Category Archives: Zenefits

The Zenefits/OneDigital Partnership – It’s Magic


You may have seen the news about the Zenefits/OneDigital deal and the how Zenefits will now start working with brokers. This news reminds me of a magician performing a magic trick. They get you to focus on one hand while the other is where most of the action is happening. With this new partnership, most brokers are probably focusing on this competitor named Zenefits. The real story however is about the competitor named OneDigital.

The details of this relationship and how Zenefits may partner with other brokers has yet to come out. Let me speculate here. First, I would assume the OneDigital deal with Zenefits is similar to what OneDigital has done with other brokers in their small group outsourcing business. OneDigital gets 50% – 60% of the commissions to manage the business and the other broker gets 40% – 50%, or something like that. Without some significant share of the commission being retained by Zenefits this deal would not have happened. If Zenefits was giving away free software then they certainly can’t give away all the revenue and still employ all their people.

I would assume that any broker that wants to have a relationship with Zenefits will have to provide what OneDigital is doing. Handle all the service for 60% of the revenue. Or if they want to sell Zenefits technology, I would imagine the fees would need to be closer to what the market is.

The thing about OneDigital is they built a business based on leveraging technology in the most optimum way to drive down costs and provide better service. Brokers tell me all the time they can’t make money on small group for 100% of the commission yet OneDigital does it with only 60% of the revenue. How can that be?

The idea of combining HR/Benefits/Payroll technology with services is something we have been touting for years now. In fact, a shift in our business was made because of the need to provide the united services around the technology. Even Namely recently announced they are moving from a software as a service model to software with services model. These services include benefits brokering along with benefits administration and of course, HR and payroll.

The one-stop-shop for everything HR is an attractive value proposition for employers. Mike Sullivan, One Digital’s Chief Growth Officer stated in today’s Employee Benefit Advisors article that, “In a very client-centric way, the alignment of these two platforms makes sense for small businesses.” Indeed, it does.

This is not OneDigital’s first play in this space. It was less than two years ago when they announced their investment in GoCo. The title of the press release said, “GoCo Takes Zenefits Head on with Digital Insurance Partnership and Investment”. You can see that press release here. Even today Mike Sullivan is still listed on the GoCo website as a Board Member. I don’t know where this leaves that relationship.

What will come out in the coming days or weeks is how Zenefits plans to partner with other brokers. I wonder if and how the insurance commission is going to be leveraged to deliver this joint offering. Somehow, I don’t think this strategy of benefits commissions subsidizing HR technology game is over. Firms like Gusto and Namely are still combining benefits brokering with HR/Payroll technology and services. And we all know that other brokers are subsidizing systems across the country to get new business. As I have stated in the past, the idea of giving away free technology to get a broker of record started at least a dozen years before Zenefits was even founded.

Personally, I don’t think Zenefits has anything special, but OneDigital does. So, while most brokers are paying attention to what they perceive as the fall of Zenefits, I think the competitor to look out for is OneDigital. They will be knocking on your client’s door.

Note: This article is wildly speculative, but it is my blog. As more information comes out I will write again.

Your Competitors May Not Be Who You Think


This past week there were two press releases related to the benefits brokerage business that were fairly significant. One of them was picked up by the industry publications, generated some kudos on LinkedIn, and created some noise in the benefits community. Brokers were talking about it and many emailed me or called me to see what I thought.

The other one went mostly unnoticed in the benefits world. The industry pubs didn’t pick it up and I did not get a single phone call asking my opinion. Yet, from my perspective, the second press release will have a greater impact on the average benefits broker than the first.

This contrast made me think of a quote I keep on my wall that reminds me to not be complacent. It is from Jim Keyes, the former CEO of Blockbuster Video, who once said:

“Neither RedBox nor Netflix are even on the radar screen in terms of competition,” he said. “It’s more Wal-Mart and Apple.”

We all know how that turned out.

