Tag Archives: hr

The Most Stressful Job in Insurance

So we all feel we have a tough deal. Creating a product, reducing claims ratios, improving profitability – and even being the captain of the ship when all around us the waters are turbulent, and storms are on the horizon.

But I wanted to share with you what I think is one of the most stressful jobs in insurance. And that is in the HR (human resources) department. Okay, so you are thinking that HR is a comfortable, backroom activity away from the heat of the insurance battle. But that’s not the case.

The insurance battle — if not much of the war — relates to cost-cutting. And that means losing people. Often good people, because they are expensive. These industry experts are often let go quickly, with little warning and with poor compensation despite years of service.

See also: 8 Things to Know About Insurance  

Why should this create stress in the HR department? First, let’s get over the notion that HR is the employee’s friend. I remember when HR was the “trusted adviser” to the employee as well as representing the employer’s interest – but now HR is firmly there to implement employment processes within the terms of employment law. Many senior professions entered HR because of their soft skills, but now they are “the hatchet men” who have to implement major change. No wonder they feel uncomfortable.

(We won’t touch on why it seems to be the guys in HR who get the top jobs, and not the women. That’s a different blog entirely. Think “glass” and “ceiling.”)

Then there is the issue of social media. Many conversations within businesses are meant to take place in an environment of confidentiality, but disgruntled employees are sharing information — often under an alias — about their severance terms and conditions. In many cases, the HR department has little insight into what is being said about their performance and behavior; if they did, they would be horrified.

See also: The Human Resources View Of Health Care Benefits Needs To Change  

The reality is that HR is a profession living in the 1980s but trying to operate in a a business environment of the 2020s, or thereabouts. No wonder HR professionals feel disillusioned and under stress. Big stress.

HR needs to adapt rapidly. HR professionals need to be able to manage social media analytics, especially sentiment analysis, and to be able to manage employees in same way that the marketing department seek to understand their customers. Until that happens, these key professionals will feel like victims of change rather than being the effective implementors.

(Even as victims, of course, at least they’ll keep their jobs. After all, doesn’t someone have to turn off the lights at the end of the day?)

BPO for Life & Annuity Market

Life and annuity insurers are focusing on three areas to drive growth: distribution, product and brand. Growth is hard enough in today’s market, but it’s even harder when your back office holds you back, both in terms of fixed costs and limited capabilities. Accordingly, achieving operational efficiency is table stakes for life and annuity insurers competing in an extended soft market.

Fortunately, given recent advances in technology and expansion of provider capabilities, business process outsourcing (BPO) has become a feasible way to reduce costs and increase efficiencies. Based on what we’ve seen in the market, we think BPO providers are ready to move from their traditional role as vendors to true business partners. With scale, advanced technology and money to invest, the best of them offer great opportunity for insurers to significantly lower costs and benefit from complementary services over the long term.

Why BPO and why now?

For years, insurers have tried numerous methods to achieve greater operational efficiency, including process reengineering, Six Sigma, and LEAN. Many companies also have pursued sourcing (primarily in IT) to stem the tide of rising fixed costs. While these initiatives have reduced costs and complexity to a certain extent, they have not lowered costs and operational complexity enough to enable the business to focus first and foremost on growth.

Fortunately, times have changed. Some BPO providers have recently offered savings on a per-policy basis (inclusive of both operational and IT costs) of anywhere from 20% to 40%. (Benefits depend on how much savings a company has already realized and how much additional opportunity for savings remains.)

BPO now offers the potential for greater long-term cost reductions and efficiencies than the methods insurers have used in the past.

In Europe, BPO and ITO (information technology outsourcing) has already played a major role in closed block businesses. Life, annuity and pensions BPO has a global market of more than $2.6 billion, nearly half of it in the U.K. In this case, the main point of BPO has been legacy policy cost reduction, but it also offers carriers an alternative operational platform for achieving faster speed to market for new products and for tapping into advanced customer service capabilities.

Legacy modernization is another important reason for considering BPO. As key staff retire, there is a real threat of knowledge loss, not least because legacy systems are concurrently moving toward the end of their effective working lives. Many BPO providers feature up-to-date and evolving technology platforms that are an attractive alternative to incurring continuing fixed costs in-house.

