REDEFINING THE PEO

Rough Notes, Aug 2004 by Strazewski, Len

Advantec expands the offerings typically offered by professional employment organizations

Independent agents and brokers are always on the look-out for innovative ways to offer value-added service to their small- to medium-sized commercial insurance clients. Anticipating client needs, and having solutions to those needs, goes a long way toward maintaining the relationship with the client.

At Roach Howard Smith & Hunter, a large independent agency with 70 employees and offices in Dallas and Ft. Worth, Texas, one of the solutions the agency offers is human resources management, says Chief Executive Officer Karen K. Farris.

In addition to offering full service commercial and personal lines and employee benefits, the agency also provides human resource management consulting and administrative services to small- and medium-sized employers.

The agency partners with Advantec, a Tampa, Florida-based professional employment organization (PEO) and human resource outsourcing company, formerly AdvanTech Solutions, Inc., Advantec provides comprehensive payroll, benefit administration and human resources services in Florida, Georgia, Illinois, North Carolina, and Texas, and is planning a national expansion.

PEOs, which often provide property/casualty insurance and employee benefits as well as human resources administrative services such as payroll administration, training and recruitment, are not new to Texas, Farris says.

Developed in Florida more than 20 years ago, PEOs were originally conceived as a way to consolidate the workers compensation risks of small employers and remarket the coverage to insurers as a larger organization, enabling them to obtain lower rates. PEOs usually enter into a co-employment contractual agreement with their client companies.

The concept quickly spread into Texas, Farris recalls, and it was competition from PEOs that came after the agency's property/casualty insurance clients that led her to seek ways to expand the agency services.

"It seemed to make sense that if PEOs could offer insurance and employee benefits services as well as employment administration services, brokers could find a way to provide human resources services to their insurance clients," she notes.

Roach Howard first developed some of its own human resources expertise and now employs two human resources consulting specialists. The agency began working with Advantec more than two years ago to provide the technology-based administrative services, she says.

The partnership enables the agency to provide a complete human resources management package to client employers with 100 or fewer employees. "These companies need to provide everything that larger employers provide to employees-workers compensation, employee benefits, 401(k) retirement plans, fiduciary liability insurance, all that. But they generally don't have the management leadership or the information technology platform to provide them."

The partnership with Advantec has given the agency a preferred competitive position with the small, entrepreneurial companies in the area, Farris says, as well as "reverse flow firms"-U.S. operations of international employers that need help with U.S. government compliance and with providing American-style employee benefits.

Advantec has been a valuable partner in these relationships not only because of its human resources administrative expertise, but also its unique understanding of agency operations, Farris says.

Agency Solutions, Inc., the predecessor company of Advantec, was founded in 1997 as a PEO, specifically to provide human resources and technology -rich administrative services to the small business clients of independent insurance agencies, says Chairman Chuck Davis. But its roots go back to 1991 when Davis and his partner Lowry Baldwin formed their own Florida independent agency-DavisBaldwin, Inc. The agency, which was sold to Wachovia Bank in 2000, grew from $3 million to $18 million in revenue under Davis' and Baldwin's leadership.

Davis and Baldwin say it was their agency experience with small business clients that led them to explore PEO services as a way of helping agents retain small business clients and develop relationships that would allow them to cross-sell commercial insurance to a new group of clients.

In 1995, the agents began to assist some PEO clients in Florida with property/casualty insurance and learned the value of the administrative services the organizations provide, Baldwin, now vice chairman of Advantec, recalls.

"We started to wonder what kind of new value proposition we could offer to small- and medium-sized businesses that combined the traditional resources of the independent agent with human resources administration capabilities available in the PEO relationships," Baldwin says.

They also began to explore the idea of using independent agents who had already developed sales expertise and a commercial customer base, as a marketing force for PEO services, he says. The result was a "human resources-centered PEO," Davis says, an organization that was created not so much to aggregate workers compensation risks and market insurance, but to deliver the administrative services and employment management that had become so crucial to entrepreneurial companies.