There are approximately 120,000 businesses in the United States that fall in the “under 500 employee” segment. If you were to ask the business owners how they compete against the industry giants, they would say something like, “We KNOW all our customers.” or “This is a niche business.”
If you were to ask decision-makers of benefits purchasing the same question, they would have a much different answer. They would talk about attracting the right talent within their budget–a budget that is constantly being hammered by benefit costs. More than likely, they would think that half of the 120,000 businesses they represent must be brokers because of the five calls a day they receive from different benefits brokerages willing to shop their benefits.
This brings up the real question: How do these benefits brokers/consultants compete when they will probably receive the same quote as their competition? How do they differentiate themselves?
The traditional answer has been to provide a host of other services and benefit offerings from which the employer may choose. These can be: sold for a fee, paid for in commissions, as part of the employer premium, or bartered in exchange for becoming broker on the lines of coverage that offer the most commission dollars such as medical insurance.
Many brokers now offer voluntary lines of coverage: benefits statements and communications, employee assistance programs, worksite solutions (such as concierge benefits), day care or even pet insurance. Brokers will give away access to discount programs for health insurance or financial management Web sites and offer free subscriptions to research and human resources literature.
The latest movement in the industry has been toward providing Employer Benefit Service Provider (EBSP) technology, similar to programs used in the mid- to large-employer segment, at affordable prices. Some of the simpler technologies offer the ability to post documents for employee viewing and/or have some HRIS features like time-off tracking and a data repository of employee and benefit information.
Some of the more robust technologies offer employee self-service and benefits administration providing online benefit communications and enrollment capability.
In the last few years, this market has begun catching up with the Fortune 500 and 100 groups in terms of the EBSP technologies they are using to administer their employees benefits.
With these platforms, employees can log on to a secure site, view and change their personal information or even their benefits at certain times of the year. HR does not have to spend time fielding calls from employees asking about their benefits or dealing with paperwork from many different insurance vendors. Companies can post information about available benefits and these technologies will show employees only those benefits that pertain to his or her class of employment.
During annual enrollment, the majority of these platforms can calculate rates based on employee demographics and show side-by-side comparisons of available benefit plans. Such services, provided that HR can control and manipulate the data, help to streamline Human Resource activities, saving time and money. Since these Web sites can relay eligibility information to insurance carriers, HR spends less time collecting, tracking and relaying information to these vendors. While in the past these employers could not afford to manage their benefits or treat their employees like the bigger companies, this goal is now in reach.
The majority of brokers offering EBSPs will outsource to vendors. Such outsourcing entails an added fee to the employer on top of the commissions they are already paying for their benefits. For some clients this fee is acceptable as they are saving time and money with such a platform.
In fact, a survey by the Hunter Group shows that self-service open enrollment reduces costs by 50%, providing a 100% return on investment in a year. An Aberdeen study found the savings to be between $200 and $300 per employee per year. The savings are due, in part, from a reduction in the number of inquiries–upwards of 75% as reported by the Hunter Group.
General Electric reports finding that telephone inquiries cost them $8 while a Web site inquiry costs only $1.
For those companies that do not think they can afford the added fees, there is still hope. Brokerage firms are beginning to offer benefits administration technology at no additional charge. They are either reducing their commission dollars to pay for an EBSP or they have been able to purchase or create their own platform. Companies should insist that their brokers bring the costs down if their broker is handling the administration that these systems will relieve.
As the rest of the industry grows to understand client expectations, brokers and benefits consultants will need to offer free (in exchange for commission) software/web-based benefits administration or lose out to the competition. As it stands, those brokers who can provide such technology affordably are beginning to edge out their competition in new sales.
Eventually brokers who can provide such value-added services will have to differentiate themselves again to stay competitive. We might see vertical expansion within the marketplace into systems that can handle more HR or payroll functions or horizontal expansion, delving into areas outside of the marketplace such as worksite marketing, financial services or property and casualty insurance. The new technology may become the ultimate differentiator.
Brian R. Donnelly is a consultant in the health and welfare practice at Aon Consultings headquarters in Chicago. He can be reached via e-mail at Brian_R_Donnelly@aoncons.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 23, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.