INVESTMENT CONSIDERATIONS – INDUSTRY
Group Benefits Plan Management:
Massive Industry – over 20,000,000 Canadians participate in Group Benefits Plans spending in excess of $33.0 billion annually, which has grown 75% over the past 10 years.
Archaic, Inflexible Technology – there are 6 primary adjudication platforms in Canada. Over 70% of the industry uses two mainframe environments over 25 years old.
Outsourcing The Norm – ten Insurers dominate 98% of the group benefits industry. All except one (3.6% market share) outsource their Adjudication and major parts of their administration and reporting. Claims processing is the domain of multiple suppliers.
No Incentive to Innovate – all client premiums are typically reset annually based on claims experience and other factors. There is minimal incentive to improve technology from either Insurers or other service providers.
Recession-Resistant Annuity Revenue – Group Benefit growth rates since 2001 of 7% to 8%, falling to 3% to 5% in the period since 2009, increased to over 5% in 2011. Steady growth even during recession.
Health Claims Processing:
Health Benefit claims processing is over $20.0 billion in Canada and growing. Clients require unique customized solutions. A fragmented group of service providers with fragmented technology solutions and many manual business processes overlaps with group benefit claims processing technology providers. There is a massive opportunity for automating processes and the revenue streams are highly recession resistant.
INVESTMENT CONSIDERATIONS – SEB
Experienced and Accomplished Management/Directors – Over 250 years combined insurance, business building and acquisitions experience.
Technology Competitive Advantage
Ownership – SEB is unique in that it owns a leading technology platform in an industry where outsourcing is the norm. Single Integrated Platform – all administration-adjudication-reporting is managed in one fully integrated technology environment. Services and Solutions Offering Captures More Revenue – Ownership of the technology platform allows SEB to consolidate and capture more of the revenue within its environment; Revenue is currently split among multiple service suppliers and insurers. Predictable Scalable Cost Structure – solutions and services are largely executed by technology where the people component is low cost and easy to scale. Highly Customizable Solutions – The SEB technology solution is highly customizable, quickly and cost effectively.
Client Value Proposition – better pricing and service is made possible by capturing more revenue, greater control over cost structure (due to technology ownership) and more comprehensive, high value added solutions and service offerings, including ability to administer and adjudicate the most complicated Plan Designs and claims processing.
Minimal Working Capital Requirement – Clients pay for services in advance, reducing working capital requirements. A typical Group Plan Member results in over $500 cash float. 100,000 plan members result in over $50.0 million free cash float.
Growth Strategy: both organic and acquisition, based on a client referrals/transition model and long term supply arrangements. Joint Ventures – turnkey solution for parties who see group benefits as a big growth opportunity (property and casualty brokers, payroll companies, etc.). JV partners refer clients and share in profits. Acquisitions –fragmented industry with a lot of older owners looking for exits. Focus is on acquiring or investing in TPAs, Consultants, Brokers and other Technology companies who are major influencers in the sales process. Transitioning clients to the SEB platform significantly enhances revenue growth and profitability.