The key for carriers is to select a BPO provider that will keep its platform current rather than simply provide a “your mess for less” service (i.e., administration of your aging platforms). Without the right scope, BPO can backfire and actually result in a more complex operating model, with resulting stranded costs and a suboptimal customer experience.

What is large-scale BPO?

To understand what BPO entails, it is helpful to compare the different kinds of shared services that are available:

  • Captive shared services are when a carrier creates a wholly owned subsidiary to deliver services at a reduced cost. They can be established domestically, near-shore or off-shore.
  • Out-tasked shared services occur when a carrier hands over administration of its systems to a third party that offers wage arbitrage, but the carrier maintains ownership of the process and underlying systems.
  • In contrast, in a BPO transaction, the insurer hands over administration to a partner, who runs the former’s technology platform. In other words, the partner owns the process. Implementation may occur through a lift and shift approach (i.e., the partner takes over the carrier’s legacy platforms), through conversion (data is converted from the carrier’s legacy to the partner’s modern platform) or through a phased combination of both. To smooth the transition, ameliorate community and reputational concerns and improve change management, there is typically a significant amount of rebadging of employees from the carrier to the BPO partner.

Ideally, after BPO, the insurer is a service level agreement (SLA) manager, and the BPO partner controls the process. (N.B.: Contracts should be in place that stipulate performance requirements.) The insurer’s focus on the sourced business should be on performance and analytics, made possible through regular data feeds from the BPO partner.

  • In brokered BPO, the insurer contracts with a third party that isn’t itself offering BPO services but instead will manage the transition to a BPO provider. Ideally, the third party manager will have successful past experience with the BPO provider and managing the complex details of conversion from legacy platforms to new ones.

BPO is not one-size-fits-all. There are different varieties that insurers can match to their individual goals and circumstances.

Managing retained alongside sourced business

While moving the entirety of operations and IT to a BPO provider may seem appealing, insurers realistically will continue to be involved in many operational and IT activities. They often will retain key components of their operations and IT that they deem to be market differentiators. These most often relate to the customer experience (both with the agent and insured) and include call centers, portals and analytics. To remain effective, the operational platform that support retained components will continue to require maintenance, upgrades and BPO integration. Extensive up-front effort will be necessary to promote seamless integration of retained and outsourced components.

In addition, despite inclusion of a broad scope of operations and IT components, certain operational functions will remain with the insurer, namely HR, legal and compliance. Given significant sourcing, the question is if the insurer’s reliance on these functions will decrease and, if so, how to shrink them without increasing operational risks like:

  • Interruption of customer channels and operations: Businesses have been caught by surprise when service grinds to a halt at a provider.
  • Brand-damaging criticism: Businesses that fail to meet customer expectations – even if the cause is outside their walls – may see an increase in complaints, some going viral on social media.
  • Regulatory violation: A data error or breach at your service provider can put you in violation of regulations and jeopardize your customers’ trust.
  • System vulnerabilities: In a complex infrastructure that has dependencies you don’t even realize, a service interruption might trigger a series of problems that can affect your business.
  • Inaccurate reporting: Service provider processing errors can cause a misstatement of compliance, performance, operational or financial information.
  • Risk management lapse: Not knowing the controls around service contract terms can lead to unreported breakdowns in areas hitherto considered secure.

A good way to reduce the chance of BPO-related risks is to insist on a provider that comports with advanced service organization control (SOC) reporting. SOC 2 provides assurance that the provider has controls around the sourced technology and systems supporting the sourced business processes, but only to a pre-defined audience. SOC 3 provides the same assurance but more broadly to anyone interested in the provider’s control and allows the posting of a public seal on the provider’s website.

Embarking on BPO: An end-to-end approach

Given the significant potential for disruption to distribution partners, policy/annuity holders, employees and the community at large, BPO requires a more iterative approach to execution than many other forms of operating model transformation.

When evaluating BPO partners that best match criteria for in-scope functions and blocks of business, some carriers find that a single BPO partner may not meet all needs. Accordingly, it is imperative to determine the best BPO fit for each block of business.

