Monthly Archives: December 2013

The Coming Obsolescence of Stand-alone Benefits Enrollment Systems

Let me start by saying that I realize the title of this article alone is going to be met with objections and criticism from many in the benefits technology business, some of who are my friends. It is also not something that I wish upon the industry. But as a consultant to the industry I have seen the trends for some time and the time has come to declare that the demise of stand-alone benefits enrollment systems is in sight. And it is time for all who either own such a system, sell such a system, or use such a system to prepare for the inevitable.

The beginning of the end started in 2006 when ADP acquired Employease, which at the time was one of the largest benefits enrollment vendors in the space. This was followed in 2007 by the acquisition of Benetrac by Paychex. These leading payroll firms made these acquisitions not because they wanted to be in the benefits enrollment business, but because they recognized the opportunity and the increasing market demand by the employer market for a single system to manage HR-Benefits-Payroll. Since that time they have quickly become the leading benefits enrollment companies in the U.S. with ADP controlling approximately 45% of the market and Paychex 26%. [i]

While I recognized this trend as early as 2002 I first wrote about it in an article published in Employee Benefit Advisors magazine in September 2009 titled, “Payroll Firm, PEO’s, and BPO’s Have Got it Right”. (See this in the Article Section in my blog at In this article I pointed out that employers would be looking for a “single system that stores all HR, benefits and payroll information”.  Many employers don’t want one system to track someone’s pay, another to track benefits, and a third to track someone’s vacation days, performance, and other data that an employer may track on an employee. Employers don’t want to makes changes to 3, 4 or 5 systems if an employee simply changes their address. And “for employee self-service, accessing one system to see all pay, benefits and time-off information is much more user-friendly”. I often compare this merging of systems to the iPhone. At one time I had an iPod, a camera, and a cell phone. Now the iPhone and the rest of the smart phone market has all three features in one.

At the time I had written the article and on many occasions since I have claimed that the transition to a single platform would occur in about 5 years. We are now a little over three years since the article and based on recent market activity and my assessment of that activity, I still believe this to be true. My belief is based on statistics gathered from my own company’s customer base. As an HR and Benefits technology advisor to benefits brokers, and by extension their clients, we conduct needs assessments and recommend HR-Benefit-Payroll solutions to employers. They use this analysis to make purchase decisions. We work with anywhere from 20-40 employers per month and have been doing so for about 10 years. Over the last 36 months we have seen a huge shift in demand with stand-alone benefits enrollment systems moving from 55% down to 10% of our activity. The following chart shows our data as to the type of systems employers have been requesting in our assessments.

Benefits Enrollment Only











The HR-Benefits-Payroll column in the above chart may represent systems that either are HR and Benefits or HR-Benefits-Payroll. Keep in mind that we are introduced to these employers by benefits brokers, so one would think the statistics would lean more to benefits enrollment only systems. That is not the case. Employers, by a 9-1 ratio, are predominantly looking for a single system. This statistic not only plays out for new customers. We are also witnessing a significant migration of existing clients that use benefits enrollment systems convert to a single HR-Benefits-Payroll solution. Over 95% of those that have changed systems have transitioned to a single platform.

Other than the obvious, which is the employer’s desire for a single system, I attribute this rapid conversion to the following:

  1. Increase in number of vendors – Any competitor to ADP or Paychex has had to develop similar capabilities. While some are still evolving, the number of vendors offering these capabilities has grown tremendously creating a greater awareness in the market while giving employers more options
  2. Reduction of HR Staff – Employers want to the reduce costs related to corporate overhead. HR is one area. Therefore efficiency in HR by leveraging technology is a goal for many employers.
  3. Compliance – HR and Benefits is getting more complex. Employers need to organize their data to stay compliant. The reporting needed for the Accountable Care Act is an example of this. Payroll Companies have led the way here with this type of reporting.
  4. Employee Self-service – Employers do want to expand employee self-service in an easy to use way. A single point of entry to all HR-Benefits-Payroll information provides a better and easier employee experience while reflecting well on the company.

Many benefits brokers and benefits enrollment companies will debate these statistics. Around the industry benefits enrollment vendors are having an outstanding year in 2013. I expect 2014 to be just as promising. I believe this can be attributed to several reasons. The first reason is that many benefits enrollment systems are either fully funded or partially funded by benefit brokers and/or insurance companies. Brokers and carriers continue to use technology and what I call “giveaways” as a differentiator or to sell product. In the past it was benefit websites. Today it is benefits enrollment systems and HR Call Centers. These free or discounted systems and services creates a false perception of market demand. Many of these systems were implemented without ever having gone through an analysis to determine employer needs. Why should they, in many of these situations the employer is not making a purchase decision. It is the brokers, carriers, or whoever is funding it that is the customer of the benefits technology vendor. I would estimate that close to 50% of the stand-alone benefits enrollment systems are funded by some third-party.  Of systems my firm has implemented that number is closer to 75%. Competition in the benefits brokerage business has increased the number of “free” enrollment systems but this does not represent a real increase in employer demand for such systems. Give away anything for free for a day and I will show you an increase in demand.

