Hobson:             00:00 You know, we don't want $2 million claims hitting the budget of the employer self-insured plan. So, but if you go back to earlier times when claims didn't get so big and stop-loss insurance for self-insured plans was just sort of starting out after Arista was passed. I mean it existed in one form or another before that, but it was generally referred to and this gets into something which is very important in any discussion involving the self-insured world. And that is nomenclature.

John:               00:37 Guys, welcome to the show. We are talking about "Let's Get Specific" today. We have none other than my good friend Hobson Carroll, a world-class actuary from Intrust, talking about the specific deductible. Setting the deductible is one of the appropriate, what type of deductibles can we utilize to mitigate risks and price them appropriately. So welcome to show Hobson.

Hobson:             01:02 No welcome to the Houston area. John heavy here.

John:               01:06 H town Houston playing tomorrow night. We'll sit tonight world series. All right, so let's get into, why don't you just talk about the specific deductible and where it originated from. We've got the specific, we've got the aggregate. Let's talk about specific, yeah.

Hobson:             01:23 Well for a lot of people in today's world, the specific, it seems to be the most important thing because everyone realizes that individuals have large claims and you know, we don't want $2 million claims hitting the budget of the employer self-insured plan. So, but if you go back to earlier times when claims didn't get so big and stop-loss insurance for self-insured plans was just sort of starting out after Arista was passed. I mean it existed in one form or another before that, but it was generally referred to. And this gets into something which is very important in any discussion involving the self-insured world. And that is nomenclature. In reality, in the early days it was referred to as individual excess risk insurance. And of course, the aggregate protection which is aggregated is was known as the aggregate excess risk insurance, excess risk being the term used to describe what happens to the claims over a certain amount.

John:               02:21 They also call it catastrophic coverage, blah, blah.

Hobson:             02:25 That's true too. It can be, but that's rarely used as employers think of it as well. It protects against the catastrophic losses from an individual impact in their plan. Absolutely. However, the policy form that the stop-loss carrier uses invariably uses the expression specific stop-loss insurance or individual excess risk insurance or individual stop-loss insurance. These terms are all basically interchangeable as long as we understand what the concept is, which has to do with the fact that let's take a, an employer says, well, I'm going to self insure my health insurance benefits for my employees rather than turn a premium over to a carrier every month and it's their responsibility to take care of the claims for the employees. The employer says, I'm going to be the insurer under Arista. I become the self-insure, if you will. And I look and I say, I've got a pot where my employees are going to and their independence, they're going to pour all their claims.

Hobson:             03:23 Okay. And I need that pot to be protected because it can't get too big or I'll be spending too much money. So, they use risk mitigation tools. Okay. If I can use that expression to protect how that pot can accumulate and get to if that pot gets too big and overflows, the employer goes, man, I lost a lot of money compared to what I was expecting to pay. So they do, they use two major tools for that. One is, he says, I don't want the claims on any one individual to S you know, to blow my budget for the whole year. I mean, if something happens in the first year, I mean the first month of my year and I have an individual in a car accident or I have a premature baby or I have someone that's born with a hemophilia and I've got to pay for that drug for the rest of the year.

Hobson:             04:07 I know right away I'm using a big chunk of what I thought my expected claims or my budget was. Okay. So I buy an individual stop-loss policy, a policy that stops the losses on any one individual during that [inaudible] not per employee. Right. Well, in the early days it was almost per employee, but you are? Yes. Okay. Per person, sorry. Yes, individual. Okay. And in addition to that, the employer often not always, but often says, I still want to protect the pot in case it overflows from too many claims that are below the specific attachment point or specific deductible. That point where I want to protect the claims for individual catastrophic for me. Give me an example. Well, I'll say let's say I buy a specific stop-loss insurance attachment point or deductible at $50,000 per person per the calendar year or the period of time, the plan year.

Hobson:             05:04 So what that does is bifurcate all claims into two mutually exclusive and mutually complimentary sets. Okay. That ends up totaling the total claims. Those claims that are up to the specific deductible of $50,000 and all the claims that exceed $50,000. Now, when I say exceeds $50,000 I mean amounts in excess of the 50,000 point. I don't count the first 50 with that. The first 50 goes into the first pot, right? The claims up to 50 and then if it's, that's 50 thousands and first dollar, that next dollar goes to the specific pot. Okay. But anyway, all claims will fall into one of those two subsets, right? And you add them together and you've got your total claims that you're going to have for the year. But for that stuff that's all below, which is where most of claims are going to be, obviously below the specific deductible.

Hobson:             06:00 I mean, in almost every imaginable situation, you may still want to purchase a protection against that total pot. And that's where the aggregate, which is, that means you aggregate all of the claims from the individuals on a certain time under 50,000 in this case. And you throw them into the pot while the employer may still want him either. You know, there could be an epidemic of a really bad flu and you could have a half a dozen people who hit $50,000 because it was really, really hard to deal with it. And he may blow his budget for the aggregate anyway. Well, so he may buy and say, look, I'm willing to go on the risk for so much money and maybe another 20 or 25% but I'm not willing to go more than that. So that's where the aggregate kind of strong. The point is you use those two tools to really hone down and protect your total spin for the year. What your total spend is going to be.

John:               06:52 Now you said most claims fall under the specific, is there a number that we know that typically this percentage of members are gonna breach to specific and it's going to equate to X amount of claims?

Hobson:             07:04 Well, yeah, I mean actuarial tables are plenty of actuarial manuals rating manuals around that.

John:               07:12 A Hobson wrote one of the stop-loss manuals that they use to approach underwriting side. No,

Hobson:             07:18 That was a bit of time ago, but I'm still familiar with what's around now. And the point is it usually includes information relating to what the frequency expectation is and the dollar amount above that level for every, every dollar amount you can think of. So a $5,000, $10,000, $20,000, $50,000, it'll tell you what the percentage is. Now, any given group is going to vary from, you know, a global average

John:               07:45 Based off of the spec [inaudible].

Hobson:             07:48 These tables are used to generate the expected claims on a manual basis for the specific risk at any given that was updated. Oh, most of the major actuarial houses update those annually in the cost of care. Yeah. Now, you know, a lot of under, that doesn't mean that stop-loss underwriters necessarily update their manuals every year because they include a trend factor that takes into consideration the increase in claims costs over time. So they may go one or two or three years before they update their manual, and then they just tweak the result, the actuarial manuals, or they attempt to be as accurate as they can for the time period that they release released their manual. And the underwriting process uses both the specific information about a group such as their age and sex and where they are, their demographics, because claims costs vary by location, et cetera. So that's all taken to consideration in conjunction with the manual to come up with the expected claims, if you will, that will fall into that specific part of the total claims cost. Okay. How do we go about setting

John:               08:56 The specific? When you look at it actuarily we've got a group, let's say it's a hundred lives. How do you go about setting that specific?

Hobson:             09:04 Well, there's a lot of variation in the thinking about this. You'll see ranges from, it can range quite a bit. It depends somewhat on the risk appetite of the employer sponsor of the plan, but as a general rule, underwriters are comfortable with a range that's anywhere from five to 15% of the total expected claims that they want. They have for that group. So the estimate, the total picture of what they think the claims are going to be.

John:               09:34 Wait, I saw Hunter person $1 million they want to spec, but from 50 to a hundred

Hobson:             09:38 Typically privacy. Yeah, that you're going to and you're going to see that a lot. That doesn't mean that there won't be situations where you see 25 and you may see 200 because that million dollars of expected total claims can range quite a bit depending on the age and sex and demographics, the plan of benefits, et cetera of and the networks it's being used. All of those things go into factors. Yeah.