Implications: Insights from BPO initiatives

  1. Plan big. Scope thoroughly enough to actually simplify management instead of just adding another layer of complexity to what you already have.
  2. Choose a partner, not a vendor. Approach the BPO as a relationship that will grow over time. Vet your prospective partner’s record of investment in other relationships and appropriately provide incentives to each other with thoughtful contracts that promote accountability.
  3. When vetting BPO providers, consider the amount of investment they’ll make to upgrade their platforms over time to continue delivering effective service.
  4. Don’t underestimate the amount of time that staff need to prepare for BPO. Identify all necessary business rules and ensure that key individuals and cryptic systems are aware of and understand them. You do not want any service interruptions.
  5. Map all dependencies on the policy administration platforms you’re seeking to move, inclusive of all ancillary applications.
  6. Realize that each part of the operating model you retain will add another layer of integration complexity to BPO.
  7. The prevalence of shared services and the opacity of many service-based cost-pools mean that many companies struggle to understand their IT spending. Therefore, it is vital to have an agreed-upon allocation method that won’t leave significant stranded IT costs post-BPO.
  8. Considering there will be more lines of accountability for running the business during and after the BPO, unless you use a brokered approach, you’ll have to create or augment an existing service provider management team.
  9. You may need multiple BPO partnerships. For example, the BPO partner that best meets your life book needs may not be the best choice to meet your annuity book needs.
  10. Ensure contracts account for all reasonable contingencies (e.g., growth, M&A, divestitures and spin-offs).

Zenefits’ Troubles Don’t Let Brokers Off

Zenefits is in trouble. Serious, existential trouble. Some community-based benefit brokers are watching the calamity at Zenefits unfold with a mixture of schadenfreude and relief. Given the scorn and ridicule Zenefits heaped on these brokers, taking pleasure from its misfortune is hard to resist. Feeling relief, however, misreads the situation and is dangerous to one’s career.

Zenefits’ Troubles 

Zenefits could go out of business, and several of its employees could be jailed as a result of the business practices reported by William Alden of BuzzFeed News and other journalists. While unlikely, this is a possibility because:

  • Zenefits created software enabling some California employees to lie to regulators concerning the time they spent on pre-licensing training. California law requires those applying for an insurance license to devote 52 hours to this curriculum. Zenefits employees signed a form, under penalty of perjury, that they had done so. Some may not have. Perjury is a felony in California, and conviction can result in as much as four years’ imprisonment. If Zenefits cheated in qualifying agents to sell in California, other regulators are no doubt looking into whether the company did this in their states, too.
  • If found guilty of violating consumer protection laws, state regulators could revoke Zenefits’ insurance licenses. Without the license, Zenefits could no longer sell new policies, and insurance companies would likely terminate, for cause, their Zenefits contracts. The insurers would then stop paying commissions to Zenefits even on previously sold policies. License revocation in one state could result in losing their licenses elsewhere. A cascade across the country of revoked licenses and terminated contracts could cost Zenefits tens of millions of dollars.
  • If Zenefits loses its licenses, commissions on current policies and ability to sell new ones, then some of its more recent investors may demand their money back. (Let me be clear: I am not accusing anyone at Zenefits of committing fraud or any other crimes. What follows is totally and only hypothetical and speculative.) In May 2015, Zenefits raised $500 million in a capital round led by Fidelity Investments and private equity firm TPG. If Zenefits management knowingly hid legal problems from them (and I’m not accusing anyone of doing so), then Fidelity and TPG could claim inducement by fraud, seek to rescind their contract and demand Zenefits return their investment. I’m not saying this happened or that investors were misled in any way. Nonetheless, I’d be surprised if Fidelity and TPG lawyers are not also speculating about this.

Zenefits’ worst case scenario, then, is that the company pays millions of dollars in fines, loses many millions more in revenue, sees employees jailed, can no longer sell insurance, irreparably damages its brand and must repay some investors.