Now along comes health care reform and the threat of reduced compensation from medical insurance. How many stories have you read about how a broker can make up for lost medical commission by selling more voluntary and worksite products? This push has resulted in an even greater funding of benefits enrollment technology by insurance companies that sell voluntary and worksite products.

For a while I thought the development of Private Exchanges would give the benefits enrollment companies some reprieve. I still think it may for a year or two. With Private Exchanges the technology bar has been raised and the enrollment technology vendors have had to add functionality to handle defined contribution plans and provide decision support tools to help employees make better insurance purchase decisions. In my opinion this technology edge will be short-lived as all other vendors will have to add these capabilities. In my short experience with Private Exchanges I still have found the majority of employers wanting to run their Defined Contribution Plan or Private Exchange within their existing HR-Benefits-Payroll technology. Using third-party tools I can Private Exchange-ize almost any HR-Benefits-Payroll system. With all these new employee contribution methods and the increase in voluntary products I still find the ease of making the payroll deductions a primary requirement of the employer. This once again puts the single system vendors in the driver’s seat.

My predictions come in a year when benefits enrollment company Benefit Focus went public and raised around $75 million in their IPO after showing a previous 6 month operating loss of $15.2 million[ii] . More recently Towers Watson acquired benefits enrollment company Liazon for $215 million. I think both may disagree with my labeling them as benefits enrollment technology companies but that is how I see them. That is the goal isn’t it – to enroll people in their benefits? As for the money aspect of these transactions I say “good for them”. They capitalized on the opportunity. However, neither of these events changes my opinion as to where the market is going.

If broker competition, health care reform, the push to sell more voluntary products, and the advance of Private Exchanges is creating more demand what is going to stop the advance of benefits enrollment only solutions? The answer is two-fold and includes increased employer demand on one side and the ever-growing vendor market providing the supply. In the end logic will prevail and employers will get what they want which is a single system; and the army of payroll vendors, HRIS vendors, HR Consultants, and even some benefits brokers will educate the market and deliver the solutions. I guarantee that brokers who work with me will be delivering such systems. Think of this for a minute, ADP has around 800 sales people calling on employers every day and they are just one company. Collectively there are thousands of sales people calling on employers to deliver these solutions. They will move the market.

The transformation has begun but will still take some time. In the near future mergers will happen between enrollment vendors, payroll vendors, and HR vendors to meet the market demand. Some stand-alone enrollment systems will survive to meet the needs of those clients with very complex benefits or those who want best in class solutions. This will more likely be in the 1000+ employee market, even though many larger companies such as Nokia with 50,000 employees are implementing a single system. (See ) In the less than 1000 employee marketplace I predict that by the end of 2015 you will see an even larger percentage of the market convert to a single system for HR-Benefits-Payroll. If you are in the benefits business then you will have
to make some changes to prepare for this market change. Or, I could be wrong. I presented my facts so that you may decide.

[i] HR Technology Advisors 2011 Study

[ii] Street Insider August 14, 2013

It’s Time to Simplify Benefits

Since I have been in the benefits business, either as a distributor or as a technology advisor, benefits communication has always been a problem and a topic of discussion. Brokers and employers have been developing fancy benefit booklets or creating detailed benefits statements all in an effort to get employees to understand and appreciate their benefits. Now with the advent of the web, brokers and employers have built websites and developed videos to give employees access to benefits information 24/7 often only to take them down a year or two later because nobody is using them. Trust me, I have seen hundreds of utilization reports and very few people are using these sites. Yet, after all this effort the majority of employees still don’t understand their benefits. I say enough already! Why don’t we try to make things easier? Well I have some suggestions.

Let’s start with the health insurance business. When I got in the business in 1986 many plans were still straight deductibles and coinsurance. In fact, one of the most popular products was the Guardian Insurance $100 deductible 100% plan. While I realize this type of plan was not sustainable financially, I will say it was simple. Concurrently there was the growth of HMO, PPO, and POS plans. Along with that came all kinds of copays and new rules on whom you had to see first before you saw someone else. Now there are HSA’s and HRA’s sold with high deductible plans. I think it’s funny that they call high deductible plans, Consumer Driven. Wouldn’t it have been easier if we just took a straight $100 deductible 80/20 to $5000 plan from 1986 and adjusted the deductible and coinsurance every year for inflation?

Today health insurance is very confusing and it’s going to get worse. I think my prescription drug card today has like 8 different copays. Recently I had treatment for a health condition and between my primary care physician, the specialist, the hospital, and the lab, I have so many bills I had to bring them all to the office and try to figure them out. Each bill had about 6 different figures on them. Between what they were billing, the discounts, copays, deductibles and coinsurance I could not figure things out. It’s been two weeks and the bills are still on my desk. There is no way the average American is going to figure this out. I have such a headache from this I need to see a doctor.

