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Our industry is in desperate need of transformation. In fact, wehave made that transformation our relentless focus atQ4intelligence. Of course, like change for change sake,transformation without a healthy focus is, as you'd expect,unhealthy. And, in my opinion, it is an unhealthy “transformation”Zenefits has brought to the industry.

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I'm sure you're sick of hearing about them, but don't stopreading yet. This article isn't really about them; rather, it'sabout a weakness of our industry that they have exposed and, inmany ways, are perpetuating at an exponentially faster rate. Iwould argue they aren't truly transformational at all, but areactually the most visible example of why this industry needs real,healthy transformation.

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More than being given credit for a “transformation,” the guy whostarted Zenefits is being hailed as some sort of innovative player.There is a grain of truth in that, but it has NOTHING to do withthe way they are competing. The only innovation they can be givencredit for is the technology solution that is the key to theirsuccess. And, to be fair, they seem to have developed an innovativesolution (HR administration system) that is very attractive toemployers. It evidently satisfies a real need, so much so that aridiculous number of employers have made Zenefits their broker ofrecord in exchange for receiving the solution for free. Good forZenefits. I'm not convinced it's so good for those employers.

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What's wrong with the Zenefits model

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Now, I don't know who I am to criticize the business model of astartup company who has successfully raised $80 million in venturecapital, but I'm going to do it anyway. Beyond developing thissolution, Zenefits' business model is based on the oldest play inthe producer playbook. Their pitch to their prospects is, “We'llgive you our solution for free, and all you have to do is make usthe broker of record.”

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I feel that Zenefits, or anyone else who makes such a myopicpitch for business, is setting themselves up for future problems.Beyond that, I also believe such an approach has the potential tobe misleading, irresponsible, and problematic for the clients.

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The way I see it

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Zenefits appears to pride itself on being the outsider cominginto an industry to “do it better.” I'm going to share an insider'sview of what they appear to be doing, where I believe flaws exist,and how the brokers they are trying to put out of business cancompete with them.

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I feel the following assessment is fair because the Zenefitsapproach isn't really new at all. It's the same approach I've seenused by other brokers, and it's the same approach I have beencriticizing for quite some time. As I identify the flaws in thisapproach, be honest about how many of them you have in your ownmodel.

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Flaw One

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The first fatal flaw of so many brokers is pretending to befree. If “we're free” is your message, what happens when thecarriers slash or remove commissions and your agency is suddenlyfaced with a revenue stream that is a fraction of what it once was,if it still exists at all?

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Flaw Two

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The second flaw is the result of an approach myopically focusedon a single, however valid, need of the employer. As soon as theemployer has another need that becomes more critical, or oncesomeone else creates a superior solution to that single need, thatemployer will once again be assigning a broker of recordletter.

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Flaw Three

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The third flaw is in a service center model. I'm not saying thatin today's technology-driven world, there aren't services than canbe delivered remotely. However, it is my belief that those servicestend to be restricted to tactical and transactional. I also believethat a service center model would struggle to meet the strategicneeds of the relationship. I have to believe that someone sittingin a cubicle with calls in queue will not be able to provide thesame level of strategic advice and guidance as a local broker whohas the time and ability to truly learn the business of theclient.

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Flaw Four

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The fourth flaw is in just how expensive a “free” solution couldprove to be. Sure, there are many instances when, in terms of theinsurance policy, the price is the price. However, in a typicaltransactional model the emphasis tends to be on speed and quantity.Often times this emphasis is at the cost of effectivelyestablishing plan design strategy, implementing cost controlmeasures, and in aggressively negotiating renewals.

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The costs can add up quickly. If every 10 employees (averaging$7,000/year/employee) are overpriced by 3 percent as a result of atransactional model, then a “free” service could be costing them asmuch as $2,100/year for every 10 employees. And, those clientscould be overpaying by 5 percent to 10 percent with the wrongfunding mechanism. “Free” is all of a sudden very, expensive andsound strategy and advice very, very valuable.

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Flaw Five

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The final flaw could be the most dangerous of all. I was havinga conversation with Brett Rosen, SVP of M&A for DigitalInsurance, and he really shed some light on this point. As he socorrectly identified, the health and financial lives of theemployees and their dependents depend on having a comprehensiveplan beneath them. It is the strategy that goes into benefitsselection, an insightful eye during contract review, and aneffective education and communication strategy that provides theprotection they need when it comes time to make a claim – a timethat has the potential to be one of the most difficult andstressful times in their lives.

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At these moments of greatest need, NOBODY cares the payroll andadministration systems were “free.” The employee and theirdependents are worried about one thing: Were the right benefitsdecisions made? They depend on those decisions to help ensure theyget the treatment they need.

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Beyond being concerned for the employee or dependent, theemployer has another concern. As the plan sponsor, the employerdepends on having made those right decisions to ensure they haven'tput their business at risk. Could it be argued that the result ofchoosing a “free” solution (from anyone) over sound advice is thatthe employer failed to satisfy their fiduciary responsibility?Obviously, this is a position in which NO employer ever wants tofind himself.

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My Call to Brokers

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Don't cower to anyone who tries to compete with a myopicallyfocused, single solution; expose the flaws in their approach. WhileI absolutely believe that such an approach poses an immediatethreat, I don't believe it will prove to be a long-term threat, atleast not one of any significance. Again, make sure you aren'texposed to the same flaws.

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Running an agency and/or a book of business is harder than ithas ever been before. Employers are more demanding, they need helpin ways they haven't before. The challenge to stay on top oftrends, legislation, and compliance requirements increases everyday. Your commitment to staying on top of all of this should giveyou an unbelievable advantage over most anyone, no matter howintimidating they first appear.

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Don't let Zenefits be another distraction. Don't fall into thetrap that you have to give more away for free than they do in orderto keep your business. You do that and you will be out of businessin a heartbeat.

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Let Zenefits be a call to action. They are hungry and aggressiveand are hunting in your backyard every day. Beneath theintimidating presence they have created is a vulnerable valueproposition against which you can compete successfully.

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It takes a team

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I realize most of you don't have the resources to address thelaundry list of needs I mentioned above, and may be too small toafford them on your own. However, I do believe you have thecapacity to create collaborative networks with other professionalswith whom you can collectively address those needs. Your job is tobuild the coalition and then be the “quarterback” of thatgroup.

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Your ability and willingness to collaborate may be the mostpowerful approach you can take. Zenefits seems to have made thedecision to go this alone and, to my knowledge, are not interestedin collaborative efforts. As strong as their single solution mightbe, it pale in comparison to the value proposition you can providethrough a strategic and collaborative effort.

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If you are losing business to Zenefits, it's because yourclients see their one, single solution as more valuable thaneverything you are doing for them. If that's a fair assessment,then maybe you deserve to lose the business. If it's not fair, thenyou need to communicate with your clients more effectively aboutwhat they need, and should expect, from their broker.

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Build your own

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Go build the team that competes in a game Zenefits and othercompetitors don't even recognize.

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This is the type of transformation we're driving because it'swhat our industry and clients need. Not only is transforming inthis healthy manner critical to your business, it's also criticalto the business of your clients.

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