John:               10:00 And if I'm a, if I'm a consultant and I'm looking to provide options to my clients, what should I be looking at? How many different specific deductibles, how should I analyze it from a consultant standpoint?

Hobson:             10:13 Well there you kinda like need to understand the basic theory and understand how the interrelationship between the specific and the aggregate and the specific deductible level and the premiums that are going to be charged for it. How those are connected. And for that I'm, I'd like to take it up to the whiteboard.

John:               10:30 We're going there ready? Is that, is that the aggravating specific or no, that's just setting specific. All right. Did a whiteboard.

Hobson:             10:38 So what I'm showing here is just a basic simplified picture of what's going on with the self insured plan. Again, the self insured plan is this big pot, right? And the employer says to his employees and their dependents, bring all your claims and form into this pot and I'm going to take care of it. Okay? And then the employer looks and says, eh, you know that pot could get pretty big, right? It could overflow. I've only got a pot this big that I want to spend the money on. And if the claims go over that, and I'm going to, I'm going to be out a lot. So I buy aggregate stop-loss insurance, which says, okay, if the claims exceed this point, I pay a premium to an insurance company to pay the amount that overflows that point. Okay, that's aggregate stop-loss insurance. But if I have one person who has $1 million claim, you know, that could fill half the pot up depending on what the size of my group is and that might endanger the aggregate.

Hobson:             11:36 So I say, well, I don't want to have that happen either. So I buy individual stop-loss insurance, right? Or specific stop-loss insurance. Now here's a picture of all the people in the plan, right? And here's the specific deductible. I've just drawn a line. I haven't put a dollar amount to it. It could be $50,000 could be $25,000 it could be $100,000 right? But what we look at is the actual claims that every one of the our people, our little stick people have. Okay. Obviously anything that is below this line, the cutoff right for the specific deductible comes over here and gets dumped in our pot, our aggregate pot, okay, I've got a person here who went above the specific deductible. So this much or the amount up to this specific deductible, we'll go over here into this spot. $50,000 call it $50,000 okay, so let's say that's $50,000 let's call it $50K, that's supposed to be a five and that's supposed to be a K. Okay, so up to $50,000 including the first $50,000 the claims come over into this pot, but the amount in excess, and let's suppose this one was, this was a $75,000 claim.

Hobson:             12:47 75 K. Okay, so that $25,000 which represents the difference here, right? It would be thrown into another pot. Remember I said there's two subsets that make up the total, the aggregate claims and then the claims that go towards the specific, that's what this little pot is that we're going to pour all the claims that are above the line, right? We're going to put them in here. And what the, what the employer does is pay an insurance company a premium, right? To cover all the claims in that pot. And that's the specific deductible and this specific stop-loss insurance. So they pay a specific premium to a carrier to take that catastrophic risk. Okay? They pay a premium for that over here, they're funding all these claims, but they pay a premium in case the claims overflow. And that's the aggregate premium. The aggregate premium is not usually very much, not under normal circumstances.

Hobson:             13:45 Okay? But this can be a lot. This depends on the level of the specific deductible, the risk involved, that plan, how rich the plan is and et cetera. So see here we have another one. We had a big one. We had like let's say a $200,000 claim, so $150,000 is going to come down here. The first 50 goes where? Back over here, so we've accounted for every claim that that employer had and one of these two pots. Okay. Is the reason for that? All right. Obviously the more claims that we exp, if we lower this line, make the deductible lower, right? That means we logically assume there will be more claims that exceed that line on average and for a manual, let's say, I'm not talking about the actual claims of a given group of what you would expect for a book of business. That means this little pot gets bigger in size in terms of what we expect. The bigger that pot is on an expected basis, the more premium we're going to pay. Okay. Symbol relationship, lower the specific deductible premium for that goes up. Raise the more insurance space. That's right. Raise the specific deductible and you expect less claims to be in excess of the line. This little pot gets smaller, it costs less.

John:               15:09 So I'm coming up on renewal. I've got a $50,000 spec, I've got, you know, two people that one person that breached a spec the year before. I'm looking at, and you can go into your opinion. I'll give my opinion on it. I'm looking at a specific deductible $60,000 this year and saying okay, how do we determine whether we should go to 60 or not? In your opinion?

Hobson:             15:35 Well all things being equal for a book of business, okay. The premium for a $50,000 specific is going to go up by a trend factor that exceeds first dollar trend every year. It's just simply to leverage trend leverage trends give a quick you to offset the premium as well, right? I usually do that by the, the example of home equity cause people like home equity gains, right? So you buy a house for $100,000 except you borrowed $90,000 from the bank to do it, right? If you're in the right market in one year, the house is now worth $110,000 and your equity is $20,000 that's a huge increase. Whereas the whole house only went up 10% you doubled your money. Okay, reverse that is what happens with claim Trent. Okay. To claims.

John:               16:31 Yeah. What it means is, is the cost to insure a claim that is let's say $100,000 a year that they're pricing for actuarily and you leave it there and you leave it there. And if they incur that same claim that let's say it's a double knee and it's a hundred grand this year, next year it's going to be 110 so in order to ensure that same specific deductible, the carrier now takes on $10,000 more, a additional cost to them to pay out that claim, which means what if they charge you more in premium, which is leveraged trend,

Hobson:             17:04 Right? So the $50,000 example on your example exactly. The first year it was 50,000 in excess of 50 then it becomes 110 so now it's 60 excess of 50 so I went up how much did the stop-loss claim go up? $10,000 over 50 is a 20% increase. Even though overall training was only [inaudible].

John:               17:22 Yeah. So when when you look at stop-loss renewals and your group is running well, and you're saying, well, why am I getting an increase? Well, you're getting a trend increase. What that means is the cost of medical care has now increased to ensure your group and pay the same claims that paid last year. It's going to cost more money to pay out, which means it's going to cost more from the insurance component. Right? Or if you increase your deductible. So go back to that. So we're gonna, we're going to look at, okay, if we want to offset trend, we're going to maybe do a baby bump of two 50 to five

Hobson:             17:54 Well I'm 55 or something like if you go to 55 you increase your deductible 10% which is equivalent to the first dollar trend. And you'll basically offset almost all the increase and in fact in this example.

John:               18:07 So talk about that for a second. So if I get a trend increase of five, what do I need to increase percentage wise of the specific developable to offset the trend increase to same?

Hobson:             18:18 Well, if you believe your first dollar trend, all the pressure on all your claims from ground up is only 5%

John:               18:26 Is it typically?

Hobson:             18:27 Well these days carriers are using, you know, to underwrite aggregate and experience rate and everything are using anywhere from eight to 10% now that incorporates the huge increase that they're using for RX because RX is starting to heat up and kind of go nuts again. And what it contributes brings the total. So let's say it's 8% let's say it's eight okay. So you would need to increase your specific deductible by 8% to offset.

John:               18:54 So let me jump to a fully insured product. When they talk about a trend increase and it's, well they're bitching cause it went up 8% or they just simply were changing, no factors, no nothing. We're, we're getting increased 8% just to keep up with the cost of medical care.

