On the Fast Track
From its starting point in 2007, San Francisco-based Edgewood Partners Insurance Center (EPIC) is rapidly becoming one of the largest retail insurance brokers in the United States.
With initial funding from Stone Point Capital, the company’s founders received additional investment from the Carlyle Group in 2013.
With more than $175 million in revenue projected by the end of 2014, up from $75.l million in 2013, EPIC ranks among the top 20 retail insurance brokers in the country, and the company’s growth plan calls for an increase in revenue to more than $250 million by 2018.
Currently EPIC, a retail property and casualty insurance brokerage and employee benefits consultant, has more than 620 employees operating in California, Colorado, Connecticut, Georgia, Illinois, Massachusetts, New Jersey and New York.
In the past nine months, EPIC has made four acquisitions that added $50 million in annual revenue. Those acquisitions were:
• The McCart Group of Atlanta, one of the largest privately held insurance and risk management firms in Georgia, acquired on Jan. 9.
“As a 43-year-old company, The McCart Group had been approached many times over the years with offers to sell out to other, larger organizations,” said Jeff McCart, president of the company.
“Before EPIC, we were never seriously interested. But when John Hahn and Dan Francis (EPIC’s California-based co-founders) introduced their vision to build a national brokerage comprised of firms with specialized expertise who want to share their collective knowledge and resources to compete against the largest brokers, it was a game changer,” he said.
(Francis announced on Oct. 14 that he was leaving the company “to begin a new journey outside of insurance that will afford me the opportunity to further ‘give back’ and focus on some personal interests/worthy causes that have meant a lot to me over the years.”)
• On Jan. 21, EPIC announced it acquired the program business of Boston-based Altus Specialty Group.
• On July 22, the shareholders of Jenkins Insurance Services sold 100 percent of their shares to EPIC. Jenkins employs 160 people in Reno, Nev., and in California offices in Concord, Sacramento, San Jose, and Orange County.
• On Aug. 13, EPIC added the retail risk management and property/casualty team of Stamford, Conn.-based JLT Towers Re. This strategic build-out of a team serving large, complex risk management accounts is a product of EPIC’s broadening alliance, and partnership and collaboration with JLT/Towers Re.
“This team enhances EPIC’s risk management services and offerings for our middle market and upper middle market clients, expands our reach into the public entity sector and gives us additional depth to serve clients in metropolitan New York,” said EPIC co-founder and CEO John Hahn.
“The multi-prong approach of acquisitions and the aggressive recruiting of producers and service teams has enabled us to grow organically and strategically,” said Derek Thomas, chief strategy officer. “Our plan is to advance a similar model in key regions across the United States.”
Specific geographic areas eyed for growth potential include tier 1 and tier 2 cities in the Northeast, Mid-Atlantic, Midwest and Southeast, Thomas said.
“Our strategy is to maintain the local, client-specific success drivers of our new partners while providing them with access to broader national and global resources that can also be deployed for the benefit of their clients locally,” he said.
John Redett, managing director, financial services at The Carlyle Group, added: “We see tremendous opportunity for EPIC. Since we made our initial investment in late 2013, EPIC has already expanded its footprint into the Southeast and the Northeast, as well as bolstering its West Coast operations, product capabilities and client service strength.”
Whether it comes through additional acquisitions, geographic expansion or product growth, Carlyle supports an expansion of EPIC’s business in its effort to become a major national player, he said.
Hahn said the launch of the brokerage’s new growth phase, EPIC 2.0, “is off to a roaring start and we think the prospects for achieving our goal of $250 million in revenue in less than the original five-year plan are very favorable.”
On the Fast Track
EPIC has been on a fast-track growth pattern ever since it was launched in California in 2007, when Stone Point Capital and co-founders Hahn and Francis committed $100 million to create the groundwork for the current EPIC organization.
From the start, the company has had an investment structure that provided key employees, producers, acquired principals and executive management the opportunity to hold significant equity ownership stakes in the firm, said Francis, who serves as executive chairman.
