Category Archives: HR and Benefits Technology

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

Posted on January 1, 2016 | 1 comment

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
This brokers fee: $250/hour.
If you are a benefits broker and look at the above comments and my predictions you may feel uncomfortable. I sure do because my business to this point has been built on the current industry model. In the Big Short many people felt very uncomfortable because their livelihood was on the line. The ones shorting the market felt uncomfortable because they bet the farm that everyone around them was wrong. And as the market progressed the ones protecting the status quo became uncomfortable as the world around them began to crumble. And the changes came so fast many could not react in time to survive.
In the past I have said that changes to the benefits world are coming. First to broker distribution followed by big changes to the health care market. I am now changing this to say the changes are here. The horse is out of the barn and it is not coming back. And from my seat almost everyone in the business that I talk to doesn’t see this coming. Or they say they see the changes coming but after speaking with them I think most are misreading the market. Admittedly all of this is self-serving as my partner and I have placed our bets that the market has changed.
Like in the Big Short this is somewhat a study of human behavior. In this information age it is really easy to influence behavior. There is a lot of information out there and if the majority are saying the same thing then most people feel uncomfortable thinking the majority is wrong. But then again, maybe nobody is really thinking at all.

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Your HR/Benefits/Payroll is Leaking – And Your Broker May be Causing Some Leaks

Posted on November 12, 2015 | Leave a comment

I live in the Northeast where the last winter was just brutal. We had so much snow that roofs were caving in. It seems like half the houses in my neighborhood had leaky roofs. The leaks always happen where rooflines meet or where pipes connect. The water gets in and then freezes, expanding the boards or pipes where they connect, and then when the ice melts the water flows into the house. The weakest points in the construction is where things connect. The same goes with technology. The weakest part of any technology solution is where systems “integrate” or connect. We consult employers on HR/Benefits/Payroll technology, and the most common problems, by far, result from systems that don’t integrate at all or more often are poorly integrated. Or from some service provider that is “disconnected” from the technology. I will get more into that later.

Anyone who has heard me speak before will know that I think “integration” is synonymous with fumble or problem. When someone says we “integrate with” and it is easy, I say run for the hills. They are lying to you. This week after dealing with even more of the same issues it made me think of the leaks in my house last winter. Where things connect there are leaks. In a relay race the baton is dropped. In football snaps and hand-offs are fumbled. And those football fans out there know turnovers kill you.

Let me give you some examples of what I am talking about.

Example 1

In one situation an employer had their payroll system integrating with their benefits system (two different vendors). Everything was going fine until the employer bought a new company. The employer added this new division to their payroll system thinking “integration” meant the new division would be added to their benefits system. Well, integration is a very loosely used term. So, for 30 days the employer was adding new employees to the payroll system that weren’t being added to the benefits systems. After that was fixed it was found out that the new employees weren’t going over to the carriers on their EDI files. Leaks were everywhere, and it created chaos. If the employer had one system that handled the payroll and benefits, there would not have been any problems.

Example 2

A benefits broker and one of his clients decided to come up with some unique employee contribution plan for medical insurance. It was creative. However, when they called their benefits enrollment vendor the vendor could not handle those contribution rules. These rules had already been communicated to employees. Their benefits system that had been in place for over year no longer worked. The broker blamed the vendor. I know benefits systems, and I don’t know of one benefits enrollment vendor that could handle this type of contribution calculation. The consulting process was “disconnected” from the technology. Fumble! The employer had to turn off the enrollment system and go back to paper enrollment. Had the broker and the employer engaged the technology vendor during their planning this could have been prevented?

These types of problems are everywhere. I can list 100 places where there can be possible “leaks” because things are not connected. In example 1 above the technology was not totally integrated. In example 2 the advisor did not connect the advice with the ability to administer the advice that was provided.

A few years ago I was flying from Chicago to Colorado Springs, and I sat next to a guy who was the VP of HR for an 1,800 person firm. After we got speaking he told me that in the HR area he had 17 different relationships. Between technology vendors and service providers he had 17 contracts, 17 places to call if there were an issue, 17 bills, and 17 logins. It was a mess. His mission was to eliminate as many systems and vendors as possible. There simply are too many moving parts. And this is a 1,800 person firm.

Think about the number of vendors an employer may have in the HR/Benefits/Payroll areas. I will give it a try.

(Technology Solutions: 1. Payroll Administrator/Technology 2. Time and Attendance Tech. 3. Benefits Enrollment Tech Vendor 4.  Recruitment Technology 5. Expense Management 6.  Performance Management 7. Training 8. Intranet provider)

(Advisors: 9. Benefits Broker 10. 401K Consultant 11. HR Consultant)

(Service Providers: 12. COBRA Administrator 13. FSA Administrator 14. Life Carrier 15. LTD 16.  STD, 17. Medical 18.  Dental 19. Vision, 20. Voluntary products 21. Wellness Vendor 22. EAP)

This is 22 different vendors, and I can think of more. Now we are seeing all kinds of additional products entering the market including financial wellness programs, employee discount programs, employee gifting programs, college planning services and many more types of companies hoping employers will offer their services to the employees. Many of the programs, when rolled out, fail, because the employers are already overwhelmed and for the employee there is information overload.