While I do realize the logic for creating these monster plans, it simply hasn’t worked. The health insurance business is becoming like the tax code. Everyone is manipulating the system to modify behavior. If you want people to buy more cars then you give a “Cash for Clunkers” tax credit. You want people to buy more houses you lower interest rates and give people an interest deduction. You want people to stop using Emergency Rooms you give them a $100 ER deductible. And that gets me to my prescription copays – I simply punt on that one. When I go the Pharmacy I just say “tell me what I owe you”, and I assume the pharmacy is telling me the truth. I have no idea whether the drug is name brand, generic, generic plus, or whatever new category has been created. Enough already!

Personally I think this whole country could operate on about 10 easy to understand health insurance options. As an employer and employee would I care? No. I don’t need all those options. I would bet that I could develop 10 plans that would be within 3% actuarially of every plan in America today. What I believe is that other than all the little nuances in health care plans (that nobody understands) the majority of plans in effect today are almost exactly alike. Imagine how easy it would be for employees, doctors, hospitals, etc… to understand and administer such plans. This would not eliminate competition. It would make Aetna’s Plan 1 the same as Blue Cross and United Plan 1. I would go to the doctor and say I have Plan 1 with Aetna and everyone would understand. To make things even easier I would go back to straight deductible and coinsurance plans. Obviously this is not going to happen with ObamaCare. Just think of what a $100 deductible 80/20 to $5000 plan from 1986 would look like if you adjusted the deductibles and copays for inflation.

I could go on and on with other insurance coverages. Your Spouse can buy Voluntary Life equal to 50% of the employee amount but the employee can get no more than 3 times earnings to a maximum of $150,000 when combined with the Base Life paid for by the employer. And if the employee is 65 and is subject to a reduction schedule it needs to be multiplied by 65% assuming his birthday is closer to the last renewal date than the next one. What?

If you are a benefits broker or insurance company the idea of making things easier may be considered blasphemy. I can hear all the arguments already. But one really has to honestly ask, does anyone really care about all these plan differences? Personally I don’t think so.


What Would Steve Jobs Do if He Were a Benefits Broker Today?

One of the things my firm does at HR Technology Advisors is look for new and unique technologies that can change the way employers and employees manage their HR, Benefits, and Payroll. The HR and Benefits industry, like most others, has had its share of new technology vendors offering the latest and greatest solutions that they claim can change the world. In this market, like others, there will be winners and there will be losers, but the winners may change the way things are done forever.

As a practice I conduct regular educational webinars for benefits brokers introducing new ideas that can be leveraged to generate new business and often highlight some forward thinking HR and Benefits Technology vendor. To my surprise, the most common response I get from brokers attending these webinars is “Nobody is asking me for this”. Whenever I hear this comment it makes me think of Steve Jobs. You see, Steve Jobs was the total opposite of “Nobody is asking me for this.” When I read the book about Steve Jobs by Walter Isaacson I took many notes (on my iPad) which included one of my favorite Steve Jobs quotes.

“Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘if I’d asked customers what they wanted, they would have told me, ‘A faster horse!’’ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”

Now think back to the time you saw the first iPhone commercial. (You can see it here: ) If you were like me, then you were thinking, “Wow, I want that.” But prior to that commercial how many of you were sitting on your couches thinking that you would really like a handheld device with a glass screen where you tap on icons to watch a movie, browse the internet for a restaurant, find that restaurant on a map with a phone number, and then press on the phone number that pops up a phone so you can make a reservation? Unless you were a Trekkie (Star Trek Groupie) then you most likely weren’t “asking for this”. Steve Jobs and Apple “changed the game” and delivered something that once seen, everyone wanted. I don’t know how many people bought an iPhone right after seeing the commercial but Apple has sold over 300 million of them worldwide. Imagine they sold over 300 million of something that nobody was asking for.

Now many of you may think this is crazy to not ask your customers what they want. Don’t confuse what Steve Jobs was doing with not caring about what your customers think. This is where I am going to quote another young Billionaire, Mark Cuban. In his book titled, “How to Win” I found a quote that addresses this issue. It is as follows:

“Your customers can tell you the things that are broken and how they want to be made happy. Listen to them. Make them happy. But don’t rely on them to create the future roadmap for your product or service. That’s your job.”

There is a distinct difference between listening to your customers and driving the vision of your business. It appears that Steve Jobs, Mark Cuban, and Henry Ford share the same philosophy. And to quote Mark Cuban again:

“The best way to predict the future is to invent it.”

So if Steve Jobs were a benefits broker today what would he do?  I am not going to claim to know but I would imagine if Steve Jobs were a broker he would think of a new technology to make things easier.  He would ask himself and his team to imagine what would be the best system for an employee to access work related information. How would they purchase benefits? How could they learn about them? How would an employee transact an enrollment? How would they request a vacation day? How can they access pay information to do their taxes?  What would be the perfect system for an employee? What I do know is that if Steve Jobs built such a system people would say “Wow! I want that.”

Now I don’t think I can elevate HR and Benefits Technology to the same level as the iPhone because the iPhone’s launch was almost a “one of its kind”. Nor do I think someone has built a HR and Benefits solution that would match what Steve Jobs would have built. However, the idea and opportunity to bring something new and innovative to a prospect or customer that they “aren’t asking for” exists in the benefits business much like any other industry.

