Achieving Zen with employee benefits: The broker’s changing journey

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Just as our industry began to understand the post-Affordable Care Act competitive landscape, another disruptive force has appeared. It shines the light of innovation into a corner that has been overlooked: integrated software that brings together human capital management and benefits for small- and mid-sized employers. By offering “free” HR and benefits/administration software in exchange for becoming the broker-of-record, Zenefits has catapulted into an emerging force in the benefits market only two years after the startup was established.

It’s been fascinating to watch the rapid ascent of this tech company. While we’ve been up to our elbows helping clients navigate the morass of ACA, we didn’t prioritize a pressing need for technology that creates greater efficiencies. When you work hard and achieve a winning performance, it’s difficult to watch someone else walk on stage and become the center of attention. This new company saw a gap, created a software product to address it, and deserves recognition for being first to market with a new story and relevant solution.

Despite this advancement, today’s marketplace is far from approaching a Zen-like state. Clients now want the shiny new stuff, yet still require the deep expertise seasoned advisers provide. Currently, no one offers both sides of this equation to small- and mid-sized employers. I can almost hear the cries of many of my colleagues in the benefits industry saying, “but we can.” To that I would suggest, “Not in a way that is both scalable, affordable and available down market.” Essentially, a new opportunity has emerged, and we have entered another inflection point in an era of change. What each of us does next could very well determine our long-term destiny.

No time to nod off

It’s important to acknowledge the conceptual shift being created by Zenefits’ presence. Many employers presented with this value proposition are now linking software to the benefits equation as a core competency. It’s also wise to recognize what Zenefits currently is and — due to massive capitalization — what they have the ability to become. Today, it is a software enterprise with a solution that partially solves efficiency problems our industry has “under-clubbed.” Because we’ve failed to see past the borders we use to define ourselves (“We’re not in the technology business”), we missed an opportunity. This does not mean we don’t leverage software in various silos. It does mean, however, that we have viewed this as an add-on feature, not a core service deliverable.

Also see: "Has Zenefits raised the bar again for brokers with its free compliance tool?"

It is also true that Zenefits currently is a relatively ineffectual benefit adviser. That will more than likely change. There is a temporary misalignment in the marketplace. During this interim period while they build their advising capabilities, our job is to develop competitive software or align with partners who offer these services. This is not an insignificant challenge for the SMB market segment. Our firm has been immersed in this strategic decision for more than 12 months. Do any traditional benefits/administration solutions work under 100 lives? Can they expand to include human capital management, time and attendance? Can old software built years ago address the needs for configurability and ease of implementation requirements to drive adoption in volume? Can we actually be in the software business — which is probably the exact opposite question Zenefits is asking these days. When I look into my crystal ball, I see executives in their planning sessions asking, “Can we actually deliver the scope of advisory services like the firms we are trying to replace?”

Shiny toy syndrome

As an industry, the first thing we need to do is to remind and educate clients about the value an experienced local adviser delivers, versus the perceived value of free software. There is remarkable allure in getting something at no charge, particularly if it simplifies cumbersome tasks and creates more efficiency for time-constrained HR personnel.

Besides brokering benefits, we are often stewards of complex financial, legal, compliance and HR issues on behalf of our clients. Do they realize the extent of our efforts and expertise? If they think of us as simply brokers involved in procurement of insurance products rather than advisers, we are in trouble. The light reflecting off of the shiny new toy could be blinding some of them. In our own firm, we have lost eight clients to this phenomenon. Notably, half of them have already returned. Now that this “syndrome” has our attention, it’s up to us to prevent it from occurring with others.

If we put a price tag on our services, the average company “spends” about $800 per employee per month, which is paid in the form of a premium to the carrier. Of this, about $30 per month is paid to the adviser for myriad services — not the least of which is controlling the premium spend. Whether a client continues using the same firm or signs the brokerage agreement over to a new agency, this cost generally does not change.

The discussion about value should concentrate on what employers actually get for these dollars and, more importantly, what they lose. The newest player in the market has changed the focus to the capabilities of a software system, which may equate to a $2 per employee, per month to “give away.” While something of apparent value is gained, something of greater value is lost.

Also see: "'Zenefits has crossed the line.'"

It is essential that advisers get out in front of this issue with clients. With the capital that Zenefits has raised and with what I am sure is more to follow, they will be calling our clients and attempting to control the narrative as it relates to software and what is missing from their current broker’s tool box. Software is still software and cannot come close to replacing a top- tier adviser.

Our company has come to the conclusion that we must invest in delivering a “Zenefits-type” solution to our clients. This means we also have to align with a new entrant in the space that has state-of-the-art technology to handle SMB employers. In addition, we need software optionality via software partners to address larger clients, as they may have a very different set of needs.

You’re in the race, so get moving

Make no mistake, Zenefits is not going away, and they will not be the only player introducing software to employers to address human capital management issues linked to benefits management. They will not be the only firm to try and grab our well-earned compensation to pay for their “free” software and services. And, they will become a better broker — one hire at a time — or make a major acquisition to solve for what is a clear deficiency at this point. Finally, they will move at a pace that well-capitalized Silicon Valley funded tech “unicorns” do.

A segment of leading firms in our industry will do the same, but this will only happen with those that have the capital to invest in building or buying. This is not about exclusively managing a software vendor relationship. This is about being a leading adviser who makes a significant investment to deliver software head-to-head with Zenefits and others. Here is what a 30-year insurance guy has learned after being immersed in this issue for a year: Software has come so far in even the past two years, that replicating what Zenefits has put together can be done in months — not years. The real issue remains: implementation costs and the work related to integrating with antiquated carriers. Watch the continued flow of capital into technology investments being made by brokers and vendors in this space.  

Also see: "Zenefits alternative gets broker endorsement."

So, the race is on! Can Zenefits become a capable adviser before we deploy innovative software solutions that solve clear pain points for employers? The task at hand now is can we play offense the same way they have without access to similar levels of capital? While it will be a different approach, it can be successful. It seems Zenefits needs to grow at 300%-400% a year to justify a $5 billion market cap. With this backdrop, employee benefit firms need to determine what organic growth rate is necessary to continue to be viable players, because growth will be essential for continued investment in software and solutions.

Our industry should be impressed with the Zenefits phenomenon, not cry foul. Their initial success highlights a vulnerability in our approach to business. Until the playing field becomes more equalized, it is incumbent upon all of us to make clients aware of our strengths and the competition’s inherent deficits. Beginning with ACA and now with the emergence of Zenefits, our industry has been forced to change from A to Z. The good news is that whatever action we take, we will be in an even better position to serve the ever-changing needs of employers.

Sullivan is chief growth officer, Digital Insurance and Digital Benefit Advisors. Reach him at


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