Employers want to simplify. I put in a benefits enrollment system for an 11,000 person a few years ago who said she wanted the cheapest option because she will be replacing it in a few years anyway with a single HR/Benefits/Payroll systems. If larger employers with lots of staff want to simplify, then what would one imagine smaller employers with less staff will want to do.

It is not just the technology though, and this is a very important point. Disconnected service providers or advisors also create problems. I am going to pick on benefits brokers for a minute here because most of my reading audience is brokers. I have seen benefits brokers put benefits enrollment systems into employers that had already purchased but not deployed an enrollment system from their payroll company. I have seen voluntary products sold that don’t fit on most enrollment systems. Recently I had a broker put in an ACA solution for a client that did not know their existing Payroll/HR/Accounting vendor could provide the solution.  Brokers are regularly advising on technology without the knowledge to properly advise. Now we see brokers investing in HR and Payroll systems with little knowledge of how these things work. This will cause leaks. Leaks are problems that will get brokers fired.

These same stories apply to 401K consultants, HR Consultants, and many other service providers or advisors that don’t connect their advice to the technology. Let me ask this question. Should a broker that is advising a client to offer voluntary products understand the technology that the employer may already be using to administer their benefits? Should a 401K Consultant?

As this HR/Benefits/Payroll world gets more complex, operating in silos will contribute to the problem. The benefits consulting process cannot be independent of the client’s technology environment, payroll, and even other products an employer may be offering their employees. The opportunity exists for service companies to solve this problem for employers, but to do so will require a level of skill and knowledge that few companies have. Organizations running into this market without the knowledge, skills, or proper training are only contributing to the problem. As stated earlier, this can get you fired.

In my company we are building a program that I will call the “No More Leaks HR Program.” We are working with benefits brokers and HR Consultants to help them gain the knowledge, develop the skills, and train their staff to do this effectively. Someone needs to quarterback this whole HR/Benefits/Payroll technology and services world for employers. Someone needs to eliminate or connect the silos. This is not something you decide to do on a Monday and deliver on Friday. This is not a “value-added service.” It takes work, planning and training to do this right. But the rewards for being great at this can be tremendous.

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My Bold Predictions About the Future of the Benefits Business – A Summary

Posted on November 4, 2015 | 1 comment

In various articles in this blog, and in some of the webinars I have conducted, I have made some bold predictions about the future of the benefits technology business (as technology is my main area of expertise) and more broadly about the benefits business in general. I guess I am as qualified as anyone in this area having started in the business 30 years ago. As I have stated repeatedly, the reason I make these predictions is because for my business to survive and thrive I too need to predict, to some degree, the future so that I can make the right strategic decisions today in preparation for the years to come. The reason I am publishing these (again) is because I am looking for others in the benefits business to participate in my “think-tank” to talk about these issues and collectively formulate ideas that may be used to help our businesses thrive in the future. So this is somewhat my “call-to-arms” for anyone in the benefits business. Here is a summary of my predictions. I may be right and I may be wrong.

1. HRIS/Benefits Technologies without Payroll will become obsolete.

This is a prediction I made a few years ago and I am holding to it. As a technology consultant we help employers choose and implement HR / Benefits / Payroll technology solutions. The only demand I have for benefits only systems comes through benefits brokers. Outside of the benefits broker world I find few employers wanting stand alone Benefits or HR/Benefits systems. Yet those are the systems most brokers promote. Personally, I can think of few business reasons to have multiple systems. My company runs one system and all my employees have everything related to work through one app on their cell phone. And those that think integrating systems will work let me give you the names of a hundred employers who will debate you on that. The majority of technology issues that employers bring to me are caused by having multiple systems. Everything needs to be in one system with one database. Integration causes problems. I replace benefits enrollment systems that brokers put in for employers every day. The broker often causes the problem and now the employer wants to get rid of it. Here is my article on this prediction and the mistakes brokers are making.

2. The majority of employers with fewer than 100 employees will look for a single-source technology and services solution in the future.

Zenefits has exposed a pent-up demand in the market and that is to have some outside firm make an employer’s HR life easier. Small employers want to throw things over the wall and simply have someone else handle large parts of HR. The PEO’s, HR consulting firms, and many payroll firms already know this. Zenefits did not invent anything new here. I also believe Zenefits is really an outsourcing firm, not a technology vendor, but we can debate that somewhere else. My main point is that this demand will grow as more and more vendors enter the market. What does this mean for brokers? Brokers who do not provide such services will be replaced.

