Countdown to Innovation: Employee Benefits & InsurTech
December 17, 2018 at 12:00 AM
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There is a favorite TED Talk of mine by Jeremy Gutsche that I’ve been using as an ice-breaker since college. It has become the subject of many a business lunch with carrier reps and client solution conversations. In opening his talk, Jeremy poses a question to a crowd of enlightened, entrepreneurial types: “Guess the company that’s missing from the blank: ______ has been turning creative ideas into breakthroughs for well over a century’

“Apple,” shouted one. “Microsoft,” chimed in another.

Wrong.

He encourages the crowd by listing the mystery company’s achievements:

  • Invented grammar checkers
  • Invented electronic dictionaries
  • Invented PDA’s in 1994

“Webster!” was heard. ‘IBM!” exclaimed another. Ready for the hook, line and sinker? The name of this highly innovative company is none other than Smith-Corona: “The greatest type writer company in the world”. Quick Snapple fact: Smith-Corona, a company that owned, disrupted and conquered the enormous typewriter industry of years past is no longer in business.

My little anecdote elicits a quick chuckle and the real conversation begins: industry innovation. 

The Landscape

The benefits business is booming. The Health Insurance industry is worth $785B and has been growing at 2.3% annually for the past 5 years. The numbers are even higher according to other industry statisticians. In one of the world’s oldest businesses, do we really wonder why the carriers aren’t jumping on the innovation bandwagon? That’s a lot of billions to risk by introducing pesky ideas like innovation to the market. CVS & Aetna found a solution to rebellious solutions and looming market share threats with their highly romanticized merger. Their stylish PR campaign would lead consumers to believe that the merger is a magnanimous gift to the world of Health and Benefits. This merger was designed to consolidate resources and create solutions for consumers.

Preposterous. 

Monopolizing the already wounded health market reduces competition and boxes the consumer into accepting available pricing on the market. The two health industry juggernauts joined reactively to shield themselves from nascent solutions that possess a nimbleness to carve out niche markets within the Health & Benefits galaxy.

Employers, following individuals, are the largest group of healthcare consumers in the United States. Employers know that healthcare costs are rising. The importance of differentiating themselves as employers by providing competitive Benefits is also rising. But that COST! In my previous article, I shared a sobering statistic: 30% of employee wages are paid as a contribution towards their Benefits. Benefits are an unavoidable cost. 4 in 5 US workers value benefits just as much as they value salary. Benefits spending isn’t going anywhere, but it doesn’t need to be so painful.

The major carriers aren’t creating new value propositions for employers, so who is? 

Bus stops, dinner tables and boardrooms across the country have joined the health insurance conversation. “Greed is the culprit here!” one will say. “No, corporate irrationality is behind this chaos” erupts another. You’re both wrong, it’s government policy forcing these conditions” – sound familiar? Capitalism at its finest: cash in on lemonade while you’re the only lemonade stand on Main St. To the large Insurance carriers, it’s business as usual. 

I know what you’re thinking, I’m a cynic, an “apologist”, I’m one of them but I’m not. Employee Benefits aren’t as simple as lemonade stands. Let’s use rebellious New York as an example of who’s challenging the status quo.

Health Republic emerged to challenge the big carriers in the early 2000’s. Welcomed by employers and brokers alike for introducing lower premiums and justifiable plan designs. Finally some relief! They went belly up in 2015. Cannibalizing their own claims reserve funding. 

That didn’t stop resilient insurance innovators from confronting carriers and taking on the group health market. Along came Careconnect and the spirited Alan Murray who threw lavish health broker events around New York City (the hors d’oeuvres were fabulous) declaring that Careconnect was preparing to take the Benefits world by storm. They were backed by a major hospital for Pete’s Sake! These guys had the actuaries and partnership to make it happen. Sure. Was anyone surprised by their exit this year? Are we doomed? No.

