Calif. Agency Thrives on Knowing Health Care and Public Entities

“Most insurance companies use the ‘yellow pad/gift of gab’ approach,” said John Keenan. “The agent sits down, flips open a yellow legal pad, and says, ‘Tell me about your business.’ That’s like a doctor telling a patient, ‘What side is your appendix on?'”

Keenan and his insurance associates don’t need yellow notepads and don’t ask those types of questions. They know so much about their niche markets, their clients come to Keenan with their own notepads to learn what is going on in their own businesses.

Keenan, chairman and founder of Keenan and Associates in Torrance, Calif., has the luxury of getting to know its niche markets very well, in part because it restricts the number of markets it attempts to serve. The firm has just two niche markets — health care and public entities.

Two is plenty. That laser-like focus helped the company to generate more than $2.3 billion in premiums in 2007, and has allowed the agency to grow from three employees in one office in 1972 to hundreds of offices spread across California. And, the company has grown without resorting to acquisitions the way many other agencies have.

Keenan prides himself on the company’s long-term focus. “We are Main Street, not Wall Street,” said Herbert Loubet, senior vice president and chief strategy officer. “We are not constrained by meeting quarterly earnings, so we invest in our company and in our people. We take a longer term view, so we sponsor things like the [company educational] Summit at no charge.”

About 45 percent of the company is owned by its employees, more than 650 insurance specialists.

“There is not the same preoccupation here in how much money we can squeeze out as in another firm,” Keenan said. “I’ll take a great culture over a mediocre business plan any day.”

The niche culture at Keenan plays out in three ways — a decidedly educational stance, an intense focus on data collection, and a history of private-label offerings tailored to its target industries.

“Most brokerage and consulting firms cut a pretty wide swath, selling any services to any industries they can,” Loubet said. “We are unique in our niche focus, especially given the size of our organization. We really know everything about the industries we serve.”

As proof of its roots in health care, the Keenan advisory board includes Alain C. Enthoven, the Stanford University professor who coined the term “managed competition.”

In its education effort, Keenan performs its own research, enough so that it becomes an expert resource and can tell everyone else what’s going on in its niches.

For example, every year, hundreds of people flock to the annual Keenan Summit to hear industry heavyweights talk about topics such as health care reform legislation and public employer liabilities for retiree health care costs.

Keenan’s yearly Health Care Strategy Survey is quoted by newspapers and magazines around the globe.

The company’s educational approach spares no details, even down to addressing how producers present themselves. “We teach producers the niche. We teach them the best time to see clients, the best way to dress,” Keenan said. Before teaching them how to dress for success, Keenan uses the Omni personality test to screen for agents with the proper no-nonsense attitude. “We don’t want hail-hearty fellows,” he explained. “Our clients want people who follow up when they promise to deliver something.”

Agents go through extensive training to learn all the idiosyncrasies of, for example, the public school sector. “Most insurance agencies hire someone and give them an assigned territory, and the sales manager sees if they are calling on customers or prospects,” Keenan said. “We build detailed systems, so we arm our agents with information to see clients on a favorable basis.”

Sean Smith, president and CEO, likes to tell about the insurance agent from another company who called on a school district, pulled out a standard checklist and asked whether the school needed coverage for its jet. “Of course a school district doesn’t have a jet,” Smith said. “They want someone who really understands their business.”

Joint Powers

Keenan writes more benefits than most independent agencies. In fact, nearly 60 percent of its total $2.3 billion premium volume is from benefits. But property/casualty premiums also are very important to the company, and they run the gamut including equipment breakdown, underground storage tanks, musical equipment, and directors’ and officers’ liability.

Special wrinkles in municipality and school insurance make intense niche knowledge crucial, according to Keenan.

“If you are representing a school district for a casualty program involving molestation cases, you had better know the court cases that impact the risk,” he said. “When our loss control specialist does a playground inspection, he knows exactly what to look for, because all he does is public schools.”

One of those special wrinkles in municipal insurance in California is joint powers authorities, or JPAs. In the 1970s to 1980s, public agencies in California were faced with rising insurance costs and shrinking availability of private coverage. In response, the California Legislature amended state law to allow two or more public agencies to join together, under what is called a joint powers authority (JPA), to provide more efficient government services. With that change, public agencies gained the ability to join together to pool assets, promote risk management and purchase insurance, which would lower premiums to their members and save taxpayers’ dollars.

In addition to offering joint risk management services, JPAs can provide workers’ compensation, general liability, auto liability, fiduciary liability, public officials’ errors and omissions, employee fidelity, property damage, health care (general, dental or vision) and long-term disability coverage for their member public entities.