Hobson:             19:10 Let's assume that there were no major pool claims and Nope, everything is kind of nice and quiet and they hit pretty much expected claims then. That's exactly right. There were saying that if you're in a network with, you know, a PPO network, et cetera, those contracts are all going to go up, you know, five, six, seven, 8% and so they're saying I need that just to stay even. I mean

John:               19:31 Just to break even. Yeah. So the employers are bitching, brokers are bitching and it's like, well the cost of medical care is increased just by trend. Meaning what they pay for a knee last year versus this year is a percent more. So the cost of insurance to ensure that same knee surgeries more money. So let's go back to the $50 60,000 we talked about bumping it. Just to give you an idea of what I look at is if this year is the same as last year, I'll say, okay, if we're going to increase the deductible, and you can tell me if I'm wrong to 60 right, what's the premium savings? Let's say I save $15,000 in premium savings and last year one person breached it. So if last year is this year, okay. Or this year is last year. Okay. That one person is probably going to cost us the extra $10,000 because they breached a 50 and went over 60 so I take on $10,000 more claim costs as an employer, but I save 15 so my head 15

Hobson:             20:24 So the 10 goes in here because why? Because if the specific deductible goes up, you expect more claims [inaudible]

John:               20:34 Yeah. So if I, if one person breaches it, which you assume they breach not only the 50 breach, the 60 I say 15 grand on one side to lay out 10 more. So if one breach it, I'm okay, but if two then I lose, I'm behind five grand. So got to play with those numbers. And say, okay, based on my premium savings by changing a specific deductible, how many people breach it where it doesn't make sense, and you've got to make that determination as a consultant and no one group knowing your risk.

Hobson:             21:01 Well, and if you're talking about a hundred life group, you know we're not talking about a great deal of credibility in the frequency numbers anyway. We're not talking about a great deal of credibility at 400 lives. Even as far as a hundred thousand dollar claim level, it just all changes. A lot of it is basically you got to realize that a basic principle for underwriters for specific stop-loss insurance is setting the risk is that if you have set your specific deductible at a level where you expect a whole bunch of claims against the premium, you need to raise your specific deductible because then it becomes risk. It becomes finance. You're, you're flop, you're swapping dollars and why you swap dollars and that leads to taxes. That leads to a discussion of what happens when this little pot that represented the claims in excess of the specific, okay, what's covered by this specific stop-loss and the specific premium is paid for it.

Hobson:             21:54 What happens when that gets to be a significant size? You know, I mean we're talking in three hundred thousand four hundred thousand dollars or something like that, right? Well actually assuming that's a hundred thousand or $125,000 deductible, $150,000 deductible, something that's not a half a million, okay? The chances are we're not going to get, the carrier is not going to see a zero loss ratio account at that level, okay? So you're going to have something, it'll be 10% or 50% or 70% or 150% okay. Or 200% but the point is there are going to be claims against a $400,000 premium pool, okay? So that's where they look and they say you may not be keeping enough risk into your aggregate. You're insuring your catastrophic risk at too low a level. If you really are comfortable there. One of the things we could do to lower the premium, right is what did we do over here on the claims that were lower than the specific deductible?

Hobson:             22:57 We put them into a pot as a whole, right? And then we, we have an attachment point that represents a self-insured risk by the employer, the corridor, the aggregate corridor, 125% of expected, something like that and in fact what happens there then is that I am taking the risk that the claims will go from below expected claims to as much as 125% of expected claims and then my losses are stopped. Okay. But that only involves the claims up to the specific deductible. Remember I said the specific deductible puts claims into one of two subsets, right? All of the claims below the deductible and the claims that exceeded deductible. Well this, this pot represents the claims that exceeded that deductible. When it gets to a certain size, who's to say we can't ride aggregate on that subset of claims and that's what an aggregating specific is. That's all it really is.

Hobson:             23:53 Now they don't attach it 100% of expected claims. They, what they do is they let you, they being the carrier, let you self-insure some portion of what that premium say that premium was going to be 400,000 okay. They say, look, the chances are you're going to have, you know, at least a hundred thousand dollars worth of excess claims. This is all above, I don't know, $100,000 specific deductible. Well, why do we charge you a premium and then low taxes and commissions and fees and stuff on top of it when we're just going to turn around and give you back $100,000 so why don't you basically write a little baby aggregate, okay. On excess claims, claims, exits of the deductible. When you hit 100,000 when you've paid 100,000 of claims that would otherwise be in this pot, then we'll come in and in exchange for that, we'll knock off $100,000 of premium or something like that.

Hobson:             24:59 Bring specific. Where do you typically see that? Where's it a right fit? Once you'd brokers use it whenever the carriers don't want to do this, unless the premium is significant for the reason I said earlier, when the premium is a certain height. Okay. A certain size, then we can look at it and say, you know it's reasonable and logical to assume any group is going to have claims against that premium. Some claims they might not be very much but they're going to have claims. Okay. And it's that situation. So it just depends on the size of the group, the size of the deductible and the size of the premium. There's no magic formula and every carrier feels differently about it. Most of the time they just assumed not give up the premium. Do they want, do they want to write an aggravating specific? Well it depends on how they do it.

Hobson:             25:48 I personally like it because I can show that though downside risk dollars available to the carrier for a specific deductible is greater if I had the aggregating specific than when I don't. But some carriers don't write it that way cause they, there's a lot of carriers that really quite don't understand the theory of this. Either. They just look at it and say, we really don't want to ride it. We're going to do a one-to-one trade off. Okay, fine that, okay, whatever. All right. They will if they're pushed but not on 100,000 a premium or 200,000 a premium, but 300,000 maybe. Remember it's basically saying you should have written a higher specific deductible so that my pot would be smaller and then we don't have to deal with this. Why are they even writing the deductibles that low and then getting those factors just because the employer doesn't like risk tradition.

Hobson:             26:40 Okay. It's been their employer likes, the broker likes it. The broker likes it. Especially if they're making compensation on it, on the premium directly. Okay. They don't want to, they like it. If they can keep the rating increase. Say they've had good experience. See the lower the specific deductible and the higher this premium, the more you can actually argue that there's some credibility to the specific risks and if they didn't have a bad year, they may not get a big trend increase. Okay, well then why raise the deductible? All right, but you can still save money. The employer can still save money by saying, look, I'll just, I'll just self-insure a portion of that specific of the all those excess dollars because why not? If I don't have any claims, I just saved a hundred thousand bucks out of this 400 if I have 500,000 in claims, I'm no worse off than I was.

Hobson:             27:29 I mean, that's the way you look at it. Now, the carrier, you can say, well, why is it, if that's the way it is, why isn't it worse for the carrier? It is only on the upside for the good another's others. If there's no claims, the carrier gave up 100000 bucks, okay? Because they're only getting 300 to pay zero claims. But if they price this correctly, they actually have more risk dollars because of an aggregate corridor that you put on here and they actually exchange that for a less chance that they'll lose money. Slightly less chance. Okay. So they give up some of their positive, the upside to lower their downside by a similar amount and then if that's what it takes to keep the case. There you go. I've seen strategies where brokers or consultants or reinsurers are using a aggregating specific maybe to offset the risk of a laser.

