Professional employer organizations (PEOs) and insurance agents have been traditional competitors because PEOs provide Workers’ Compensation and Health insurance under their master plans to client firms. But times have changed.
In the late 1990s, three PEOs were formed with plans to enter into marketing agreements with insurance agents. All three quickly grew to rank among the 10 largest PEOs in the U.S. Later, many other PEOs started to offer sales contracts to insurance agents while retaining a direct sales force. Today, most of the 25 largest PEOs will provide a sales contract to insurance agents.
Over the last five years, two significant developments have changed the landscape for the relationship of insurance agents and PEOs:
- In 2013, the NCCI released a study authored by its chief economist, Harry Shuford, concluding that PEOs have a positive impact on the nation’s Workers’ Compensation system. This has encouraged many of insurance agents, who had previously held a negative opinion of PEOs, to look to PEOs to provide an alternative solution to various insurance needs for their clients.
- The PEO marketplace has evolved. Five years ago most PEO sales with insurance agents involved the agent working with a PEO employee sales rep, who handled all point of sale communication with the client. The evolution of PEO sales has followed the independent insurance agent model. Today many agents look to PEO agents to access PEO solutions for their clients.
Today there are more than 700 PEOs in the U.S. The PEO agent typically has sales contracts with many PEOs and can match up the needs of the client with the capabilities of a group of PEOs to request proposals.
The PEO agent can analyze the proposals from a group of PEOs and prepare an apples-to-apples comparison for the client and the insurance agent. This saves the client time because the client does not need to deal with four or five PEO sale reps to select a PEO and receives a comparison by an independent party who is representing the client and not the PEO. It helps the insurance agent because none of the PEO proposals are from his competitors.
How does an insurance agent choose which PEO agent to work with? Because PEO agents are unregulated and not subject to licensing requirements, agents need to find out:
- Does the PEO agent have E&O coverage?
- What are his or her qualifications? Check the agent’s web site for a bio, or ask for one, as well as references from other insurance agents.
- What services does the PEO agent perform? There are “quote only” and “full service” agents and a number of agents in between the two. The quote-only agent provides the quote and it is up to the agent to present the quote and deliver a signed client service agreement. The full-service agent conducts a fact-finding meeting with the client, selects a group of PEOs that match the client’s needs, requests proposals, prepares an apples to apples comparison to the client, procures the signed client service agreement, and makes sure that the PEO implementation is properly scheduled and completed.
- Who actually makes the presentation of the PEO proposal to the client–the insurance agent, the PEO agent or the PEO sales rep? Some PEO agents let the PEO sales rep make the presentation.
- What type of clients does the PEO agent have experience with? Some clients are Workers’ Compensation driven, some focus on Health, and others are driven by the need to outsource HR and administrative services. Still others are dependent upon the human resources information systems capabilities of the PEO.
- Does the agent have experience with large multi-state firms?
- How many PEO markets does the PEO agent have a sales contract with? There are more than 700 PEOs in the U.S. The agent needs an adequate number of PEO markets to match with the client’s needs.
- Will any of the PEOs the PEO agent has contracted with recognize a Broker of Record letter from a competing insurance agent? Will the PEO agent recognize a Broker of Record letter?
- Do any of sales agreements the PEO agent has with PEOs contain any non-solicit or non-compete provisions? If so, this can limit the PEO agent’s ability to provide quotes or sales assistance for clients which are already with certain PEOs.
- The insurance agent’s contract with the PEO agent should state that commissions will continue to be paid as long as the client stays with the PEO and the PEO agent receives commissions from the PEO. It should also state that if the contract with the PEO agent is terminated, commissions will continue to be paid as if the contract was in full force and effect. The insurance agent’s contract should not require any services from the agent.
- Does the PEO agent have a health or P&C insurance license? In certain states only licensed insurance agents can compare health plans.
- Some PEOs purchase Workers’ Compensation insurance from carriers with no A.M. Best rating. The insurance should require the PEO agent to disclose the name of the Workers’ Compensation carrier and its Best rating on all proposals delivered to the agent and client.
Insurance agents find it easier to work with PEO agents because the agent works with the client like the independent agent does: representing the client and not the PEO. However, the insurance agent cannot assume that the PEO agent is qualified. The checklist above will give the insurance agent a good start, with a possible next step of making a joint sales call on a client to observe how the agent works in the field.
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