Changing times in the benefits provider market

If you read nothing else, read this…

• The benefits provider market is in a constant state of change as organisations merge, move around or withdraw from certain sectors.

• Forthcoming legislation, such as the Retail Distribution Review and the 2012 pension reforms, can be credited as drivers behind changes in the market, as providers review their offerings to deliver high-quality and cost-efficient services.

• As the market and employer requirements change, providers must be prepared to be flexible.


Case study: City and Guilds takes advantage of partner suppliers

Vocational qualification awarding body City and Guilds saw the need to deliver value to staff at a time when reward is under pressure, so it took advantage of the partnership between Thomsons Online Benefits and Asperity EmployeeBenefits.

Under the providers’ joint venture, formed in 2008, Thomsons offers Asperity’s Reward Gateway as its voluntary benefits scheme.

City and Guilds started working with Thomsons on its flexible benefits scheme in July 2010, when the provider offered the opportunity to take up Asperity’s online retail and leisure discount portal.

Chris Coyne, group head of reward at City and Guilds, says: “When we came to the scheme design, we looked at whether this [online discount portal] was an appropriate thing for us to be offering. Was it going to be a helpful addition to our package?

“The advantage of the portal is that at a time when employers are struggling to do anything particularly exciting with salary reviews, this is a way of delivering immediate savings to employees in hard times.”

City and Guilds launched Asperity’s scheme to its 900 UK employees in November 2010, and has found that working through one contact point has saved it time and resources in terms of checking the reputation of a provider and sourcing references from other employers.

“It was definitely useful to have a one-stop shop in terms of a consultant which could front the whole thing,” says Coyne.

“Through the single contact we had with Thomsons, we did not have to worry about setting up relationships and liaising directly with Asperity. The interface could be done for us and handled by Thomsons rather than us having to deal with two project managers.”

The benefits provider market is in a state of flux, with consolidation resulting in some providers seeking to be a one-stop shop while others narrow their focus, says Tynan Barton

Change is the only constant. Never has that statement been truer than when discussing the benefits provider market.

In the past 18 months alone, there have been mergers between consultancies Towers Perrin and Watson Wyatt to form Towers Watson, and between Aon Consulting and Hewitt Associates to form Aon Hewitt; Resolution has acquired Axa Life and Bupa Health Assurance to join previous acquisition Friends Provident; and Aegon has withdrawn from the group risk and third-party pensions administration markets.

Kim Honess, head of flexible benefits at Mercer, says: “There are different things going on. I am not sure if there is a complete trend of one thing or another, other than constant change.”

One definite trend is consolidation and partnership-forming by providers to strengthen the services they offer employers. Acquiring or merging with other businesses is one way for providers to increase the range of products on offer and win greater market share. For example, Thomsons Online Benefits formed a partnership in 2008 to offer Asperity’s Reward Gateway as its voluntary benefits vehicle. Similarly, Asperity recommends partners, such as Thomsons Online Benefits, Truestone Employee Benefits or Benefex, to clients that want to extend their reward offering beyond voluntary benefits.

One sector that has seen a lot of consolidation and partnership activity is flexible benefits. For example, last month Enrich added PeopleValue’s discount shopping channel to its flex product, and last October Towergate Financial linked up with Staffcare to launch a corporate benefits portal.

The flex market was once led by the larger HR consultancies, but more boutique houses and technology providers have now joined the fray. Andrew Erhardt-Lewis, senior manager, consulting at Deloitte, says: “Initially, flexible benefits were an HR-driven, engagement, employee-deal component. That is why it was the big HR houses that kicked it off. Then having slick technology that could change quickly and adapt to the latest trends became more important, so that is part of the reason for the shift.”

Employers focus on value for money

Although the financial crisis has made everyone tighten their purse-strings, employers have always focused on reducing benefits costs and getting value for money from providers, while continuing to provide perks that employees value.

This may have caused changes in the market, with providers looking to partnerships and product expansion to offer employers more choice. Steve Payne, chief executive at Bupa Health Assurance, says: “With employers under pressure to control their own costs, it makes more sense to provide products that are better targeted at employees’ needs, rather than the traditional solution of one size fits all. We expect that trend to continue in these austere times.”

So, as employers seek to deliver valued benefits cost-efficiently, they are driving changes in the market. Angela Wright, senior lecturer in HR management at Westminster Business School, says: “There would be some measure in providers getting together, and saying ‘we are going to offer all these [benefits], because it would reduce the costs’.”

Other factors behind the market changes include the forthcoming Retail Distribution Review (RDR), which will force advisers to move away from commission and towards fees or consultancy charging. Adam Potter, head of corporate pension sales at Aegon, says: “The adviser and consultancy market has to look at itself and say: ‘What is the best shape for me in the future? Is the sort of thing I should be doing in the future what I have been doing in the past? Or should I be doing it in a different way?’ Sometimes it is very easy to carry on with what you have always done, and sometimes you need to break it apart and review it.”

