Benefits Administration Outsourcing Market in 2011: Mature yet Dynamic

October 2011

Webinar: Benefits Administration Outsourcing Market: Mature yet Dynamic

Proprietary & Confidential. © 2011, Everest Global, Inc. 2

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Today’s Webinar is brought to you by Everest Group

Today’s Webinar

Benefits Administration Outsourcing Market: Mature yet Dynamic Synopsis: The global BAO market witnessed significant growth and development in 2011, partially due to internal requirements and market regulations such as the U.S. healthcare reform. In this webinar, Everest Group experts will discuss: The current state of the market and emerging themes Challenges faced by both buyers and service providers An overview of the service provider landscape Possible differentiation themes for service providers

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Introductions

Sayan Chatterjee Senior Research Analyst Everest Group [email protected]

Rajesh Ranjan Research Director Everest Group [email protected]




Contents

Background and context

Market size and growth

Buyer adoption and solution characteristics

Service provider landscape

Key takeaways


Everest Group provides a comprehensive coverage of the HRO market

HR strategy

Employee data management Payroll Benefits

Compensation Recruitment & selection

Learning

Employee contact center HR information systems and reporting

Global mobility Regulatory & compliance

Employee relations

Performance management

Multi-process HRO (MPHRO)

Strategy Judgment-intensive Transaction-intensive

Includes transactions that include a minimum of three HR processes.

Targets both the mid-market (between 3,000 to 15,000 employees) as well as large market (>15, 000 employees)

Single-process HRO (SPHRO)

Includes transactions that involve stand-alone single process outsourcing

Currently tracks following markets – Benefits Administration

Outsourcing (BAO) – Recruitment Process

Outsourcing (RPO) – Multi-country Payroll

Outsourcing (MCPO) – Learning Services

Outsourcing (LSO)

1 2

This webinar presents results of Everest Group’s recently released 2011 Annual Report on the Benefits Administration Outsourcing (BAO) market


Everest Group’s BAO research is based on two key sources of proprietary information

Proprietary Everest Group’s database of 1,000+ BAO deals (updated annually) The database tracks the following elements of each BAO deal:

– Buyer details: Including industry, size, and signing region – Deal details: Including TCV, ACV, term, start date, total participants managed, and primary pricing structure – Scope: Including buyer’s geography and process coverage – Technology ownership and maintenance – Global sourcing

1

Proprietary Everest Group’s database of operational capability of 10+ BAO service providers (updated annually) The database tracks the following capability elements for each service provider:

– Major BAO clients and recent wins – Overall revenues, total, and BAO employees – Recent BAO-related developments (investments and partnerships) – BAO clients split by geography, industry, scope, and buyer size – BAO delivery locations and level of offshoring – BAO service suite – Service level agreements – Benefits-related technology capability

2

In addition to these databases: Everest Group conducts executive-level interviews with leading BAO service providers and buyers of BAO services Everest Group continuously monitors and tracks market developments

Confidentiality: Everest Group takes its confidentiality pledge very seriously. Any information we collect, that is contract specific, will be presented back to the industry only in an aggregated fashion


Everest Group defines BAO as transfer of ownership of at least one core-benefits area on an ongoing basis

For this study, we include BAO deals in which: At least one of the following core-benefits areas is included – H&W, DB, and DC Deal length is at least two years The buyer employee size is 3,000 or more

Benefits services

Health & Welfare (H&W) benefits Annual enrolment Data administration / record

keeping Feeds to service providers (i.e.

medical providers, and insurance companies)

Billing and financial management (account reconciliations)

COBRA eligibility and billing (U.S. only)

Contribution processing Life event processing Plan communication and education Decision-support tools Dependent verification and audits Technology support

Contact center

Vendor management

Defined benefits (DB) Setup and record keeping Calculation – estimates and final

calculations for retirements, terminations, etc.