The first press release announced the merger of 20+ benefits firms, many who I know. While this is noteworthy, I am not sure that the world is any different today because of it. Yesterday they were wearing one uniform and today they are wearing another. They are the same people, in the same locations, and until there is some other new big announcement they are probably doing pretty much the same thing today that they were doing yesterday.

From a competitive standpoint, I am pretty sure this event won’t change the landscape much. Most brokers are already competing with larger firms that use their size and resources as their competitive advantage. Some brokers may even think this is good for them competitively because their market just lost another boutique firm and the competition of local boutique firms just got smaller. In reality, not much has changed until someone brings something new to the market.

The second press release was from a company called Namely. Namely raised an additional $50 million in capital bringing their total capital raise to $157.8 million. (Source: Venture Beat January 5, 2017) Concurrently, Namely also announced the following:

“Namely also announced today a new benefits offering called the Namely Health Advantage, which groups together similar companies to offer their employees health benefits at preferred rates.”

What makes this significant is that Namely has brought something new to the market. They have developed an engaging HR-Benefits-Payroll platform promising simplicity and ease of use. They also act as a benefits broker, creating a single source technology and service offering to employers. And as can be seen from the quote above, they created a new health insurance offering for their clients.

Namely claims to have 650 clients totaling 120,000 employees which would be an average client size of around 185 employees. Unlike companies like Zenefits, that targets much smaller employers (< 50 employees), Namely targets mid-market employers ranging from 100 – 1000 employees. From a competitive standpoint, this is the sweet spot for many benefits firms.

If you do the math and assume they are generating revenue at a $25 per employee per month rate, then their annual revenue would be in the range of $36 million. This is a real rough guess. Even if I am off by $10 million it would not be bad for a company that was founded in 2012. That would make them one of the fastest growing benefits brokers in the country. Though I am sure they would not classify themselves as such.

In 2015 there was $2.4 billion invested in HR Technology type companies. And as one industry analyst said, “Do you know what they will do with that money in 2016 and 2017”? Spend it. They will spend it on marketing and sales. They will have Ads on LinkedIn and Google. They will be at all the HR trade shows. They will be everywhere marketing to your customers and prospects. Namely has even had TV commercials on Fox News. I don’t see many brokers advertising on TV.

I could imagine asking the average benefits broker about their competition and it would not surprise me if they responded as follows:

“Neither Namely nor Zenefits are even on the radar screen in terms of competition,” he said. “It’s more Gallagher, Mercer, and USI.”

You may not have recognized this competition yet. Many brokers say they never lost a case to Namely or similar companies. What they don’t know is how many prospects they lost to these firms. How many employers looking for solutions found Namely but did not find you? How many prospects would respond to their value proposition versus yours? Do you even know what their value proposition is?

There is a way to meet and beat this new competition. But is takes work, planning, investment, and risk taking. Or maybe these firms are really nothing to worry about. Ask Jim Keyes what he thinks.

It’s a Saturday night and I should go. I could end this article by saying I am going to be watching a movie on Netflix tonight but playoff football is on, and anyone who knows me would know I am lying. But if you want to learn about these new competitors and what you can do to compete with them, check out our latest webinar titled, “The Future of Human Capital Management and Benefits” by clicking on this link.

How well do you know your customers?


In today’s environment where information is readily available and leveraging the web and mobile to provide service is an expectation, personalizing that service is also expected. When I buy an airline ticket I am asked how I would like to be informed of any changes (email, text, phone call). When I check into my preferred hotel chain they have my preferences and personalize my service. For some reason this type of personalized service hasn’t become the standard in the benefits business, or at least to the level of other industries.

I often reference the Wellness Newsletter I got from my broker giving me tips about pre-natal care. As a 54-year-old male this is not relevant and the email itself not only did not address my needs but in some way reflects poorly on my broker. It made me think he is really not that organized. Not only was the newsletter not relevant to me, but what my broker also does not know is that I already subscribe to a Wellness Newsletter directly from another online company. This newsletter sends me the information that relates specifically to someone my gender and age and is delivered at the frequency I want in the method that I want. I did not need a Wellness Newsletter.