3. There will be dozens of Zenefits-like companies in the market within 6 months.

This HR/Benefits/Payroll technology and services market is no secret. The fact that employers will change brokers to move to a solution that combines HR/Benefits/Payroll technology with benefits services is also not a secret. There is a ton of money being invested into this space and vendors will be popping up everywhere. New technology vendors will arrive and get into the benefits business, but more competition will come from existing businesses offering some product or service in this market already. This will include payroll companies getting into the benefits business as brokers and HR Consultants expanding into the benefits and payroll business. I spoke to a payroll company owner this week that is getting into the benefits business. Why? Because that is where the money is. And everyone knows it. They also won’t partner with brokers. At least not the ones doing this right. Competitive pressures will require anyone in this space to leverage the benefits commission to compete. Even if the commissions is half of what it is today.

4. Small group health insurance commissions will be 50% of what they are today by 2017.

Do you know that small group commissions in Massachusetts are almost half of what they are in California? Yet, there is no shortage of brokers in MA. The carriers know this and they are getting squeezed by ObamaCare. Firms like Aetna are already cutting commissions and others will follow. One is because they can, but the other reason is because they will have to find every dime to compete. The small group market may even go to 100% fee for service. Here is an article about this here.

5. Employers will be out of the health risk business within 3-5 years.

This prediction, along with the next two, are somewhat related. I covered this in an article I wrote titled, “The Coming End to the Health Insurance Business as We Know It.”  The key term in this prediction is the “health risk” business. When I spoke at a conference on Private Exchanges I asked the employers in the audience why they would be interested in a Private Exchange. The answer was not what most brokers would think. One may think that employers want to give employees more options. Others will say they want to reduce health care costs. The answer I got was they thought that a Private Exchange would get them out of the health care business. Employers don’t want the hassle of worrying about high claimants, wellness programs, disease management, and that annual dreadful renewal meeting. They want out. That doesn’t mean they mind giving employees money to pay for part of their health care. They just want out of the risk business. And I think the market will comply. What does this mean for brokers? No more underwriting. No more claims analysis tools. No more catastrophic claims management tools. Employer based wellness to try and control health care costs will go away. For most brokers these are their core skill sets. These skills won’t be needed. Wow! This changes the world of most national benefits firms or any firm that focuses just on large group.

6. Most health insurance will be individually purchased within 3-5 years.

Think about this for a second. There is no law that would prohibit a traditional insurance company from offering all their small group pooled products to larger employers. Can an Aetna offer all the same products in the public exchanges to an  employer at the same rates as on the public exchanges? I don’t believe there is a law that says they couldn’t. It could still be a group plan but just be pool rated and with more options. Employees who leave an employer can move to a public exchange into the same plan. I think carriers may do this because the market wants it. This will get employers “out of the risk business” as I indicated in my previous prediction.

7. Provider systems will dominate the health insurance market in 5-10 years.

The largest hospital system in Massachusetts got into the health insurance business a few years ago. According to my neighbor, who was a consultant for them, said the reason they did this is because with ObamaCare the providers are getting less and less money from government programs that are adding more and more people. In order to survive the hospital system needs money from the healthy people not just less and less money from the sick people. As my neighbor said, there will be no Blue Cross version of them in 5 years. Keep these comments in mind when you read about the recent Obama/Boehner deal to lift the debt ceiling. In that deal Medicare reimbursements are getting cut 2.5%. So 5-10 years from now employees will be choosing between provider systems not health insurance companies. The providers and insurers will be one in the same.

Conclusion

Many who may read this blog or who have listened to my webinars may think I am nuts or at least way off base with some of these predictions. Many will hope I am wrong. What has really amazed me most is how slow people are to change. I wrote about the coming of a Zenefits in 2009 yet few acted. I have seen brokers lose well over a hundred thousand dollars in commission yet still not act. Or worse, they take action but it is the cheap and often wrong solution creating a false sense of security. Now I am predicting a much different future that requires further and even more profound action. I am not willing to risk my business on hope so I am taking action in my business. What am I doing? Well, stay tuned, but I am not going to tell all my secrets. Or give me a call to possibly join my think-tank. Either way, take action.

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Market Disruption is Coming to the Benefits Business and at it will Come from the Outside Not In

Posted on November 2, 2015 | 2 comments

According to a report released by the Department of Health and Human Services on October 26th health insurance premiums for 2016 will increase an average of 7.5%. This is in a market where inflation and interest rates are close to zero. It is no secret that the cost of health care is one of the biggest issues impacting the U.S. economy in the coming decade. With a $19 trillion deficit the cost of health care is a problem that is waiting for, and desperately needing, a solution. And if solutions don’t come then the solutions may be imposed on the industry as we have seen with Obamacare. Hillary Clinton, if elected, would certainly try to finish the job. Just last week she included health insurance companies and pharmaceutical companies on her short list of enemies along with the NRA and Republicans. Back in 1993 when Bill Clinton was pushing his health care plan Hillary, when asked what insurance brokers would do if the Government took over health care responded, “They can get another job”. The industry has a target on its back and the target is getting bigger. I think changes are coming. But it won’t be the government taking action this time. While some see the target on their backs others see the same target as an opportunity.

