Franchise Insurance: New Sources of Value
FROM AN internal costs perspective, volatile insurance rates have caused massive headaches for businesses and their employees, with both usually sharing in the pain. Small businesses in particular—without the protection of better terms for companies that enjoy mass participation—often experience devastating increases.
In a tight economy, however, companies are always on the lookout for a value-add that can stimulate activity among the client base. The worse the economic conditions, the more creative the solutions to ferret out bucks from those tightly clenched spend budgets. And insurance carriers, which have often seemed in the driver's seat of a one-sided market, are now showing a willingness to play ball, which could mean good news for printing franchises and other companies with multiple locations in a number of states.
Case in point: Allegra Network, which has 600 printing and sign franchises and an estimated 3,200 employees. In the past, franchisees of the Northville, MI-based company were on their own to secure and supply employee health insurance. The quality of rates and coverage was all over the map, according to Carl Gerhardt, corporate president and CEO, and dramatic rate spikes reached 25 percent in a year.
"For a small shop with seven to 10 employees, a 25 percent increase in health insurance costs basically comes out of the owner's salary," Gerhardt notes. "It makes a difference in how they eat. In recent years, our franchise owners have said that we need some kind of group plan, because it's very difficult to join a plan with a small number of employees."
In 2008, the company's vice president of human resources, Laura Pierce, was contacted by the insurance broker for Blue Cross Blue Shield (BCBS) of Michigan. In the past, Pierce had expressed an interest in developing a group plan for the entire chain, but BCBS balked. Pierce persisted, and BCBS of Michigan finally offered a group health insurance plan for the Allegra Network on three conditions:
• The corporate arm of the company needed to participate and had to be headquartered in the state of Michigan.
• It must be the only plan offered by corporate to its franchisees.
• If the franchisees come on board with the plan, it must be the only one offered to employees.
Perhaps the biggest sticking point was the franchise organization's ability to reach critical mass for participation, which was between 500 and 600 employees. Gerhardt was pleasantly surprised by the response he received from owners. "We negotiated a price that BCBS would lock in if we could get a substantial number to participate. We got roughly a third of owners on the initial rollout."
The plan, which went into effect on January 1, has been roundly applauded by Allegra participants. The package offers three preferred provider organization (PPO) choices. Members aren't discriminated against insurance-wise because of age and sex, and there's no exclusionary stipulation regarding pre-existing conditions.
Savings and benefits advantages vary from state to state. Some companies joined just to be a part of a greater participatory group and, hopefully, to avoid crippling future increases. But a Pennsylvania facility saw a savings of $30,000 for 2009, a major boon for a shop that posts $1.5 million in sales. And a New Jersey plant welcomed the change after seeing its rates balloon an astonishing 51 percent.
For some shops, joining the BCBS Michigan fold wasn't feasible. "We found a couple of states where the rates just weren't competitive at all," Gerhardt notes.
Outside of facilitating the policy, Allegra Network's corporate structure has virtually nothing to do with the insurance, outside of endorsing the plan. The plans are not billed through Allegra corporate; individual contracts are drawn up between each facility's owner and BCBS.
Future rate increases should be competitive with most alternative plans, since Allegra enjoys a solid participatory base. There's a chance the company could go the self-insured route once participation reaches 1,000 members but, for now, Gerhardt is concentrating on promoting the value-add to prospective new Allegra Network facility owners. As a point of differentiation, he sees the group insurance as another tool in the Allegra Network franchisee belt, one that is no small consideration in a depressed economy. PI