When Accounting Firms Enter the World of Group Insurance, with Herbert Lichtman

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Herbert LichtmanWhen Accounting Firms Enter the World of Group Insurance
Presented by Herbert Lichtman
President and CEO, GroupWorks

Tuesday, February 13, 2001 4:00-5:00 p.m. EST

Visit the AccountingWEB Workshop Calendar for upcoming sessions.


Group insurance presents both great opportunities and great challenges for accounting firms. An accounting firm can create new revenue streams, increase its value to clients, and improve its long-term client retention. In this workshop, you will learn about:

  • Presenting group insurance successfully to your corporate clients
  • Maintaining your independence and objectivity
  • Working inside the regulatory framework

Complete Transcript

Session Moderator: Hello everyone and thank you for joining us today!

Today's guest presenter is Herbert Lichtman, President and CEO of GroupWorks, an online group insurance broker. Herbert has been a strategy consultant to insurance carriers, insurance brokers, and technology startups for the last ten years. Prior to joining GroupWorks, he developed technology roadmaps and strategic plans for the MONY Group and GE Capital, and designed sophisticated decision support tools like estate planning system EstatePro for the insurance industry.

Herbert earned a B.A. in Economics and a B.S. and M.S. in Systems Engineering from Case Western Reserve University. He also earned a J.D. from Vanderbilt University School of Law.

Today, Herbert is going to share with us his insights as to how accountants can add new revenue streams to their practice by incorporating group insurance into their client offerings.

Welcome, Herbert - the floor is yours!

Herbert Lichtman: Thanks for inviting me this afternoon.

As we go through our presentation, please don't hesitate to stop me with questions. That's why we are here.

Accounting firms have a great opportunity to offer group insurance products to their corporate clients. Whenever we talk to accounting firms, though, they are wrestling with three big questions:

1. Why offer group insurance?
2. What are the regulatory issues?
3. And how can they get started?

Let's start with the "why." Many accounting firms already help their individual clients with insurance and investment products. They understand that it is good for the client, because a CPA can help a client develop a consistent and comprehensive financial plan. They also understand that it is good for the accounting practice. Those clients are less likely to switch to another accountant, and they are less likely to reduce their use of accounting services generally. While you are giving the client advice on insurance and financial issues, you are building their confidence in you and in the profession.

The same logic holds for your corporate clients. First, they need help with their employee benefits. Has anyone heard clients complaining about the complexity, the hassle, or the price of their group health insurance?

Session Moderator: I'll bet everyone has complaints about at least one aspect of insurance.

Herbert Lichtman: It is probably one of the areas of greatest dissatisfaction among your clients.

You already know a great deal about a corporate client's financial situation and business strategy, so you are well positioned to help them across a broader range of issues. And remember that many of the issues that come up in employee benefits planning require a strong understanding of accounting concepts. Clients need accounting expertise when figuring out how to structure their plans, whether to self-fund, and so on.

Third, employee benefits (and health insurance in particular) are close to the hearts of employer and employee alike, so this topic improves your position as a truly trusted advisor.

Fourth, a client buying group health insurance with your assistance is much less likely to go anywhere else for accounting services.

So group insurance is a great way for you to increase your revenues, help your clients, and improve the quality of your client relationships. It is a "win" all around.

Session Moderator: It has always seemed to me, that people could get a much better price on health insurance if they shopped for it on the street, like they do auto insurance, instead of being locked into a company group plan that tries to meet everyone's needs.

Herbert Lichtman: Actually, health insurance is sold to groups in order to pool risks. If people bought individually, that works great, until there are medical problems. Then the rates would go sky-high for that individual. So the company group plan is a necessary evil that pools individual risks randomly.

That's why we have the opportunity, though. The employers are saddled with this responsibility, and it frustrates them. The accounting firm can step in and help resolve a real problem, and remove a real burden.

Do any of you help with benefits planning today?

We find that firms are just starting to understand the opportunity, and that more and more accounting firms are getting serious about extending their practices in this direction.

So what are the regulatory issues that you need to be aware of?

