Growth Opportunities Seen in Benefits Administration Market

Despite mature market, significant potential seen for cost control and value-added services

By Stephen Miller Dec 15, 2007
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Although the outsourcing market for benefits administration is well-established and mature, significant growth opportunities exist, particularly as organizations look to reduce and control health care administration costs while providing value-added services to employees such as health care information and decision-support tools.

According to a new report by NelsonHall, a business process outsourcing (BPO) analyst firm, the North American benefits administration market is nearly $12 billion currently and will grow by an average 10 percent annually over the next few years, to reach $18 billion by 2011. In particular, the growth in the market is driven by health and welfare (H&W) and leave of absence (LoA) administration services, which are expected to increase from a 47 percent share of the market in 2006 to 62 percent in 2011.

According to the study, Targeting Benefits Administration in North America:

  • Talent management. Vendors need to be able to help organizations make benefits a key method for instilling loyalty within a workforce, since talent management is a top issue for HR departments.
  • Health and welfare. Developing offerings beyond H&W administration, such as absence management and disease management, can provide significant opportunities for vendors to innovate and differentiate offerings. This means H&W providers should have a strong willingness to partner to attain necessary skills and services.
  • Consumer-directed health care. To assist clients with providing consumer-directed health care (CDH) options, vendors have to be able to support the provision of appropriate services, such as self-service tools, workflow tools and multi-channel service delivery.
  • Pensions. To be successful, pension administration vendors should have the capability to integrate all contact channels across all plans and tie these channels to employee life events, such as marriage or birth of a child.

Offshoring Benefits Administration

While offshore delivery will gain increasing interest as vendors seek to reduce costs, the growth of offshore delivery remains moderate, the report shows. Currently, offshore delivery within benefits administration accounts for only 5 percent of total full-time employees (FTEs) and is limited to back-office processing and data management, including defined contribution plan accounting, forms processing and actuarial valuations.

Growth in the delivery of services offshore is likely to rise by 20 percent per year but still will account for only 10 percent of benefits administration service delivery by 2011, according to NelsonHall.

Proprietary Tech Platforms

Finally, state-of-the-art technology is a key enabler for all benefits administration services, the report shows, and 70 percent of vendors use proprietary benefits administration platforms. In the future, vendors will continue to invest in technology that:

  • Improves employee education, participation and choice.
  • Enables data analytics.
  • Aids efficient compliance with changing regulations and legislation.
  • Provides a holistic approach to benefits services.

Stephen Miller is manager of SHRM Online's Compensation & Benefits and HR Outsourcing focus areas.

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