Hobson:             28:21 Absolutely. That, that's one of the uses of an area there. There are different ways to talk to me break carve the Turkey. Okay. Yeah. And so if everyone on your group that's 50 lives on her 150 lies and we've got $125,000 laser, you know, is he challenged to give it to the employer and we've got to come up with creative options. The key is that it's on a person. So what you're basically throwing the dice on one person, does that person hit 125,000 or don't they hit 125,000 okay. If I add 125,000 to my specific premium and then do an aggregating specific for the 125 any number of people can eat up to one 25 okay? There's a trade off. If you do the laser and the person dies, God bless him. Okay? There it turns out to be no expense. Okay? And the employer just simply wins because they didn't have to spend any money and be curious, not out, because they didn't take a risk on, you know, it didn't happen. If you do it as an aggregating specific, however, and the person dies, you still got $125,000 you've got to, you've got to accumulate from everybody else before the stop-loss carrier starts paying. Got it. So it's not always so simple. You got to think about the situation and then you know, it's like, but the thing is, it's usually everybody knows what's going on. So it's like it's very positive game situation. The reinsurers know the tricks. Are you doing

John:               29:42 It on a laser that is the full blown laser? It's a conditional laser. Does that come into play if it's a conditional laser on the member of the lasers membered you know full-blown.

Hobson:             29:53 I'm okay. I'm not sure I know what you mean by conditional ways or additional

John:               29:56 Laser. You know it's somebody that if they take this med, we're lasering it specifically this med or if it's somebody that just has bad history, like anything, any hospital, say any med lasers on 100% of claims.

Hobson:             30:10 Oh, okay. I have to admit, I'm not so familiar with the conditional laser because I'm not sure how I would write it into the policy, but I don't know, maybe other people that interest are familiar with it. I get the concept of what you're saying. Yeah. I would say if you can do a conditional laser that kinda like takes care of it. Yeah. I mean you would have the sort of the same thing with you know, with a certain, a certain strategy for say, okay these two people who have these ongoing conditions, they're not going to be in the plan next year. And the carrier says, well how do I know that? What? Cause I'm going to arrange for them to get coverage elsewhere. Well how do I know that? So I'm going to put a laser that's a conditional laser. If these people are still there, then they're going to have a laser.

Hobson:             30:52 But if they're not there, then it's not, it doesn't apply. So I suppose that works just as well. The point is there are variations. If you've seen one laser policy, you've maybe seen it one laser policy and they're not all the same, they're very similar. Also ask yourself about what a no laser guarantees. If carriers actually say that in the stop-loss policy anywhere or is it an administrative letter? Where's the piece of paper you can hang your hat on when they give you a laser increase next year or rate increase? Same with rate increase guarantees. Okay. There may be some out of there, but I'm still waiting to see a definitive piece of paper that says the promise that's being made by a lot of people. Well, the rate cap too. Yeah, I mean

John:               31:38 No laser in perpetuity. I want to go back to what I S I've seen in policies and we'll wrap it up in a minute, is setting the core door on the Agora at at one 25 right? And you see some policies that they set the corridor or at one 10 and they're doing this to squeeze the attachment point and their increase in specific premiums. What is your, your thought increases, so it should be increasing the aggregate premium well that as well, but during increasing the total costs on Agora and specific premiums, just to squeeze the attachment point down to get closer to fully insured is where I see it in most cases.

Hobson:             32:13 Here's the theory. Okay. 125% again is one of those tradition things. It was like what they originally did and the original policy written by lawyers. They said, well, let's set it at 125% and everybody thought that was what the Bible said. And so it's been 125% but the fact of the matter is this, there's nothing magic about 125% you can set it in harder and some people set for smaller employers they say do stop-loss on smaller employers, but it's 135% of corridor in order to equalize the severity of the randomness. Okay. And but there's also for larger groups, you know, they can say, well we can do 120 we can do 117 and a half, we can do 115 the key is that there's a premium adjustment on the aggregate. This specific has no impact. I mean, is it impacted by where you set the aggregate attachment point, although relatively speaking, the same specific deductible will endanger an aggregate attachment point that's been set lower obviously more frequently.

Hobson:             33:13 But you adjust for that with the aggregate premium. That's the whole point. There is a total actuarial theory about of the risk of the aggregate stop-loss. A lot of people think no there's, there was no magic to it at all, but there is a full theory about it. I mean and what happens is you lower the attachment point for the same specific deductible. If you're protecting the aggregate with a specific, like our diagram up here and then you lower the the corridor. Okay. You're basically saying to the employer, the employer is going to take less and less risk. Downside risk. Okay. At a ton in 25% the employers on the risk for the difference between 101 25 if they come in below a hundred right then they, they had a good deal. They came in lower than expected claims they pocket the money. That's one of the reasons that employers do this.

Hobson:             33:59 I mean that's one of the positives. It's not usually not the only reason. If they come in at 110% of expected claims, then they've lost 10% versus where they thought it would be. If they come in at one 20 is 20 if they come in at one 25 is this 20 but then they say I'm done at one 25 I'm going to buy my stop-loss at 125% what's the premium for that? $6,000 whatever. Okay. Not a lot. Usually per head basis is like 80 cents or depending on the size of the group, you know it's gotta be a minimum amount to issue the policy, so it looks like more per person for a small group, but if you lower the attachment point, the premium's going to go up and it goes up. More and more is geometrically increases as you lower the attachment point.

John:               34:40 I see a lot of the bouquets they'll set at a one 10 Oh that's how they do the little fundings and they love to get collect more in premium. Then they love to sell. The client asks you that, Hey, you're running bad, you're running, you know you've breached your aggregate when you're running bad. When you agree it's typically not set appropriate anyway with the booklet and they just, they just play the shadow.

Hobson:             35:00 Actually they don't. The way that level funded concept works is they, you don't charge the premium. You should for the aggregate buy you lower the attachment point. The premium increase should be, let's say 80% but they only increase it 40% you know that's a small number, but still all right. Over their book of business, they're going to lose money on that aggregate. If they don't make it up, how do they make it up?

Hobson:             35:24 They make it up with that residual payment that they get. They take from the loss, the claims fund at the end of the year, whatever they, no, no, no, no, no. It's not the run out. The money belongs to the employer, but they take it as a terminal premium members management fee. Yeah, they take this, some of them, you know, claims feel wonderful. Green tree company likes you take a month and a half of and if you, if I'm surplus, if you terminate more, well they take it all [inaudible] is left over, that money goes against the premium that they lowered their premium for to make up so that their book of [inaudible], that's why they do this. This book of business is treated like it is fully insured block. Sure. That's in fact that's where they came. The book has got their level funded products by worrying about losing the 50 to a hundred market when the ACA originally was going to make a hundred lives, a small group and then Obama canceled it, but they were all ready to say, how are we going to keep our 50 to a hundred life bread and butter business?

Hobson:             36:21 The good clients are all going to go self-insured. We have to have something like that, but we don't want to lose our advantage of fully insured. So they designed the level funded premium with the residual charge and that's how they get close to being a fully insured profile for them. Okay. But in reality, you could write an aggregate only on a 50 I mean, I'm sorry, a 500 live room. Perfect. You could write 110% attachment point with no specific or a specific at $1 million just to protect you against really excessive things and the mash costs on that would be really low and there's a premium for it that makes money for the carrier if they have a block of that business. Brokers hate that though. Brokers, I mean consultants, everybody who's in the selling business, TPA is who to sell the business direct. They hate that because they say, Oh, no, no. If I have a million dollar claim, I have to be able to go to the employer and say, but we bought you specifics a year. Okay. They don't want to take the risk on the aggregate pool, but the aggregate stop-loss works perfectly fine with or without specific.

John:               37:26 Hobson Carroll, everybody. Hobson, thanks for being on the show.

Hobson:             37:28 Hey. Glad to be here.

