“Payroll is our next distribution channel”, an insurer assured me last week. We were at Sage Summit, inspecting “Sage People” and the employee benefits package that was launched late last year to Sage 50 users,
My mind went back to the late 1990s when I sat in a room full of management consultants to be told that Eagle Star would, by 2020, be delivering its entire product range through “worksite marketing” (I still have the paper!).
In practice, “product penetration” through employers has been pretty feeble. In those early days, pioneering employers such as BT offered everything from life insurance to lawn mowers in catalogues that made them look more like Argos than a telecoms giant. But staff quickly worked out that Argos was cheaper and that they didn’t want their employer keeping track of their day to day spending.
Voluntary benefits had to have an “edge” and while the “trusted employer” was fine for company sponsored benefits (pensions, group life, PHI and medical), there needed to be a better hook. The next hook was “flex”. Flexible benefit systems bore the second wave of worksite marketing and its tide went higher up the shoreline, embracing medium-sized companies with progressive HR strategies. HR devised- payroll delivered and the key was salary sacrifice. With employer national insurance savings at 10% +, the hook was tangible. Even where the NI saving was shared, products delivered via flex stacked up.
Recent legislative changes have reduced the scope of salary sacrifice and the initial enthusiasm for flex has settled down. For organisations that embraced flex, the investment in consultancy and software has still to be recovered; flex is maintained but the attraction to HR and Reward teams has reduced.
For financial services providers, the cross-selling of personal savings products – especially ISAs, has proved a workplace wash-out. Feedback from staff remains the same, the product is cheaper elsewhere and employees don’t want my employer seeing what they’re able to save.
Some insurers have gone beyond flex and offered employers a bundle of services designed to empower employees to take decisions in the insurer’s general direction. These are liberally coated with financial guidance and ground-breaking marketing. Again employees have seen right through it – they don’t want to buy financial education that way!
We are now on to the third wave of worksite marketing and the hook has changed again. The national insurance savings are lower and so is the profile of the insurance company. Pensions auto-enrolment has taught financial services companies the power of inertia selling and it’s woken them up to the latent capability of payroll to deliver as a distributor.
Put bluntly, if payroll can manage auto-enrolment, they can manage anything.
The key attraction of payroll to a financial services provider is its capacity to manage data. With payroll software increasingly talking with pension providers through APIs, the opportunities seem endless. I quote from a recent email from a speculative Fintech start-up.
“Anonymised data can be passed to insurers who can deliver underwritten pricing based on real time information. Once purchased, a benefits program can be managed and maintained by payroll as little or no marginal cost”.
There may be some hollow laughter from some readers, especially at the last sentence!
It isn’t just Sage who have seen the opportunity, Hi-bob, pensionsync and a host of fin-tech start-ups you’ve yet to hear about, are launching products delivering packages of benefits which can be purchased by the employer. The cost of these packages can be retained by the business or passed on to the employer, the hope of the packagers is that the default position is that staff will have to opt-out.
The question is whether a payroll driven approach can succeed where HR and Reward driven approaches have failed. Part of the answer may be in the size of the new market. Sage are launching this service at their core constituency of “customers for life”, the hundreds of thousands of businesses for whom Sage is a part of the infrastructure.
While Sage will argue that their trusted brand can succeed where others have failed, the proof of that concept has yet to be delivered. We watch with interest. The chances of the young hopefuls depend on their agility, marketing clout and most importantly – the delivery of the technology to make this work. The pack will thin out, but it’s likely that a handful of the young pretenders will provide benefit packages as “value adds” to auto-enrolment – even to the micro employers.
Payroll makes possible mass-marketing to parts of the UK workforce that previously have been served by IFAs. The attraction of employee benefits programs to IFAs have dwindled, partly because there are richer pickings elsewhere (pension freedoms) and partly because the abolition of pension commissions cuts off the oxygen of easy remuneration.
For the insurer I spoke to at Sage Summit, payroll is not just the new distribution channel, it’s its replacement for the financial advisor.