That being said, I recently did see a solution that I think if a CEO saw it they would say, “Wow! I want that.” Because I believe the majority of CEO’s want to show their employees they are forward thinking.  They want their employees to be happy, healthy, and productive. They want to be efficient and save money. They want to promote their brand and culture to their staff. They want to eliminate business risks related to HR and Benefits or for that matter, in any area of the company. And they want to inspire their employees to help move their business forward much like you may want to move yours forward.

Just imagine a system where an employee logs in and can immediately see all the things that are important to him or her. They can see how many vacation days they have left, the balance of their 401K, their FSA balance, and see their YTD pay. They can watch a video on Wellness and do a Personal Health Assessment. They could get tips on finance from Dave Ramsey and even go through a whole financial plan online. They could enroll in their benefits and do online chat with a benefits counselor. They could purchase products at a discount through payroll deduction. They could chat with their co-workers and participate in topic based discussions. They could do all this from home or work on smartphone, tablet, or Smart TV without having to log into ten places or remember ten user names and passwords. They would have just one.  Just imagine!

For someone who wants to change the way they do business and deliver this type of solution the opportunity is there today. It does take hard work and a commitment to change. It requires a vision and attitude that there is a better way. As a technology consultant I know the technology exists to get this done yet less than ½ or 1% of employers are delivering this type of experience to their employees.

The good thing about solutions like this is that CEO’s are not sitting on their couches watching commercials promoting these types of solutions. It’s not because they aren’t watching TV, it’s because solutions such as this aren’t sold through TV commercials. Someone has to get in front of the CEO and show them. And then I believe they will say,” I want it”. The question is who will show them first.

So if Steve Jobs were a benefits broker today what would he do? Well one thing I am quite sure of is he would not say, “Nobody is asking me for this”. He would find a way to be the innovator because he believed “Innovation distinguishes between a leader and a follower.” (“The Innovation Secrets of Steve Jobs,” 2001).  And I will add that being an innovator is more fun too.

What I Want From My Benefits Broker – Or at Least Someone

I have been running a small business for over 15 years now. My last company had up to 75 employees and my current company has 20. As a small employer my partner and I have the same challenges as any other small employer. You see, as a business owner we are focused on building our company. We worry about the same things other small business owners do like generating revenue, servicing customers, and constantly looking for new ways to bring value so that maybe someday we can either sell it or grow it to the point where we could work a little less and enjoy a comfortable living.

One worry of mine, and I won’t speak for my partner, is having that “Oh $###” moment where an I was not dotted or T was not crossed and some event happened that could overnight, ruin all the hard work we had put into the company. The HR/Benefits area is one of those places. For most small businesses HR is one of those things that comes after keeping your clients happy, and after generating revenue to pay the bills, and after brainstorming about how to bring new ideas to the market. I would imagine in this area we are probably like most small companies where “after” rarely comes and most wander aimlessly forward “hoping” we are doing the right things. Because of course, nothing will happen to me and we will take care of that tomorrow.

That got me thinking about what I would pay someone to help me in the HR/Benefits area. I would like someone to come into my office and make me worry free. I want to know that from an HR perspective that my handbook is written the right way, my job offer letters are sound, that I have the right signs posted around the office, or whatever it is that I need to know or do to eliminate any risks from an HR/Benefits perspective. In this area I don’t know what I don’t know so I need someone to tell me or simply do it for me. And if I have a question I want someone to call. Don’t send me to some website with a thousand documents and have me try to figure out which 5 of the thousand I need. If that’s what I wanted I could Google it myself and I already have a job.

I also want to be efficient. I want the security of knowing everyone is on the insurance plan who is supposed to be and those who shouldn’t be should be off. I don’t want an employee to have a major health event then worry that I did not add that person to the medical plan and I don’t want to be paying for people who are no longer covered. I also want to make sure my payroll deductions are right. I know we have a problem recording all the time off the staff takes and I want an easier way because the cost of salaries is by far the most costly part of my business and I can’t afford to give away free time.

I also want to make sure we are paying people correctly. I don’t want to be overpaying or underpaying though I am sure if I underpaid I would hear about it. I also would like some assistance in determining the right market wages for my employees.

I want my employees to be happy and productive. If they have a HR or Benefits question I want them to have someone to call. It would be easier if benefits were simpler and easier to understand but that is another subject I wrote about in another blog. I also want them to have access to the information they need when they need it. I want my employees to think highly of our organization and not think we are an unorganized mess and don’t care.

My partner and I spoke about how much we would be willing to pay someone to come in and make us worry free, bring efficiency through automation and maybe save some money, and be a resource to us and our employees because, for the most part, we don’t know what we don’t know. We agreed that we would pay about 1/4 – 1/3 of the full cost of a HR person. In the Boston market that would be around $2000 – $3000 per month. With 20 employees that would be between $100 – $150 per employee per month that we would be willing to pay.

We work with benefits brokers everyday who say their commission is getting cut and that they can’t make money in the small group business. In some cases fees have gone to as low as $5 PEPM. Yet here I am telling the world that I would be willing to pay up to $150 PEPM if someone could help us.