John:               37:29 "Let's Get Specific". See you soon guys.

John:               00:12 What's up, guys here? Welcome to the Heads Up Adviser podcast! Today on the show, I've got my buddy, client, and good friend Gary Bender. Gary is a CFO for many years, probably more than he wants to admit to, but he's been around the block and back. He understands the world the CFOs live in. He's actually an owner of a company as well, so he knows the ownership side. He's handled some lovely HR duties in his past when they've made him do it. He also runs a group called CFO Solutions that meets on a monthly basis to talk about best practices. I've had the honor to speak a couple of times at his event and Gary, welcome to the show.

Gary:               00:53 Thanks John. Great to be here.

John:               00:55 So you gave me the stat a long time ago. It is my favorite stat and I use it in a lot of my talks now because it kind of puts the CFOs on notice, because they don't know what they don't know. What's that? What's my favorite stat that you always give me?

Gary:               01:10 15 years ago, the average price that the average tenure of a private company CFO was 84 months. People are startled when I tell them the average is now 28 months. And people always turn and say, "Well that's because the mergers," and I will tell you you've got a decline of almost 55 months, 56 months. The fact that company A bought company B and company B CFO lost his job accounts for less than one month of the 56-month decline.

John:               01:39 And why is it that, why is it that is so short now as compared to then?

Gary:               01:44 CEOs have gone through some tough times in the last five years and they realize they need a CFO adviser. They need a trusted adviser as CFO, not a backward-looking accountant or controller. They need someone who can assess risk, drive process improvement, be honest with them, and challenge the status quo. And if you can't do that, either the CEO or the board is going to look for somebody better. And I'm astonished even in my group of CFOs that we talk to every month, I'm astonished they don't know why they got replaced.

John:               02:18 Yeah. You, you've seen the turnover cause you're usually helping these guys get jobs. Can you back up for a second just to define the different types of CFOs because you know I'm in a market where you might have the CFO title, but I think they're the farthest thing from a CFO. Cause my, my thought and understanding was that it's more of a strategic position. And I see very different from size companies or different CFOs. Now me and you, we got along because I walked in the meeting and, well I should say the second meeting I gave you the numbers. I think it was in and out 15 minutes because you got it. So talk to me about the actual role of a CFO, the different types, maybe what some of the people that are actually a CFO and those that are kind of pretending to be one.

Gary:               03:01 About half of the top financial execs in, in private companies. And I'm talking companies from 10 million to 250 million. So you know that's, that's American. That's probably 70% of the employment. America's in those kinds of those size companies, regardless of sector they're in. Most of those folks are controllers. They might have the title of CFO, vice president of finance, director of finance, but most of them are controllers. They spend their time ticking and tying, looking in the rearview mirror, closing the books and providing some, some traditional accounting report to ownership. They shouldn't be the top financial executive in a company. Most companies need a strong controller and they need a super-strong CFO and I actually use the term CFO plus somebody who can take the tasks that the CEO or COO don't want to do. Put them under the CFO's responsibility. We'll figure out how to optimize processes, drive productivity, usually absorb those processes and reduce costs, reduce risk, drive cash, and probably even reduce payroll. People say it can't be done. We do it every day. If you know what you're doing,

John:               04:13 So are you calling him maybe a CFO plus now because it's like everybody's a CFO or are they just,

Gary:               04:19 No, I'm saying the goal is to become a CFO plus a, as I look across the CFOs that we mentor and coach, less than 10% have the aptitude and risk profile and intelligence to be a CFO plus the [inaudible] to come back. And your point 50% are barely good controllers and that's the dangerous part.

John:               04:39 Yeah. When you gave that stat of, you know, revenue, we, we live in a world a lot of times where it's number of employees. Is that playing to it or is it strictly typically a revenue-based?

Gary:               04:49 No, no, I, I see bad CFOs at $500 million companies,

John:               04:54 But would the CFO exists on a 25 life group? 100 life group?

Gary:               04:58 Sure. Yeah, sure. My company has 70 employees. The owner and I both have a lot.

John:               05:05 You understand the reason to have one? I feel like when I meet with these groups and if they're under a hundred lives, it's usually not a CFO. It's a controller.

Gary:               05:14 Absolutely.

John:               05:15 So do you see that you know the market where they're in the hundred-plus marker? There are certain size companies only and they just don't have them in smaller companies they don't think they need them.

Gary:               05:27 Well usually they can't afford it. Yeah. We need to have a CFO. CFO is going to earn at least twice as much as the controller and the controller will satisfy the bank, satisfy the auditors, provide some basic level of information and if you don't know better, you're satisfied with that.

John:               05:43 Is this controller kind of like a an in house CPA? Is that their role to an extent in house accountant? Yeah.

Gary:               05:50 Rearview mirror, tick and tie. Keep the bank happy, keep the board happy.

John:               05:54 We like to call them historians. Is that maybe a pretty good term form versus the CFO.

Gary:               05:59 CFO. Therefore from a CFO.

John:               06:01 Give me the different, the key differences. You know as we approach a client that has a controller versus a CFO, we're going to get into discussions on language and what they each do, but what way am I communicating? I have to understand the communication difference between the two.

Gary:               06:20 Well, if you're talking to the controller, you've got a challenge because they're, they're looking, they're looking at history, they've got a certain sense about what's going on in the current marketplace and they've got a certain sense, very limited of what is, what are the next couple of years look like for the business. So in a lot of these small companies, they don't know what's in the owner's head. They don't know what's in the board of directors head is the economy growing? Is our sector growing? Is technology going to replace us or or or support our growth because they're not in board meetings.

Gary:               06:50 And frankly they probably shouldn't be in the board meetings. You'd hope that you've got a director who's got the financial and visionary acumen that complements the CEO. Most controllers don't. So back on point, you're dealing with a historian. Do you use your term? So you start to ask the question. What I would suggest to guys like you if you're talking to controller is understand the trend in history either in their business or in the small, small hundred life, you know, sector to use your example. And then have them compare their history to the market history and then throw them a curveball and say, here's what best in class is doing in that sector, so take your a hundred lives in manufacturing or a nonprofit or academia, whatever information you have and show that the best in class people aren't going up 8% per year and raising deductibles and raising copays and squeezing the cost to the employees and actually showing that best in class processes and practices by really good brokers who are aligned with the client, not aligned with their compensation model, their historical model that they can develop a win, win solution, win for the company, win for the employees and the broker can win because the broker earns that on a performance basis.

Gary:               08:07 I think you want to take, you know, again, upper core tile, why are they holding their costs flat and your stress to even a historian account and understand 8% per year. In five or 10 years, you've doubled a pretty significant line item in your budget has now doubled. Are they even responsible though for the budget? When you're in a controller position compared to CFO, CFO is, you know, bottom line, that's their responsibility. That's what they get fired over. Is a controller even responsible, are they there to just check their boxes, do the work and go home two thirds or check the box, go home, keep the auditors happy. So you're not found to be doing sloppy accounting, you're not found by the bank to be doing fraudulent accounting and fraud may be a degree of making a mistake and not understanding the loan agreements or the weather reporting agreements. That's the most the two-thirds of your controllers can do in small companies. It's a tough job.

John:               09:04 Am I right in saying a controller would be more like a, if you're going to an accounting firm that does taxes and does auditing and strategy, right? Advisory. Would it, would a controller be more of like the accounting and auditing and the CFO be more that strategic?