The newly formed, California-based company went from zero to approximately $80 million in revenue in less than seven years, with average annual organic growth rates in excess of 10 percent, Francis said.
About midway through 2012, Hahn and Francis began taking a hard look at the company and its future prospects.
“When all was said and done,” Hahn said, “we believed we could build a super-regional/national platform through maintaining our entrepreneurial approach; improving our product and service offerings by acquiring and attracting high-quality, specialized talent; and offering successful regional broker owners and operators an opportunity to partner with us to build a national brokerage and consulting firm.”
After a thorough examination of the investor universe over the course of 2013, it became clear to EPIC that The Carlyle Group would be its best option to provide it with the additional capital required to execute EPIC 2.0 as well as offer it significant revenue potential through access to Carlyle’s portfolio companies, Francis said.
Over the course of 2013, EPIC began to restructure the company and build out its infrastructure in order to support the growth and expansion it anticipated would be necessary to drive EPIC 2.0.
“While doing so, we also began developing an M&A and talent pipeline that would serve as the foundation of our super regional strategy,” Hahn said.
The company’s first two non-California deals closed mid-2013 with the launch of a national real estate practice with Kathleen Felderman in Denver and Jonathan Griffiths in San Francisco, and a closing of a deal in New York with Safe Harbor, which brought another property and casualty, risk management, employee benefits and private client services consulting firm into the fold. Safe Harbor was led by Tom O’Neil, who is now EPIC’s West Coast region president.
Currently, EPIC has several new deals in due diligence and a robust acquisition pipeline, with other possible deals in various stages of discussion and evaluation, said Thomas.
“And we are actively looking for other potential partners,” he said.
“In addition to targeted geographic expansion,” Thomas added, “our plan is to identify and recruit production and service teams who have proven track records in growth oriented industry sectors.”
Disrupting Insurance Distribution
As more insurance distribution channels are being created, the potential disruption of the ordinary course of business for underwriters and brokers increases.
One of those channels, although details are hazy, involves Overstock.com Inc., a Utah-based e-commerce site that survived the dot-com bust by selling dying Internet companies’ inventories.
Since April 2014, Overstock.com has sold insurance, including auto, property, liability and workers’ comp for businesses, through an exchange where consumers receive live quotes, pick which the coverage they like, and then have a policy bound for them.
“Overstock’s mission is to offer high-quality products at low prices in order to save people money, and the launch of our insurance tab fits this mission beautifully,” Dave Nielsen, Overstock.com’s senior vice president, said in an email.
Or as the slogan on the Overstock insurance site says, “We Do the Work, You Do the Saving.”
But who is really doing the work … a.k.a., the underwriting?
Apparently, the underwriters’ names had been confidential, but when we asked Nielsen, he shared some of them: 21st Century, Progressive, Safeco and American Strategic (ASI).
Overstock.com is “seeing good traffic” on the site, Nielsen said, and he’s expecting to “see [sales] continually increasing month over month” as the company adds more products.
The logistics of claims and other policy-servicing depends on the carrier, Nielsen added. Overstock services some accounts in-house; others it transfers directly to carriers. But no matter what, policyholders contact Overstock first.
Most of the insureds probably care little about the identify of the underwriters, said Denise Garth, partner and chief digital officer at consultancy Strategy Meets Action (SMA).
As far as the insurance buyer goes, they’re a customer of Overstock.com.
“[Overstock is] definitely the channel where it’s been sold, and it’s the channel where the customer is going to go to for service,” Garth said.
And it’s just one channel of many it seems that are on the verge of disrupting well-tread insurance distribution networks.
In particular, according to a report from London-based market risk and consulting firm Finaccord, as many as 281 retail brands around the world are selling insurance, up from 232 retailers in 2010.
Global names like Walmart, Tesco, Marks & Spencer, and Carrefour are “leveraging” their brands and huge customer bases to sell mainstream insurance products, said Finaccord Director Alan Leach.
