Highlights and Trends in the HRO Market for H1 2013: Part 2

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Last week, I zeroed in on specific market activity within the payroll, learning and RPO service lines. This week, I’ll take a closer look at H1 2013 activity within benefits administration and MPHRO as well as provide some insights on what to expect in H2 2013 based on NelsonHall’s recent HRO Confidence Index.

Benefits Administration

Contract signings aside, there has been a plethora of activity within benefits administration in H1 2013, including:

• New offerings:
  • Mercer launched a private benefits exchange, Mercer Marketplace
  • Buck Consultants launched an automatic enrollment offering in the U.K.
  • Secova launched a Coordination of Benefits (COB) audit offering to coordinate benefits with insurance carriers
• Acquisitions: Wageworks acquired Crosby Benefit Systems and Benefit Concepts to strengthen its H&W administration offering, including reimbursement account and COBRA administration
• Partnerships:
  • Fidelity partnered with Extend Health, a Towers Watson company, to provide retiree healthcare services
  • JLT Employee Benefits partnered with Vielife for health and wellbeing services in the U.K.
• New technologies:
  • Xerox launched an account-based benefits portal, BenefitWallet, to assist with managing multiple health accounts on one platform, including HSAs, HRAs, FSAs, HIAs (health/wellness incentive accounts) and other specialized services
  • Aon Hewitt launched an absence management tool, 360 Absence Solutions, to help clients manage absence-related costs, compliance risks, the administrative burden and lost productivity
• Educational resources:
  • Mercer and ADP both launched websites to provide information on healthcare reform
  • Ceridian launched an auto-enrollment knowledge center in the U.K.

MPHRO

In recent years, the MPHRO market has been relatively quiet in terms of contract announcements and H1 2013 was no exception. However, my last MPHRO research study, published in February 2013, revealed that the market is very much alive with new wins and contract renewals from all the major vendors, including IBM and Accenture. In fact, IBM recently won a new seven-year, multi-country MPHRO contract, which was bundled with F&A outsourcing services. Other wins include ADP and Marriott Vacations Worldwide for core HR, payroll, time & labor management and talent management covering ~9.2k employees.

Many vendors have been focused on their strategies for expansion, including Aon Hewitt with its acquisition of OmniPoint Workday Services. Although still early, NelsonHall expects ADP to make inroads in LATAM with its MPHRO services since it added RPO capabilities in this region from its acquisition of The RightThing and now expands its payroll footprint from the Payroll S.A. acquisition.

H2 2013

So what does the rest of the year have in store? NelsonHall’s recent HRO Confidence Index survey finds that overall expectations for HRO revenue growth remain at the same level as those reported for the last five quarters; with payroll leading followed by RPO. Top industry sectors for HRO services include healthcare, pharmaceuticals and high-tech. By geography, vendors have reported increased confidence for revenue growth in Central and Eastern Europe and Central and Latin America.

Needless to say, it will be interesting to see how the rest of the year unfolds for HRO.

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A Closer Look at Benefits Administration in H1 2012: Part 2

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Part 1 of my mid-year benefits administration update covered several of the largest service providers, typically engaged in TBO services. Part 2 takes a closer look at TRO providers and updates from H&W vendors.

Fidelity Investments: Although it is a private corporation, from time to time Fidelity announces some of its success. H1 2012 was the company’s strongest half sales period in the last five years. It added 838 new DC administration clients, which will add ~522k participants to the ~15.7m it is currently serving. Fidelity has made substantial investments to strengthen its offering that will likely continue to fuel its success.

T. Rowe Price: While not as large as Fidelity, T. Rowe’s Administrative segment continues to report a steady growth rate of 3%. It prides itself on a long tenure rate with its clients and has plans to keep its offering competitive by introducing technological enhancements such as the T. Rowe Price Personal App for individuals and participants in employer-sponsored retirement plans.

JLT: Across the pond, JLT’s Employee Benefits segment, which includes revenues from consulting, outsourcing, and systems / technology, had a 5% growth rate in H1 2012. BenPal, its online integrated platform, is helping the company expand its benefits business internationally, which is likely to continue to have a positive effect on its bottom line.