The key takeaway from these examples is that in Health & Benefits arena the “If you can’t beat em’ join em” approach doesn’t work. Careconnect and Health Republic just behaved like younger, nimbler versions of the major carriers. The intention was golden, but the execution was not sustainable when stacked against the established carriers. The would-be coup d’état was squashed like a New York cockroach.

The Employee Benefits Pegasus of every emergent business has always been the trusty Employee Benefits Consultant. Strategy, planning, expertise, creativity. The consultant will shield you, they work on your behalf, they are incentivized to navigate the world of health insurance (among other things) for your employee population and allow HR to focus energies on other areas of the human capital balance sheet. They have weathered the storm with you when the Carriers bob and weave between small and large group markets. The Consultant is with you when you have 7 days to prepare an Open Enrollment presentation for employees in 5 states. They pull the ace from up their sleeve when facing a 25% renewal and educate you on that newfangled Level-Funded product, or how to legally class your employees so that you can take the edge off the contribution spend over the next 5 years. Let the insurance companies remain complicated and archaic. The Consultant is the diplomat to world of Employee Benefits and Insurance who returns full of solutions. ACA didn’t stand a chance against a well-equipped Benefits Consultant!

The value and guidance Benefits Consultants bring to the industry are in no danger of becoming an endangered species, but the way they deliver solutions is another story.

Enter InsurTech

Start-ups around the nation have been evolving and infiltrating the $1T commercial insurance industry and threatening the business models of the incumbents. Startups like Lemonade, Embroker and EverQuote have the traditional carriers and brokers racing to the finish line of commercial InsurTech solutions. Will the disruptors continue gaining traction and scale distribution or will the incumbents prove agile enough to provide innovation to their existing customers?

Benefits Consultants have been paying attention to the developments on the other side of the insurance universe and investing more in broker technology solutions like Zywave, Dynamis and Benefitpoint. The transactional benefits broker is obsolete. To remain competitive and offer an improved value proposition to employers the broker has evolved into a consultant and a business partner. But even the most modern consultants are now competing with groundbreaking employer facing Benefits solutions.  Are InsurTech start-ups soon going to be discussing the ancient fossils of Brokers the way Expedia recalls travel agents? Not if you pay attention to the Benefits Industry celebrity of celebrities: Zenefits. Zenefits capitalized on the InsurTech trend like a Phoenix. 

Founded in 2013, Zenefits was the first-to-market cloud based benefits broker. Zenefits electrified the brokerage community propelling to a $4.25 billion valuation at its peak in 2016. Sleepy brokerage firms operating within the SMB (Small & Mid-Sized Business) space were caught off guard by the fierce contender offering cloud based benefits consultation and digital HR support to their clients nationally. The defense came swiftly from established Benefits firms who cooperated with the state insurance boards to pressure Zenefits into scaling back. Banned from two states and facing hefty compliance fines, Zenefits CEO Jay Fulcher announced during the 4th quarter of 2017 “Our focus is on being a SaaS company and not a broker”. They further announced migrating their brokerage piece to Atlanta based Employee Benefits firm One Digital. 

Not as easy as selling auto policies is it? But what was a doleful retreat by Zenefits served as a valuable lesson to other emerging Benefits industry disruptors.

Namely entered the Benefits game in 2015 as it continued to ascend within the HRIS space. With no end in sight, as of 2017 “Namely now serves over 1,000 exciting mid-sized companies and 150,000 employees!”. They are quickly becoming the envy of not only benefits brokers but HR management software coast to coast.

Gusto also decided to take the offensive on employee benefits InsurTech by expanding outside its former role as a cloud based payroll provider known as Zen Payroll. It is now actively competing for Broker of Record (BOR) letters.

Justworks is a trending benefits partner and PEO provider that has been steadily gaining steam especially capitalizing on Zenefits exit from the market by emphasizing that it can provide their demographic a relative price-point

Insperity may be new to some but it emerged from its former identity, Administaff, to gain an edge within the InsurTech space and compete for online benefits business. Insperity like others entered the benefits space as a PEO having roots in payroll and HR software. It is now a leading PEO and HR software system in the cloud.

