Insurance brokers and professional employer organizations (PEOs) are supposed to be competitors, right?
Wrong!
Actually, brokers and PEOs can form mutually advantageous partnerships that result in better service for their clients. Furthermore, brokers themselves can benefit significantly from working with a PEO.
Let’s explore how.
The broker-PEO relationship
Employee benefits brokers and property & casualty insurance brokers help their clients find and purchase comprehensive, high-quality coverage at the best possible price by engaging directly with several insurance carriers. Working independently or as part of a larger brokerage group, brokers earn a commission on the insurance plans they sell to clients.
Some brokers’ responsibilities are limited to transactions – initial insurance purchases and renewals – only. Other brokers provide a wider range of services, such as benefits administration, cost negotiation and consulting.
PEOs, however, don’t sell insurance. Under the co-employment model of a PEO, the PEO will offer benefits to individuals they co-employ through the PEO relationship.
As the employer offering the insurance coverage, the PEO manages all related tasks, from enrolling employees to communicating with and educating employees on their benefits, negotiating rates, containing costs, providing legal notices and handling COBRA administration.
But PEOs don’t just provide benefits to their employees. At their most comprehensive level of service, a PEO can function as a full-service resource, serving as an extension of an existing HR department or enabling companies to obtain assistance with a variety of HR responsibilities, such as:
- Payroll administration.
- HR documentation.
- Recruiting and hiring.
- Training and development.
- Performance management.
- Workforce analysis.
- Formulation of HR strategies to support business goals and future planning.
Especially for small to mid-size businesses, having a PEO offer employee benefits as well as provide many other HR services – usually for a percentage-based or fixed flat fee – can be an attractive option.
Although there’s some overlap between what brokers and PEOs do, it doesn’t mean that these parties are adversaries competing for business. Rather, their work complements the other.
Ideally, the broker-PEO relationship is a long-term partnership in which each side contributes valuable knowledge and perspectives to clients. Brokers offer their insurance industry and carrier expertise to help clients decide which PEO’s benefits and service offerings best meet the client’s needs, while PEOs offer their HR and business performance expertise. Alongside their combined knowledge of the client’s workforce, business operations, needs and goals, PEOs and brokers can advise and inform each other to arrive at the most effective solutions in the best interest of the client.
Today, broker referrals have even become a common source of business for PEOs.
When a broker refers a client to a PEO, under the co-employment model the client company is no longer represented by the broker for any benefits the PEO will be offering. The client terminates their benefit plans and the PEO assumes responsibility for offering benefits to employees.
Clearly, handing off their client to a PEO requires a high degree of trust from brokers.
Benefits to brokers
So, why would brokers refer business to PEOs? What’s in it for them?
1. No lost business
As you can imagine, some brokers do lose client business to PEOs. Often, this impacts brokers who refuse to engage with PEOs. Once a broker’s client decides they want to pursue a PEO partnership, that client – and that source of income – is gone.
However, brokers who engage with PEOs proactively and strategically don’t completely lose clients who are interested in working with a PEO.
- For starters, they’re typically able to receive some form of compensation for the referral (more on this point later!). Brokers can continue to offer their insurance knowledge by helping the client determine which of the PEO’s benefit plans should be offered to employees. This cements their status as a subject matter expert and strengthens their relationships with the client.
- Furthermore, brokers can enhance their image as a trusted advisor who serves their clients’ best interests.. If the client wants to offer benefits not provided by the PEO, is interested in other types of insurance (e.g., business insurance) or leaves the PEO relationship, the broker will be top of mind.
2. Premium client service
Working with a PEO is a cost-effective arrangement that simply offers clients more. By referring their clients to PEOs, brokers can help their clients obtain assistance in areas beyond just employee benefits and brokers can rest assured that their clients are well taken care of and are well positioned to scale and achieve their goals.
3. Referral fees
Brokers earn referral fees from PEOs. With some PEOs, that referral fee may:
- Cover all employees on payroll, not only insured employees. (In contrast, when working directly with an insurance carrier, employee benefits brokers are paid per enrolled employee.)
- Be paid out to brokers for the life of the PEO-client relationship.
4. Less direct administrative management
Not only can brokers continue to earn income from a PEO referral, but the co-employment relationship between a client and a PEO means that brokers no longer have to assume the overhead costs of benefit plan administration. As more businesses become increasingly complex and multifaceted in their operations and workforce, this allows brokers to let go of costly and cumbersome activities and close other lines of business that are more profitable to them – with a recurring revenue stream, no less.
5. National reach
Brokers are licensed by state. What happens when a company expands into a new state or decides to hire remote employees spread across the U.S. – and their broker isn’t licensed in these areas? Having the PEO offer the coverage eliminates this concern.
What brokers should look for in a PEO
Similarly to how there’s a type of PEO to suit every company, there’s a PEO that aligns with every broker. For brokers, identifying a PEO that’s the right fit starts with, at minimum, examining their:
- Clientele.
- Needs, priorities and goals.
- Mindset and approach to service.
- Working processes.
Also evaluate these other factors, all of which are necessary for a successful broker-PEO partnership.
1. Incentivizing compensation
Consider:
- What the referral fee is based on.
- The amount of the referral fee.
- The length of the time over which the referral fee is paid.
- The degree of protection against fluctuations in the referral fee.
2. Training and education model
As the entity that introduces clients to PEOs, brokers should be able to partner with the PEO sales representative to explain to clients a PEO’s offerings, distinctive features and ultimate value proposition. To help brokers do this effectively, it’s important that PEOs have the resources and infrastructure to educate brokers.
3. Scalability and scope
Ask yourself:
- What level of service does the PEO provide?
- Does the PEO have the HR expertise and infrastructure in place to help client companies grow and achieve their goals?
- Where is the PEO located, and does their reach extend locally, regionally or nationally?
- How will referring a client to a PEO impact your reputation?
Summing it all up
Long gone are the days when insurance brokers and PEOs saw each other as adversaries, vying for clients. Instead, brokers and PEOs are increasingly recognizing the value they offer to each other in carrying out their services and, ultimately, the results that their combined efforts deliver to clients. In this discussion, we explored five critical ways in which brokers benefit from working with PEOs, from simplifying their workflow to enabling an ongoing source of income. Additionally, we covered important factors that brokers should consider as part of a thoughtful and intentional process in deciding which PEO is the right fit for them.
For more information on getting started with a PEO collaboration, download our free e-book: HR outsourcing: A step-by-guide to professional employer organizations (PEOs).