With legislation such as the RDR and the 2012 pension reforms approaching, providers are focusing on the efficient delivery of products, while benefits manager are aiming to provide cost-effective perks. Andrew Morris, business development director at NorthgateArinso, says: “Clearly, there is pressure on providers to look at price, to be innovative with the products they are offering. The [employer] is keen on getting a high-quality service at the most efficient price, and the market has to respond to that.”

Providers look to provide one-stop shop

Alongside consolidation in the market, some providers are looking to expand the range of products they offer, in effect, striving to create a one-stop shop for benefits. Such a unified approach can help to cut procurement administration, which is a key advantage for employers, says Alan Foley, director HR and payroll division at Equiniti ICS. “Organisations, particularly in the public sector, are looking more at outsourcing rather than going through the whole procurement process, say for payroll services and then going out to tender again for HR admin services or flexible benefits administration,” he says. “It reduces the amount of procurement effort they have to put in.”

Having a single access point for multiple benefits can be advantageous to both employer and provider. The employer, in giving more business to that provider, will be perceived as a better customer, so will be able to leverage concessions, says Foley. “If, as an organisation, you are looking to procure more services, then you have more commercial clout. It is a bigger deal, so you can talk about discounts to a greater degree.”

Time efficiency can also be gained because, rather than having four or five meetings with different providers, employers can have one meeting with a single provider that is offering four or five services.

However, particular expertise is needed to work on the different components of a benefits package, so a true one-stop shop will need to cover all bases properly. For example, Deloitte’s Erhardt-Lewis says that although flex schemes were driven by tax-efficient benefits when they were first introduced, tax has not been as high a priority among providers as it should have. Ensuring compliance with HM Revenue and Customs’ requirements may not be cheap for a multi-benefit provider, especially if it does not have in-house expertise. “Tax advice is back in vogue because it is a true requirement to make sure [the benefits scheme] works,” he says. “Tax advice by tax experts may not be cheap.”

Best of both worlds

Working with an intermediary such as a benefits consultant helps to give an employer the best of both worlds. A consultant will have an overview of the market and can draw together providers on an employer’s behalf. Mercer’s Honess says: “A consultant can deal with different providers for pension, life assurance, private medical insurance and childcare vouchers. It is unusual to find one company that does all of those.”

Erhardt-Lewis says a consultant will spearhead the operation, with benefits supplied through a third party. “For example, consultancy would do the consultancy and some of the design, and might even have administrators to do the work, but the technology will be outsourced and the tax would come from one of the big four [accountancy firms],” he says. “Realistically, that is what will continue to happen.”

At the other end of the spectrum, some providers have drawn back from operating in multiple areas and are focusing on a single service. Aegon’s Potter says: “Part of this is down to the employer – would it put all its eggs in one basket? Some would say yes, because they would acquire better bargaining power. But others would say ‘we will go best of breed and drive hard bargains’. We pulled back from the group risk market because we could not get critical mass and economies of scale against the major players. The business left is very good at what it does.”

Despite the constant change in the benefits provider market, one imperative remains – to meet employers’ requirements. “It is very much a state of change,” says Equiniti’s Foley. “You need to be in a position where you can be flexible and agile.”


Examples of movement in the provider market


Under its strategy to refocus on retirement and workplace savings products, Aegon closed its group life, group income protection and group critical illness propositions in 2009, and sold its third-party pensions administration
business in 2010. In July 2010, Aegon UK also signed a deal with GBST, a provider of wrap technology systems, to help it deliver atretirement and workplace savings services.

Aon Hewitt

In October 2010, Aon Corporation completed its merger of Hewitt Associates with a subsidiary of Aon, to create human capital solutions firm Aon Hewitt.

Bupa Health Assurance/Resolution

Resolution and its subsidiary, Friends Life, acquired Bupa Health Assurance (BHA) in February this year.

BHA’s group life, critical illness, income protection and flexible benefits arrangements will become fully integrated with Friends Life after operating as a stand-alone entity for nine months. This followed Resolution’s acquisition of the Axa UK life businesses comprising protection, corporate benefits and pensions in September 2010. Friends Life, the new brand name for the combined business, launched last month.

Busy Bees

Childcare provider Busy Bees Benefits relaunched in the childcare voucher market in late 2010 after selling its original business to Computershare in 2008. When Busy Bees originally entered the market, it was looking to make childcare more affordable for parents who use its nurseries. It has now extended its benefits to include employment law advice, and will launch bikes for work, mobile phone and car care schemes this year.


Equiniti acquired ICS as a payroll service provider in 2009 and to provide share registration services to add to its portfolio in terms of business processes on offer. In 2010, it formed the Equiniti Group in partnership with pensions administration firm Xafinity to strengthen its outsourced services.


Benefits technology provider Staffcare has formed a number of partnerships within the benefits market. These include deals with Mercer in 2008, BDO Investment Management in February 2010, Towergate Financial in October 2010, Origen Financial Services in January 2011 and Midland HR in March 2011.†

Towers Watson

The merger between consultancies Towers Perrin and Watson Wyatt was completed in January 2010 to form Towers Watson.

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