This past week there were two press releases related to the benefits brokerage business that were fairly significant. One of them was picked up by the industry publications, generated some kudos on LinkedIn, and created some noise in the benefits community. Brokers were talking about it and many emailed me or called me to see what I thought.
The other one went mostly unnoticed in the benefits world. The industry pubs didn’t pick it up and I did not get a single phone call asking my opinion. Yet, from my perspective, the second press release will have a greater impact on the average benefits broker than the first.
This contrast made me think of a quote I keep on my wall that reminds me to not be complacent. It is from Jim Keyes, the former CEO of Blockbuster Video, who once said:
“Neither RedBox nor Netflix are even on the radar screen in terms of competition,” he said. “It’s more Wal-Mart and Apple.”
We all know how that turned out.
The first press release announced the merger of 20+ benefits firms, many who I know. While this is noteworthy, I am not sure that the world is any different today because of it. Yesterday they were wearing one uniform and today they are wearing another. They are the same people, in the same locations, and until there is some other new big announcement they are probably doing pretty much the same thing today that they were doing yesterday.
From a competitive standpoint, I am pretty sure this event won’t change the landscape much. Most brokers are already competing with larger firms that use their size and resources as their competitive advantage. Some brokers may even think this is good for them competitively because their market just lost another boutique firm and the competition of local boutique firms just got smaller. In reality, not much has changed until someone brings something new to the market.
The second press release was from a company called Namely. Namely raised an additional $50 million in capital bringing their total capital raise to $157.8 million. (Source: Venture Beat January 5, 2017) Concurrently, Namely also announced the following:
“Namely also announced today a new benefits offering called the Namely Health Advantage, which groups together similar companies to offer their employees health benefits at preferred rates.”
What makes this significant is that Namely has brought something new to the market. They have developed an engaging HR-Benefits-Payroll platform promising simplicity and ease of use. They also act as a benefits broker, creating a single source technology and service offering to employers. And as can be seen from the quote above, they created a new health insurance offering for their clients.
Namely claims to have 650 clients totaling 120,000 employees which would be an average client size of around 185 employees. Unlike companies like Zenefits, that targets much smaller employers (< 50 employees), Namely targets mid-market employers ranging from 100 – 1000 employees. From a competitive standpoint, this is the sweet spot for many benefits firms.
If you do the math and assume they are generating revenue at a $25 per employee per month rate, then their annual revenue would be in the range of $36 million. This is a real rough guess. Even if I am off by $10 million it would not be bad for a company that was founded in 2012. That would make them one of the fastest growing benefits brokers in the country. Though I am sure they would not classify themselves as such.
In 2015 there was $2.4 billion invested in HR Technology type companies. And as one industry analyst said, “Do you know what they will do with that money in 2016 and 2017”? Spend it. They will spend it on marketing and sales. They will have Ads on LinkedIn and Google. They will be at all the HR trade shows. They will be everywhere marketing to your customers and prospects. Namely has even had TV commercials on Fox News. I don’t see many brokers advertising on TV.
I could imagine asking the average benefits broker about their competition and it would not surprise me if they responded as follows:
“Neither Namely nor Zenefits are even on the radar screen in terms of competition,” he said. “It’s more Gallagher, Mercer, and USI.”
You may not have recognized this competition yet. Many brokers say they never lost a case to Namely or similar companies. What they don’t know is how many prospects they lost to these firms. How many employers looking for solutions found Namely but did not find you? How many prospects would respond to their value proposition versus yours? Do you even know what their value proposition is?
There is a way to meet and beat this new competition. But is takes work, planning, investment, and risk taking. Or maybe these firms are really nothing to worry about. Ask Jim Keyes what he thinks.
It’s a Saturday night and I should go. I could end this article by saying I am going to be watching a movie on Netflix tonight but playoff football is on, and anyone who knows me would know I am lying. But if you want to learn about these new competitors and what you can do to compete with them, check out our latest webinar titled, “The Future of Human Capital Management and Benefits” by clicking on this link.