Milliman’s gradient A.I. platform brings first A.I. predictive analytics solution to professional employer organization (PEO) market

Milliman, Inc. Press Release, March 19th, 2018 (gradiant a.i.)

Milliman’s gradient A.I. platform brings first A.I. predictive analytics solution to professional employer organization (PEO) market


SEATTLE – MARCH 19, 2018 – Milliman, Inc., a leading global provider of actuarial, risk management, and technology solutions, today announced that gradient A.I., a Milliman predictive analytics platform, now offers a professional employer organization (PEO)-specific solution for managing workers’ compensation risk. gradient A.I. is an advanced analytics and A.I. platform that uncovers hidden patterns in big data to deliver a daily decision support system (DSS) for insurers, self-insurers, and PEOs. It’s the first solution of its kind to be applied to PEO underwriting and claims management.


“Obtaining workers’ compensation insurance capacity has been historically difficult because of the lack of credible data to understand a PEO’s expected loss outcomes. Additionally, there were no formal pricing tools specific to the PEO community for use with any level of credibility – until gradient A.I. Pricing within a loss sensitive environment can now be done with the science of Milliman combined with the instinct and intuition of the PEO,” says Paul Hughes, CEO of Libertate/RiskMD, an insurance agency/data analytics firm that specializes in providing coverage and consulting services to PEOs. “Within a policy term we can understand things like claims frequency and profitability, and we can get very good real-time month-to month directional insight, in terms of here’s what you should have expected, here’s what happened, and as a result did we win or lose?”


gradient A.I., a transformational insurtech solution, aggregates client data from multiple sources, deposits it into a data warehouse, and normalizes the data in comprehensive data silos. “The uniqueness for PEOs and their service providers – and the power of gradient A.I. – emerges from the application of machine-learning capabilities on the PEOs data normalization,” says Stan Smith, a predictive analytics consultant and Milliman’s gradient A.I. practice leader. “With the gradient A.I. data warehouse, companies can reduce time, costs, and resources.”

To learn more, go to For more on how gradient A.I. and Libertate brought predictive analytics solutions to PEOs, go to


About Milliman

Milliman is among the world’s largest providers of actuarial, risk management and technology solutions. Our consulting and advanced analytics capabilities encompass healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit

Contact: Stan Smith
Milliman, Inc.
Tel: +1 781 213 6278

Chase Pettus
Milliman, Inc.
Tel: +1 617 999 3577

Published with the permission of Milliman, Inc. 

Is the PEO industry poised for growth?

Is the PEO industry poised for more growth, and if so, at what level?


Is the PEO Industry Poised For Growth?

Revenue in the PEO industry has almost doubled (+92%) over the last 12 years.[1] Since 2006, the average annual growth rate for the industry has been 7.66%. In the most recent five years (2012-2017), the average annual growth rate was 10.69%. In the previous seven years (2005-2012), the annual average growth rate was 3.58%. The past five years represent an increase in annual growth over the previous seven years of roughly 200%. However, it is important to review the drivers as to why growth has increased in the last five years to determine if this trend is likely to continue.


Annual growth rate for the  PEO industry from 2006 through 2017


The United States has experienced a robust economy over the last five years (2012-2017) which has contributed to the annual growth rate within the PEO industry. Within the previous seven years (2006-2012) the US experienced the great recession, which affected industry growth. Toward the beginning of the great recession (2009), the PEO industry experienced its only negative year over year growth rate in the last 12 years. However, during the recession, PEO’s continued to add new business. Some of this gain was offset by a reduction in existing client workforce, hours and wages. Once the economy flipped for the better, the industry realized a spike in revenues when both the new business added and existing client base began to grow. While the economy certainly affects revenues, the industry can continue to grow in a robust and sluggish economy. During a sluggish economy, SMBs look to gain efficiency and the PEO model shines. However, industry revenues may not fully illustrate the new business growth until the economy levels out.