Maintain Perspective

That’s a pretty scary worst-case scenario. Based on we know today, it is also highly unlikely to happen. No regulator has found Zenefits in violation of anything. Regulators are unlikely to impose the most severe penalties available to them if their investigations do not reveal consumer harm. The steps David Sacks, Zenefits’ new CEO, is taking will likely mitigate any penalties imposed on the company. Several employees, including former CEO Parker Conrad and sales VP Sam Blond have already left the company, and more may follow. Zenefits now has its first compliance officer. Mr. Sacks also seeks to change Zenefits values.

I’m skeptical, however, that Zenefits can or will quickly change its culture and core values. I respect Mr. Sacks’ intentions, experience and abilities. He deserves a chance to make his turnaround work. Yet changing a company’s culture usually takes considerable time, and Zenefits’ culture is deeply infused with the Silicon Valley ethos of speed, innovation, disruption and risk taking. To transform Zenefits requires a different world view. Yet in announcing Mr. Parker’s resignation, the company added three board members—all current investors with no domain expertise.

In fact, no current Zenefits board members or executives listed on the site appear to have any experience in running a human resources firm, payroll company or insurance agency—the services Zenefits delivers. What they share is deep experience in well-known tech companies. Zenefits may be a technology company, but that tech is supposed to accomplish something. Only in places like Silicon Valley would lack at the top of the company of this domain expertise be celebrated. Zenefits seems to exist in a Valley-sized bubble, and it’s tough to change what’s in a bubble from the inside.

The Real Lesson of Zenefits

Yet Zenefits is likely to survive. It reportedly has enough cash on hand and no need to seek more. The most probable outcome from the various investigations is that, absent findings of intentional and substantial criminal malfeasance, Zenefits will keep its licenses, carriers will continue paying commissions and investors will keep their money in the company.

We don’t yet know how Zenefits’ saga plays out. What we do know are some lessons this scandal teaches, especially to brokers:

Lesson one: Consumer protection laws matter. Violate them, and there’s a huge price to pay; as there should be.

Lesson two: Arrogance is unbecoming and unhealthy. Zenefits is a company whose leaders proclaimed that community-based brokers were dead meat, promised to drink brokers’ milkshakes, claimed brokers barely knew how to use email, described their profession as a dead beast lying in the desert and, well, you get the idea. The danger is that arrogance of this magnitude easily morphs into hubris. Zenefits’ hubris was the apparent belief that it could ignore rules if they get in the way of achieving the growth promised investors.

Lesson three: Even broken companies get some things right. Zenefits identified a latent customer demand. Clients want more from brokers than help with benefit plans. They want to focus on their businesses and not be distracted by HR and benefit administration. Zenefits success makes clear there’s a disadvantage to only selling and servicing insurance plans. Clients want more from their brokers. Even in the unlikely event Zenefits goes away, this client need will not.

Lesson four: There’s more where they came from. Zenefits’ demise would not mean the end of well-funded tech companies challenging community-based benefit brokers. If Zenefits falls to the wayside, others are ready to take its place using the same tactic of giving away software to employers in exchange for being named the employers’ broker of record on benefit policies.

Seeing a bully humbled is always fun, and there’s no harm in brokers enjoying the sight of Zenefits in disarray. Those brokers who believe Zenefits predicament means they no longer need to step up the services and value they deliver their clients, however, are making a costly mistake.

Zenefits: Disrupting Lives, Not Just the Insurance Industry

I’m sure you are as tired of reading about Zenefits as I am of writing about it, but, as much as I may want to, it’s hard to turn away from a train wreck in progress.

Wendy Keneipp and I have spent more time reading, writing and talking about Zenefits than we care to admit. We have spent time analyzing its model, discussing how to compete against the company and breaking down its impact on the industry. But this past week has had us shaking our heads at its arrogance and recklessness. I would like to promise this will be my last article about Zenefits, but, well….

No doubt you have recently read about Zenefits’ allegedly selling insurance without proper licenses, and we have now learned the company “may have” (according to new CEO David Sacks) taken shortcuts on at least some of the licenses it did have. May have?! At least take real ownership of the failures, Mr. Sacks!

