Behavioral healthcare is a growing industry with a confluence of factors making this a niche opportunity for agents and brokers looking to expand their footprint. We spoke with Richard Willetts, National Program Director for NSM Insurance Group's Addiction Treatment Providers insurance program, about the industry in general and its expansion. NSM is a large program administrator with almost $400 million in premium under management, serving approximately 25 unique specialty programs. NSM has underwriting authority for most of these programs and works with numerous top-rated carriers to deliver their products.
Richard is a 27-year industry veteran who worked in underwriting for 17 years with insurers that included Kemper, Hartford, Zurich, AIG, and GE. During the last decade, he has worked on the broker side, specifically on MGA specialty business. He's focused on insurance products and risk management for the behavioral healthcare industry for the past 12 years and in 2006 Richard joined NSM, establishing the Addiction Treatment Providers program for this niche along with CEO Geof McKernan. They partnered with Arch Insurance Company to provide a comprehensive and flexible product on A+ admitted paper on a national basis. Today there is a team of 10 people working with Richard handling a $30 million program for behavioral healthcare providers.
Annie George (AG): Let's first discuss what behavioral healthcare encompasses.
Richard Willetts (RW): "Behavioral healthcare is an umbrella term for the treatment of substance abuse addictions; that is, alcohol, drugs, tobacco, prescription meds, gambling, eating disorders, etc., and mental illness (depression, anxiety, bipolar, schizophrenia, developmentally disabled, etc.). Also included are ancillary activities on the human services side, such as vocational training and supportive housing - recovery residences, sober living homes, step-down programs. In addition, there is a trend today within behavioral healthcare to integrate primary care as part of the overall treatment, which is as a result of the Affordable Healthcare Act."
AG: How big is the industry and what factors are contributing to its growth?
RW: "This is about a $200 billion industry, which represents about 7% of a $3 trillion healthcare industry - the largest industry and component of GDP in the United States. There are more treatment programs and facilities in our country than there are McDonalds. You have 13,500 McDonalds, and over 15,000 addiction treatment facilities.
"What's more, this industry is projected to grow 30% over the next five to seven years. There are several reasons for this tremendous expansion. In 2008, "parity" legislation was passed stipulating that mental health and substance abuse had to be covered by insurance companies in the same way in which physical injuries are covered. Additionally, now with the Affordable Care Act, this industry is set to grow like no other. The combination of Medicaid eligibility expansion, and the creation of Health Insurance Exchanges, is expected to make health insurance available for the first time to an additional 40 million lower income Americans, according to the Congressional Budget Office. Even if only 5% utilize treatment facilities, this will add another 2 million individuals into a system that currently treats about 3.5 million annually.
"In addition to legislation driving the industry's growth, there are also new diagnoses and societal shifts affecting the sector. There are 55 million adults each year who have a mental illness episode - this can vary from stress and anxiety to excessive bouts of depression. Twenty years ago, for example, no one knew much about ADHD or ADD and treatment for these issues was not commonplace. Today, there are all types of therapy, and medications available depending on the illness. In fact, we have over 800 medications in production and in the pipeline. Also, some of the issues we have now didn't even exist before, such as addiction to the Internet or to Internet pornography sites. Today there are new programs and methodologies to treat these addictions that go beyond group meetings such as AA.
Another influencing factor for the industry growth is the trend towards an alternative to incarceration. "Over 70% of the prison population is behind bars for drug offenses," said Richard. "It's very expensive to lock up a drug addict or user; it costs about $25,000-plus a year. States have determined that they can put people into treatment programs for less than that amount. What's more, the success rate is much better, and the rate of recidivism is lower. You have a much better chance of turning someone's life around who was found on the street on crack if they go into treatment than if they are in jail. This point of view has evolved to the point where New Jersey's Governor Christie has said, "Jail is not an option...the person is going into drug treatment because it makes sense economically."
Furthermore, tragic incidents such those that have occurred in Tucson, Aurora, and Newton has put the spotlight on mental illness. "You see individuals with severe mental illnesses committing horrific homicidal acts," said Richard. "This is a tipping point in the country, with everyone scrutinizing the mental health system and the need for improvement and better funding. We need to effectively deal with this issue not only through efforts involving gun safety but also through mental health treatment."
AG: How do you see agents leveraging what they have to offer to this industry?
RW: "If you're an agency looking for a niche, this can be a very rewarding and profitable one, but it isn't everyone's cup of tea. There is limited competition, with not many brokers going after the business and not many carriers writing it as it's not easy to understand and price. It's a tough business and it does lend itself to the occasional severity issue because of the nature of the industry. However, those in the behavioral healthcare field are significant insurance buyers. They are looking for trusted advisors as they typically don't have risk managers in-house and don't self-insure, which is perfect for independent agents.
"There is tremendous value that an agent can bring - a solid insurance program, knowledge of the business and the industry. What's more, it can be personally rewarding. You can choose a lot of niches to target. I have insured tow truck drivers, car dealerships, you name it, but it's personally fulfilling to work with people who turn around and save people lives.
"It's also a highly fragmented industry, with the largest player in behavioral health only controlling 2% of the market. There are many mom-and-pop treatment centers to insure, with an opportunity for those agents/brokers who want to spend some time to learn about a bit about the industry. It's also an extremely collegial industry and a close-knit community among those colleagues who run the treatment centers, opening doors to agents for referrals."
AG: Tell us about NSM's program.
RW: "Our Addition Treatment Providers Program is the largest program focusing on the behavioral healthcare industry. This is all we do, day-in, day-out. We understand the difference between a partial hospitalization program and an intensive outpatient program, for example, with brokers and their clients appreciating the extensive knowledge we have. We also have significant claims and risk management expertise in this niche.
"The program, written through Arch on admitted and non-admitted paper when needed, is exclusive to NSM and can't be accessed anywhere else. We offer customized coverages along with customized services, which go a long way when agents and brokers are selling the program. There are 15 lines of coverage under the program in a packaged policy that includes Property, General Liability, Auto, D&O, Professional Liability, Cyber Liability, Sexual Abuse Liability, Umbrella, Workers Compensation, EPLI.
"We offer incredible flexibility and, because of our expertise and experience, the ability to craft solutions, to think and work outside the box when needed - which is a key to our success. We also have five underwriters working with brokers directly, so there is no need to go through a marketing rep. From soup to nuts, small and large accounts, new and renewal accounts, as an agent you are working with one empowered underwriter.
"We operate on an open brokerage basis and there are no volume requirements. We also offer a flexible commission schedule, and look for agency partners who are interested in developing a flow of business. That means rewarding and compensating agents according to their investment in this niche and the volume they're able to develop with us."
NSM also offers a monthly direct bill program, with zero percent interest. In addition, they provide extensive program branding, attend all the national association conferences, advertise in trade publications, and provide marketing and sales support to agents in various forms. "We also speak at most of the behavioral healthcare conventions," said Richard. "Our brand is out there, so when agents and brokers call on prospective clients, they mostly likely have heard about our program.
"This is a fascinating niche that is relevant and growing with demand that's up - offering a tremendous opportunity for agents and brokers looking to expand into a new niche."