Gary:               09:22 Absolutely. Even the tax piece because to do, to do tax planning, you have to know what's going on in the future and the risks to use your example, and it's a good example of ti accounting and audit are all in the rearview mirror. Okay? So it's hard to drive your car if you're looking in the rearview mirror and you're talking to somebody about driving their car for the next year or two, making plan changes that are strategic, that benefit employees retention, recruitment, they're not in that world. So you have to find a way to bring them into that world. And the best one I can think of is let's go look at history for people your size. This in New Jersey, in our example, the historian, is there a history to the historian, but break it out to there. There are people that are not following the norm.

Gary:               10:06 Here's your average. Let me show you upper core tile and lower core tile and just say bring three or four years a year history. We have it in the plan documents. We have your history and let's go look at the total spend because you've been squeezing costs most likely to your employees. So let's look at your total span and where would that put you on a ranking by quarto. You're going to find statistically, if they're even taking the call from a new broker, if he gets your foot in the door that that at least half are in the lower core tile. You just have to hit them on the side of the head with information they can relate to.

John:               10:42 What is the hot button for controller? What are, what is their number one objective or goal that if I'm in a meeting and I'm trying to convey a message to the control and we'll go to the CFO because it's very different, what is the message maybe I want to convey to the controller and hit the hot buttons.

Gary:               10:57 You're in an area that you've never been trained in. The market data is incomplete and biased. There is fake news in the healthcare marketplace about what expectations are, so give them the facts. If you give a historian the facts, they can relate to it and that's a good on a projection. But if you give them the facts,

John:               11:17 The typical Geico, I'll save you 20 40% thank you.

Gary:               11:21 Or five-year. Don't give him the, don't give him the fear message that it's gone up 10% so my 8% increases is great. I'm doing my good job. You don't need to talk to anybody else. Just look at history. And the reality is let's say it's your current account and you either want to educate them to do a better job and to introduce some, some things that can help them go back and even take a current account and look at the history and say you've been doing five or 6% per year and you felt pretty good about it. What if I show you using your data for the three years? Had we done this, this and this. You could be at zero zero zero without squeezing the balloon to your employees.

John:               12:00 Oh, I like that. So it's, so instead of showing what could be, we're going to show him what could have been but could have been in the past.

Gary:               12:07 Their data. Yeah. Okay. That's their day. Who's use their own information? Again, use their bullets. Shoot them with their own bullets.

John:               12:15 Yeah. I've, I've typically, you know, I've done it before, but I've, I've strayed away from it. We're so far looking in the future, but I guess you make them, you know, feel bad for what could have been done now versus,

Gary:               12:27 Oh, they're not going to have feelings now. Give them the facts. Give him the facts. Don't play on their emotional park is, it's not their money. And the employees don't complain to the controller. They complain to HR or they walk out the door. So don't go the field part. Show them the data.

John:               12:42 Okay, so, so let's switch over the CFO, CFO, when we're, when we're talking to a CFO and we're talking about savings, right? So we talked to a CEO, which you are, you know, you're an owner of a company as well.

John:               12:54 So, you know, Hey, I'm going to, let's look out five years. Let's look out 10 years, right? We're longterm planning. What does a CFO mind look like? Because you just gave me, the stat was a 30 months, 28 28 falling. There'll be 27 months. Then we talk a little over two years. I don't know if I'm going to be there for five years. That's right. I don't do I care about the five-year projection at 10-year projection? What do I care about today? Two years. What am I looking at as a CFO as far as.

Gary:               13:20 The answer is next quarter and next year, like five quarters is a lifetime. Rarely do you look to enters is an eternity. We're looking quarterly. As a CFO, we're looking at it on a quarterly basis. A lot of CFOs came out of the public corporation, world war. It is quarter to quarter.

Gary:               13:36 In a small business you're looking at a year or two max for a variety of reasons,

John:               13:42 So I want to, I want to look at my numbers and focus more on the short term so that leads to the problem. Ish. Short term gains means change, right? And no changes.

Gary:               13:54 Opportunity to change as a positive word and the CFO's going to understand that. Here's the app and I'd even suggest you use the word opportunity. Here's an opportunity to improve. If you're having trouble with retaining employees, if you're having trouble recruiting employees benefits or decision item, we've got a 1% unemployment market. You have to steal an employee from another company. Healthcare can be the tipping point and you've done it for our company. You know that, and that's not a compliment. You're once in this. We, we eliminated the, as you know, we saved enough money that in year two, the two owners of our company, we decided to eliminate deductibles for our employees and they were stunned and I had two industry-leading experts that I was trying to recruit for the last three years. My salary offers, my incentive offers were outstanding. What? Both of them came to me a month after. We eliminated deductibles and the marketplace knew it. They accepted the salary offer. I made them two years ago. I would have raised the salary offer. I would have raised the Ottawa islands. They both dealt with 12 to $15,000 family healthcare expenses in 2017 we made our change in 2018 and they joined us within a month.

John:               15:15 Yeah, it's a huge benefit. And we hit, I can't tell you in this tight labor market how many calls I get where employers are now asking me to talk to the recruits and sell them on the health land. And I said, it's interesting because health benefits, health insurance now is becoming what it was originated originally for was a benefit and employee benefit versus just an expense in something to deal with. So it's interesting. So let's go back to the CFO for a second. So we're thinking strategy. If I'm in a meeting, I'm going to talk to him about a short term gain. Nick, he can capture for himself. How do I convey that message in his terms or in his language? Like what is your thoughts as a CFO? Just give me some CFO talk.

Gary:               16:01 Okay. So we're talking about healthcare expense. It's fairly easy. I mean, all of the CFOs know their numbers inside and out. They know that healthcare benefits are probably their third largest expense on their cost stack and they can't change pricing in the marketplace. Their job is to manage the cost stack. So you know, that's one term in your cost deck for this year, for this year's budget, what's your total spend in healthcare? But more importantly, how significant is to the company. Okay, it's number three. Let's say it's $5 million a year. Use some easy numbers. And how much is it going up, John? And it's going up. Eight and a half percent. Your revenue going up? Eight and a half percent. Hell no. Is your labor costs going up? Eight and a half percent? No, it's about three revenue's gone up. Three or four. You know we're lucky to give salary increases in wage increases of 3% so why do you tolerate benefits going up eight and a half percent? So we just talked about revenues kept, you know probably your, your raw material, your technology costs going up, like three technology might be going down and yet you're seem to be satisfied other than the fact that I'm talking to you today about benefits going up eight and a half percent. What do you know? You want to talk about how to, how to change that curve. Do you want to talk about an inflection point? Because that's what we do for people.

John:               17:19 And you just talk, you were talking about managing I and I got ask to the million-dollar question, which we struggle to understand is why aren't more CFOs, controllers, owners, presidents, CEOs involved in not the just the decision, right? Not that one-hour meeting and saying, Hey, we're going to pick that plan. Why are they not involved in managing the healthcare budget like they in managing the safety programs regarding P and C property and casualty insurance.

Gary:               17:55 Because you guys have done a great job of not providing information during the year. We get an invoice. Let's take that $5 million example. We get an invoice for about $400,000 a month. We budget $5 million cause you told us to, you get a bill every month for $400,000 and by the way, you give us no information on claims and frequency of claims. And is it, are they accidental claims, annual physicals and mammographies the good maintenance best practices once a year. And I'll, I'll pick on your industry once a year, the brokers come, I will once a year the brokers come in and give us the gross numbers, no supporting detail and then treat us like mushrooms for 12 months. I you've heard this story before, let me define what I said 10 years ago. And my broker adviser, who I trusted and respected almost passed out when we had a lunch and we had a hundred employees there and it was the annual, your costs are going up, your copays are going up, your deductibles going up.