Benefits providers in the U.K., the second largest benefits administration market behind the U.S. according to the 2012 Targeting Benefits Administration market analysis report, should also enjoy better than average growth due to new opportunities as a result of the automatic enrollment requirement of the Pensions Act of 2008 as well as opportunities in the public sector as budget concerns open doors to outsourcing assistance.

WageWorks: Newly public WageWorks provides a look into the high-technology SaaS H&W specialty services market of consumer-directed accounts including health (i.e., HRA, FSA, and HSA), commuter, and other employee spending accounts. Total revenues increased 29% y-o-y for Q2; its healthcare segment was up 21%. This year, it added US Airways as a client, expanded its contract with GE, and signed a channel partner agreement with Aflac that will add ~5k FSA clients and ~100k participants. It also entered into a reseller agreement with Aflac, which will continue to boost revenues beyond 2012.

Empyrean Benefit Solutions: Another private company touting its success in the H&W market is Empyrean, which has been offering services since 2007. It has set a record with year-to-date new client wins in H1 2012, adding 10 large market clients. The company is expecting 2012 revenues to increase 40% y-o-y.

Service providers who are slightly behind growth targets for 2012 or those who just want to perform better are prepping to make sure 2013 is a success. For some, this means focusing on health insurance exchanges or launching health and wellness offerings, and for others, it’s about enhancing existing offering with technology improvements and educational initiatives.

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Benefits Administration Poised for a Good Year: Part 2

Earlier this week, I highlighted revenue growth reported by benefits administration service providers. In addition to the positive earnings reported, there are other signs indicating that 2012 will be good to benefits administration including acquisitions, hiring, and surveys.

There have been a few strategic acquisitions that will boost benefits administration revenues for vendors this year. For example, ADP’s benefits administration business will see a nice increase from SHPS, which had annualized revenues of ~$80m. Morneau Shepell’s acquisition of SBC Systems Company will modestly increase its revenues, and more importantly will strengthen the company’s presence in the U.S. Finally and most recently announced is Towers Watson’s acquisition of Extend Health, which will enhance its benefits administration offering by adding exchange services for retirees.

Another positive sign of expected future growth is the hiring of personnel. Towers Watson announced that it will be hiring employees within all of its segments. The benefits segment, specifically, will get an additional 172 employees, 60 of which will be for technology & administration solutions (TAS).

Finally, regardless of the constitutionality of the PPACA, benefits administration will likely flourish as compliance becomes increasingly complex as new regulations are issued or as older ones are amended for other federal laws such as COBRA, HIPAA, FMLA, etc.

A recent study by ADP cites that health care reform and compliance complexity are expected to lead to more benefits administration outsourcing. The survey, which included input from 504 HR and benefits decision makers in the U.S., found that ensuring compliance is one of the top reasons cited for outsourcing benefits administration.

In a recent article, Mercer is also advising employers to act to ensure compliance and to implement cost-control strategies now regardless of health care reform. It recommends the following, which are all dollar signs for benefits administration service providers:

• Managing the cost of dependent coverage, which will strengthen demand for dependent eligibility audits and verifications
• Shifting to CDHPs, which will lead to an increase for reimbursement account administration services including FSAs, HSAs, and HRAs
• Offering cost-competitive health coverage, which will boost demand for private health care exchanges for both active and retired employees
• Encouraging a healthier workforce, which will lead to the implementation of wellness programs (i.e., health assessments, biometric screenings, etc.).

Benefits administration is one of the oldest foundations of HR business process outsourcing and it is also one of the largest segments in revenues and yet it remains vital, adaptive, competitive, and ready for continued growth!

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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ADP’s Meeting of the Minds, not just an Ordinary Event

I attended ADP’s Meeting of the Minds (ADP MOTM) that happened last week March 11 to 14 in Dallas. This was my first time attending, and I didn’t quite know what to expect until I arrived—well, how about ~900 enthusiastic ADP clients. This is an annual event of which ~30% of attendees were first timers.

Sure, there were a few ADP presentations and demonstrations on ADP’s latest products and services, but many of the sessions were not conducted by ADP and were instead facilitated by HR practitioners and clients. Professional development would be a good way to summarize it. As they say, everything is bigger in Texas—how about ~170 sessions that you could attend to learn about everything from Healthcare Reform to Payroll taxes, to RPO, to best practices across a number of services, and functions including shared services, recruiting, change management, etc. There were also hands-on training sessions, of which I attended Learning, part of ADP’s Talent Management.

