A Closer Look at Benefits Administration in H1 2012: Part 1

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Earlier this year, I wrote a two part blog about how the benefits administration market was poised for a good year. Part 1 highlighted Q1 earnings results and part 2 focused on other signs indicating success such as acquisitions, hiring, and surveys.

Halfway through the year, signs are still indicating that 2012 will be a solid year for many benefits administration service providers.

 Aon Hewitt: For Q2, its Outsourcing segment reported organic revenue growth for the third consecutive quarter. In fact, the 6% reported was the company’s highest organic revenue growth rate for Outsourcing in several years. While Outsourcing revenues consist of more than just benefits administration, much of its growth was for benefits-related point services such as dependent eligibility audits. Its active employee exchange is set to be launched in Q4, which will begin to realize revenues in 2013.

Towers Watson: Towers Watson’s Benefits segment has been consist with positive organic revenue growth beyond the last four quarters. It’s Technology and Administrative Solutions segment revenues grew mid-single digits for the period ending June 30th and its pipeline is very healthy. The company’s Exchange Solutions segment, which was created after the acquisition of Extend Health, has had strong sales with a record number of participants enrolling, exceeding the 30% previously forecasted.

Mercer: Organic revenues for Mercer’s Outsourcing segment had another positive quarter, but were lower than reported in Q1. The suite of health care exchanges it launched earlier this year, which includes a retiree medical exchange, is expected to have ~500,000 employees enrolled across all three exchanges in 2013. 

Morneau Shepell: Canadian-headquartered Morneau Shepell has reported double-digit revenue growth for the last four consecutive quarters. In Q2, its pension and benefits outsourcing segment, which makes up ~25% of its revenues, had the largest contribution along with its health management business. Its growth is from new client wins, and its acquisition of SBC Systems has led to new business in the U.S.

According to the NelsonHall HR Outsourcing Market Forecast: 2012 – 2016, the projected growth rate for the benefits administration service line is modest compared to areas still experiencing rapid growth like RPO. Since benefits administration is the largest revenue generator in HRO, even moderate single-digit growth will add billions more to its total.

Later this week, look for more benefits administration mid-year updates from TRO and H&W service providers in Part 2.

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