On another occasion a broker I know provided an online HR Library to the HR person of an employer where the outcome was not what was expected. This HR person was on a committee for a company that also provided HR content on the web and she found many flaws in the product the broker delivered. It started with good intentions, but the outcome was not what the broker intended. Should the broker have known the HR person was on such a committee?

I can go on and on. People putting in enrollment systems to clients that already owned one but didn’t know it? Building benefit websites for employers that already had a regularly used intranet. I am not just pointing the finger here at others. In my own organization we struggle with the same issues when serving our clients.

All this reminds me of some stats I saw from a book published by Jack McKean titled, “Information Masters: Secrets of the Customer Race.” In the book he cites the following:

“Only 2% of the knowledge that organizations have about their customers is actually used.”

“Only 5% of the body of knowledge about a client is available digitally and indeed only 20% of the knowledge is recorded at all.”

What is amazing is that this book was published in 1999. The stats may not be the same today but it in many cases it is close to the truth. And of course this is not reflective of you and me. We are better than this.

It takes a lot of work to create a personalized service experience. You need technology to store and manage the data. You need a methodology to gather information and keep it current. You need processes in place to automate certain functions. You need people either on staff or through an outside resource to plan and execute such a strategy. It is a herculean effort.

In today’s environment most brokers provide service to the employer which could include HR, finance or the business owner. This has its own challenges but at least gathering information to personalize the service for a few people is somewhat manageable. Imagine the effort if we move to a consumer centric world where the services need to be personalized for the employee. What is the broker’s role in this environment? What would be the cost in time, technology, and resources, to deliver the experience consumers expect in today’s world.

From the employer’s perspective they have the same challenges. The expectations of how they are going to support their employees is changing. The needs of a 26 year-old with significant college debt are much different from a middle-aged employee preparing for retirement who may have health issues. These employers may not have the resources, technology, or capital to move their HR to this new level.

Many brokers say they provide such services but I have not seen it. Many do provide great service but not in the personalized way I am talking about. Relative to their peers in the current environment they may superior. But what happens when someone comes along and raises the bar? This happens often in many industries.

As someone in the technology consulting business I am seeing firms behind the scenes beginning to develop new models of service. Models that don’t exist today in the benefits world that can raise the bar. And it can raise it in a way that gives these firms a distinct competitive advantage that is not easily duplicated. Like providing benefits advice to a millennial on a Saturday afternoon via video conferencing. Some of these firms are traditional brokers but others are coming in from outside the industry. Those outside the industry love disrupting current business models. The health care business, and by extension the benefits industry, is a primary target because the capital running through it is so high it invites disruption. People want a piece of a very large pie.

Many brokers rely on relationships and are pretty sure their clients are loyal. I once saw a statistic that said that most companies think about 80% of their clients would be loyal. When employers were asked how loyal they were to their vendors the answer was 20%. This is a huge disconnect between perception and reality. One way a relationship can be severed is when a competitor brings in a better idea or better service. Companies like Zenefits displaced $63 million in commission business from many brokers with loyal customers. One told me he lost a 20-year relationship to Zenefits. So new ideas can be powerful.

I am not going to pretend to have all the answers. And I certainly look in the mirror when writing this because I am somewhat talking to myself too. But I have seen technology and models that can start the process to personalizing service for employers and employees. I have spoken to some companies that have started the process. I have seen the revenue models too. I don’t know when this “tipping point” will happen, but it will, because it is possible and the market wants it. And the opportunity is there for those who want to provide such services, but one must start. So my advice is to start. And start today because it is a big challenge.

Are You Too Comfortable to Change?


