “Employees will appreciate the way the organisation looks after them but the employer will also be well protected if it does have a problem. If someone ends up taking them to a tribunal due to a health-related problem, the employer can show they did everything they could to help them.”
This broader approach can also reduce an organisation’s staffing costs according to Bulmer. “Over the longer term they’ll see more stability in the workforce. This can save a considerable amount in recruitment and retraining costs.”
In addition, and depending on the firm, a more holistic approach to employee health and wellbeing can lead to a reduction in sickness absence rates. Smithers points to the CIPD research, Absence Management 2014, which shows that on average employees were off for 6.6 days in 2013 at a median cost of £609 per person. “You can help an employer cut this by just one day, it represents a significant saving,” he adds.
In addition, while the focus with consulting may be on advice rather than the cost of cover, it can also save an organisation money. Love explains: “A consultant will examine whether an organisation’s healthcare strategy is suitable. This will include analysing any available data to determine the nature of its healthcare requirements.”
For example, take an organisation that has high sickness absence but low medical insurance claims. By analysing available data the consultant might find that more needs to be done to make employees aware of the medical insurance, with faster access to treatment helping to reduce the length of absence.
Alternatively, they might find that there are issues around engagement with employees that aren’t claiming, begrudging the P11d expense of cover. In this instance they might be more engaged if the employer replaced the insurance with a cash plan and more wellbeing benefits that they could use.
Transformation tactics
With its broader focus, moving into the consulting space requires an overhaul of business practices. While a traditional brokerage may have focused on group PMI, the interaction between different products and services requires knowledge of the healthcare and group risk markets. Love explains: “You need to be able to bring all the information together. Ten years ago we had separate departments covering each product area but we’re now fully integrated to give this overview.”
In addition to extending product knowledge, conversations with clients also need to shift. “Instead of talking products, talk themes and concepts that are relevant to your clients,” says Axa PPP healthcare director, health consulting Elliott Hurst. “This helps to establish credibility and trust much more than if you were pushing products.”
As an example he points to the government’s Fit for Work service, which is being launched this year. “It’s probably not something that a broker would be discussing at renewal but it can open doors for you, winning their trust and potentially leading to recommendations for occupational health services, employee assistance programmes and group income protection,” Hurst adds.
Another key differentiator between brokers and consultants is the way in which they are remunerated for their services. While brokers tend to rely on the commission attached to a product sale, consultants are more likely to charge a fee.
Overhauling the way your clients pay can seem daunting, especially if they’re not used to writing a cheque for your services. But Jelf Group director Matthew Judge says his firm has successfully switched to a fee-based service with many of its clients. “We’ve introduced client agreements with many of the businesses we work with, especially those in the middle market and above,” he explains. “These are written on a three year basis, spelling out the services we will provide for them and how much this will cost. We do charge a further fee if there’s an additional service, typically something unexpected such as a one-off review or if there’s a merger or acquisition, but our clients do like the certainty of this approach.”
Further obstacles
While the theory’s great, the transition to consulting is not always simple. Even the best-laid plans can be derailed by business issues and personnel problems.
For starters, critical mass certainly helps. Bulmer’s firm, like many others that have moved into the consulting space, has used acquisition to achieve this critical mass. “Unless an intermediary is able to operate as a boutique consultant advising a very niche group of companies, you need scale to be able to offer true consultancy services,” he explains.
This scale can be important in a number of ways. It can support additional staffing. As an example, Bulmer says that one of the first things a potential client will do is check out your website. “It needs to look professional, ” he says. “This can be difficult to achieve if you’re only a one or two man band.
In addition, with a greater number of clients, it is possible to have a better understanding of their needs. More data becomes available, allowing a consultant to identify trends, and potential solutions, that will benefit other clients.
But once scale’s achieved, other potential problems can start to emerge. As business is much more dependent on the relationship between the client and the consultant, finding the right person for this role can be difficult. Bulmer says he’s struggled with this. “We found that when we interviewed people from within the industry they’d often have preconceived ideas about how to do business that didn’t necessarily fit with our philosophy,” he says. “Now we tend to recruit from other sectors. It’s easier to find the right person and train them.”
Firms face a further challenge when a successful consultant does leave. As the client is so used to dealing with that individual, it can be hard to pick up the relationship. Judge says this is something that consulting firms need to be aware of. “It can put the client relationship under stress so it is important to project the strengths of your firm as well as the consultants it employs,” he adds.
Clients can be the obstacle to a switch to consultancy
For many intermediary businesses, the biggest hurdle to a switch to a consultancy model can be their clients. Although there are benefits to be had from dealing with a consultant rather than a broker, Judge says some clients are wedded to the transactional model. “Some of the smaller SMEs in particular can be very cost driven and will simply expect you to find the cheapest price at renewal,” he explains. “The size of these businesses also means it’s difficult to get the data necessary for a more consultative approach. It’s much more about price and protecting the underwriting at this level.”
Because of this, although more than 50 per cent of Jelf’s corporate book has already contracted with the firm, with more expected to follow, it still provides a more traditional broking service to some of its clients. Judge adds that, for some clients, the perception of fees can also make them reluctant to make the commitment. “Some firms operate a fee for service model, much like a solicitor or accountant, but this can leave a client with a stack of invoices,” he explains. “We prefer the simplicity of agreeing an annual cost as this gives clients much more certainty.”
But while client appetite means there’s still room for both brokers and consultants in the healthcare market, the drive for greater professionalism through initiatives such as the Retail Distribution Review, could see the shift towards consulting accelerate over the next few years.