Eligibility determination and tracking

Funding and account reconciliation

Retiree payroll Governmental reporting Plan communication and

education Plan audit assistance

Defined contribution (DC) Enrolment Plan administration Payroll deductions Record keeping Fund management Decision-support Financial education Plan communication and

education

Other services Workers compensation Disability and absence

management Hybrid pension plan

administration Stock plan administration Non-qualified plan administration Total rewards statements Consulting services and benefits

strategy

Core-benefits area Support services


There are three outsourcing models for benefits administration

Scope of this study

Source: Everest Group (2011)

Technology outsourcing model

Comprehensive outsourcing model

Selective outsourcing model

Key characteristics

Consideration for adoption

Low High Degree of outsourcing

Resembles an ASP/Software-as-a-Service (SaaS) model as only benefits technology is outsourced

Service provider is responsible for hosting and maintaining legally compliant benefits system

Buyer retains complete ownership of the benefits process

Also referred to as “co-source” model

Benefits technology and one of the core-benefits areas (health or retirement) is transferred to the service provider

Buyer retains the ownership of the other core-benefits areas

Service provider may provide technology integration with non-outsourced benefits areas

Outsourcing of only retirement benefits, but including both DB and DC, is also referred as Total Retirement Outsourcing (TRO)

Outsourcing of both health and retirement benefits administration process and underlying technology to a service provider

Also referred as Total Benefits Outsourcing (TBO)

Buyer wants to keep complete control over the benefits process but requires access to better technology

In some specific benefits areas, buyers need expertise and support on an ongoing basis

Buyer wants to dip a toe in the outsourcing model

Buyer wants to transform the benefits function

Buyer wants to expand the value creation beyond the “selective” model


Contents





Key takeaways


BAO is one of the largest and most mature markets among others in HRO

15-20%

25-30% 35-40%

15-20%

Third-party HRO market size US$ billion

100% = 18-20

MPHRO

BAO (SPHRO2)

Payroll (SPHRO2)

Other SPHRO markets1

5.4

Third-party BAO market penetration US$ billion

20-22

1 Includes Recruitment Process Outsourcing (RPO) and Learning Services Outsourcing (LSO) 2 Single-process HRO Source: Everest Group (2011)

2011 BAO market size

Third-party addressable BAO market potential


The BAO market, growing at a steady rate, crossed the US$5 billion mark in 2011

1 As of April 2010 2 As of June 2011 Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011)

4.8

5.4

2010 2011

BAO market size over time US$ billion

1 2


Poll Question: How do you expect the demand for BAO to change in the next one year?

73%

23%

0%

Increase Remain the same Decrease

Source: Live polling conducted during the Benefits Administration Outsourcing Market: Mature yet Dynamic webinar on October 11, 2011


On a smaller base, the H&W market is growing at a rate of almost four times that of the pension market

3.8 4.1

2010 2011

1 As of April 2010 2 As of June 2011 Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011)

H&W market size over time US$ billion

Pension administration market size over time US$ billion

1 2

1.0 1.3

2010 2011 1 2


While there are some common outsourcing drivers across both the H&W and pensions markets…

Business drivers

Improving employee engagement

Cost reduction

Pension administration H&W

Compliance


….some drivers are unique to specific benefits areas

Business drivers

Strategic shift from DB to DC

U.S. healthcare reform 2010

Pension administration H&W

Reduced absenteeism and enhanced productivity


Contents





Key takeaways


North America pioneered the BAO market and continues to be at the forefront. Europe is starting to witness increased activity in recent years

Overall share of active BAO deals by signing region Number of deals

93% 90%

5% 9% 2% 1%

2007-09 2010-11

100% = 722 317

North America

Rest of World Europe

Sample size: 1,039 BAO deals signed during 2007-June 2011 Source: Everest Group (2011)


Notwithstanding interest in multi-country BAO, it is yet to turn into actual adoption

Overall share of active BAO deals by geographic scope Number of deals

Sample size: 4,852 BAO deals signed as of June 2011. 303 BAO deals signed during 2010-June 2011 Source: Everest Group (2011)

Single-country

Multi-country

4,852 303

97% 99%

3% 1%

Overall 2010-11

100% =


Poll Question: Are you considering a multi-country BAO solution in the current or near term?