I don’t hide the fact that I think the benefits world is going to change. And when giving presentations I often refer to a quote by Steve Case from his book the Third Wave that states “Incumbents often fail because they underestimate the speed at which the future is approaching.” But something became evident today when talking to a broker about some of the changes going on in the industry when I realized that he simply did not want to change. More likely he didn’t want to take risks. Not everyone is a risk taker. In fact, very few take big risks.

I have heard at least once, or maybe a hundred times, that benefits firms are struggling with organic growth. The thing about the benefits business is that it is getting commoditized. I hear it all the time. I don’t always hear it from the business owners or the producers living off of a block of business and referrals, but I do hear it from the young producers who are dialing for dollars and knocking on doors. They are begging for differentiators but often the owners are living in a different world. And from the owners’ seat many don’t see the different challenges between what the veterans and what the rookies are facing as it relates to the competitive market.

To be competitive in today’s world it is important to change. To have a unique value proposition that is not easily duplicated is important. But change often requires taking risks. As Mark Zuckerberg says, “In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

The thing is few want to take risks. I have pointed out new competitive threats many times to brokers who did not act until they lost business. In fact, over 50% of our new clients lose business after hearing about a competitive threat and not taking action. Losing business is a pretty big motivator. Yet most won’t act until they feel the pain.

I had one broker tell me his clients or prospects didn’t want one of the new HR technologies. I couldn’t imagine every firm in his market thinking the same thing. Anyways, what I didn’t tell him was that the reason I was calling him was because I was working with an employer that told me she decided not to choose him as a broker because of his technology strategy. Brokers often know why they lose clients but often don’t know why they lose prospects, which was the case here. Do you know why you lose prospects?

I have had people read my articles and ridicule me because of the message. Often I am just pointing out that there are some out there who say the benefits business is going to change. Zenefits, Gusto, and Namely are changing it. The CEO of Aetna says it is going to change. The government may also want it to change. All are a threat to the status quo. Sometimes I think that people don’t want to know these things. It is like having a lump in your side and you don’t want to check it out because you may think something major is wrong. If you ignore it, it will go away. Well, I don’t think so.

Change doesn’t happen because you wake up one day and say “I’ve changed”. And change doesn’t happen because you stock your shelves with a few more products or services that are easily attained by anyone. I see many people “pretending” to change but not really changing. And I say, “not really” because the changes I imagine brokers need to make aren’t easy. Many brokers are choosing “easy”, thinking they have made big changes. If the change doesn’t make you feel uneasy. If it doesn’t appear to be very risky, then many will do it, and they do. Then you are not unique.

Personally I think there are big opportunities in the benefits business. I would say more so that I think there are big opportunities in the human capital management business of which the benefits is a piece. But to capitalize on those opportunities one must change. And this change requires taking risk. Big risks.

So you can stock your shelves with new toys. You can do all the sales training in the world.  But what if insurance commissions were cut in half on January 1st?  What if the government made individually based health insurance tax deductible? What if Zenefits, Gusto, Namely, and Paychex are right and employers will switch brokers for HR and Payroll technology and services? That would require the type of change I am talking about. And if some of these things happen and you “underestimate the speed at which change is approaching” could you survive?

I don’t want to over-generalize but I think we have an industry where taking big risks isn’t the norm. Protecting the status quo is. But there are big opportunities for those that really want to take some risks and Challenge the status quo. Feel a little uncomfortable. Work a little harder. And have a lot of fun along the way.

I am going to finish by saying our new business, ProHCM is all about challenging the status quo. It is taking a big risk. It is different, very different. We are betting on and preparing for a future that may be approaching faster than most anticipate. I am looking for the blue oceans. So I will finish with a quote from another FaceBook employee, the COO, Sheryl Sandberg, “If you’re offered a seat on a rocket ship, don’t ask what seat! Just get on.” It could be fun.

