Benefits Administration Outsourcing (BAO) Annual Report 2011: The BAO Market - Mature yet Dynamic

20 Sep 2011
by Rajesh Ranjan



Benefits Administration Outsourcing (BAO) is one of the largest and most mature markets in HRO. However, due to healthcare reform, rising benefits cost, the need to drive greater employee engagement in an uncertain economic environment, and service provider consolidation, this market continues to remain dynamic. Buyers are increasingly turning to outsourcing service providers, to help them navigate the complex legislations and compliance requirements in addition to achieving cost reductions. The rapidly changing service provider landscape, technology advancements, and global sourcing are making both new and existing buyers look at their options afresh. On the other hand, solutions that meet buyers’ current and future needs and are differentiated offerings in hyper-competitive environment, are key contributors to the service providers’ success.

In this research, we analyze the BAO market across various dimensions:

  • Market overview and key business drivers
  • Buyer adoption trends
  • Current transaction characteristics
  • Service provider landscape
  • Implications for buyers and service providers

Frequency of inclusion of core BAO areas 

Scope of analysis

  • All BAO contracts where at least one of the following core-benefits areas is included – Health and Welfare (H&W), Defined Benefits (DB), and Defined Contribution (DC), as a stand-alone outsourcing service with buyer employee size of 3,000 or more
  • This study does not include those arrangements where only technology is outsourced (similar to ASP/SaaS model) or one-time project-based support services are required
  • Coverage across 11 service providers that have signed at least one BAO transaction including ACS, ADP, Aon Hewitt, Ceridian, Fidelity, Infosys, ING, Mercer, iGATE Patni, Secova, and Towers Watson

Delivery locations landscape for BAO market 


This research report provides a comprehensive coverage of the BAO market and analyzes it across various dimensions such as market overview and key business drivers, buyer adoption trends, transaction characteristics, and service provider landscape. It also identifies key implications of the research findings for buyers as well as service providers. Some of the findings in this report, among others, are:

  • In 2011, the global BAO market witnessed a healthy growth of 12.5 percent to reach US$5.4 billion in annualized revenue
  • While the pension market (DB & DC) is three times larger than H&W, the latter is growing almost four times higher than the former
  • Notwithstanding the North America dominance, BAO adoption in Europe is on the rise
  • Large market witnessed increased BAO adoption during 2010-2011
  • Buyers’ preference towards a phased adoption approach led to the decline in average deal size in 2010-2011
  • Global sourcing leverage increased in 2010-2011 with more complex work moving to low cost locations
  • Technology innovation increased the value proposition of BAO
  • The BAO service provider landscape continues to consolidate as a result of significant mergers and acquisitions
  • Overall, Aon Hewitt and Fidelity lead the market in terms of market share. However, the service provider landscape is intensely competitive with several providers building capabilities through organic and inorganic means
  • Services providers in the BAO space have created their area of specialization by either focusing on geography or process scope

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