Gary:               19:00 So nobody in the room was happy. And I opened the meeting by saying, let me just set the stage for today's meeting. We do not have healthcare insurance. All of a sudden the pizza slices were set down and the chatter stopped and everybody said, what do you mean? Is it very simply, we pay these guys to pay claims on your, on our behalf and we pay them a profit margin and we give them all the cash upfront and if they need more, they raise our price next year. So basically they're our check payers. They don't care who you use, how much you eat and drink and don't exercise. In fact, they like when you eat and drink too much and exercise too little because then they can raise our prices next year. And the state allows them to earn a reserve. The state allows them to put an overhead factor on. The state, allows them to get a profit. So they're just really happy.

John:               19:48 Financing it for us. You know, you paying to finance it.

Gary:               19:51 And we're giving you a markup and a margin bookmaker, but we don't have insurance. We're just paying you to administrate our bad health habits. And everybody got it.

John:               20:01 So CFO's, CEO's, they're just not managing it because as Craig Craig would say, we trained them like elephants were elephant trainers. We've trained them to expect there's nothing. There was a poll. 81% of CFOs think there's absolutely nothing they can do to lower healthcare costs. So we've done a good job. It's a good answer. Brokers have done a good job of training them in that mindset.

Gary:               20:24 And not providing any information to allow them to, to challenge half

John:               20:29 Crucial depending on the market. Yeah. Yeah. But some of it's, the insurance companies don't allow it. Right? So listen, they've set up the game. They built a game and the games were on him. Well, okay. My next question.

Gary:               20:43 It's a trillion dollar industry.

John:               20:44 The next million dollar question is, you're not involved right now. You let a non P and L manager who has no, you know, that doesn't care about the budget. They get to manage this number two number three line item at your company. How does that make sense?

Gary:               21:06 They put you in a spot because.

John:               21:08 You guys do it. Well, I don't even in your groups.

Gary:               21:11 I don't.

John:               21:11 You know, you know we have these conversations. You don't, I never met with HR where you guys, but it happens over and over.

Gary:               21:19 Okay, so let me give you the statistics out of my groups in Pennsylvania, in New Jersey, and they're both about 45 financial execs titled CFOs and controllers. One third have the defined responsibility for HR. They have it. Okay, another third, approximately one third feel that if something goes wrong, they'll be held accountable but they don't have any responsibility to manage it. It's no man's land. It is the worst situation you can be in is to be held responsible but not be involved in the reviews, decisions, etc. That's those are the people that drive the 28-month curve because they're going to be held accountable by the CEO and board and they should be a $5 million expenditure. You need to inject yourself whether it's on your job description or not. A lot of people do not have my passive personality in it. That's sarcastic as hell because what's not on my job description and if it blows up, I'm in trouble and I'll make an excuse and I'll be walked out the door and they should be walked out the door.

Gary:               22:23 But that's part of the, I would weigh that issue with the CEO and the board of directors of MNO hold you responsible to managing our HR budget and being involved. And that's either from compliance and controls to healthcare costs to workers' comp and safety. You don't hold an executive or a manager responsible if they're really not responsible. But again, vinyl third H, excuse me, the final third HR reports to the CEO and finance controller. CFO knows nothing about us. So I just giving you the situation where the good CFO is going to be responsible, accountable and a large portion of them active in it and that's where you get to the 10 or 15% that are really engaged. You've got half of that one-third population that don't understand it, but their head in the sand. You guys take advantage of that. See them once a year, give them a few things, give them some media bogus trends, beat that look like a hero and you disappear for 10 or 11 months and you come back with good news or probably bad news, but it's going to be better than the trend. So you still a good guy, a good broker. They can use that excuse to the board until the board realizes, let's go do a third-party study. Let's do a comparison. I'm going to force you to bring two more brokers in and go through the process.

John:               23:39 So it's just, it's just again, elephant training. What will you train the HR to thing kept training the CFO to train the owner. Does the CFO sit and say, well, they report to the board or the CEO and say, well, you know, this is HR. Would they came back with as best we can do and want to keep themselves out of it because they know, Hey, this is a budget item that's just uncontrollable. I don't want to take the fall for it. Let HR manage it.

Gary:               24:03 Oh no. Fortunately, they actually invite HR, they invite HR to the board and HR is going to give the little apology, deliver the message, and they're going to lean back to them. You know, we looked at our brokers and here's the market trend, here's all the exogenous factors. They make all these excuses. Then they deliver, deliver a per cent in the trends going up nine, we ought to be happy. We got eight and we don't have to disrupt the employees and we'll squeeze a little more to the employees, but it's not as bad as it could have gotten screwed someplace else, so we're the lesser of both evils. Then they do a good job and then try it out of the room.

John:               24:36 Check the box and units. It's interesting as, I never thought of it that way until this conversation is like maybe they just don't want to be involved with it because they know it's an item they can't control and it's, I don't want to get fired.

Gary:               24:46 There's one more point to it. Most people in controllership or finance are not people people. They do not want people lined up at their desk, at their office door at eight o'clock why didn't the carrier cover this? Why is my deductible going up? Why isn't this test covered? They don't want to deal with people. They deal with numbers. Numbers don't push back. Even crappy numbers don't push back and cry in your office. We're not good at that stuff. HR is compassionate and they'll listen. They can't change. What if that test was covered, but they'll listen and be compassionate. Cfos are not. We had the compassion part removed.

John:               25:26 We always want to get the message. It's like make the decision and then let the operations team implement it. You know, I had a situation recently where it's like the CFO president, they're there. They love it, they want to move forward with it. They go back to corporate and HR just kills the deal. We can't implement it. I'm sorry. We get, we have to continue to lose millions of dollars because I don't have enough time to implement this. It's just, it's mind-boggling to me and yet they don't push back on the HR department. Why is that HR? Why is that they have so much power or control over this roles that or the CFO, even the owners bow to it.

Gary:               26:07 I'm as befuddled by that. That's why every place I've gone in the last 15 years, within weeks of me starting another role at another company, HR has reported to me, and you've heard me say it before, I never asked permission. When I had HR report to me, to CFO in some cases I didn't tell the CEO. All I told him is I'm making changes because it's broken and I'll tell you what the changes are that I've made

John:               26:33 Out of the norm. So I'm lucky. Let's you, let's switch gears here. Talk to me. I know you know when I got through to you is how do we prospect the CFO's, right? So harshly.

John:               26:44 I cold-called got happened to get you on the phone and got in, but what is the best way for us to convey a message from a marketing standpoint to a CFO, right? They don't want to talk to nobody. They sure as hell don't want to talk to an insurance broker. We don't. You're exactly right. I'm an odd duck. I answer my own phone and I also return calls. So I, that's the way I was raised. You're old school. I'm old school. That's the way I was raised. When people call you, they call for a message and I take the call in today's world and if you leave an intelligent message, I'll call you back or email you back. And today's world, they're hiding behind. People hide behind emails and pewter so they can avoid you. But more so how do I get, how do I get in front of these guys? How do I talk to them?

