“Sometimes benefits brokers come by the Zenefits office, and they refer to me as Darth Vader,” says Parker Conrad, chief executive officer of Zenefits, the insurance benefits technology startup that’s threatening to change the landscape of the employee benefits business – drastically and irrevocably.
“They see me as Satan or the most evil person in the world,” Conrad continues. “But one of the things I think they don’t realize is that if Zenefits is fortunate enough to continue on our current trajectory, then, yes, Zenefits will be extremely destructive to agencies – but I think it will be extremely positive for brokers, for the individuals themselves. Brokers are as much a victim of the state of technology in the insurance industry today as their clients are.”
Average consumers might not realize the threat Zenefits poses to the insurance industry because from an employee’s perspective, benefits obtained through Zenefits are identical to those obtained through a traditional brokerage – and the company also hosts a support team to manage the day-to-day employee issues that arise within any benefits package, so the average consumer wouldn’t experience any loss in personal attention or support from someone who can help with a plan question or issue.
It’s only when you explain the Zenefits model to one or two employees at a small or mid-sized business – the employees trying to handle HR and payroll duties on top of another full-time job – that the public begins to get excited about the concept the brand represents. That’s what’s got the insurance industry frightened. Probably with good reason: The company reached $20 million in run-rate revenue after its first 20 months.
“The best way to help you understand how we’re different and how it works is to explain what happens when you hire someone through Zenefits,” Conrad explains. “As an employer, you can come in and say, ‘I want to hire John. He starts April 1; I’m paying him $80,000 a year; he reports to this person and he works in our sales department. I’m giving him this many stock options.’ You click ‘hire,’ and you’re done at that point. The employer doesn’t have to do anything else.”
After those steps are taken, Zenefits will email the new employee an offer letter based on a preloaded company template. It generates confidentiality and any other necessary employment agreements, and the employee can sign them all digitally before returning them. Zenefits collects the necessary payroll details – Social Security number and bank account information included – and then sets it up for the new hire. The company handles any W-4s, I-9s, Patient Protection and Affordable Care Act notifications and any wage notices required by state law.
Then, of course, there are health, dental and vision benefits, plus any flexible spending or health savings accounts.
“All of that stuff gets handled automatically – and sort of ‘automagically,’” Conrad says. “The employer isn’t involved in any of it, and the employee does it all online well in advance of the first day of work.
“The difference is integration,” he adds. “Instead of managing 20 different systems, the employer only has to log in to Zenefits.”
And the service and technology that supports the Zenefits model is free for employers to use; they pay broker’s fees, for insurance, and Zenefits also offers revenue shares for partners (such as ADP, which shares revenue for payroll clients generated by Zenefits) and has built out extra features that employers can purchase, such as time and attendance software.
“The way I think about our business is as a hub-and-spoke model,” Conrad explains. “Zenefits is the hub, and there are several spokes that come out of that hub; we make money on all of the spokes, and the hub and connective tissue, we give away for free.”
It sounds like a killer deal for employerS – but the efficiencies Conrad has created in Zenefits also represent, to many brokers, the end of the benefits world as they know it.
“I think this is one of those industries that needed a breath of fresh air – frankly, that needed to be disrupted,” says Sue Wakamoto-Lee, senior benefits advisor at Zenefits. “We haven’t done anything differently in the benefits world for decades. Even today, they’re still using paper applications – that’s what we were doing in the ’80s.
“We didn’t even have personal computers when I started in the industry,” she continues. “It’s still the same now, and that makes no sense in a world where you can access anything you want on your phone walking around town. The industry needed to change.”
Wakamoto-Lee’s previous employers include One Risk Group, the Leavitt Group and Mercer Health & Benefits, and she says when she jumped on board in June 2014, “it was a risk.
“When I updated my LinkedIn profile to show I was starting at Zenefits, I got pinged by several people who said, ‘I can’t believe you went there! Are you crazy?!’” she says. “Folks were very curious as to why I would make a leap like this.”
But Wakamoto-Lee says she knows a good thing when she sees one.
“I went from a five-minute commute to a cushy office right by my house to an hour-and-a-half commute into San Francisco because I knew this would be a once-in-a-lifetime opportunity,” she says. “There was no such thing as a tech startup in benefits.”
And, she concedes, “It was scary. I’ve taken the last 20 years to build my reputation in the Bay area as a broker and a consultant in the benefits arena, and I had to think, am I willing to risk that?”
She’s happy with the decision she made, though.
“Folks like me who come from the traditional benefits brokerage world and bring our experience with us are extremely valued here,” she says. “I definitely spend less time on the phone having to deal with day-to-day employee-level issues because we have an entire support team that does that. One of the pieces that I didn’t enjoy as much as a traditional broker was having to follow up on employee-level issues that would sometimes take time away from working with my clients on the bigger picture, but I knew I had to do that because employees were important to them. I have a whole team now, and I can tell a client, ‘Your employee can get way more personal attention, one-on-one, with our support team, than I could give.’ And that frees me up to work on a client level.”
She also says that one of the biggest myths she hears about Zenefits is that they don’t have consulting resources for clients.
“We do know what we’re doing here,” she asserts, “and because we know what we’re doing, we’re attracting more and more folks who understand that, yes, we are a tech startup, and our platform is amazing, but we definitely do consult for our clients, too.
“I’m able to focus on what I love to do best, which is consulting with my clients and helping them finding a viable solution to whatever problem they have in the benefits they’re offering their employees – whether it’s cost or plan design or recruiting and retaining employees,” she continues. “I’m able to do that because the day-to-day, administrative headache side – I don’t have to do that. We have a whole area of the company that’s structured to take those things off my plate so I can work with more clients and do it better. I can download information straight out of our portal to analyze, pull apart and put back together to be able to present to clients.”
Conrad says that the benefits advisor position is one of the most crucial in his company, given the focus on client service, and that many of his advisors express similar sentiments.
“Most of the folks in the benefits industry got into this business because we wanted to help clients, to advise them and to be a trusted consultant and advisor around these difficult decisions that are genuinely confusing and complex, what plans to choose and how to structure benefits,” he notes. “But most brokers — that’s not what they’re doing most of the time. That’s maybe 5 percent to 10 percent of your time. Most of your time, you’re dealing with a twisted legacy of paperwork and antiquated technology and poor systems that have been left to us as an industry of producers and insurance agents.
“If you look at the people who are benefits advisors at Zenefits — they don’t spend any of their time on that because the software handles it automatically,” he adds. “They can spend 100 percent of their days being trusted advisors to their clients around these difficult issues, which is why they got into the industry in the first place.”