Since I started my first business in 1997 I have had benefits brokers call me up soliciting my benefits business. They all have the same elevator pitches about how they can save money or bring better or more services. Yet, in the 15+ years I have been running a business only one company called me saying, “Let me come in a eliminate your HR-Benefits-Payroll worries. We will get you in compliance, automate your business, give your employees access to information and make them happy. We will make you look good to your employees. And along the way we will save you money. The only firm that gave me that pitch was Paychex.

Now we did not take Paychex up on it because they compete with our customers. But I will tell you that their value proposition is what I am looking for. Yet, nobody else is calling. And I would imagine that my company is not the only small company in America that has this need and is waiting for the call.


An Open Letter to Independent Insurance and Benefits Agencies

There comes a time for every business when it must make adjustments, embrace change, and reinvent itself. Occasionally, circumstances arise that bring an entire industry to just such a transformational moment. For the insurance industry, and our individual businesses, that time is now.

Some may not want to believe it and others may choose to ignore it, but for all those who are in denial, they may be doing so at their own peril.

An industry in crisis 

We are at a defining moment for the independent agency system. Profits are being attacked, growth is a struggle, future revenue streams are uncertain and the result is a level of panic not seen before. The most concerning thing of all is that most agencies don’t seem to have a plan for to how to deal with the lack of control they have over their businesses.  As a result, there is an almost vulture-like strategy driving agency acquisitions, a development that seems to be gaining momentum and threatening the very survival of the independent agency system.

This isn’t just a personal opinion or observation. This is the collective opinion and observation of a group of 11 industry/agency consultants who recently came together for a somewhat unprecedented meeting. On most days, this is a group of competitors; either competing directly for the same clients or, at the very least, competing for the discretionary time and money of the same agencies. However, it was out of mutual concern for the future of the industry that this group came together in the spirit of “coopetition.” Rather than retreating into separate corners and competing more fiercely for the shrinking ranks of agencies, this group has made the decision to work together to help keep the ranks of independent agencies as large and successful as possible.

An industry worth saving

This is an unbelievable industry that has been rich with personal and financial rewards for those willing to make the investment. We are provided with great income opportunities, have more work/life balance than most other professions, work with diverse and interesting business owners, and, perhaps best of all, we have the potential to make a significant impact on the businesses of those clients.

In fact, this industry has been so generous to independent agencies that it could be argued that the generosity itself has helped create many of the problems we now face.

We do not see the demise of this industry as inevitable. In fact, this group believes the best days of independent agencies still lie ahead. We know the independent agency system can survive; however, the surviving businesses will look different than they do today. What we don’t know is how large those ranks are going to be because the change is starting with a needed cleansing of the industry, something which is already happening.

We have put ourselves in this precarious position

As we just said, many of our problems as independent agencies are self-created (or, at the very least, have been tolerated). All businesses must control two critical elements:

1.      what it is they sell to their clients

2.      how they get paid for what they sell

Because the industry has been so financially generous, most agencies have allowed those critical parts of their business to be controlled by a third party, the insurance carriers.

Also, because of the generous financial rewards provided by the industry, it has allowed agencies that deliver marginal client value to find disproportionate levels of success. We know this is a bit harsh, but if you are being honest with yourself you will agree that if all an agency does is place an insurance policy and then fix the resulting problems, they have been way overpaid. It is these agencies that have helped fuel an unfavorable stereotype for our industry and gained us little support in the court of public opinion.

It is not this part of our industry we are looking to protect and save. That would be a fool’s effort. Instead, we are looking to save those agencies who are able and willing to take control of their businesses and whose mission is to truly improve the business of their clients. That is an industry worth saving.

Now is the time to act

While we believe there is a great future ahead for these agencies, the future glory days are not guaranteed, not by a long shot. Each of us in this group has varied ideas as to how agencies will take part in that glory, but we are unified in our belief that it will require something drastically different than what has been done in the past.

And, as we all know, change is never easy and the right kind of change is rarely quick. While we also have differing opinions as to how much time agencies really have to save themselves, we are all in agreement that now is the time to get started and significant progress needs to be made within the next 12-24 months.

Focusing on the wrong target

Most would agree that this is a time of unprecedented challenges for independent agencies. Sure, some of the challenges are obvious: health care reform, exchanges, and a slow recovery from the recession, to name a few. As we talk to agency owners, it is these challenges that are getting the most attention.

However, as real as those challenges are, we don’t see those as the most critical challenges: these issues are merely exposing the underlying frailty of the independent system, a frailty that has been a ticking time bomb and whose clock is winding down.

A failure to address and correct the real issues will bring an end to the independent agency system, at least as we know it today.

Common agency challenges

Identifying those foundational issues was a primary focus of our recent meeting. The consensus of our group is that the following issues are leaving agencies vulnerable and exposed to the impact of the current (and emerging) market and industry conditions.