The opportunity to fix the health care cost problem in the U.S. is no secret. According to CB Insights “$14 billion of venture capital has gone to the insurance tech space since the beginning of 2014, with health insurance-related investments getting more than all other insurance sectors combined”. I have personally spoken to several Venture Capital firms who are studying the market looking to invest in companies that will disrupt the status quo of the current health care industry along with the employee benefits distribution business. Yes, there are many companies looking to put the current providers out of business. It is often easier for outsiders to disrupt the markets instead of the insiders. A taxi company did not create UBER, Blockbuster did not create Netflix, and Barnes and Nobles did not create Amazon. It may be because the current market leaders would have to step back before moving forward. It would be a very bold move to disrupt your own business model, often at a huge expense, based on the chance that your new idea would eventually pay greater dividends than the present model.

Those in the health insurance business know that it is the underlying costs of health care that drive health insurance costs. The outsiders do too. You can eliminate the insurance companies but not reduce health care costs to any significant degree. So these changes that I am referring to will attack the costs of health care. This will trickle down to benefits brokers because the majority of a benefits broker’s revenue is selling health insurance. These outsiders may or may not see the broker as a valuable resource in their future world.

While some benefits brokers are trying to be a part of this coming change, for the most part they are going to be spectators. Firms like Zenefits, Gusto, and Namely are disrupting benefits distribution by offering technology and other HR type services with benefits advisory services, and some brokers are pushing Private Exchanges like they are some new form of health insurance, but neither bend the health care cost curve. To paraphrase Peter Thiel from his book Zero to One, “Innovation must be something new not a slightly different version of something that already exists….and that innovation must be at least 10 times better than its closest substitute”. Private Exchanges, payroll/HR tech companies giving away free technology, and most of the other technology solutions in the benefits business that I have seen do not meet this definition of innovation. In fact, these companies too may be disrupted by those that bend the health care cost curve.

The true disruptors are going to impact the market in ways many of us may not yet even imagine. But they will come, because there are many people interested in bending the cost curve including the government, employers, employees, and any individual paying an insurance premium. And of course those investors who are spending billions of dollars. Those less interested are those protecting the status quo.

So who are these disruptors? Firms like Google and Apple are hoping to play a major role in the mobile health market. Apple’s HealthKit is designed to manage ones heart rate, blood pressure, cholesterol, take a temperature, and make that information immediately available to one’s physician. Google also happens to be an investor in the new health insurer called Oscar Health. Evolent is helping hospital systems enter the health insurance business. Theranos can do over 120 blood tests with the prick of a finger and substantially reduces the time and costs for such testing. There are hundreds of others on the horizon.

The health care marketplace is ripe for change. The political environment, expanding web and mobile technologies, and a cash rich, highly motivated investment community, are all aligned and ready disrupt the status quo. And the prize for success is very lucrative. That future has yet to be defined but change is coming. Benefits brokers will have a choice to fight the change or start looking for those outsiders that will need help bringing their new solutions to market. But there will be no choice. The winds of change are already blowing.

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False Perception of Private Exchanges Causing Problems for Brokers

Posted on October 1, 2015 | Leave a comment

Private Exchanges are still in the news with firms like Time and Walgreens  moving some employees or retirees to Private Exchanges. Some polls still claim that Private Exchanges will dominate the market in a few years. Yet I would contend that most people still don’t know what a Private Exchange is. I have written my perspective on this in previous articles on this blog. Regardless of what one would define as a Private Exchange what really matters is what employers think it is. While brokers may not believe Private Exchanges may take hold or they do need to compete with the idea or a Private Exchange and more important the employers’ perception of what a Private Exchange is./

I have given speeches about Private Exchanges at many employer conferences. One of the first slides I show is a study that claims that 70% of employers would be interested in a Private Exchange. Yet when I ask the audience what they think a Private Exchange is few know. What is more interesting is that when I sat with a group of employers they spoke about what they hoped it was. The most common answer was that they thought a Private Exchange would get them out of the health insurance risk business. Those employers with over 100 employees that are experience rated simply wanted out. They were hoping this is what a Private Exchange was. Some were disappointed when they found out that Private Exchanges did not deliver this.

These employers are more than willing to give employees money for health insurance. What they would prefer though is that they can just give them money and let them worry about things. They don’t want to worry about whether they just hired a person with a spouse or child that has some major medical condition. They don’t want to worry about helping manage catastrophic claims or running wellness programs. They don’t want to deliver the bad news once a year to employees that their costs are going up or their plan is changing.

So while brokers may or may not believe in the value of a Private Exchange, they do need to worry about other brokers who aggressively market Private Exchanges because employers who think they can get out of the medical insurance “risk” business will take the call and schedule a meeting. It is the employers’ perception that is the key.

Brokers need to engage their clients in a conversation and educate them as to what a Private Exchange is and isn’t. You don’t need to spend money with any vendor to be able to engage your clients in a conversation about Private Exchanges. In fact you don’t need to spend any money at all to offer one. What you should keep in mind though is what these employers may be looking for. I believe that the brokers or carriers that can deliver a solution for larger employers that can get employers out of the risk business will capture a market opportunity that few have yet to recognize. The opportunity is there. Who will act first?