For Keenan, the relatively new JPAs have become a specialty, and the company’s private label programs for California governing agencies include several JPAs. One of the JPAs is exclusively for workers’ compensation; it allows for either group purchase or risk sharing. As another example, Keenan’s Group Purchase JPA allows for group purchase of property and liability coverage without any risk sharing.

In addition to JPAs, Keenan offers a menu of insurance and risk management products for public agencies, including an all lines aggregate excess program; hazardous material reporting; workers’ compensation medical provider network and legal defense network; medical malpractice; directors’ and officers’ liability; builder’s risk; and auto liability.

Data Collection

Keenan learns about its niches by collecting information and then using the information to hone its competitive edge, including the creation of private-label offerings. In addition to giving the company the information it needs to develop insurance programs, Keenan’s concentrated volume of business in just two markets gives it leverage to negotiate competitive pricing. That knowledge also allows the company to develop a database of claims to use in carrier negotiations and for trend analysis, and provides enough business to justify dedicated customer service departments.

Throughout its more-than three-decade history, Keenan has continued to unveil new services, technology aids and insurance and benefit programs.

The company recently surveyed more than 1,000 public school districts and 600 local government agencies, transit authorities and special districts in California about their retirement plans. Although 89 percent of public agencies surveyed provide retiree health benefits, nearly three out of five don’t know the magnitude of their future financial commitment to provide those benefits, Keenan discovered. Two-thirds of the organizations had not set aside any funds toward the liabilities, and among those that did, the amount set aside represented less than 10 percent of the liability accrued.

Such eye-opening information proved the survey to be worthwhile. Keenan unearthed details that resulted in a story in The Economist magazine. More importantly, the survey led the company to develop a product called Futuris, an actuarial, cost management and investment program designed to meet the fiduciary responsibility for future retiree benefit costs.

“Public agencies are facing a crisis situation,” Loubet said. “As it became clear at the Summit, they have promised retiree health care benefits — which are becoming increasingly costly — without the funding in place to pay for them. Experts in this field agree, pre-funding these expenses is crucial to the financial future of California. A pay-as-you-go approach is no longer a viable long-term strategy. With careful planning, schools can fund health benefits for both current and retired workers.”

Private Labels

Loubet called his firm one of the “most entrepreneurial of our type in California, if not the country.” He said while most companies create a spreadsheet of what products are out there and available, Keenan often creates its own private label insurance programs.

“We have more data than anyone else and can build specialized programs around that,” said CEO Smith. “Because we understand the risk better, we can manage the risk better.”

A prime example of that approach is the Keenan Pharmacy Purchasing Coalition, a joint group purchasing arrangement and program that encourages use of lower cost drugs. KPPC was launched in January 2007, with benefit manager Express Scripts Inc.

Using a national network of more than 50,000 retail pharmacies, KPCC generates savings through its Zero Dollar Generic Copay program. That encourages members to change from brand-name drugs to generic drug alternatives. The program waives the co-payment when members taking brand name drugs in common disease categories such as high cholesterol, high blood pressure, depression, heart disease and arthritis make the switch to a generic drug.

Keenan had a similar program in place for a decade; it reached 40,000 users. The rebranded and relaunched program skyrocketed to 155,000 users in just seven months. The new program placed a greater emphasis on education, offered a different primary vendor and trimmed costs by 25 percent through better pricing. Companies that use KPCC are guaranteed a 1 percent reduction in drug spending for every 1 percent increase in generic use. In addition, the coalition provides retail and mail-order discounts, among the lowest dispensing fees in the market.

In the past year, the company also launched KeenanFit, a Web-based personal health improvement training resource for employees and clients. The program includes a personal health risk assessment that provides detailed information regarding participants’ specific areas of health risk. The person can then identify the most beneficial modules, which include a personalized nutrition plan and customized cardiovascular, strength and flexibility programs.

In 2007, Keenan also introduced BenefitBridge, a portal for employee benefits information that integrates benefit enrollment, eligibility, employee communications and self-service tools into a single point that can be accessed by employers and employees around the clock.

According to Keenan, the portal can slash 5 percent to 10 percent off benefit premiums by eliminating coverage for ineligible dependents and ongoing maintenance of accurate eligibility records.

“BenefitBridge dramatically improves the accuracy of benefits eligibility and billing for our customers, while at the same time significantly reduces HR personnel’s time spent on the management of these programs,” noted John Scatterday, employee benefits practice leader. He said the portal also enables HR content and employee communications.

Steve Gedestad, executive vice president, said that because of the company’s large client base and industry-specific survey activities, Keenan has “extensive normative data” on program design, policies and costs.

In addition, the firm’s data warehouse provides granular data on patient utilization and provider practice patterns. Because of this, Keenan said it can help clients assess current benefit programs and identify opportunities for cost savings or program improvement.