Don’t Sell Lawn Tractors When They Want Landscaping


I have written many articles and have spoken at many conferences about HR/Benefits/Payroll (HCM) technology and services and how the coming changes are going to impact the benefits business. I often have used a lawn tractor/landscaping analogy to make it easier for the audience to understand some of the key points in my position on the market. Yet, just the other day, a person who I have spoken to several times in the past, made a statement to one of my salespeople that would indicate that he really did not understand the concepts I was espousing. So I have decided to put these concepts in print so it is accessible at any time. If you have heard me speak before or read some of these blogs it may get redundant but at least I warned you. This may also get long but I do want to cover all the details.

One of my first articles around this concept was when I wrote an article about Zenefits titled, “If You Want Results Like Zenefits You Need to Mow the Lawn”. My key point was that I felt brokers were viewing the attraction of Zenefits the wrong way. On the surface it may appear the attraction was free HR Technology in exchange for the benefits business. When I looked at their marketing I concluded that what they were selling was the idea of making HR easier. They were promising “worry-free”. I like to say they were selling life preservers to people drowning in HR administration. And the analogy I used was that if I wanted to mow my lawn I could either buy a lawn tractor or lawn mower, or I could hire a landscaper. If I hired a landscaper I would go to work and then come home and my lawn would be done. A landscaper would sell me “worry free”. When I hire a landscaper I am buying a service, not technology. On the other hand, if I bought a lawn tractor I would need to fill it with gas, learn how to drive it, and mow my lawn once or twice a week. Lawn tractor is a technology purchase while landscaping is a service purchase.

In the HCM technology and administration market I think there are different types of buyers. There are those that want to buy technology to manage their HR and there are others that simply want someone else to do it. One may want a lawn tractor and the other wants a landscaper. Or you could be like me that uses a lawn tractor to mow my lawn but a landscaper to fertilize, do spring and fall clean-up, and plow my driveway in the winter. Employers may use technology for some things and want to outsource other services. Or they may mow their own lawn until they go on vacation and have someone mow it while away. Different people have different needs.

The comment the person made to my salesperson was that he thought at my company we only represented one technology vendor and he wanted to represent the market. I guess what he did not understand was that at HR Technology Advisors we provide different services. We have a technology consulting business, where we help employers find the best technology (find the best lawn tractor) but we also have a landscaping business. To stick with my analogy, if you were to have a landscaping business you would need lawn equipment. And you may need to choose between a John Deere, Toro, or whatever else is in the market. You may also have more than one. For larger lawns you use a John Deere commercial stand-behind 50-inch lawn tractor but for smaller lawns with tighter spaces you may use a Toro 20-inch push lawnmower.

Recently we launched a new business, ProHCM, to put the focus on the services. The best way I can describe it is that at HR Technology Advisors we helped over 1000 employers find the best lawn tractor (HCM Technology solution) through 40 different vendors. We have been agnostic. ProHCM is our landscaping business. If an employer simply wants someone to do the work, we can do it. We can manage their payroll, support HR, or do whatever it takes to help the employer in the HR area.

However, we also have a lawn equipment repair business. In the process of consulting employers on technology, one option is to fix what they have. So, we help employers fix their current technology. And if you were start a lawn equipment repair business it would be smart to learn how to fix the lawn tractor that is most widely used. You will get more customers that way. In our business that is ADP. When we fix ADP for an employer we aren’t helping ADP. We are helping the client who has already purchased ADP.

In the HCM technology space there is a big disconnect between the technology sellers and the buyers. The sellers are essentially selling technology with Payroll services but the buyers are thinking their getting a landscaper too. They think that they are buying services well beyond what is being sold. This has created another gap in the market that few are seeing. It is actually this gap that prompted the forming of ProHCM. So part of ProHCM is to provide services to fill the gap between what the client thought they bought and what they really bought.

I often show the example of how we add content to an employer’s HCM platform to help communicate benefits better to the employees. The HCM technology vendors provide benefits communication technology but they don’t provide the service of adding the content to the employer’s system. And they also don’t create the carriers content. So we have a service that adds benefits content onto the HCM platforms. It is a service. Once again, we aren’t helping the technology vendor, we are helping the employer communicate benefits to their employees.

