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ABOUT THE LIST–Providers Adapt to Changing Health Care Industry



Insurance Agencies Diversify, Offer Nontraditional Plans

San Diego life and health insurance brokerages are stabilizing after spending the last few years in critical condition.

Firms on the San Diego Business Journal’s List of Largest Life/Health Insurance Agencies and Brokerages watched as health care agencies cut back rates when talk of nationalized health care was hot several years ago.

When it never came about, health care agencies made a financial turn for the worst because of low coverage rates and high-cost prescription drugs. Now the cost of coverage is on the rise, and health care agencies are merging and downsizing.

The result is some insurance companies are turning to other areas of life/health insurance to make up for a smaller health care client base.

El Camino Insurance, No. 6 on The List this year, is one of a growing number of agencies on The List whose health premiums represent less than 80 percent of total life and health premiums. El Camino specializes in 401(k) and employee health plans and benefits for small- to medium-sized companies.

“The type of businesses we do business with buy health insurance, and they are seeing the prices going up,” El Camino chairman George Porter said. “As a result of that they’re using managed care and sometimes higher co-pays to keep the price in line, which have been very low for some time now.”

– Trends Indicate

Rising Costs

With all the money currently invested in biotech companies and the trend believed to continue, drug makers are spending large amounts of money on research and development. As the products from the tests become more successful and more popular, the price tag for the procedures and drugs increases, Porter said.

“There’s a lot of new medication and a lot of new treatments and a lot of new advances going on in the medical profession,” he said. “And some of those new treatments and drugs cost money.”

A lot of money, said Brenda Fagan-Johnson, an employee benefits specialist with Westland Insurance, No. 4 on The List this year. A past president of the California Association of Health Underwriters, both at the local and state levels, she said the cost of health care in some areas of the county is up 40 percent since 1995.

“It started with the Clinton administration and the threat of national health care, so everyone rolled back their rates and cut back costs,” Fagan-Johnson said. “That’s now caught up with all the health carriers. The HMOs lost a huge amount of money last year.”

Part of the reason for the loss, she said, resulted from the rising costs of prescription drugs plus several lean years for HMOs and “health care in general.”

But pharmaceutical companies are no longer playing the same game. Now they funnel money to direct marketing ads, like television commercials, instead of hounding physicians as in past years, Fagan-Johnson said.

“The pharmacies are really driving our costs,” she said.

– Hiring Stifled By

Industry Conditions

A shrinking industry and expanding costs prevented many insurance companies on The List from hiring new employees. Three life/health insurance brokerages in last year’s top 10 list slipped at least four places because new hires were not made.

“A year ago you had Aetna purchase Prudential, so they blended all those employees and downsized,” she said. “You have PacificCare three weeks ago that laid off 250 people. They’re trying to get leaner to get their stock prices back up and they’ve had a lot of losses. You’ve got HealthNet showing losses.”

Fagan-Johnson said one of the few profitable health care agencies right now is Blue Cross of California. But Blue Cross’ WellPoint Health Networks Inc. made a $10 billion bid to buy Aetna Inc. on March 1. There are 250,000 Aetna members in the county, while Blue Cross has 118,000 members.

“Last year we had eight different companies in the health care market and now we’re going to be down to five,” she said. “It’s just shrinking and shrinking. It hurts competition, unfortunately.”

Blue Cross’ bid to buy Aetna could be considered a monopoly by government regulators, said Fagan-Johnson. “It will be interesting to see if the government will allow it to happen because it is such a huge percentage of covered members throughout the country that will be under one plan,” she said

The smaller market has led Westland to market nontraditional plans. One such policy is a self-funded health care plan covered by the U.S. Department of Labor. The employer takes on more risk, but can purchase stop/loss insurance and/or umbrella plans to cover the whole thing, which is governed by federal regulations rather than those of California.

“The policy has been around a long time, but it’s growing more today than it was five years ago or even a year ago,” she said.

It’s looking more attractive because a comparative plan through an HMO may be price equivalent, but offers less freedom of choice for the subscribing company. This policy is most coveted by restaurants and hospitality industries, Fagan-Johnson said.

– Tailoring Services

To Specific Industries

One company maximizing on those two industries among others is RF Driver Co., Inc., No. 1 on The List this year.

“As a service provider, you tend to fashion your services around what’s available to you,” said Roger Combe, managing executive of the San Diego platform. “And in this town there’s a lot of restaurants and hotels and that’s kind of how our hospitality program evolved.”

Combe’s brokerage, an insurance provider since 1925, underwrites a full-service policy for the California Restaurant Association that provides “anything a fine dining restaurant would need.”

Combe’s brokerage is one of the few agencies to expand since last year. As of February, RF Driver has 198 employees, dwarfing the closest insurance provider by 112 employees. The average firm on The List, minus RF Driver, has 24 employees.

Combe contends it’s just part of staying on top. Specializing agents in specific fields helped the brokerage post $8.5 million in revenue in 1999.

“San Diego has gone from really almost a military-only base to a vacation/military-only base economy to a full-scale economy,” he said.

“There’s a lot going on here right now as far as biotech and high-tech. Construction is very strong right now, and retail is very strong. It’s kind of grown-up, really.

“As such, you have to recognize that every industry is a little bit different and tailor your services accordingly.”

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