I could write my entire blog talking about the keynote speaker, Emmitt Smith, and the fun social events, but I’ll shift gears to talk about HRO to keep with our blog focus.

To begin, it’s important to share ADP’s three priorities, as stated by CEO Carlos Rodriguez, that are important to advance ADP as a:

• Technical leader
• Service leader
• Global leader.

Regina Lee, president of ADP’s national and major accounts, GlobalView, and ADP Canada, spoke about four key areas of investments that were made by ADP:

• Integrated Human Capital Management: including Vantage HCM and Workforce Now
• Talent Management: including the integration of performance management, succession planning, and learning. ADP’s talent management platform has over 100 clients
• Benefits Administration and Healthcare Management: having acquired Workscape in 2010 to strengthen ADP’s benefits administration capability, in addition to Workscape’s talent management and compensation capability. On March 8, ADP announced it has entered into an agreement to acquire SHPS Human Resource Solutions (rationale is below)
• HR BPO, including the acquitisition of The RightThing in October 2011 (further details below).

I’ll finish my blog focusing on Benefits Administration and RPO.

The Workscape acquisition has proven to be a success, with ADP adding ~100 additional benefits clients annually. SHPS will further strengthen ADP’s benefits administration offering with capabilities including:

• Eligibility and enrollment
• Spending accounts administration
• COBRA administration
• Absence management
• Benefits advocacy.

SHPS will strengthen ADP’s leave administration and reimbursement account administration capabilities, including HSAs and HRAs, which have become increasingly important as more employers offer high deductible benefits plans to their employees. You can read about this in my recent blog.

The RightThing – coming off its best year in 2011 – was ranked by NelsonHall in its 2011 RPO report as the top U.S. RPO provider in terms of North American revenue, bringing in ~80 clients. Prior to the acquisition, ADP provided recruitment administration and technology, but it is now a full end-to-end RPO services provider. Expect an RPO contract announcement soon and much more to come as RPO will continue to be provided as a standalone service and now also in combination with ADP’s multi-process HRO services.

Gary Bragar, HRO Research Director, NelsonHall

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M&A Activity in Benefits Administration: Round 2

Following the benefits administration merger and acquisition (M&A) frenzy of 2010 that resulted in some major consolidations including Aon Hewitt, Towers Watson, Xerox/ACS and ExcellerateHRO, to name a few, are we poised to see round 2?

The second wave actually began in early 2011 and tends to consist of the more established providers, in their own right, acquiring Tier 2 health and welfare (H&W) administration companies in the U.S.  Examples include:

• Towers Watson acquiring Aliquant in January 2011
• Sedgwick, a leader in the leave of absence administration market with ~20% market share, acquiring the productivity solutions unit of Nationwide Better Health in May 2011
• Morneau Shepell, the leading total benefits outsourcing (TBO) provider in Canada, acquiring SBC Systems Company in January 2012.

As of last week, we can now add ADP to this list since it signed a definitive agreement to acquire SHPS Human Resource Solutions—a subsidiary of SHPS, Inc. ADP has actually been making key acquisitions to strengthen components within its benefits administration offering for the last 18 months. It started with Workscape, which added compensation management services, and was followed by Asparity Decision Solutions for decision support tools and analytic capabilities.

Now, the SHPS acquisition strengthens ADP’s leave administration and reimbursement account administration offerings. The HSA and HRA components will be especially important considering the rising cost of health-care and the transition toward high-deductible health plans paired with these health savings accounts.

The H&W acquisition trend is also expanding beyond the U.S. It started in September 2010, when Capita – a U.K.-based HRO vendor providing total retirement outsourcing (TRO) exclusively in the U.K. – acquired FirstAssist Services Holdings for £12.5m. Then it continued when Mercer acquired REPCA – a brokering and advising firm for health and benefits (H&B) plans – to strengthen its H&B administration offering and advisory services in France.

The remaining question on my mind is whether U.S.-based TRO providers such as ING, Great-West, T. Rowe Price, etc. plan to jump on the H&W acquisition bandwagon to provide a one-stop shop for benefits administration like Fidelity Investments.

I’m eager to see who will make the next M&A move in benefits administration.  In the meantime, it’s always fun to hear about cross-selling opportunities that resulted in contract scope expansions.  Stay tuned.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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