Then there are the employers that have bought their lawn tractor (HCM Technology) but don’t know how to use it very well and need help. Recently we had an employer using ADP technology whose payroll person quit. They had the ADP lawn tractor but the person internally who mows the lawn quit. Our service supplies them with a person to process their payroll using their technology until they hire someone new to pick up the work again. They needed a landscaper to mow their lawn using the lawn equipment they already purchased. Once again, if you are going to provide the service of managing someone else’s payroll what system would you get to know first and best? You would know the one that more employers are using. If you were to write an app for a smartphone wouldn’t you write one for the iPhone? It would be smart. Apple has lots of customers.

The services under a landscaping business can vary tremendously. Some people just mow lawns. Others will edge, trim hedges, fertilize, and do fall clean-ups. Some will also handle sprinkler systems and others have landscape architects available to do design work.

In the HCM technology and services business the same is true. There are those who provide benefits outsourcing and others that provide HR outsourcing services and payroll too. Some like Zenefits, Gusto, Namely, and Paychex have added benefits advisory services to their menu. Smaller employers will more likely look for a single source for these services to make it easier, but also it is often cheaper to do it all under one roof too. Simpler and cheaper is often a popular formula for business success. It attracts lots of customers.

Some brokers don’t want to provide all the services. That is Ok, as long as it is Ok if a certain percentage of the market is no longer considered a prospect. I think more and more small to mid-sized employers will be looking for a single, or fewer sources, to manage their HR. And we all know that there are many larger employers who are understaffed and need help too. From my perspective, as the HR world gets more complex, the demand for these outsourced services will expand.

Some brokers have partnered with some payroll or HR company down the street. I think that there is a difference in how a buyer would perceive the value from a firm that brings in all kinds of third-party vendors from those that “own” the outcome. There is a difference in selling someone else’s stuff versus selling your own. I wrote about this in my article titled, “An Arms-length May be the Distance Between Winning and Losing”. First, there is the accountability thing. Second, it is often more expensive to buy these services in pieces versus buying them together. Many firms, and not just the Zenefits and Gusto’s of the world, provide lower prices for some products or services if the benefits BOR is included. Brokers have been doing this for years with benefit websites, HR Libraries, HR call centers, benefits enrollment systems and more. It is not Zenefits that created the great “giveaways” in the benefits business.

ProHCM provides the services that brokers may not want to provide such as answering a payroll question or providing an employee to manage their HCM technology when someone quits. There may be a time when the broker may need to provide a service more core to the benefits business that on their own can’t afford to provide such as a benefits call center on nights and weekends. I could go on and on with examples of services needed today or in the future that may require an investment and scale.

I guess the last point I will make is that selling lawn tractors is much different than selling landscaping. Think of what you say when selling me a lawn tractor versus selling me landscaping. Pause here and think about this. It is much different than selling landscaping. If you were to sell me landscaping would you take me out to the driveway and ask me to see your lawn tractor or to “demo’ it? No. They don’t care how you mow the lawn. They want it done right.

At ProHCM we have multiple lawn tractors for our landscaping business. One for smaller employers and another for larger ones. When someone hires us to find the best HCM technology we don’t show them our landscaping business. When someone wants landscaping we don’t demo lawns tractors. I don’t think there is a conflict. They are simply different. I don’t think someone who has a landscaping business thinks that someone who sells lawn tractors is a competitor or vice versa. They understand the difference.

I would contend that the biggest problem Zenefits had was that their sales pitch sounded like they were selling landscaping but they then delivered lawn tractors. Some people will accept and run their own technology but many others will need help. Those employers either not capable of running the technology and those expecting more services would not have been happy. Zenefits will get it right in time.