0%

41%

59%

Yes, at advanced stage of consideration

Yes, but at preliminary stage

No

Source: Live polling conducted during the Benefits Administration Outsourcing Market: Mature yet Dynamic webinar on October 11, 2011


Offshore leverage in BAO continues to increase

Sample size: 788 BAO deals signed as of June 2011 Source: Everest Group (2011)

Inclusion of offshoring in BAO deals Number of deals

Percentage of FTEs at offshore locations Percentage

66%

34%

22%

28%

2010 2011

Offshoring component

No offshoring component

100% = 788


The dominance of India as an offshore location represents a global sourcing concentration risk

Distribution of BAO FTEs by offshore location Percentage

91%

9%

India FTEs

FTEs in offshore locations other than India1

100% = 7435

1 Includes South East Asia and Central and South America Source: Everest Group (2011)


Contents





Key takeaways


The BAO market comprises service providers from a variety of backgrounds

HR consulting/technology Focused benefits outsourcing

Financial services HRO/BPO services

BAO service provider landscape

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The consolidation wave in recent times has significantly impacted the service provider landscape

ILLUSTRATIVE

Key BAO service providers landscape developments

ACS acquires Mellon HR&IS

ING acquires Citistreet LLC

Watson Wyatt merges with Towers Perrin to form Towers Watson

Advent International acquires Xafinity AON announces acquisition of J.P. Morgan

Compensation and Benefit Strategies ACS acquires ExcellerateHRO Mercer acquires Innovative Process

Administration (IPA) ADP acquires Workscape Aon and Hewitt announce their merger to

become Aon Hewitt Towers Watson acquires Aliquant Wageworks acquires FBMC’s tax favored

and benefits continuation administrative services division

Capita announced acquisition of trade and assets of the pensions administration and software business of NorthgateArinso

Pre-2010 2010-2011



Investments by service providers are making the value proposition of BAO more compelling


Key areas of investments

Technology advancements

Expanding delivery model

Enhanced solution scope


Contents





Key takeaways


Key takeaways for buyers and service providers of BAO

For buyers 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

Need to look at the total cost of ownership when creating the business case

For service providers

Creating differentiation to stay ahead of competitors is key

Provide a more integrated benefits outsourcing solution

Need to reduce global-sourcing-concentration risk


Topic Goals of the research Planned release

Q4-2011

Benefits Administration Outsourcing (BAO) – Service provider landscape and capability assessment

Provides a comprehensive analysis of the BAO service provider landscape along multiple dimensions and assesses service providers to position them in the Everest PEAK matrix

Q4-2011

This research aims to compare Total Cost of Ownership (TCO) of Business Process as a Service (BPaaS) solutions with traditional BPO using a comprehensive financial model and create a comprehensive framework to evaluate BPaaS sourcing

Making the Right Choice – How to Evaluate BPaaS Solutions?

Major forthcoming HRO research

Benefits Administration Outsourcing (BAO) service provider profile compendium

The report provides accurate, comprehensive, fact-based snapshots of 10+ leading BAO service providers. Each profile highlights service provider’s delivery capability, market strategy, key organizational developments, and delivery footprint

Q4-2011

Provides a comprehensive coverage of the 2011-12 Recruitment Process Outsourcing (RPO) market including market size and buyer adoption, emerging solutions and best practices, changing transaction characteristics and evolving service provider landscape

RPO Annual report 2012

Q4-2011


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Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version

For advice or research on Benefits Administration Outsourcing, please contact: – Rajesh Ranjan, [email protected] – Sayan Chatterjee, [email protected]

For background information on Everest Group, please visit:

– www.everestgrp.com – research.everestgrp.com

Thank you for attending today

Q&A



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Benefits Administration Outsourcing Market in 2011: Mature yet Dynamic

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