Well, both accounting and insurance are highly regulated industries, so a measure of caution is warranted. The AICPA and the NASBA have formally recognized the importance of allowing accountants to provide financial products and services. AICPA guidelines in Rule 503 of the Code of Professional Conduct tell us that you can accept commissions or referral fees only if you are not doing audit/review work, compilations of financial statements for the benefit of third parties, and examinations of prospective financial information. In fact, even if you are doing compilations of financial statements, clear disclosure of any services that you provide is easy and eliminates this restriction. You must also disclose your commissions and referral fees to the client. NASBA's Uniform Accountancy Act (UAA) has similar provisions. Remember that regulation is at the state level, but most states have adopted provisions similar to the AICPA and NASBA guidelines.

Now perhaps you have heard about the SEC debates over financial services?

Well, the SEC focused on limiting the provision of other services to audit clients for independence reasons, but non-audit clients are just fine. The services that they focused on were things like bookkeeping, IT consulting, valuation, actuarial, and legal services. Again, remember that the SEC wanted to limit what was done for audit clients because the SEC's issue was the independence of the audit; non-audit clients are just fine.

So that addresses the accounting side...but now we need to look at the insurance side of the regulatory world.

You can only earn commission on insurance products if you are properly licensed. You would need to hold a life & health license in the state or states in which you operate.

The other approach is to receive referral fees instead of commissions. This is a pretty common approach for firms just getting a toe in the water.

Under accounting rules, you can only receive referral fees for performing a service and not merely for a "naked" referral (like providing a client list). But under insurance rules, you cannot advise a client about their group insurance choices without a proper license. Therefore, you need a group insurance marketing program that is well crafted to define the specific roles of the accounting firm and the insurance partner. This is something that GroupWorks does regularly for our accounting firm partners.

So how would an accounting firm get started attacking this opportunity?

When accounting firms launched into personal insurance and investment products, they worked with business partners who helped with licensing, access to products, and marketing. The same dynamic is shaping the move into group insurance. Partners who know the group insurance market and who can help you address the regulatory issues properly can be very valuable as you move into this area of practice.

Several key elements differentiate one group insurance partner from another.

First, you need a group insurance partner that allows you to serve your clients properly, independently, and objectively. Working directly with insurance carriers does not give you the broad and objective access that your clients need. And working with partners that only emphasize a few carriers also put you in the trap of "selling" a product. The leaders in enabling accounting firms to sell group insurance offer access to all major products and carriers. We have always taken this objective and independent approach, and it is tremendously helpful to accounting firms striving to place the interests of their clients first.

Second, you need strong pre-sales support. Your partner has to be able to provide you with group insurance experts who can make client visits with you, and who can provide you with immediate support when your clients need guidance. In today's world, your insurance partner should also use technology to improve the quality of their analysis of the client's insurance needs.

Third, you need strong post-sales support. Your partner must be able to handle the complete challenge of supporting group insurance on the web...by phone 24x7…and in person. Most accounting firms are not equipped to handle this kind of post-sales support; your partner better be ready.

Finally, you need a compelling message. You don't want to be a "me too" player in group insurance. You want to deliver something of exceptional value to your clients, so that your clients increase their perception of your value. We hear this quite a bit from accounting firms that have tried offering group insurance in cooperation with a traditional group broker. They approach a CFO who trusts them, and they ask the CFO to consider buying group from the firm. The CFO says something like "No offense, but you guys are going to offer me the same insurance products...from the same carriers...at the same prices...so why should I buy through you?"

What's the message? That you have to give your clients a good reason to work with you.

We have always focused on two reasons for the clients to work with our accounting firms.

First, the accounting firm can give the clients a truly objective look at the marketplace. That is very hard to find in the group insurance world.

Second, we have enabled our accounting firms to offer complete benefits management at no additional cost. This is the missing piece of the puzzle. The accounting firm is not only able to offer group insurance services...but also offer a much stronger value proposition to the clients than any traditional group broker could offer.

You wind up in a position to help your clients deal with a topic that they find frustrating.
You make the decision-making process easier for them.
You give them an objective view of the marketplace.
You reduce their hassles during the year.
You build a closer relationship with them.
You save them money.
And you increase your revenues.

It is truly a great area for expansion of a sound accounting practice.

So why has the adoption been slow?

Because when accounting firms have to create the infrastructure themselves, it is very difficult. An accounting firm would be challenged to address the various regulatory issues...to build the pre-sales expertise...and to build the post-sales support that is necessary to help clients in group insurance. And that's why we believe that the "group insurance partner" approach makes the most sense. We help our accounting firms to get into group insurance overnight. We understand the regulatory issues, and help our accounting firms to understand them too.