So when someone says that we favor ADP I would disagree. We provide services to help the client that may have the ADP lawn tractor. We help the employer, not ADP. We could help someone who has Kronos too, or Ultimate, or Ceridian. Though I am sure ADP others appreciate the fact that we help keep their customers happy. And if you were to start a service business to fix or support some technology it would be a sound business decision to provide a service around the technology that more employers are using. If you were to start a landscaping business, you would need to choose your equipment. If you choose to use a John Deere that would not make you a John Deere salesperson. You would be selling your landscaping.

When it comes to the next prospect meeting and technology comes up make sure you know whether they really want technology or if they want the services. Or maybe they want both. And it would be important to understand what services they need.

I hope this is helpful. This lawn tractor/landscaper analogy may not apply to every situation but it works for me.

This is only the beginning for Zenefits-style brokerages


This was originally written for Employee Benefit Advisor Magazine. The original post can be seen here.

As this election year unfolds, many are questioning what created Donald Trump. Why him? Why now? On the other end of the spectrum, the same could be said of Bernie Sanders. In the benefits world, I relate this to Zenefits and former CEO Parker Conrad. What is it that allowed Zenefits to come to be? As Zenefits now re-groups to begin its post-Conrad journey, firms like Namely are getting press and stepping into the market in a similar way.

Some will say it is the Silicon Valley arrogance that breeds and often enables young entrepreneurs to create new companies and attack the market and competitors with a vengeance. These young guns want to disrupt the market and change the rules of the game to deliver something new and better.

Whether you agree with the Zenefits model or not, one can’t argue with their results. According to Bloomberg, their revenue was close to $63 million annually as of the 4th quarter 2015. This means that:

• $63 million in customers fired their broker because Zenefits promised something their current broker was not delivering.
• $63 million in customers valued what I think is the equivalent of a $5 PEPM technology more than they valued the services delivered by their $25-$35 PEPM benefit broker.
• $63 million in customers did not care that there was no local service.

While Conrad has left this stage, the conditions that allowed him to grow his business still exist. And I am sure the Zenefits executives and investors — including Andreessen Horowitz and Fidelity — aren’t going to let $63 million in revenue slip away without a fight.

What Zenefits did do is let the world know that there are many employers out there that value what Zenefits promised to deliver. In fact, according to industry analyst and marketing guru Mark Mitchell of The Starr Conspiracy, there was $2.1 billion invested in the human capital management technology and services space in 2015, and $600 million in the first quarter of 2016. As Mitchell said at a recent conference, “Those checks are being cashed.”

What is about to come is a tsunami of new products, services and marketing in the HCM technology and services areas that are going to hit the market. Employers will be getting phone calls, webinar invites and attending conferences where these new solutions will be heavily promoted.

Case in point: Had you ever seen a TV commercial or heard a radio commercial about HR technology before Zenefits and Namely? This is a hot market, and as one venture capital firm representative said to me, “We are only interested in investing in firms that go after the benefits commissions.”

The commission is in play, and $2.1 billion in investment capital knows it.
I have been in the benefit business since 1986, and many of the same problems still exist. Administration is still complex. Benefits are still confusing, and getting more confusing. Costs are still going up. And now, in today’s world, cost shifting onto employees is creating financial stress on employees. It is getting worse, not better. As long as the current market does not solve these problems, then there is an opportunity for someone else to do so.

In the political arena whether Donald Trump wins or loses somewhat does not matter. The conditions that created him and allowed him to get the nomination aren’t going away. Certainly the millions who support him won’t disappear overnight. They are still Americans living in our society.

In the benefits world whether Zenefits survives or not also doesn’t matter. The conditions that enabled them to enter the market and grow still exists. Employers still want what Zenefits promised. Managing benefits is still burdensome. Costs are still going up. People still don’t understand their health insurance. The market conditions have not changed. The opportunity for another Zenefits, or 10 of them, or 100 of them still exists. And while Parker Conrad is in the rear view mirror others are coming. And it will be a tsunami.

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


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.