According to several online articles, the shortcut Zenefits “may have” taken involved writing a program called Macro, which made it appear as if individuals were completing the 52 hours of online training required by the state of California to obtain a license when, in fact, they weren’t. According to a BuzzFeed.com article, those wannabe brokers were then required to sign their name, under risk of perjury, certifying they had completed the required training when, in fact, they hadn’t.

The lack of conscience, level of arrogance and number of culpable “leaders” required to execute on something like this is absolutely mind-blowing. It was bad enough when we thought this was simply a misguided company, confused as to whether it was a tech company or an insurance broker, but that possibility pales in comparison with the malicious company it is proving to be.

Zenefits garnered untold positive press for disrupting an industry and for becoming the fastest-growing SaaS (software as a service) company in Silicon Valley history, but now we are learning just how ugly the reality was behind that thin veil of success.

More than disrupting an industry, Zenefits has built an organization that is disrupting people’s lives—and not in a positive way.

Here are the victims:

INVESTORS

I don’t have a lot of sympathy for this group because they provided the currency that fueled Zenefits’ reckless behavior; they are clearly part of the problem. It was investors who perpetuated a RIDICULOUS valuation and, in doing so, put untold pressure on the company to grow at a rate that would somehow validate the investors’ irrational exuberance over the Zenefits machine.

But, in addition to fueling the behavior, the investors are also victims; they invested in an illusion. They had every reason to believe their investment would be protected by legitimate (albeit misguided) business practices. It should have been reasonable for investors to assume the growth they were witnessing—and using to substantiate their investment—was being driven in a legal manner. It wasn’t.

We have already seen Fidelity cut the valuation of its investment in half. What will be the final financial toll on other investors once the dust settles? How much of investors’ collective $500,000,000 will be lost?

CLIENTS

Zenefits’ clients are potentially victimized in two ways. The first potential problem they could run into is having policies canceled as a result of having been written by non-licensed brokers. While I’m certain this is a possibility, I think it is unlikely the carriers would want to take that black eye. What is a more certain, yet difficult to measure, victimization is the fact that Zenefits’ clients did not have access to adequate advice and guidance in making policy decisions in the first place.

It would be one thing if Zenefits was simply in the online gaming business (as an example). If it was, the model would be to allow customers to download a free game and then make money by selling additional services/features. Essentially, if the game sucks, oh well. Unfortunately, Zenefits chose to play a much more serious game in a highly regulated industry.

Zenefits’ model infringes on two of the most critical aspects of client’s lives: their financial and medical well-being.

When Zenefits takes this responsibility as carelessly and recklessly as it has, it puts people’s financial lives at risk. Even worse, Zenefits could put people’s (literal) lives at risk. That may sound overly dramatic, but protecting the financial lives of its clients (employers and employees alike) and ensuring clients have coverage in place that provides for the right medical attention at time of need, is at the core of what this industry does, has always done and must continue to do for its clients.

For Zenefits, insurance is merely an afterthought, a means to an end, a way to finance the technology it touts as “free.” The company really should be ashamed for hijacking something so critical to people’s well-being and using it so carelessly.

ADVISERS

This may surprise you, but I also see the young advisers of Zenefits as victims. While I have been more than willing to share my criticism of their inexperience in the past, I believe these are mostly well-intentioned young professionals.

The Zenefits leadership team sold these young men and women on a vision that is simply proving to be an illusion. They were sold on the idea of disrupting an industry, being a part of a “unicorn” organization doing something that hasn’t been done before. Who wouldn’t buy into something like that?

Now, don’t get me wrong; while inexperienced in the business world, these young folks still had a personal responsibility to know right from wrong. They had to know they were cheating when they skirted the 52-hour requirement. And, they had to know the personal risk they were taking when they signed their name claiming to have completed training they hadn’t.

Bad on them for not taking a stand. But, even worse on the leadership team for putting them in that position.

I can hear the arguments against me on this point, and I don’t necessarily disagree. However, anytime someone in a position of authority uses their power to coerce and take advantage of a subordinate, there is a level of victimization.

NOW WHAT?

Of course, I don’t know how the rest of this story is going to play out, but I have my suspicions.

I don’t see how David Sacks can be allowed to remain as CEO. He has received great praise for the email he sent to the Zenefits employees, and he is being hailed as the leader who will correct all of what ails Zenefits. Maybe he will be, but I have serious doubts.