“They can supplement the thin profit margin that they can earn from their core business by selling financial services,” Leach said.
They wield data they already collect on their customers to empower cross-selling. If they know which of their customers buy pet food, they know which of their customers to market pet insurance to.
At this point, however, this trend of retailers selling insurance is “not so much” in the United States, Leach said, and in many cases, they’re selling personal lines products to consumers. (Walmart does offer an auto-insurance exchange in 19 U.S. states.)
Impact on Industry
But retailers are just one group the traditional insurance world must confront.
Some observers, like Garth, argue that this trend doesn’t just put the insurance distribution process at stake, but affects the industry’s business model as a whole.
Some of the savviest, brawniest, data-driven companies in the world are coming. Alibaba, of the recent record-breaking IPO, launched an online insurance platform in 2013 called Leyebao, aimed at Alibaba’s online store owners and their employees. Google forayed into the insurance space in the U.K. in 2012, with a car insurance comparison tool.
They’re coming because consumers apparently want them to.
“Competition in the insurance industry could quickly intensify as consumers become open to buying insurance not only from traditional competitors such as banks but also from Internet giants.” — Michael Lyman, global managing director, insurance industry practice, Accenture
In its report on this new competitive landscape, SMA cited an Accenture study that found that two-thirds of respondents would consider buying insurance from organizations other than insurers. About 23 percent said it could be Google or Amazon; 14 percent said retailers.
“Competition in the insurance industry could quickly intensify as consumers become open to buying insurance not only from traditional competitors such as banks but also from Internet giants,” said Michael Lyman, global managing director for management consulting within Accenture’s insurance industry practice, when he announced the Feb. 2014 research.
The disruption will not be as black and white as an Alibaba launching an insurance company or Walmart taking jobs away from Main Street agents. The invaders seem to care less about the means than the end result.
“They want to own a customer for a lifetime,” Garth said.
Their success at that could leave insurers as mere “manufacturers” of insurance products, and agents and brokers as mere customer service representatives, for the companies that will own consumer loyalty and lifetime customer value.
Six Best Practices For Effective WC Management
It’s no secret that the professionals responsible for managing workers compensation programs need to be constantly vigilant.
Rising health care costs, complex state regulation, opioid-based prescription drug use and other scary trends tend to keep workers comp managers awake at night.
“Risk managers can never be comfortable because it’s the nature of the beast,” said Debbie Michel, president of Helmsman Management Services LLC, a third-party claims administrator (and a subsidiary of Liberty Mutual Insurance). “To manage comp requires a laser-like, constant focus on following best practices across the continuum.”
Michel pointed to two notable industry trends — rises in loss severity and overall medical spending — that will combine to drive comp costs higher. For example, loss severity is predicted to increase in 2014-2015, mainly due to those rising medical costs.
Debbie discusses the top workers’ comp challenge facing buyers and brokers.
The nation’s annual medical spending, for its part, is expected to grow 6.1 percent in 2014 and 6.2 percent on average from 2015 through 2022, according to the Federal Government’s Centers for Medicare and Medicaid Services. This increase is expected to be driven partially by increased medical services demand among the nation’s aging population – many of whom are baby boomers who have remained in the workplace longer.
Other emerging trends also can have a potential negative impact on comp costs. For example, the recent classification of obesity as a disease (and the corresponding rise of obesity in the U.S.) may increase both workers comp claim frequency and severity.
“The true goal here is to think about injured employees. Everyone needs to focus on helping them get well, back to work and functioning at their best. At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep.”
– Debbie Michel, President, Helmsman Management Services LLC (a subsidiary of Liberty Mutual)
“These are just some factors affecting the workers compensation loss dollar,” she added. “Risk managers, working with their TPAs and carriers, must focus on constant improvement. The good news is there are proven best practices to make it happen.”