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Brokers Heading Down the Wrong Technology Path

Posted on September 13, 2015 | 3 comments

A few people have said I write too much about Zenefits but in fact, I have been writing about the Zenefits model since 2009 and talking about it since 2002, well before Zenefits even existed. You can see my article on this blog titled, “Payroll Firms, PEO’s and BPO’s, Have Got it Right”. (See article here: https://joemarkland.wordpress.com/past-articles/) I have also conducted numerous webinars on the topic that can be seen on my website here: http://www.hrtadvisors.com/AboutUs/HRTWebinars.aspx . Over the last few months I have seen many brokers contract with some technology vendor to develop their Zenefits-like solution and based on what I am seeing I think most are getting it wrong. They aren’t really developing a competitive or sustainable business model. In fact their solution may be creating a false sense of security leaving their firms vulnerable to the competition.

This past week I spent significant time with a good friend of mine that is a benefits broker discussing the benefits business and this Zenefits phenomenon. He is probably the one broker who I think has truly changed his business model to compete in this new benefits world where technology and outsourced services have become a big differentiator. He still has much work to do but he gets it. With all the noise in the market and new technology vendors popping up everywhere promising to help brokers beat Zenefits we tried to separate the new noise from what we thought the employer market is really looking for when it comes to HR type technology. We had no agenda because we both want to make sure we build a sustainable business. Lying to ourselves would not do us any good. What we concluded was that what most brokers are doing to compete with Zenefits is most likely wrong. The emerging broker models of partnering with some HR and Benefits only vendor (without payroll) is most likely not sustainable and many of the technology vendors will not make it. Here is why.

HR and Benefit Systems without Payroll have a short future.

At my company we have been consulting employers around these solutions for years and we definitely see employers moving to a single system for HR, Benefits, and Payroll. In fact, very few vendors even exist anymore without payroll. There are exceptions but it is a shrinking market. That is until Zenefits came along, but we don’t think Zenefits really is a technology play. I cover that in my webinars. And we believe that even Zenefits will build, merge with, buy, or be bought by a payroll company. Not because they want to but because they will have to. The only employers that will want HR and Benefits systems without payroll will have fewer than 30 employees so maybe Zenefits can survive there without payroll. Trying to integrate a HR and Benefits system with another payroll system is a problem employers would prefer to avoid. Even Zenefits is struggling with this and it probably consumes their resources. Yet most of the new vendors marketing to brokers have HR and Benefits without payroll. Do you know why? It is easy relative to payroll. Understanding and marketing HR and Benefits systems without payroll is also easier for most brokers. What we see is that it is primarily benefits brokers marketing these types of solutions. The rest of the market including HR Consultants, HRIS Consultants, PEO’s and BPO’s are not. Also, almost every HR-Benefits vendor is adding payroll and almost every payroll vendor is adding HR and Benefits. Look around and see how many third-parties are selling just HR and Benefits systems other than brokers. Hardly any. That is for a reason.

Selling or “giving away” someone else’s products does not change your business or build an asset.

If the benefits world changes and revenue for small group insurance gets cut significantly then the revenue from the other products and services that firms like Zenefits provides will need to come into the broker’s organization and not the third-party vendors coffers. The company that provides the value will be the one receiving the revenue. So selling someone else products does not build your asset. It builds the other vendors asset. Brokers selling other peoples products are essentially giving away future revenues that may be needed to sustain their business if commissions gets cut.

Brokers are getting a false sense of security.

If you are a broker that sells or gives-away HR and Benefits systems without payroll your client is still vulnerable to takeover. First, every payroll company in America will still be calling on that employer with a complete solution (with Payroll). Other brokers, like my friend, will be providing solutions with payroll too. Employers will get tired of having two systems and will always be looking out for a better solution. They will take the prospect calls. So, for most of the employer market, HR and Benefit systems without payroll will more than likely be seen as a band-aid until they move to a better solution. And if it is free from a broker or Zenefits then it is not a bad band-aid but it is still a band-aid. I guess if it is free it can be considered a trinket.

Most brokers prefer to keep an arm’s-length between them and HR-Benefits-Payroll solutions.

I wrote an article on this too. (Link here: https://joemarkland.wordpress.com/2015/03/04/an-arms-length-may-be-the-distance-between-winning-and-losing/.) My major point with this really comes back to “selling someone else’s stuff”. If you want to be arm’s-length then you don’t own it. If you don’t own it you won’t get the majority of the revenue from providing the product or service. My broker friend was asked if one of his clients could be used as a reference for another broker who was looking to get into this business. The inquiring broker was looking to see what the client thought of the technology my friend was selling. The problem is the client would not talk about the technology but actually talk about how great the broker’s service is. You see, the employer’s payroll questions come into my friend’s office, not some third-party. His service is anything but arm’s-length. He owns it and he gets paid to deliver the solution while other brokers give things away. Another broker I know delivering a complete solution just landed a client with a fee of $70 PEPM.

