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Industry Spotlight > Broker Dealers

The Key to Future Success? Disruptive Innovation.

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Twenty years ago when it was time to travel, we picked up the telephone — a land line, mind you, not a cell phone — to contact our travel agent who made plane, car rental and hotel arrangements. If you operated in a cutting-edge business environment, your itinerary may have arrived via fax. My, how the world has changed! Online booking has replaced the role of the travel advisor (whose offices were once as ubiquitous as Starbucks), and mobile usage has surpassed traditional phones.  A decade from now, I predict a similar evolution will have transformed the employee benefits industry. The manner in which we operate today will be obsolete. Change is already under way. One of the key elements of this change is that employees, not employers, will control the benefits process.

The phenomenon at work is “disruptive innovation,” a term coined in 1997 by Harvard Professor Clayton Christensen. According to his website, this refers to a “process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market.’” As a result, those leading the revolution eventually displace established competitors or ways of doing business. My supposition: the competitive dynamics that change the smaller employer market segment will eventually transform all market segments.

This is interesting stuff — and I, for one, don’t plan to sit on the sidelines and simply watch this play out. Tomorrow’s principal players will be the ones who transform this theory into action today. 

The tech advantage

Like so many recent developments — travel and telecommunications included — those who best leverage technology will have a market advantage. Yet our industry will require other components to achieve success. We must validate our relevance as middlemen and advisors, yet change our business model to more effectively address the needs of end-users, employees and their families. And, to attain preference, we must provide a superior customer experience.  

Let’s turn back to those other industries I mentioned for some lessons in game-changing disruptive innovation. With web-enabled technology, travel providers initially eliminated the usefulness of middlemen. When consumers gained the ability to directly book with Delta, Hertz and Marriott, the commissions that once fueled travel agencies’ revenues began to shrink, then disappear. (Sound familiar?) Today, successful travel agents live in a largely transparent, fee-based world. Yet other creative intermediaries found a way to reemerge: hence the rise of Travelocity, Expedia and Kayak. By aggregating and comparing prices from multiple sources, these companies provide a valuable service. Keep in mind, this all came about in a consolidating “carrier” environment with readily apparent geographic dominance.  The human touch

 If you think I’m suggesting that employee benefits will one day be sold exclusively online or in exchanges, I’m not. Although I will confess that I once thought this was possible. Eleven years ago, that was my company’s business model. We were going to transform the employee benefits industry by creating a digital marketplace. Not only were we too far ahead of the curve, we were reminded to go back to our roots. Insurance is inherently a personal business that often requires interaction with real people. Technology is an asset, but must be complemented by the human touch.  

We drank a lot of coffee trying to dream up a more perfect solution. This brings me to Starbucks, a company that resides in a category of its own when discussing innovation. The essence of its success boils down to one concept: creating an incomparable customer experience. It’s a twist on Steve Jobs’ Apple phenomenon, I suppose. Both businesses made the rest of their industries stop and take notice. They have engendered tremendous loyalty and allegiance from their fans. And, they have forever changed market dynamics.

Back here in employee benefits land, the circumstances are somewhat different. Market forces are driving change. The fires of economics and health care reform have become infernos. It’s almost laughable how the entire American health care system has failed to harness technology in a manner that effectively delivers useful information to consumers. Individuals need to understand not only which insurance products best meet their family and budgetary needs, but which health care providers and institutions are best able to provide those services. As an industry we need to quit waiting for carriers or hospitals or others to innovate. Our time to harness consumerism at the individual and family level and drive transformational change is now. The essential elements

Who can efficiently package these services in a manner that appeals to the masses? Right now, no one can. We are an industry in terrible need of disruptive innovation. Someone needs to invent a Travelocity/ Starbucks/Apple hybrid. The company that does this first will become legendary. I wish I had all the answers, but I don’t. I do know, however, that these elements are essential if you want to remain a vital competitor in the employee benefits arena:

  • The ability to leverage software in ways that seem unfathomable today. We need a platform that can aggregate complex data from multiple sources and make it relevant to John Doe. A really useful system would outline the pros and cons of various employer-provided plans, take into account disparate family’s needs and suggest voluntary plans to fill the gaps. It also would direct “John” to resources that can help him lose those 25 pounds, track his caloric intake and exercise regimen and perhaps offer discounts to local gyms. John’s spouse could survey which doctors have the best outcomes for the knee surgery she requires and compare costs for doctors, hospitals and labs. Many other elements would comprise an ideal system, but it’s obvious this type of technology does not exist today. The entity that creates it first will have a distinct market advantage. Carriers and health systems want to fill this role. Their challenge is special. They are not independent and objective, and they do not live in the “middle.” Smaller scale and more limited access to capital present challenges to brokers. The race is on.   
  • Resources and services that justify the relevance of the middleman. Advisors will not have a seat at the table unless they bring compelling resources and services while driving down costs and enhancing efficiencies. Price and plan comparisons, à la Travelocity, will not be enough. This does not mean a host of employer-focused, “value-added” services. Today’s leading advisors are thinking about a future focused around an engaged consumer, and harnessing that consumer will be the magic behind disruptive innovation in our industry. We need to quickly evolve away from our employer-centric mindset. The possibilities to engage, educate, advise and transform the employee benefits experience will happen at the individual and family level. The potential for refocused software solutions, integrated customer advocate centers and entirely new analytics must be achieved within years, not decades. Our chance to lead from an unbiased middle is now! 
  • An incomparable service experience. Employee benefits advisors have long relied on service as a distinguishing factor. Nice, friendly people will always have a role in our business, but the definition of service must extend far beyond these characteristics. In a consolidating industry, concepts like scale, geographic reach, market share and speed to market take on increasing importance. Ideas, entrepreneurial energy and strategic aggregation are useful tools to create disruptive change. A firm must have the ability to work side-by-side in the board room with financial executives to devise strategic cost-saving solutions and be capable of engaging in a conversation with the cashier at one of the client’s retail outlets to give a data-driven explanation of what doctor they should see. Both customers need to walk away from the experience so impressed and engaged that they feel no other advisor is capable of meeting their needs. Taking this idea one step further, imagine the possibilities if this takes place via a handheld device. At our company, we view this as an exciting new horizon to ensure our future relevance. My hope is that our industry does this sooner rather than later.

Disruptive innovation takes some pretty creative thinking. And while some of the changes needed seem impossible, I know they are not. Our first order of business as an industry is straightforward:  Stop playing defense and start playing offense. Think of it this way: in 1990, you could not have imagined the power you would hold in your hand using one of today’s smartphones. It’s that complex —and that simple.


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