When Dane Hudson sold his health benefits consultancy on Aug. 1, he hoped it was only his first of many mergers.
Hudson, the founder of Strategic Health Plans Corp. in Carmel, sold his company to Illinois-based Arthur J. Gallagher & Co. for an undisclosed amount.
Gallagher, a quiet company that is one of the nation’s largest health benefits firms, wants Hudson to buy up another three or four health benefits brokers in the next five years. Hudson also said he’ll be looking to buy a pension benefits broker and a property-casualty insurance broker.
“Employers are demanding more and more solutions, more and more answers, that the small broker just can’t deliver,” said Hudson, whose clients include such companies as The Finish Line Inc. in Indianapolis and Subaru of Indiana Automotive Inc. in Lafayette.
Other local health benefits brokers also said conditions are ripe for consolidation. Brokers traditionally just shopped and negotiated for the best health insurance plan for employers. But with family health premiums up a total of 78 percent nationally since 2001, employers want a host of other services to keep costs under control.
They want customized Web portals so workers can access health, retirement and other benefits in one convenient place. They want sophisticated software and database tools to do predictive modeling about their health insurance costs. And they want brokers not only to shop for a health plan, but also to shop for vendors to provide wellness services and to evaluate their effectiveness.
“It takes technical systems, it takes ways to monitor this stuff. If you’re a small shop, it’s hard to afford the resources to do that,” said Greg Pemberton, a health care attorney at Ice Miller in Indianapolis.
Strategic Health Plans isn’t the only local broker to make such a move. In June, Indianapolis-based CLS Benefit Solutions Inc. sold itself to Louisvillebased Neace Lukens.
“You’re going to see it right and left. You’re going to see the small brokers go away or you’re going to see them become part of a larger organization,” said CLS owner Mike Campbell. For that reason, Campbell sought out Neace Lukens, which already had a 25-person Indianapolis office on Shadeland Avenue.
Another example is Alabama-based Regions Financial Corp., which acquired Kokomo insurance agency Miles & Finch in January. Regions paid $20.6 million, or about twice Miles & Finch’s annual revenue of $10 million.
But while the conditions might be there for consolidation, actual mergers have been rare.
“I’ve got some of my clients chitchatting, but I wouldn’t call it a trend,” said Mike Nader, a health care attorney at Baker & Daniels in Fort Wayne. Nader and others said there would always be a niche for smaller brokers.
And small brokers can tap into larger resources even without selling their companies. Bryan Brenner, CEO of Benefit Associates Inc. in Indianapolis, joined a national network of brokers known as NFP Benefits Partners.
The New York-based group provides sophisticated technology at a lower cost than Benefit Associates could get on its own. It also gives Brenner access to the collective know-how of nearly 500 other benefits brokerages and consultants.
“Technology, really, is all about scale,” Brenner said. “If you’re just buying a little technology, it’s very expensive.”
An Indianapolis-based organization, United Benefit Advisors, is doing the same thing as NFP. Started five years ago, UBA now has more than 135 members.
Now, Hudson is just focused on growth. In the next five years, Gallagher wants to triple Strategic Health’s $3 million a year revenue.
Part of that will be organic growth, Hudson said. Gallagher wants Strategic Health’s roughly 8-percent annual growth rate to spike to 15 percent. The acquisitions will come on top of that.
“It’s definitely a different strategy,” he said. “It’s a quicker strategy to grow.”