Now, at this point, does anyone have any questions that we can address?

By the way, we have a white paper that provides much more detail on how to take advantage of the group insurance opportunity. If you email your street address to [email protected], I would be happy to send you a copy.

Session Moderator: What are some good options for accountants to turn to for training in the knowledge they need about insurance? Are there CPE-sanctioned courses available?

Herbert Lichtman: There are several different resources.

First, GroupWorks and other companies working with accounting firms offer training.

Second, yes, there are continuing education courses on group insurance and employee benefits.

Third, many of our accounting firm partners actually take the insurance licensing exams.

Fourth, there are some great reference books (like Beam & McFadden) on the essentials of group insurance.

We find that accounting firms more than any other partners really work to understand the intricacies of the group insurance world. We provide our accounting firms with all of the expertise that they need, though. And most group insurance partners do the same. Our approach is that the accounting firms sell the strategic vision, and we handle the actual group insurance analysis and sale.

In other words, the accounting firms help with the business case, helping the clients to improve their business processes with better benefits management, and helping clients to save money through more effective procurement of group insurance and more cost-effective benefits management.

Our technology and our benefits consulting team works with the accounting firm's client to perform the actual needs analysis, to do plan design, to shop the marketplace, and to analyze the returned quotes.

Before I forget, I'd also like to take a moment to thank two people for their help in preparing for today's workshop. They are Peter Warman, who handles legal and regulatory matters for GroupWorks, and David Eisman, who is the Director of our Accounting Practice.

Other questions?

If anyone has questions after the session, I'd be happy to field them privately, too.

You can reach me at [email protected] or at 847-948-1600 x101.

Session Moderator: What is the most frequently asked question you get from accountants considering offering this service?

Herbert Lichtman: The most common question is about how they can offer group insurance as a consultant or advisor, and not as a salesperson.

This is a legitimate concern, and one that we have carefully addressed. We help accounting firms to preserve complete objectivity. That's why we deal with virtually every carrier and can provide access to virtually any product. So we never bias our advice based on which carriers we represent. And that is critical to a trusted advisor like an accounting firm. We also provide sophisticated analytical tools that help an accounting firm to really analyze the client's needs, and to match up the right products. So our accounting firms deliver a real consultation to their clients that helps them to make better decisions and that helps them to manage their benefits better during the year.

Now, we indicated that the most common question was how to present a consultative service instead of "selling" insurance.

The second most common question is about how easy or difficult it is to comply with applicable regulations.

The answer is that it is relatively easy; you just need to know what they are. A good insurance partner will have off-the-shelf plans that help you comply with the accounting guidelines and with the insurance guidelines. If anyone wanted to walk through an example, you may want to talk with David Eisman at GroupWorks, who does this regularly. He can be reached at 847-948-1600 x405.

Session Moderator: Have you any statistics available on how often companies change the structure of their insurance benefits, once they have put plans in place?

Herbert Lichtman: Companies review their plans annually. In a typical year, 30% or so of companies change plans. This could be buying an equivalent plan from a different carrier, or it could be changing plan structures, going from a fully-insured plan (carrier bears all risk) to a self-insured plan (employer bears some risk). The number of companies changing plans goes much higher when rates are rising. This year, for example, rates are rising more than they have for the last few years. Therefore, more clients are looking at their options.

Other questions?

Session Moderator: We really want to thank Herbert for coming today - this has been an exceptionally informative session! Herbert's contact information is in this transcript, for those of you who may have additional questions.

Herbert Lichtman: Thanks so much for inviting me this afternoon.

Session Moderator: Thank you all for attending today!


Herbert Lichtman is the President and CEO of GroupWorks, an online group insurance broker. He has been a strategy consultant to insurance carriers, insurance brokers, and technology startups for the last ten years. Prior to joining GroupWorks, he developed technology roadmaps and strategic plans for the MONY Group and GE Capital, and designed sophisticated decision support tools like estate planning system EstatePro for the insurance industry.

Herbert earned a B.A. in Economics and a B.S. and M.S. in Systems Engineering from Case Western Reserve University. He also earned a J.D. from Vanderbilt University School of Law.

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