Oscar Health quickly exploited the lessons left behind by Health Republic and CareConnect by creating a new age, member focused, digital health insurance platform. Gone are the days of hieroglyphic Explanation of Benefits (EOB) and endless member services hotline prompts. Oscar features app based, on demand care guides who you can Instant Message and features a tool that allows members to estimate cost for care and suggested ways to save within your plan right from their iPhone X.

These are just a few honorable mentions within the Employee Benefits InsurTech space. The disruptors continue to grow and Venture Capitalists are pumping big bucks into the development of the InsurTech solutions of tomorrow and there’s a major stake in it for all players who sit at the round table of Benefits. 

The Future

The life cycle of business is innovation is predictable. Innovation > Creation > Disruption > Crowding > Consolidation. In the 3rd Quarter of 2017 nearly $25M was raised by VC’s interested in developing technology in the space. Further, a number of business incubators and accelerators have emerged around the country eager to add InsurTech to their investment portfolios. The numbers are ominous for traditional brokers.

However, many traditional brokers scoff at such advances and use examples like Zenefits and Careconnect to illustrate the superiority of their business model even as their market share continues to slip. Regardless of such criticism the appetite for InsurTech within the Employee Benefits sector remains ravenous. The Oscar Healths and Namelys of the world are brave enough to assume the risk of operating within a relatively new Blue Ocean marketplace. Blue Ocean risks can later become rewarded by Red Ocean Presence. We’ve all heard the urban legend of how Netflix was founded by a disgruntled movie renter who decided to take on a $16B movie rental industry with his mail order distribution model and was laughed out of then industry king Blockbuster Video’s offices. Benefits purists, beware.

As the American workforce continues to be dominated by more and more millennials who grew up as tech natives, InsurTech solutions will soon become a requirement rather than an alternative. The evolving solutions are solving the some of the primary issues faced by small businesses when choosing a Benefits Consultant:

  • The ability to scale the cloud as the client scales
  • Increasing the productivity of a client’s HR Department
  • Increasing client profitability in the face of rising Benefits costs
  • Refining how decision are made over insurance products
  • Higher quality data management, presentation and reporting
  • Increasing Employee Benefits transparency
  • Improving organization of Benefits policy
  • Reducing time spent on Employee Benefits administration
  • A turnkey integration for HRIS/HCM, payroll and time tracking systems
  • Identifying and eliminating Benefits inefficiencies automatically
  • Eliminating the errors and time consumed by paper processing
  • Automating Benefits budgets
  • Measuring the ROI from partnering with Benefits Partners & Consultants

To the credit of the well-established brokerage houses, InsurTech is not yet comprehensive and faces its own set of challenges as the market is still in it’s infancy. The more astute Benefits firms are aware of this and happy to fill the closing divide by pointing out the gaps:

  • Data Security
  • The learning curve associated with integrating new systems & partnerships
  • Existing workflow that doesn’t immediately translate onto new platforms
  • Creating a way for multiple vendors to communicate data in one place
  • Software upgrades that disrupt information
  • An imperfect system of Benefits automation
  • Receiving up to date compliance that adhere to current Benefits & Employment Laws
  • A lack of data supporting sustainability of the technology they provide
  • Exit barriers to new or superior solutions

There is a lot riding on the improvement of Employee Benefits InsurTech whether you are a broker, employer, carrier, consultant or HR Professional.  It is only a matter of time before the miscalculations of developing technology vanish. As aware as the established brokerage firms are of the mounting competition is as zealous as the disruptors are to meet the demands of the market and improve their software. The story doesn’t begin and end with Zenefits. 

As the war for market share and Employee Benefits solutions continues to rage, make sure to partner with your trusted partner to navigate the opportunities ahead.

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