BAO market reaches US$5.4 billion in ACV
DALLAS, September 22, 2011 ─ The global Benefits Administration Outsourcing (BAO) market, largely fueled by employers needing help navigating recent healthcare reform measures in the United States, is growing at a rate of 12.5 percent this year and has crossed the US$5 billion mark, according to Everest Group, an advisory and research firm on global services. A one-hour webinar will be held October 11, 9 a.m. CDT, to present study findings and insights.
Everest Group’s Human Resources Outsourcing (HRO) market report, Benefits Administration Outsourcing Annual Report – The BAO Market: Mature Yet Dynamic, finds that buyers are outsourcing Health & Welfare services at four times the rate they are adopting outsourced pension-related services. Everest Group estimates the global BAO market is about US$5.4 billion in annual contract value (ACV) and the untapped BAO market at US$20-22 billion.
“While cost reduction, compliance and improving employee engagement continue to be drivers of BAO adoption, the theme for 2010-2011 was healthcare reform in the United States, which brought increased enrollment, introduction of insurance exchanges along with increased regulation of insured and self-insured insurance plans,” said Rajesh Ranjan, research director. “Although these reforms will take a number of years to come into effect, there are several provisions impacting employer benefit plans this year. Consequently, we’re seeing buyers looking at outsourcing as an option to understand the reforms, navigate the complexities and identify new savings potential.”
In addition to new deal signings, several second- and third-generation deals are also shaping up the overall BAO market. “Instead of auto-renewals, several existing buyers are more deliberate in their end-of-term strategy decisions and often evaluate their next generation option by going out in the market,” said Ranjan.
Other insights in the report include:
- North America continues to be the dominant market for BAO, while adoption also continues to increase in Europe where demand is expected to increase, particularly in the United Kingdom and Germany.
- More than 97 percent of BAO contracts are single-country in scope due to buyers seeking cost reductions more quickly.
- Large enterprise buyers increased adoption of BAO in 2010-2011, accounting for 78 percent of the participants managed.
- Global sourcing leverage increased in 2010-2011 with more complex work delivered from low cost locations.
- Manufacturing continues to be at the forefront of BAO adoption, and increased adoption is rising in underpenetrated sectors such as government and services industries.
Overall, Aon Hewitt and Fidelity lead the BAO market with a combined market share of nearly 50 percent in terms of ACV. Other BAO service providers covered in detail in the analysis are ACS-Xerox, ADP, Ceridian, iGate Patni, Infosys, ING, Mercer, Secova and Towers Watson.
“We’ve seen the highly competitive BAO service provider landscape evolve as the result of mergers and acquisitions,” said Ranjan. “The BAO market also saw significant activity by some service providers that built up additional capabilities across technology, processes and delivery models. Additionally, many service providers are differentiating themselves through specialization by focusing on geography or process scope.”
The scope of the analysis includes all BAO contracts comprised of at least one of the following service segments: Health & Welfare, Defined Benefits and Defined Contribution; contract length of at least two years; buyer employee size of 3,000 employees or more; and service providers that offer benefits as a stand-alone outsourcing service.
The webinar will be held October 11, 9 a.m. CDT; 2 p.m. GMT Standard Time. To register, please visit: research.everestgrp.com/Events/Webinars.
For more information about the report, Benefits Administration Outsourcing Annual Report – The BAO Market: Mature Yet Dynamic, other HRO research reports or other research services, please visit research.everestgrp.com, email [email protected] or call +1-214-451-3110.