Too many agencies do not have an answer for these industry trends:

·         Carriers are starting to limit the number of agency contracts

·         Carriers are writing policies net of commission, leaving the agency to negotiate their own fee

·         Where commissions remain built in, they are being slashed

·         After the cleansing of the industry removes the mediocre performers, the remaining competition will be potent and fierce

·         PPACA and the resulting Exchanges will drive many smaller businesses out of the medical insurance business

·         While the commission slashing is currently focused in the health side of the business, it could be a false sense of security to think other lines of insurance are immune to reduced commission schedules

Too many agencies (both benefits and P&C) have left themselves vulnerable in the following ways:

·         There is no unique sales process. Most are still competing with a spreadsheet and look just like every other agency to the prospect/client.

·         Growth is overly dependent on the owners to produce.

·         With the owner focusing on growth, there is not enough work being done “on” and leading of the business.

·         There is too much dependency on the placement of an insurance product as the only value delivered to clients, and therefore, the only opportunity to get paid by those clients.

·         Most agencies lack a vision as to what the agency needs to become in order to survive.

·         As businesses, agencies are largely controlled by the insurance carriers. It is the carrier who controls the product being sold and determines the compensation for the sale.

·         Agencies are having difficulty creating non-insurance solution revenue streams.

·         We’re seeing industry shifts in buying behavior: consumer-centric at the individual level and single-source (benefits, HR, payroll) at the employer level.

·         There is little relevant differentiation between agencies (better service and a list of value-added services are not differentiators).

·         There is a lack of effective recruiting, interviewing, selection and training processes leading to too many poor hiring decisions.

·         The stereotype of the industry (not trusted and seen as delivering marginal value at best) is difficult to overcome.

·         Most agencies have little to no effective sales management.

·         There is a disproportionate dependency on the smaller groups most threatened by the above listed industry trends.

·         Compensation programs are misaligned with the behaviors needed to drive new revenue, often rewarding a “protect what I have” mentality over a “go get more” mentality.

·         There are too many silos within the typical agency – Sales vs. Service, Producer vs. Producer, Department vs. Department, Leadership vs. Everyone else, etc.

·         All too often, there is a lack of accountability to results, especially for producers. Agencies have to be willing to fire poor performers, including producers.

·         Agencies create a service culture instead of a sales culture with their compensation programs and their accountability structures (or lack thereof).

·         In all areas, the constant among the problems seems to be a lack of systems and processes.

The cost of doing nothing

We know we aren’t the only ones who recognize the existence of these challenges. Unfortunately, many agencies who see the direness of their circumstances are still not taking appropriate action. The reason for lack of action usually comes down to the difficulty of change but also the cost of addressing the problem in terms of both a financial and time investment. However, the cost of doing nothing and trying to stay the course would be the costliest decision of all.

Agencies who don’t change their course will watch their financials and their structure deteriorate before their eyes and are likely to be out of business in short order. The current path will lead to:

·         Little, if any, top line growth

·         Eroded profit margins at the bottom line

·         Disintermediation, either because of carrier selectivity, exchanges, technology, or new and unexpected competitors

·         Talented staff leaving and difficulty attracting new/replacement talent

·         Competitive acquisitions at distressed prices

There isn’t one solution for everyone, but everyone needs to find a solution

Being honest, there are self-interests in this group for issuing this letter. After all, our own success is dependent on this industry remaining strong and viable. However, we got into this side of the business because we like to help others succeed and success now includes a fierce belief that now is the time to fight for our survival. This is an industry worth saving and fighting for, but it is a fight in which we must all engage together.

If in reading through the list of challenges, you feel you are one of the vulnerable and exposed, we encourage you take control and start addressing your situation now.

There are basically two courses of action:

1.      tackle this problem on your own, or

2.      seek out help.

For most, and especially for those who haven’t yet started making changes, we believe the limited time frame to put answers in place makes tackling this on your own the wrong approach.

We suggest you align yourself with someone who can help you put the answers in place. Of course, as a group of consultants, we would love the opportunity to discuss with you how one of us might help. But we also freely admit there are plenty of other consultants and resources out there to whom you may turn, and we will even suggest some places for you to look.

Another option may be to align yourself with a peer group of agencies who are committed to fixing the same challenges and are working together towards common answers. We see successful agencies every day, agencies who are more optimistic about their future than ever before. Find one of these agencies as an example; there’s no need to reinvent the wheel.

The unacceptable response is to stick your head in the sand and pretend everything is going to be okay. Most of us don’t like the current course of the industry, so we need to be the ones who start steering the ship.

This is our defining moment; now is the time to take action.

The following are the consultants who met in Atlanta and who have committed to doing their small part in helping protect the independent agency system.