Gary:               27:24 Well, I think you know you, you've helped the CFOs in my group because I knew you were smarter than average. I knew you understood and can communicate to us. So you know, I'd say to any broker, find somebody that understands the CFO world and get in front of their groups. We do have CFO groups, they're rare. Cfos are generally introverted. Did rather be in the office and be out with 10 or 20 peers. Learning best practices. But there are opportunities. Podcasts, make it great. Webinars make it great sometimes that big egos, CFOs cause brokers do, cause I can get brokers you just ask them to for certain things they got ego. So you get them to CFOs. Do they want to be in the spotlight? No, they don't want to be in the spotlight, but they have egos. They have power and control, but they don't have egos.

Gary:               28:10 Okay. They do not want to be in. It's hard to get a testimonial from a CFO. You can save them $1 million, put them at the top of the upper court tile and you're lucky to get a testimonial. Sure. I know we we had some success. We had a real lot of success when we were in the happy hour. I said, Hey Gary, let's get these guys together. Cause they don't know each. It's funny, as you guys meet every month and I'll ask, Hey, do you know so-and-so in a group? They don't know him. And it's like, like you said, they're super introverts, but soon as we did that happier boy CFOs like to drink as well. Sure. And it was a good time. We got a lot of people together in a room. Had a good time. We'll do it again in about six weeks. We don't have meetings in December.

Gary:               28:53 In July we make sure we have happy hours in those months. The interesting part is I'm always stunned. 45 people that had been together 10 or more times a year. Don't realize they've got a customer or a supplier in the room. They don't. Yeah. It's like, well, I'm in a man. I'm in mastermind groups. We all know each other. We would do business if we weren't in the same industry. Well, actually my newer mastermind is marketing and we do, I've already done business with the guys. It's like, why wouldn't you do business there first? And especially in that local market, I'll get it, but I think we need to do, you got to do more happy hour for sure. Yeah, and we, we've changed our process or our, our agendas to drive more conversation. I bring in subject matter experts on the topic every month. And for the folks watching this, I let the participants pick the topics, what's keeping you up at night? What are you struggling with? And we go find the experts to address those challenges. And sometimes it's tough to find the experts cause we do have some problems. What I've found is that by by tailoring the vignettes and forcing success stories and failure stories by this CFO's, we find out that collectively we probably have as many best practices as our speaker has. And it's just hard to get CFOs to share success stories and really hard to success. You know, we're learning experiences, call them failures.

John:               30:16 How do, how do you get these guys in a room, right? So we have these events, you know, we do a marketing event, Hey, let's, you know we're going to talk about healthcare. It's hard to get CFOs to show up. You've had a lot of success. I have to believe it's because you're a peer, you're not a threat to them. They know, like, and trust you. If a broker's going to look to start something like this up, obviously I have to assume they need to get a strong CFO Kleiner there is to get it going. They help facilitate it, market it and host these events and do all the work. That makes sense.

Gary:               30:45 Don't make it a selling event. You're there to make people aware. The reason we've been successful is that our job is to share best practices and make CFOs aware. There's a handful of best practices your peers are doing. We generally have five or six or seven best practices on any topic, whether it's real estate or facilities or leasing or a fleet, whatever. Maybe two of those are are possible solutions for your situation. Seven will never be. Most of our CFOs are doing one or two or three of those best practices already or they wouldn't be there more than 28 months to be honest with you. But if you can find one or two pearls, you know in the bucket of rocks that makes all the difference in the world.

John:               31:30 Okay. Brokers, let's talk about brokers. What are brokers doing wrong? You've been in the meetings. What are we doing wrong in those meetings? Or we're talking to the CFO, the CEO.

Gary:               31:42 I'll go back to the first thing I said is use their facts. Use history. Because your forecast, like any like my forecast, your forecast stink. You're not gonna know if we're going to have the catastrophic claim, you're not going to know if all of a sudden we have 10 people that need Harvoni and our prescription costs go through the roof. Those are all exceptions and we can always explain the exceptions. Why don't you just stick to the facts of history? Let's look at the last three years. You have your data. By the way, I have access to your data up to 55 hundreds I come in here reasonably well educated. I have your data. It is your data, okay? If you want to share it and validate it, but it's pretty good data. Okay? And I can show you Dino's sector information companies your size in your locale, so I'm not going to use hocus pocus national averages that nobody can relate to.

Gary:               32:31 I'll use data for your sector in New Jersey because New Jersey has its own unique insurance situations and regulations. Then they kind of hamper small companies deal with history. Cause as soon as you go forward you're going to be accused of twisting facts. So use the facts, not the forecast. Got it. What? When we relate really well to it, everybody knows their last three years of earnings or last three years of revenue growth there. Last they'd given two and a half or 3% salary increases. You have it. Healthcare went up eight, nine and 8% and by the way the sector went up five.

John:               33:04 If I shine the light on the bad stuff, the history of, you know, what did it go up a couple of years? What did you do? Did you shave costs? You do this? Am I highlighting and kind of insulting them in a way?

Gary:               33:16 No, you're making them aware. Don't inside to let, let me, let's, I'll, I'll do exactly what you did for our group is it's the only line item that you don't understand. Every nickel of every dollar spent. I understand waiver and overtime and promotions and job eliminations. I understand labor perfectly. I understand my raw material and my scrap rate in my utilization, I don't even know what makes up my $5 million. It was a year that was $4 million two years ago. So let's go look at what we can glean from the reports you have in front of you. And let me give you some guidance as to what are the four or five categories that make it up. And when you start to tell me prescription costs are going up 25% per year, this is going up 15% per year. And by the way, your annual cost of physicals is going up two or three don't beat up the local GP doc. Don't be, you know, you can beat up the emergency room if your emergency room utilization has gone up. You can get some of that information or you can have them get some of that information. But we don't understand that, that the components of the cost stack and you've done us a great favor by showing us the four or five categories and the two or three we have to watch.

John:               34:29 Yeah, that was eye-opening to people. Yeah. It's just managing it and putting into their terms. What's your as we wrap up here, what's your final tips? Any final tips for brokers?

Gary:               34:39 I would, I'll use this term that I just use with my CFOs. In fact, I'll give you two closing points. We call this fall, we call it autumn. I call it the season of insanity. We're about to go through renewals and you're going to expect a different outcome by doing exactly the same which you've done for the last five years with the same broker. I think you have to understand your information, you have to define your goals and you have to find a broker who wants to help you achieve your goals, which means the goals of the broker, the adviser have to be aligned with the client. And generally, brokers who worked for large firms that are getting compensated six ways from Sunday are not going to be aligned with lowering your cost and lowering your premiums. Their job is to have you up six or 7% versus a phony market trend of eight.

Gary:               35:32 Okay? Remember a couple of minutes ago we talked about, let's look at history. We've always heard is going up seven or 8% you know, trend hasn't gone up seven or 8% there was a forecast and it was forgotten. Nobody measured against it. We had your minds sitting at six or 7% is better than the trend. What if trend really went up five or 6% and you were at 6% or 7% it's like, well, he never told me that. That actually there are people out in the marketplace below trend. Of course, there is no drift. They're moving trend. There's inflection points in trend. The lines changed. Brokers never going to tell you that he's already got you convinced 8% you're lucky to get a percent you ought to thank me.

John:               36:12 Where can they find you if they want to reach out to you? See what you're doing.

Gary:               36:15 www.ThecfoSolution.org. My phone number's on there. Like I said, I return emails and phone calls.

John:               36:22 Gary Bender, ladies and gentlemen, thanks so much for joining us, man. We look forward to having you on again.