The New Benefits World is Here – Though You May Not Have Seen It Yet

I write quite a bit about change and disruption, and have recently given my “bold predictions” for the future of the benefits business. I also have had conversations in my office with staff members and some brokers that I consider part of my “think-tank” where I asked them if I am way off base with some of my ideas. And though the tagline to this blog is “Challenging Everyday Thought”, as I like to challenge conventional thinking, I am also one who does not like being surrounded by “yes men” who simply agree with me. I enjoy great debate.

In-spite of these challenges to my ideas and some second guessing on my part, my partner and I have made substantial changes to our business for 2016 (that will benefit our broker customers) that assumes the industry we are in, the HR and Benefits world, has begun a major transformation that will change the industry forever. And the changes we are making are needed to survive and thrive in this new world. We believe inaction is much riskier than action. In fact, we think the opportunities ahead, with the changes we are making, are much greater than any time in the past. Yet in-spite of my beliefs about how the business has changed I see many people acting as if it hasn’t. It seems like the whole world thinks A and I think B.

What prompted me to write this blog is that yesterday I went to see the movie the “Big Short”, based on the Michael Lewis book about the real estate bubble and crash of 2008. Not to be a spoiler but the movie was centered around a few hedge fund managers and traders who predicted the real estate market was going to crash and therefore bet billions that the market would do so. There were moments in the movie where some of these manager’s thoughts and actions somewhat mirrored what my partner and I have been going through as we made the decision to change our business. In no way am I equating the magnitude of their actions relative to ours but I will equate some of their thoughts and emotions.
In the Big Short the main characters often questioned themselves because even though they thought all the evidence pointed to a coming market crash they wondered how come so many others in the industry and government could not see the same thing. How could they all possibly not see this coming problem? It certainly says a lot about what I call “groupthink”. Yet I always refer back to my favorite Ben Franklin quote that says, “If everyone is thinking the same thing then nobody is thinking”. Was that it? Nobody was thinking.

In the benefits business I see somewhat the same thing but obviously not to the degree of a market crash. I have predicted the following changes in the benefits brokerage and health care business.

1. HRIS/Benefits Technologies without Payroll will become obsolete.
2. The majority of employers with fewer than 100 employees will look for a single-source technology and services solution in the future.
3. There will be dozens of Zenefits-like companies in the market within 6 months.
4. Small group health insurance commissions will be 50% of what they are today by 2017.
5. Employers will be out of the health risk business within 3-5 years.
6. Most health insurance will be individually purchased within 3-5 years.
7. Provider systems will dominate the health insurance market in 5-10 years.

Details of these predictions can be found at this link:
My Bold Predictions About the Future of the Benefits Business – A Summary

While these are beliefs of my mine based on my own experiences, and I will say a little of “challenging everyday thought” thinking, my partner and I did do some research before making the decision to change (let me say enhance) our business strategy. In the Big Short they did their market research. They studied the delinquency and default rates on home mortgages and visited mortgage lenders and home buyers before placing their big bets. My ideas were validated by several sources including:

• I spoke to a venture capitalist who is investing in the HR Technology space tell me that they are primarily looking to invest in HR type companies that are also going after the benefits commission. The commission drives the revenue but the HR technology/service would drive the differentiation.
• A recent Human Capital Management industry study by George LaRocque and Steve Smith of The Starr Conspiracy says:

1. There will be disintermediation in the benefits broker model … expect the roughest fight to be here. …. Because of the benefits component, there’s a ton of revenue out there for companies to grab. Expect more companies to go out there and grab it.
2. HCM companies that deliver only point solutions are vulnerable to disintermediation. …Now, there’s the push toward “one desktop” — a holistic work experience. The thinking is that an HR system shouldn’t be somewhere you go. It should be a seamless part of your daily user experience as an employee.
3. A sea change is underway in how employees get benefits coverage. This is the change that no one is talking about – yet.
4. HCM market leaders will grow 50% to 200% year over year. We believe the benefits component is the fuel for the growth.

• A representative from a local hospital system getting into the insurance business stated, “There will be no Blue Cross version of us in 5-10 years”.
• And how about this – A broker proposal showing the cost of the following services for an employer:
  Accountant – $150 – $300/hour
  Attorney – $200 – $500/hour
  Benefits Broker – $600 – $1000/hour