Agency Growth Mastermind Network – Nelson Griswold
The Anderson Agency Report | The Anderson Network – Steve Anderson Leading Authority on Insurance Agency Technology Productivity and Profits
The Brokers Broker – Kyle Hodges Helping brokers deliver unique wellness and marketing strategies for the 100+ market
Daymark Advisors – Jack Kwicien Trusted advisors to the insurance industry – Consulting, mergers & acquisitions, and charting the course for the future for brokers, carriers, and enabling technology firms
HR Technology Advisors – Joe Markland HR Technology Advisors is a leading provider of HR and Benefits Technologies for benefits brokers and their customers
iC3/The Intellectual Capital Coaching Corporation – Rick Bauman Helping Brokers succeed by building A Passionate Enterprise
Marsh, Berry & Company – Rob Lieblein Your Partner for Financial Consulting and Mergers & Acquisitions
Q4Intelligence (Formerly Benefits Growth Network) – Kevin Trokey & Wendy Keneipp An agency transformation network
The Wedge: Insurance Agency Sales & Management Training – Randy Schwantz Revolutionary Technology for Sales Team Development – Grow Your Agency Value, Grow Your Wealth

For the Record – My Position on HR and Benefits Technology Vendors

I am frequently asked what I think of certain HR and Benefits technology solutions. And while I would certainly have my preferences if I were buying a solution for myself or my own company I do believe one size does not fit all and different people or companies have different needs. Therefore my response is always the same and that is the market determines if a company sells something of value. If a company is in business and making money than they are providing some value to the market so therefore someone must like their product or service.

When it comes to Benefits and HR technology products I like to think about it like anything else. When buying a car there is certainly a difference between a Ford Taurus and a Mercedes. When someone says a Mercedes is a better car there is no argument. If the discussion were about which car brings a better value that is a different discussion. We also could agree that the best product does not always sell the most. McDonalds sells more hamburgers than any other restaurant yet I am sure more would agree that they don’t have the best hamburger. But how can one compare a $1.00 hamburger to a $7.99 hamburger? I am sure you get my point.

I have many technology companies tell me they have the best product in the market. If you are one of those company representatives don’t take offense when I respond that everyone does not buy the best, need the best, can afford the best, or that best is relative and subjective. In fact the best may often be the highest price and therefore may only expect to get the top 5% or 10% of the market.

As a HR and Benefits Technology consultant for benefit brokers and their customers it is my job to match products with client needs. It is my job to understand who is looking for the Mercedes versus the Ford Taurus. Which one is priced like a McDonald’s hamburger versus a Five Guys burger? So for the record, I believe there are many solutions in the market that will fit various client needs. The competition is also forcing vendors to continually improve their products and with a large market of employers there are solutions to fit all shapes and sizes.

You Can’t Win or Stop a Technology War

When I got into the Benefits Technology business in 1997 I was given some great advice from one of our company programmers and that was, “You Can’t Win or Stop a Technology War.” I found this quote to be so true that I share it with some benefits broker, technology vendor, or employer almost daily.

When it comes to technology, whether it is an automobile, a cell phone, a camera, or a benefits enrollment system, there are those that wish technology advancements would stop and others who think they are going to win. There are certainly many examples of each. Think about companies like Kodak, Polaroid, and Blockbuster, and how they may wish the world hadn’t changed. Then there are those who are trying to “win’ the war. Very few companies have the capital to compete in that world. Certainly companies like Amazon, Apple, Facebook, and Google may come to mind as companies that are winning, at least for the moment. However, these companies, like Microsoft, will have many companies shooting at them and each will spend a great deal of capital trying to maintain their lead position.

So let’s talk about the benefits business. Benefits brokers are always asking me who is the “best benefits enrollment vendor” or what do you think if this vendor or that vendor. My response is always the same. First off, best is relative. Second whoever may be “best” today may not be best 3 or 6 months from now when another vendor comes out with something better.

The vendors also participate in this game. Recently I did market research for a client looking for a benefits enrollment system. During the process I would bet I had 4-5 vendors make the claim that they were the best. None of them could quantify why but at least that is what they thought. I then asked them how much money they had in the bank to compete in this space. Few would give me the answer though the question is very relevant if “Winning the Game” was a competitive objective.

The benefits enrollment technology game is changing rapidly. Prior to 2006 ADP, Paychex, and Microsoft were not in the benefits enrollment business. Today they are and they have cash. Even has now entered the HR Technology business. How long do you think it will be before they have a benefits enrollment system?

For those brokers looking to find the best benefits enrollment vendor my advice is stop. Whoever you may choose will not be the best 6 or 12 months from now because someone will have come up with something better. The best thing to do is focus on the problem. If a client wants a benefits enrollment system there are many vendors that have solutions that will work.

The Unintended Consequences of Private Exchanges for Employers

As I was preparing a presentation that I will be giving about Private Exchanges to an employer group in Charlotte and I had somewhat of an Ah Ha moment. I had been reading so much about Private Exchanges and had seen so many demos of Private Exchange technology that all the noise was kind of getting in the way of my own independent thoughts. I had to give an audience my view of Private Exchanges and I came up with several ideas one if which is my AH HA moment thought. So here it is:

“Private Exchange Technology and their Decision Support Tools may result in too many people choosing the wrong solution relative to what an employer may be trying to accomplish.”   

This is one of my thoughts so let me explain. One of the big benefits of moving to a Private Exchange is that employees will get more health insurance options. Rather than the employer choosing a one size fits all approach they will give employees a menu of options and let them choose from the menu.  And with those options they will provide technology to guide employees through the decision process and direct them to the solution that best meets their specific needs. The idea is that the low utilizers or healthy people will more than likely choose lower cost options while the older, higher utilizers will choose the higher cost options. This obviously assumes the lower cost options have higher deductibles, co-insurance and copays and maybe a limited provider network while higher cost plans will have lower deductibles and co-insurance and a broader network of providers. Thinking of it this way one needs to ask “Is this the employer’s goal.” It may not be. There may be unintended consequences associated with Private Exchanges.

