In the past 18-24 months, a great deal of money, time and attention has been given to the concept of private benefit exchanges. The reality is that up to this point, PBEs have not lived up to their initial growth expectations or hype. Employers have not yet embraced them at the rate they were expected.
So now what? Are private benefit exchanges still something a broker/consultant and their clients should be concerned about or plan for?
As Bill Gates famously said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don't let yourself be lulled into inaction.”
Whether called an exchange or something else delivering similar functionality, these technology-enabled benefit services platforms are certain to expand. While the term exchange is used loosely and often means different things to different people, I believe it is important to keep these five things in mind as you consider the future:
1) Know what private benefit exchanges do. Typically, exchanges provide some combination of the following services. These services are evolving and vary from exchange to exchange.
- Provide a marketplace for employees to choose benefits. A PBE may or may not be supported by a defined contribution model. Plans offered in a PBE include medical, ancillary and voluntary plans, and the scope of services continue to grow.
- Decision support and enrollment functionality. Maintain a place for employees to learn about the offerings and sign up. Education and decision-support sophistication vary greatly.
- Benefits administration. Ongoing management of benefit eligibility, enrollment status, premium reconciliation and plan structures.
- Compliance support. Support increasing complexity and regulatory requirements of our business. PBEs that support ACA compliance requirements generate considerable interest.
- Analytics, reporting and insight. Because PBEs often function as a transaction hub, they offer the potential for real-time reporting and long-term analysis of data not previously possible.
- Evolving services: Payroll, onboarding, care management, retirement services … the list is growing.
2) Know how exchanges provide value. As more than one industry professional has observed, many of the things private benefit exchanges do are already available in the marketplace. Are PBEs then just a marketing idea and a repackaging of existing services?
An exchange adds value in the integration of disparate services through technology. While an employer or their broker/consultant could “assemble” a similar suite of services, it is unlikely they could do it in an equally integrated or cost-efficient way. This integration is valuable and offers many consolidation and cost-saving opportunities.
3) Know that technology enables, and it will be expected. As we have all seen, technology and the mobile power in our pockets allows amazing things to happen. (The computing power of an iPhone 6 is millions of times more powerful than much of the technology used by the Apollo moon landing missions.)
In addition, future generations of the American workforce (millennials now outnumber baby boomers) will expect technology solutions, including from their employer. An employer who does not leverage these tools will likely suffer from a culture struggling to stay relevant to its employees.
4) Know why the money keeps flowing. Industry players such as PlanSource and Connecture raised $70 million and $52 million, respectively, in the past several months. Although not necessarily marketing itself as an exchange, Zenefits also raised more than $500 million in its third round of financing in 2015.
You may be wondering why such money continues to flow into a business sector that seems to not be delivering on expectations.
The answer is that ours is a fragmented business. The list of entities providing benefit/HR/operations services to an employer and its employees can be long. This is exactly the kind of industry that venture capital and private equity money is looking to invest in. The opportunity to disrupt existing channels and integrate using technology has played out in other industries like Uber and Amazon and investors see the parallel.
5) Exchanges are evolving, should you? There is good news for brokers and consultants who embrace and include technology-based solutions as a part of their value propositions. After all, which is more realistic to develop quickly and be successful? That a technology start up develops the insurance business acumen to be able serve clients in a way that usurps your years of experience and undermines our relationships with clients? Or, that insurance professionals embrace and integrate technology to better serve our clients?
I believe it’s the latter, and the bottom line is that as insurance professionals, we have a huge advantage if we chose to take advantage. Don’t get caught with your head in the sand. It may not be happening as fast as predicted, but PBEs and similar services are not going away anytime soon.
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