Monday, May 17, 2010

IMPACT OF PAYROLL COMPANIES ENTERING THE BENEFITS & INSURANCE BROKERAGE MARKET

While Payroll Companies, such as Paychex and ADP had often been an ally of Brokers - simplifying the Employers administrative burdens - they have entered the Core and Worksite/Voluntary Benefits brokerage marketplace as competitors at an accelerating pace.  In the midst of industry turmoil, Brokers did not need another potential negative impact on their relationships and bottom line!

To quote Brett Rosen from the May 2010 edition of Agent's Sales Journal, "New, deep-pocketed competitors such as payroll giants ADP and Paychex may steal increasing market share from the 'little guys'".

Adding to the potential impact, Payroll Companies have a rather dramatic competitive advantage!  They can approach their current, and potential clients - to whom they may have been introduced by brokers - and discount their traditional services if the Employer gives them an "Agent of Record" letter!  While Brokers cannot discount plans - this is "Rebating" - the Payroll Companies can discount their services.  Employers - with an eye on their HR Costs - may well take advantage of this offer!

We at BenefitPlace suggest there may be an inherent flaw in such a cost-saving strategy by Employers!  While the Payroll Companies may have the capacity to handle existing Core and Worksite Plans - their main focus seems to be groups of 20 to 250 employees - how experienced and qualified are they to assist in new plan design and redesign?

With the added complications of Health Care Reform, Employers and Employees are going to be facing challenges in plan design, integration, education and enrollment!  Experienced brokers, whether on a "traditional commission basis" or shifting to a "fee based structure" (similar to the shift in the financial planning market) have the product knowledge, carrier relationships, and expertise to best assist Employers and Employees.

Until Payroll Companies gain the expertise internally, hire brokers individually on a wholesale basis, or acquire qualified brokerage firms regionally and nationally, Employers may want to seriously evaluate the value of these cost-saving proposition!    

We welcome the thoughts of all on this topic - Payroll Companies, Brokers, Employers, etc.  Please comment or email: phil@benefitplace.biz!

Note: We invite you to visit the new BP Trade Show - a virtual 24/7 Insurance & Benefits Trade Show!  Check out the Grand Opening Special Discounts!

Have a Great Week!  

    

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