There is a statistic by Dave Ramsey, the personal financial guru that says, “40% of employees admit that stress over money significantly impacts their work productivity”. There have been times in my life where that was true for me personally and I am sure I have employees who work for me today that would say the same for them. When it comes to employee benefits what do I want to give my employees? I would say one thing is “peace of mind.” Isn’t that what insurance is supposed to be? Try driving around in your new car without insurance and see how you change your driving habits. From my perspective an insurance policy is intended to protect a person or family from financial harm or ruin that could result from an unanticipated large expense.” The key word is “unanticipated”.

The other thing I want to do is protect them and their family from financial stress or ruin in the event of an unanticipated event. I buy them Life Insurance to help their family in the event of death. Disability to protect them from financial ruin if they are disabled. And I don’t want them to go bankrupt or become financially stressed from an unanticipated health event for themselves or a family member. Sure paying for office visits or dental is something in the insurance policies that I provide, but do I lose sleep because an employee may have to pay 50% for their kid’s braces on some 3 year payment plan. No. Or what if they have to pay $20 for an office visit. No. A couple going to the movies is more than $20.

One of the problems with Private Exchanges and or Public Exchanges is the focus on the little stuff. Look at all the chatter about ObamaCare. All we heard about was getting physicals paid and oral contraceptives paid for. Now that people are signing up for Public Exchanges we are beginning to hear about deductibles in to $4000 – $5000 range and out of pocket maximums in the $10,000 – $15,000 range. Is that what people need – free oral contraceptives and $10,000 Out-of-pocket maximums?

So now along comes Private Exchanges whose purpose is to give employees more options. These Private Exchanges come with Decision Support tools to help employees choose the right plan. They all ask employees questions like, “How many office visits do you expect in the next year”? Or “how many ER visits do you expect”? Are you kidding me? Who can predict the number of office visits or ER visits in the next 12 months? As consumers are we supposed to “time the market”.  And is “timing the market” what insurance is really all about? I recently saw a study from Intermountain Healthcare that says 90% of their highest claims from one year to the next are different people. I have personal experience where last year I had some issues to address where I did exceed my deductible but this year I hardly spent anything on health care at all. Who knows what next year will bring?

That gets me to the title of this article. Will offering more health care options with decision support tools result in employees “taking their eye off the ball”? Will employees take on risks they can’t afford? We are in an economic environment where a large percent of our population are living pay check to pay check. And we all know that many of the younger people don’t have the money in their banks to fund the costs of higher deductibles and co-insurance associated with lower cost plans.

Now I hear the naysayers already, “our decision support tool will not suggest that someone to take on a risk they can’t absorb”. However I have not seen any decision support tools ask questions like “Do you have $5000 in savings to pay for the costs of your deductible?” Most start with “How many office visits do you expect in the next 12 months?”

Now I realize health insurance is too expensive for many. Helping those with little money to save some money on health insurance is a good idea. That’s not the point of this article. My main point is that a possible unintended consequence of more employee health care options is exposing employees to financial risks they simply can’t afford. Is that what employers want when they provide insurance for their employees?

Private Exchanges – Technology is Not the Differentiator

I was talking to a benefits broker the other day about benefits related technology, more specifically about Private Exchange technology and health insurance Decision Support Tools, and the broker made the claim that “such and such vendor (I won’t name names) had the best decision support tools on the market. It is powerful technology, he said.” I thought this was odd and wondered how this broker drew that conclusion. He then proceeded to say that Decision Support Tools will be the big difference in the Private Exchange market.  Now that claim stopped me in my tracks and I immediately had to disagree.  

One thing I know about technology is that it is always changing. Just think of your car, your cell phone, and your TV. Has that technology changed over the last 3-5 years? For anyone to think that one vendor is going to perpetually have the best of anything is, in my world, crazy.  And a tool that can help employees decide which of three or five health plans they should choose is not powerful technology. The Space Shuttle is powerful technology. A website that takes someone through some fancy screens that has some back end logic is not. Such screens (I can’t get myself to say technology) with back-end logic is easily duplicated in months if not weeks.

Let’s look at this another way. Let’s assume you have the best technology. What percent of the market buys the best? Does McDonald’s have the best hamburgers? Does Taco Bell have the best Taco’s? Are there more people driving Ferraris or Toyota Camry’s. Do more people shop at Walmart or …..? You get it. There is often a price difference between the best and what the majority of the market can afford or are willing to buy. And for the record, I don’t know too many benefits brokers whose strategy is to sell the highest priced products.

So if you are a benefits broker and think you have found that silver bullet, that powerful technology, that is going to separate you from the pack, give me a call and I will show you a long list of companies who are going to make sure that one company does not rule the day.  And if you want to see powerful technology go out at night in a dark place and look to the sky and watch all the satellites fly by. Then I may agree you are looking at powerful technology.