PEOs Change Focus by Courting Agents as Partners, not Customers

As much as 10 years ago, independent insurance agents were being courted by professional employer organizations (PEOs), which viewed the small structure of agents’ offices as ripe for their human resources products.

Small agencies, after all, typically had only a handful of employees but were often overwhelmed with human resource duties like payroll, administration, benefits, workers’ comp and risk management. Many PEOs figured, and rightfully so, that agents would like to free up their time to grow their business, and they’d be willing to pay in order to do so.

As a result, hundreds of agents across the country began outsourcing their human resource needs to PEOs, helping the relatively new field prosper.

And while numerous PEOs continue the courtship, some are finding insurance agents to be more than just potential customers. They are now partners in selling PEOs to consumers.

The flower blooms
Still in its infancy, the PEO industry has already achieved impressive growth. The National Association of Professional Employer Organizations (NAPEO) reports that the number of PEO firms nationally has increased from just a handful in the early 1980s to more than 2,000 today. Those companies employ between 2 million and 3 million Americans, and are responsible for more than $18 billion in employee wages and related human resource and employee benefits.

Florida-based AdvanTech Solutions has recognized the specialized talents of insurance agents as being closely related to the PEO field. As a result, AdvanTech has begun utilizing agents to promote its services to a wide range of customers.

The system is the brainchild of Chuck Davis, chairman and CEO of AdvanTech Solutions and a nationally recognized independent agent. Selling PEO product through independent insurance agents, he said, is not only good for AdvanTech, but for the agents, helping them diversify their business in this increasingly competitive market.

“Our unique distribution network of independent insurance agency partners allows our clients to receive the unparalleled expertise of agents who are knowledgeable in all areas of PEO services,” Davis said, “including regulatory compliance, payroll administration, benefits, workers’ compensation and workplace risk management.”

He and his partner, Lowry Baldwin, began recruiting top agents in Florida when they founded the company less than one year ago. Since then, AdvanTech has moved into 47 markets in Florida, Georgia, Alabama and Texas. And expansions are taking place in Tennessee and North Carolina with the northeast following soon. In fact, the company is reportedly the fastest growing PEO in the country.

But very few agencies have been approached by AdvanTech, and Davis estimates only 3 percent of his potential market has been tapped. He is moving slowly, he said, because he wants to ensure AdvanTech’s growing customer base receives the very best service possible.

“There are 22,000 independent agencies in this country,” he said. “We’re approaching only those in the top 10 percent. They will be offered tremendous latitude and opportunity.”

Rewards, challenges of affiliation
When agencies agree to join AdvanTech, they also agree to be responsible for hiring a PEO specialist who will oversee that unit of business. The agency pays the specialist’s salary, but reaps the rewards of expanding its business

One such agency, William Gammon Insurance in Austin, has taken AdvanTech up on their offer to provide PEO products to business customers. But hitting the ground running has not been easy. William Gammon is one of only eight agencies in Texas affiliated with AdvanTech.

Matt Berry, a partner with William Gammon, is excited about the possibilities the partnership with AdvanTech will provide, but finding a PEO manager in today’s market has been nearly impossible.

“The ones who are good don’t want to leave their current jobs because they’re making a good living,” he said. “If they leave, they have to start all over again.”

The company started interviewing for a PEO manager in November of last year and, at the time of this writing, had yet to find someone. But Davis said AdvanTech had recognized the problem and is now offering incentives to PEO managers as enticement. Regardless, Berry is excited about the possibilities.

“We weren’t out looking for this solution, it just kind of came to us,” he said. “What has happened in the Texas market is these employee benefits are a little bit like workers’ comp was in the early 90s. That’s where the owners’ pain is right now.”

Especially for tech companies, which is the niche Berry is hoping to tap once a PEO professional is in place.

“We think this is a real natural for the tech companies…and we understand from people out in the Silicon Valley area that the PEO concept goes over really well,” he said.

Western counterpart
There are dozens of PEOs on the West coast, though none using a system quite like AdvanTech. But the insurance industry is seeing the potential in offering PEO products even if the PEO industry itself is not.

One such company is Sacramento-based Interwest Insurance Services, which began exploring the idea of brokering PEO products for numerous companies about two years ago.

Interwest, established in 1992, is the outgrowth of four independent agencies in and around the Sacramento area.

Bill O’Keefe, executive vice president for the regional broker, said the company is testing the marketplace right now for receptivity to its PEO concept, which would be offered to smaller PEOs “that could most use the kind of services we provide.”

“The appeal of the PEO is somewhat less than it otherwise could have been in California because of the soft market in workers’ comp,” O’Keefe said. “But I certainly think it’s a very cost effective way to market the PEO product.”

Despite the 1990’s soft workers’ comp markets, PEOs have continued to grow. And today’s firming workers’ comp market, manifesting itself across the nation and most acutely in California, will only spur small business’ interest in professional all-encompassing services.

Other factors that will feed continued growth include the demand for low cost health insurance and employee benefits, and significant increases in employment-related regulations. In addition, the expertise required to manage a small to mid-sized business has outgrown the experience and training of many small business owners.

Companies like AdvanTech and Interwest Insurance Services are banking on it.

Topics Florida Mergers & Acquisitions Texas Agencies Legislation Workers' Compensation Talent Human Resources