Growth Forecast for Benefits Administration Outsourcing

Merger momentum is in the air

By Stephen Miller Jul 28, 2010

After remaining relatively stable during the recessionary economy, the market for benefits administration outsourcing (BAO) was projected to see deal signings grow 12 percent to 18 percent in 2010, according to Everest, a global consulting and research firm.

According to Everest’s July 2010 market report, Benefits Administration Outsourcing – Resilient Demand, Dynamic Supplier Landscape, the global BAO market is about $5 billion. Propelling market growth are factors such as increased administrative challenges attributable to imminent health care reforms, advancement of global sourcing that provides a more attractive cost-saving value proposition, and quicker decision-making in a more stable, improved economic climate.

“While cost reduction has always been an important driver for BAO, it gained further prominence with the pressures of the recent economic downturn and the need to address rising health care costs,” said Rajesh Ranjan, research director at Everest. “Buyers are also increasingly looking to BAO to better manage the complexities and burdens associated with compliance issues and provide improved employee engagement and communications platforms that help employees make better health care and retirement decisions.”

More than 60 percent of BAO deals signed since 2006 included some type of offshoring component, and offshore delivery will increase, said Ranjan.

Other insights in the report include:

Administration of defined contribution retirement plans is the most frequently outsourced area; however, health and welfare plan administration has been growing at a much faster rate over the past few years.

Mid-market-sized companies make up almost 70 percent of BAO adopters.

While North America continues to be the dominant market for BAO, adoption is increasing in Europe, where the United Kingdom is the most dominant market.

Most buyers are signing deals for single-country operations only to achieve cost reductions more quickly.

Merger Momentum

The BAO supplier landscape remains dynamic with a wave of consolidation continuing in the market, driven by the need to gain market share and enhance capabilities quickly. From a global basis, Hewitt Associates is the largest supplier of benefits administration services, followed by Fidelity. Together, they account for 40 percent of the BAO market in terms of number of participants managed and annual contract value, according to Everest.

Other share leaders are ACS-Xerox, Towers Watson, Mercer, ING, ADP and ExcellerateHRO.

BAO suppliers cited in the report come from different backgrounds and include:

HR consulting/technology providers such as Hewitt, Mercer, Morneau Sobecco, Towers Watson and Workscape.

Focused benefits outsourcing providers such as Empyrean, Capita Hartshead, Secova and Xafinity.

HR outsourcing/business process outsourcing services providers such as ACS, ADP, Ceridian, ExellerateHRO, Infosys and Patni).

• Financial services providers such as Aon, Charles Schwab, Fidelity, ING, J.P. Morgan and Vanguard.

On July 12, 2010, Hewitt and AON announced their intention to merge. The move follows the merger of the former Watson Wyatt and Towers Perrin to create Towers Watson, completed in January 2010.

Stephen Miller is an online editor/manager for SHRM.​

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