Nearshore Americas

Cash Strapped Businesses Look to Benefits Administration Outsourcing

When a market grows 12.5% in one year and accounts for $5.4 billion, as did Business Administration Outsourcing (BAO) between 2010 and 2011, it is a clear indicator that momentum is growing and shows no signs of slowing down. The continued complexity and administrative burdens of Benefits Administration push buyers to look for options. Employers are increasingly turning to outsourcers for the management of three key aspects of their benefits package: Health & Welfare (H&W), Defined Benefits (DB) and Defined Contributions (DC).

BAO, per Everest’s definition, is “the transfer of ownership of at least one core-benefits area on an ongoing basis.” It should be no surprise that healthcare reform is the main driver behind the exponential growth, especially in light of the advent of the so-called “Obama Care,” which many lawmakers don’t fully understand. There is an urgency in decision making by business owners who need the help of a provider who can help them navigate the complexities of such laws, especially when there is much uncertainty surrounding them. The key drivers are cost reduction, compliance and employee engagement. Of course, cost reduction continues to be a main concern. ( During a recent Everest webinar,  Rajesh Ranjan, Research Director and Sayan Chaterjee, Senior Research Analyst at Everest Group discussed the current state of BAO).

“Many buyers are cash strapped,” said Ranjan. “It is a hyper-competitive environment and BAO enables employees to make the best benefits choices.” An interesting finding is that the H&W market is growing at a rate of 30%, almost four times that of the pension market which is at 8%. However, it is expected that pension market will grow as the shift from DB to DC increases. Beyond administration, buyers are also turning to BAO providers that can help them to promote a culture where employees are healthy productive, and happy in a proactive attempt to reduce overall costs.

North American Buyers/Indian Providers

While North America pioneered the BAO market and continues to be at the forefront, with 90% of the share, Europe has shown increased activity in recent years, accounting for 9%. India claims the lion’s share of BAO business, accounting for 91%. “This represents a global sourcing concentration risk,” stated Ranjan, but it doesn’t appear that other regions, such as Latin America, are actively taking a larger piece of this burgeoning market.

The service providers concentrate on specific areas, such as HR consulting/technology being done by AonHewitt, Mercer and Towers Watson; HRO/BPO offered by ADP, Capita and Infosys; Focused Benefits Outsourcing managed by xafinity, SECOVA and SHPS; and Financial Services from charlesSCHWAB, ING and J.P. Morgan. Although this diversity of specialties could be viewed as beneficial to buyers, providers are limited in their abilities to offer a broad spectrum of services. An example, offered Rajesh, is a company like ING can “offer strong financial investment services, they also cross sell BAO services however, you will see they have difficulty beyond retirement benefits.”

In an effort to remedy these limitations, providers are consolidating and there was an upsurge of M&A activity during 2010-2011 due to a desire to enter new market segments and scale ability. “This leads to fewer choices for buyers,” said Chaterjee, “but existing service providers have broader and deeper capabilities and are in a better position to offer more solutions.” Providers are also investing into the augmentation and advancement of technologies, and are looking for ways to expand their delivery models.

Chaterjee reviewed the key takeaways from Everest’s analysis of this ever-changing market:


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  • Second generation buyers should evaluate the various service providers in the market afresh, rather than going in for auto renewal
  • Select a service provider which brings domain knowledge to navigate the complexities arising out of reform and legislative changes
  • Look at the total cost of ownership when creating the business case

Service Providers:

  • Create differentiation to stay ahead of competitors is key
  • Provide a more integrated benefits outsourcing solution
  • Reduce global-sourcing-concentration risk

When asked how providers could possibly keep abreast of all the provisions of something as complex as President Obama’s proposed overhaul of US healthcare, Rajesh answered that “Providers can stay on top of changes and complexities because this is their core business and it is their interest to stay on top of it.” It is also in the best interest of their clients and the client’s employees.


Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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