The positive media response to his succession scares me. Not that I think Parker Conrad should have remained CEO, but because the change seems to be providing Zenefits a free pass—if not in the eyes of regulators, at least in the public eye.

Outside our industry and Silicon Valley, most people have no idea about how this company has been operating. I guarantee you that Zenefits is about to take its marketing and sales machine to a much higher gear. And there are countless business owners oblivious to the potential danger of a purchase through Zenefits who are awaiting promises of easier HR, shiny user interface and no cost. These business owners need, and deserve, to be protected by the regulators put in place to provide such protection.

In my opinion, Sacks, as the chief operating officer, was as culpable for Zenefits’ failures as anyone. As the executive in charge of all things operational, how could he not have known about the lack of licenses or the fraudulent acts taking place under his nose? And, if he somehow didn’t know, that is simply another kind of failure on his part. How can he be allowed to remain?

I also don’t see how state insurance departments can allow Zenefits to earn another dollar off another insurance policy. The company has left too many victims in its wake, and I believe it is about to go on an even more aggressive hunt for even more “victims.” How can Zenefits be allowed to remain in the insurance business?

It’s time for Zenefits to transform its business model, get out of the insurance business and operate as the technology company it has always been; it’s time for the company to start putting people ahead of growth. After all, done properly, taking care of people first ensures growth will take care of itself. And, if you can’t take care of people and turn a profit, you don’t deserve to be in business.

I’m not holding my breath, however. As a self-described “hyper-growth addict,” Sacks has to manage his addiction with the demands and responsibilities of his new role—a role in which he will have to balance the demands of leading a company in a highly regulated industry (requiring attention to detail and ethical behavior above all else) against the demands of delivering an acceptable return for investors who have entrusted him with $500 million of their money. Early results are not very promising.

Stay tuned. I’m certain there’s more to come.

A version of this article was originally published on Crushing Mediocrity. The article appeared here at Q4intel.com.

The Shifting Sands of Group Benefits

If there is one thing that is consistent within the group and voluntary benefits market, it is that nothing is consistent. From year to year, market changes make it very difficult for insurers to get settled into a comfortable framework for moving forward.

Consider what insurers have to contend with:

  • Shifting mandates and regulations within the Affordable Care Act.
  • An increasing number of benefit administration firms and benefit enrollment partners.
  • Employer interest in increasing the number and type of voluntary benefits to produce well-rounded packages.
  • Employer requests to administer products and billing in ways that fit their systems and processes.
  • Increased need for accessible reporting so HR departments can track usage within their employee populations.
  • Market saturation from companies wanting to enter the voluntary and worksite space.

Though we can’t cover solutions to all of these in this blog entry, we can quickly look at strategies that make sense with the increasing number of players in the market.

In the past, carriers had a very close relationship with the employer market. Because of the complexity of employee benefit communication, especially in the large employer market, employers are engaging benefit administration firms and benefit enrollment partners. These partners will often offer a free or subsidized service; they bring relationships to the carrier and earn commissions that offset enrollment cost for the benefit partner.

The key benefit partners in the industry have begun to integrate with carriers before the sale. This allows a benefit partner to offer multiple carrier products for a single employer. Further, this will help ensure that the communication between the benefit partner and the carrier is predictable. Because brokers and benefit partners are, more than ever, responsible for bringing the benefit relationship to the carrier, integrating with them is as much a strategic need as it is an efficient way of transferring data.

Insurers are attracted to the group market because one sale means hundreds or thousands of premiums. Catering to and selling through brokers and benefit partners takes that multiplication to exponential proportions AND supplements an insurer’s own sales efforts. But many brokers will only carry lines of business that are simple to administer and prepared for the higher volume from a wider array of companies. Both of those questions are answered with technology solutions.

Most insurers are by now familiar with shifting sales channels. The difference in this case is that group benefits providers need to prove their abilities to meet employer needs and remain flexible to broker requests. In this and other areas, insurers need to prepare their systems for the future by building a foundation that is solid and proven, yet agile enough to handle the market’s unpredictability.