Most of these points I have made over the past months or even years. This has not prevented brokers from making what I think is the wrong decision. I believe the reason is because the path most brokers have taken is easy. And as the old saying goes, “if it were easy then everyone would do it”. And everyone has. Selling someone else’s HR and Benefits system is easy but does not solve the employer’s bigger problems. I actually had one broker who put in a payroll system through me once say “Joe, Zenefits says they make it easy and this was not easy”. I had to laugh and I told him that Zenefits says they make it easy for the employer, not for Zenefits. For Zenefits it is tough. That broker proceeded to move to an “easier” solution for him, and promptly lost a prospect to another brokerage firm offering a full-blown HR-Benefits-Payroll solution. He didn’t know why he lost but I know because I was working with the winning broker.

Changing your business and competing in this new benefits world is not going to be easy. You will need to move out of your comfort zone. The good thing is that there are so many resisting change that when you do start doing the tough stuff you will find the blue oceans with less competition and more profits. And you deserve it.

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Zenefits Has Crossed the Line

Posted on September 3, 2015 | 1 comment

For those of you who have not seen it Zenefits, an emerging benefits broker offering free technology, has posted a comparison of their services to many of their competitors across the country. You can see the link here. https://www.zenefits.com/broker/ In my opinion this tactic goes below the line of ethical standards. Not only does it misrepresent what many of their competitors are offering but they seem to be excusing themselves if they are wrong by putting asterisks at the bottom of the comparison that reads as follows.

** Zenefits cannot be sure what services are offered by (Broker Name). Contact them directly to find out.

This one line does not excuse them from being wrong. It is disingenuous. And I am quite sure they did not go out of their way and call all their competitors to validate their information. I ask anyone who reads this blog to call me if they did in fact call you and ask about your services.

I know for a fact that much of this information is wrong as many of my clients are on this list and I supply some of the products or services that Zenefits says they don’t provide. Zenefits says, for just about every broker on their list, that the competing broker does not provide Benefits Administration Software or ACA Software Compliance and Administration. Many brokers on the Zenefits list provide these products or services. Whether they provide them FREE or not is another check box on their list but that can be represented fairly.

I was once given some good advice by a broker in Michigan when I was a young sales guy for UNUM. He told me to never say bad things about your competitors because 50% of buyers out there will think less of you and not buy. Why would you want to eliminate 50% of your prospects? I have taken that advice. That does not mean you can’t sell against other companies models. In this case Zenefits is not necessarily saying bad things about their competitors. However, I do believe they are knowingly misrepresenting the competition. If they are knowingly doing this then in my opinion it sinks to the level below of someone that bad mouths a competitor. At least a person that verbally bad mouths a competitor is not trying to deceive. I would rather have someone tell me what they really think even if I don’t like what they say.

Zenefits is a benefits brokers and wants to disrupt the benefits distribution market. Why they want to create enemies with firms like ADP ( See USA Today: http://www.usatoday.com/story/tech/2015/06/10/zenefits-vs-adp/71019080/ ) and now benefits brokers across America I don’t know. As a young athlete I learned to respect your competition but also play fair. My father used to use terms like “take the high road”. These lessons that we have all learned at a young age have been lost on Zenefits. I can only blame their leader. They should immediately take down these web pages and apologize to all those firms that they misrepresented. If they want to show a comparison then at least get the information right and don’t hide behind a ** at the bottom of the page.

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Two Things Zenefits is Doing That Most Brokers Aren’t

Posted on August 29, 2015 | Leave a comment

I was working last weekend and browsing the web when I had a Zenefits Ad pop-up on the page that I was on. I know how that works, if you have searched Zenefits in the past then the system remembers you and pushes their ad onto the page. Had I not searched Zenefits the ad most likely would not have popped-up. I would imagine this would also happen to the thousands of employers getting calls and email from Zenefits. They may check out who they are on the web and then sometime in their future browsing they get the same ad. I also saw a commercial on TV the other day from Namely, another technology vendor getting into the benefits brokerage business, so Zenefits is not the only such firm advertising on TV and the web.

Recently my organization was the target of a Zenefits marketing campaign. Within a two week period of time my HR person (I don’t know where they got her name and email address) received 3 phone calls and 4 emails. She did give them the opportunity to present to her and their pitch was pretty compelling. However we are a little more educated in the technology area and have a solution much more advanced than Zenefits.

To compete with Zenefits many brokers sign up with some technology company so that they can say they  have a Zenefits-like solution. What they don’t realize is one of the reasons Zenefits is successful is because of their marketing. Most brokers don’t have the marketing system in place where they can find the right person in a company across the country and make 3 phone calls and send 4 emails in two weeks. In fact most have not even thought through what to say on a call or write in the email. What you say and how you say it matters.

When I start working with a benefits firm one of the first questions I ask is whether they have a marketing person on staff and an operations manager. It is amazing how few firms staff these type of people. Many will say they have a marketing person but that person is often not trained or skilled as a marketing person. The employee may have been the best PowerPoint person and became the head of marketing. Few majored in marketing in college. The ones that do have thriving businesses.

