Don’t get caught in the benefits technology arms race

When I started in the benefits technology business in 1997 I was given some advice: “You can’t win or stop a technology war.”

It was only a few months later that I saw my first demonstration of an online benefits enrollment system on a 28.8 dial-up modem. It was a nice system, but it was painfully slow. It was also the first time a sales rep gave me the pitch that if brokers would give their system away the brokers would have a competitive advantage. “Sign up with me and you will get business easily” was the claim.

Here we are 17 years later and just the other day a broker told me how he was paying a technology vendor $1,000 a month for the right to sell their system, only to find that it really was not a differentiator.

Websites

The arms race really picked up from 2001-2006 when benefit websites became the new thing to “give away.” Benefit websites were easier and cheaper, so everyone could easily buy them and build them. Some brokers were paying in excess of $100,000 a year for websites when similar solutions were available for less than $10,000. It didn’t matter. If a broker could save or win business with some solution it was worth it. It was easy, so everyone did it — until everyone had them and websites no longer helped brokers get new business.

Also see: “Why the Utah Insurance Dept. is wrong about Zenefits.”

Some vendors would make the pitch, “If you don’t partner with me I will sign up your competitor around the corner and you will lose.” Others promised to limit the number of brokers per market until the limit kept on growing and growing until every broker in the market had the same thing. So what the brokers thought they paid for — a competitive advantage — wasn’t different after all.

What was interesting about the whole benefit website trend was nobody was asking for benefit websites. And after the brokers built them, few employees used them. The reason why is because few people use their benefits in a given year in a way where they would need to look up some information on the Web. So the money was spent, the websites built, only to be taken down after years of payments and little utilization. Some brokers did get clients from a fancy website. Imagine losing a $30,000 revenue client to a website that nobody used that had a street value of $500 a year. It was an uneducated market back then.

Enrollment systems

The arms race continued though. Next in line were benefits enrollment systems that started taking off in 2006. The bar was raised. These systems are more expensive and more complex than content websites. They do have greater value and people do use them. But brokers were spending much more money and dedicating more internal resources to compete with other brokers. It has become expensive.

Last year, there was a sprint to have pay-or-play calculators, with brokers racing to get their press releases out that they had one. Imagine a press release to announce that you essentially had a nice Excel spreadsheet.

Also see: “Aetna buys bswift: Why benefit brokers must pay attention.”

And now we have private exchanges. Brokers are once again spending tens of thousands of dollars for something we aren’t sure many people want. Let me give you some advice here. You can get access to three private exchanges for less than $5,000. I put in a private exchange for an employer in 48 hours with a few phone calls and no upfront spend on technology. I don’t really know what a private exchange is, but I do have three of them.

How to keep up

Now you have a firm like Zenefits “giving away” what is essentially an HR and benefits system with onboarding capabilities. They weren’t the first to give away something beyond benefits. But they are marketing this like crazy. And the technology arms race continues with brokers looking to offer what Zenefits is offering.

The vendors do make some big promises. I had one sales rep tell me he had the best enrollment system in the market. I told him to look in my parking lot and tell me how many Ferraris were out there. Everyone doesn’t buy the best. And we all know that six months from now someone will be better.

Also see: “Benefit agencies plan tech spending spree.”

So what should a broker do? Here are a few guiding principles:

• You need to understand the market so that you feel secure with your strategy and decisions. If you don’t know the market you will fall for some sales pitch that does not improve your position in the market.
• Understand you can’t win or stop the technology. Whatever you have today won’t be the leader in six months.
• The technology will be the commodity in the end. Enrollment systems are already all looking alike.
• You can make a difference by improving your services around the technology. You are there to help the client, not to be some technology vendor.
• Recognize everybody doesn’t buy the best. So don’t keep looking for the diamond in the rough. You will find more rough than diamonds.
• Cheap is often cheap. So if you can afford to give it to everyone it probably isn’t that good.
• Don’t hitch your wagon to the wrong horse. I have had brokers tell me, “I have a three-year contract with this vendor, so I am all set.” The market doesn’t care what you bought or if you made a bad purchase decision. You don’t want to be going to the market with yesterday’s idea or a bad solution.
• Employers have different needs. They all don’t buy the same health insurance and they all won’t buy or want the same technology.

This benefits technology arms race is fueled by a benefit broker’s desire to have something different or the latest and greatest of something. Many are looking to buy a competitive advantage. The vendors know this and pit broker against broker. Don’t buy it. The vendors call on everybody. They have to or they won’t survive. There are better ways to differentiate your business from others, but the technology deal from some vendor is not it. As I have stated in the past, if you want to be different and create something great, start looking on the inside and not out.
Markland is president of HR Technology Advisors, LLC. Reach him at jmarkland@hrtadvisors.com.