Michel outlined some of those best practices risk managers can take to ensure they get the most value from their workers comp spending and help their employees receive the best possible medical outcomes:
1. Workplace Partnering
Risk managers should look to partner with workplace wellness/health programs. While typically managed by different departments, there is an obvious need for risk management and health and wellness programs to be aligned in understanding workforce demographics, health patterns and other claim red flags. These are the factors that often drive claims or impede recovery.
“A workforce might have a higher percentage of smokers or diabetics than the norm, something you can learn from health and wellness programs. Comp managers can collaborate with health and wellness programs to help mitigate the potential impact,” Michel said, adding that there needs to be a direct line between the workers compensation goals and overall employee health and wellness goals.
Debbie discusses the second biggest challenge facing buyers and brokers.
2. Financing Alternatives
Risk managers must constantly re-evaluate how they finance workers compensation insurance programs. For example, there could be an opportunity to reduce costs by moving to higher retention or deductible levels, or creating a captive. Taking on a larger financial, more direct stake in a workers comp program can drive positive changes in safety and related areas.
“We saw this trend grow in 2012-2013 during comp rate increases,” Michel said. “When you have something to lose, you naturally are more focused on safety and other pre-loss issues.”
3. TPA Training, Tenure and Resources
Businesses need to look for a tailored relationship with their TPA or carrier, where they work together to identify and build positive, strategic workers compensation programs. Also, they must exercise due diligence when choosing a TPA by taking a hard look at its training, experience and tools, which ultimately drive program performance.
For instance, Michel said, does the TPA hold regular monthly or quarterly meetings with clients and brokers to gauge progress or address issues? Or, does the TPA help create specific initiatives in a quest to take the workers compensation program to a higher level?
4. Analytics to Drive Positive Outcomes, Lower Loss Costs
Michel explained that best practices for an effective comp claims management process involve taking advantage of today’s powerful analytics tools, especially sophisticated predictive modeling. When woven into an overall claims management strategy, analytics can pinpoint where to focus resources on a high-cost claim, or they can capture the best data to be used for future safety and accident prevention efforts.
“Big data and advanced analytics drive a better understanding of the claims process to bring down the total cost of risk,” Michel added.
5. Provider Network Reach, Collaboration
Risk managers must pay close attention to provider networks and specifically work with outcome-based networks – in those states that allow employers to direct the care of injured workers. Such providers understand workers compensation and how to achieve optimal outcomes.
Risk managers should also understand if and how the TPA interacts with treating physicians. For example, Helmsman offers a peer-to-peer process with its 10 regional medical directors (one in each claims office). While the medical directors work closely with claims case professionals, they also interact directly, “peer-to-peer,” with treatment providers to create effective care paths or considerations.
“We have seen a lot of value here for our clients,” Michel said. “It’s a true differentiator.”
6. Strategic Outlook
Most of all, Michel said, it’s important for risk managers, brokers and TPAs to think strategically – from pre-loss and prevention to a claims process that delivers the best possible outcome for injured workers.
Debbie explains the value of working with Helmsman Management Services.
Helmsman, which provides claims management, managed care and risk control solutions for businesses with 50 employees or more, offers clients what it calls the Account Management Stewardship Program. The program coordinates the “right” resources within an organization and brings together all critical players – risk manager, safety and claims professionals, broker, account manager, etc. The program also frequently utilizes subject matter experts (pharma, networks, nurses, etc.) to help increase knowledge levels for risk and safety managers.
“The true goal here is to think about injured employees,” Michel said. “Everyone needs to focus on helping them get well, back to work and functioning at their best.
“At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep,” she said.
To learn more about how a third-party administrator like Helmsman Management Services LLC (a subsidiary of Liberty Mutual) can help manage your workers compensation costs, contact your broker.
Debbie discusses how Helmsman drives outcomes for risk managers.
Debbie explains how to manage medical outcomes.
Debbie discusses considerations when selecting a TPA.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Helmsman Management Services. The editorial staff of Risk & Insurance had no role in its preparation.