The same goes with operations. I rarely see benefits firms with operations managers on staff. Once again, they may have someone that may have the title of Operations Manager but that person often was someone who was promoted from some administrative role or the Office Manager position. It is amazing when you see a company that is operating with a great operations manager.

The lack of staffing and vision around these two functions may become very critical to a benefits firm in the near future. These are the areas where firms like Zenefits will shine. I believe Zenefits will eventually become the most efficient small group broker in the country. Much like Digital Insurance they will put the systems, people, and processes in place where they can become more and more efficient operationally. This efficiency will enable them to operate their business at a lower unit cost yielding higher profits than the average benefits firm. And if benefits commission changes significantly they will be able to charge fees for their services because of the systems they built to provide better service at lower costs.

Most benefits firms have no vision for operational efficiency. This is an area where I have a great deal of experience having discussed and viewed how hundreds of brokers are operating internally. Many have a database that can store information but few have thought through every process in their organization and develop automated workflows to make those process better. It is amazing how many times I hear from a business owner that “their staff won’t use it” when referring to their internal system. Since when should that be an option?

Many benefits brokerage firms are structured to be successful in what I think may be a dying business model. They are designed to protect the status quo. I have written numerous articles in this blog including one about the coming end to commissions and the rise of price competition. ( Fee for Services for Benefits Brokers – It Changes Everything and It’s Coming ) Another article I talked about the future of health care where health insurance may be all individual purchases and the future insurance companies may be the hospital systems. ( The Coming End to the Benefits Business As We Know It ) If commissions get reduced then those organizations with operational efficiency can have an advantage. With solid marketing they can grow rapidly as others struggle to adjust their business models. Also, if the health insurance purchase moves from the employer to employees then those organizations that can service individuals will also have an advantage.

Many brokers think firms like Zenefits will perpetually be bad and others hope they go away. What they are not seeing is that Zenefits is building a business to thrive in a new benefits world. By leveraging technology and building organizational efficiency they will have lower costs and higher profit margins.  And if they don’t someone else will.

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Sometimes I Feel Like George Costanza

Posted on August 4, 2015 | 1 comment

I was reading an article published on one of the online benefits magazines where the author wrote something that I almost totally disagreed with. As I read it I was thinking to myself, “that point is wrong”, and then “that point is wrong too”. Yet the comments at the bottom of the article coming from what I would imagine are mostly benefits brokers seemed to all agree with the author. I couldn’t believe it. Not one comment challenged the author. I couldn’t tell if the author truly believed what she was writing or if she was simply writing what she thought the audience wanted to hear. Regardless, there were many there to heap praise and say, “Great article. I wholeheartedly agree with you.” I started to feel like I was George Costanza of Seinfeld. Seinfeld buffs may recall the episode where George concluded that if everything he instinctively thought turned out to be wrong then the opposite of his instinctive thought must be right. Am I George Costanza here? Are all these brokers right and I am wrong? Is the way I think hurting my business or is there a lot of Groupthink going on? Should I do the opposite of what I think, like George Costanza?

The title of this blog is Challenging Everyday Thought. That doesn’t mean I like to say the opposite of what people are thinking just to be the antagonist. I think it is just my nature. As an athlete I always encountered competition. Someone was always trying to beat you. As a pitcher I was trying to fool batters. I was always thinking “what is he expecting me to throw”? And then sometimes I would do the opposite. In business one has to assume the same. However, while in sports having a losing season may be disappointing, having a losing season in business can be critical. Especially when it is a small business and the business is yours. So I am always thinking of ways to remain competitive in my business. A way to be different. If everyone is thinking the same thing then how can one possibly be different? I once saw a quote by Ben Franklin that said,

“If everyone is thinking alike, then nobody is thinking.”

So maybe it is not that everyone is thinking the same thing. It may be that technically nobody is really thinking at all. There is no great revelation when you say something everyone already knows or thinks.

I have referenced Peter Thiel and his book Zero to One in the past and in his book he says that when he interviews people he always asks following question, “What important truth do very few people agree with you on?” He asks this question because he is looking for people who think different. Those that are going to challenge the status quo and change the future. As we all know the future will be different.

I like to think outside the box but more important I think there is danger in Groupthink. As a business owner I can’t afford to fall into a pattern where I don’t anticipate change. Think Blockbuster Video, Circuit City, and Kmart here. Because the world will change, those that anticipate change may be better prepared for the future.

You can apply this thought process to the benefits business. Just ask yourself the following:

  • What if employers really don’t want to provide health insurance for their employees?
  • What if most people don’t want choice?
  • What if employers don’t value a brokers services?
  • What if Zenefits is right, and employers value what they do more than what you do?

Imagine a broker going into an employer with a new value proposition which is the total opposite of what others do. Many, many, brokers sell the value proposition of helping employers manage their risk and claims to lower health care costs. They provide wellness programs and other tools to try and reduce costs. What if you went into an employer and said, “Mr. Employer, managing your health care costs is almost impossible. Not only do you have turnover in your employee population but you are not in business to worry about managing the health of your employees. What if we developed a program to get you out of the health management business while still maintaining your competiveness for employees? Is this something you would be interested in?” This market approach is almost the exact opposite of what every broker in America is doing.

You can go through this thought process in other areas of the benefits business. Think about your business today and then think the opposite. Is the opposite a likely or unlikely event? I ask myself these questions every day. To quote Peter Thiel once again (maybe you should read his book) “What secret is out there that the world has yet to discover?” He believes there are many secrets out there and if you find one that a market will value then you can bring great success to your business. What I do know is that those secrets aren’t in any blog or in any PowerPoint Presentation. And if you are thinking just like the next guy then maybe you really aren’t thinking at all. So maybe being George Costanza for a day is not a real bad idea. It may be the key to a successful future.

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It’s Not About the Technology – Brokers are Getting Out-Sold

Posted on July 23, 2015 | 1 comment

I have written several articles on “how to be different” and how benefits brokers are “stocking their shelves” with technology solutions (to be different). A more recent article was about how to build an enduring business which does require having a relevant value proposition that would be valuable even in 5 or 10 years into the future. In spite of all the new tools and resources that brokers are stocking their shelves with and their efforts to be different many are still losing business to other firms that often have inferior solutions, at least on paper. What has really astounded me is that many benefits brokers are simply being out-marketed and out-sold. I am surprised because most brokers believe themselves to be pretty good sales people. For the most part, I agree with them. However, I believe the problem is much deeper in most organizations, but this is a solvable problem.

The reason I am writing this article is because I have seen this too often. I have seen benefits firms with superior capabilities and even technology lose to companies like Zenefits because the sales person did not have the training to deliver the right message. Or in many cases the benefits firm did not deliver any message to their clients at all about some of their capabilities. How often does this happen? It is not the sales persons fault. Their firm loaded their company up with tools and resources but these became somewhat “trinkets” thrown on top of a fairly weak foundation. The success of many firms to date often has been the result of strong sales people but the world has changed. Old messages with little marketing and no clear vision will not win against focused organizations with a unique value proposition, a strong brand promise, and well trained sales people.

Whenever I meet a new broker I often ask the question about how they are unique. It is amazing how often I either don’t get an answer or the answer is “we provide great service”. I remind everyone that great service is rarely a measurable differentiator. And I guess if everyone says that great service is their differentiator then how can one be different when everyone says the same thing. It reminds me of the Yogi Berra quote where he said, “nobody goes there anymore because it’s too crowded.” Everyone provides great service and that’s how their different? Sounds like Yogi to me.

The problem I am seeing is not with sales. It is in marketing which includes brand building. It even starts with a lack of vision. And all this is combined with a lack a planning. How can one plan when there is no clear vision and brand promise. Even when there is a brand or vision that vision is rarely “lived” throughout an organization.

My best evidence of this was seen when I was working with a producer from a national benefits firm who showed me a brochure she was using. I asked her who wrote the brochure and she said she did. She said she had no marketing in her office and nothing came from corporate so marketing was left up to her. Imagine a national firm where all the producers had to create their own materials? What I am finding is that this is common.

When I got into the benefits technology business in 1998 I was the CEO of a dotcom company that raised significant capital. One of the best exercises I went through was with my marketing firm. Our whole campaign started with one simple question which lead to one simple word. That question was “If you were to give a sales presentation or drop off some brochure to a prospect what one word would you want them to use to describe your company two weeks after the presentation? That word or it could be a few words needs to “live” within your organization. It needs to emanate through your organization and everything you do.

OK, so what is the answer? As I mentioned in my recent webinar most brokers are looking on the outside for answers when the answers are the inside. It starts with a re-evaluation of your vision. As Simon Sinek would say it starts with “Why”. It really requires that one understands their purpose for doing what they are doing. Does everyone in your organization agree with your Why? Then one must build from there. The building of the brand and then the marketing pieces, website, and whatever it is that you may bring to a prospect. It will then require educating your team and training the sales people on how to deliver your vision. Your Why!

I believe most firms have not done this. At least I have seen little evidence of this. Most have been looking to the outside for their differences; for their competitive advantage. They attend every sales presentation from some technology vendor or other vendor that promises to deliver the answer to success. But the competitive advantage people are looking for is often sitting under their own roof. Yet, most can’t find it, because they are looking in the wrong place. As a result clients and sales are lost. And they spend more money, on more trinkets, wondering whether or not they have found the answer.

This change requires hard work. It takes an honest look at one’s business to see if there is an understanding of one’s Why. It does no good to lie to one-self on this one. Or maybe over time firms have wandered far away from their Why. So the whole organization does not act as one unit but as a bunch of individuals trying to figure things out themselves. So I ask you a few questions. How is your firm unique? What is your vision? Your Why? And does everyone in your organization live this? Good answers to these questions deliver great results. Bad answers are the reason most companies are out-marketed and out-sold.

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