Regulatory Changes

Regulatory changes affect the PEO in multiple ways. For example, the Small Business Efficiency Act (SBEA) provided increased recognition for our industry through the creation of the CPEO process. From an external perspective, regulatory changes generally bode well for the PEO industry. When the Affordable Care Act (ACA) compliance came due for many employers in 2014, the PEO industry experienced an annual grow rate increase of 21.26%! It was the combination of new business added during the recession, a robust economy, and ACA regulatory requirements for SMBs which positively affected recent industry revenue growth. Moreover, any additional regulatory changes as a result of the new administration will likely have an affect on the PEO industry should regulatory requirements for SMBs shift.

Interest Rates & The Stock Market

Interest rates and the stock market impact the PEO industry and its clientele. When interest rates are low, access to capital is cheap. When the stock market is performing well, money is making money. The combination of low interest rates and a robust stock market court business expansion and new startup ventures. The result is same store sales (existing PEO business) expansion and new SMBs entering the market. The same is true within the industry itself. PEOs with access to cheap capital are more prone to focus on growth initiatives and M&A activity. Additionally, new PEOs enter the market at a higher rate than when interest rates are higher and the economy is sluggish.

Mergers & Acquisitions

Cheap access to capital and a thriving economy court higher interest from M&A parties. Publicly traded PEO valuations are elevated. PEO revenue growth is higher. Investors are striving for gain on their assets in lieu of focusing on asset protection during a down economy. As a result, we are seeing high multiples paid and increased activity and interest with the PEO industry. As the industry continues to mature and legitimize, interest is likely to increase within the space. Consolidation within the industry provides scale with the market’s top players. Scale allows for greater efficiency and favorable purchasing power for the PEO. These factors will likely contribute to future growth within the industry.


Current indicators support continued growth within the PEO industry. The United States is currently experiencing a robust economy. A new administration in the White House has the propensity to drive regulatory changes. The stock market is bullish and interest rates are low. M&A has been driving increased consolidation within the industry. The combination of these factors support continued growth.


However, it is important to note that the external variables mentioned are fluid. In other words, over time they will change. The economy is cyclical. The Fed has continually suppressed interest rates to support a growing economy, but sooner or later this will change.

The United States hasn’t experienced double digit inflation since the late seventies, early eighties. This could potentially change within the next ten years. When the economy flips, PEOs will likely experience a reduction in same store sales. This will be due to SMBs reducing hours, wages and workforce to cope with a sluggish economy. The PEO industry will continue to add new business during a down economic period. Though the full impact of that new business added won’t likely be visible until the economy rebounds.

Based on the variables at hand, it is likely that the PEO industry will see moderate growth over the next ten years with a potential for spurts. Any major regulatory changes affecting SMBs could accentuate growth. Some PEOs will outpace others but on a macro level, moderate growth is probable due to a likely shift in the economy over the next decade. If the economy remains strong over the next ten years, higher revenue growth in the PEO industry is expected.


There are many internal and external drivers that influence growth within the PEO industry. This article touched on a few external drivers. Look for our article on internal and external growth drivers in NAPEO’s April addition of PEO Insider Magazine.


Author: Rob Comeau is the CEO of Business Resource Center, Inc., a business consulting and M&A advisory firm to the PEO and private equity industries. For more information on Business Resource Center, Inc. or to reach Rob, visit them on the web at or you may contact Rob at


[1] IBISWorld Industry Report 56133

PEO Industry Statistics

PEO Industry Statistics & Commentary

PEO Industry Statistics & Commentary.


The PEO industry has grown significantly over the last five years and has garnered attention from both investors and private equity firms.  The positive cash flow that is generated from PEO operations is, to an extent, somewhat predictable and therefore provides a viable option for long-term investment opportunities.  At a high level, we will cover the PEO industry statistics in this article allowing you to become more familiar with the industry as a whole.


Industry Size

As of 2015, the gross revenue for the PEO industry was $168.7bn[1].  The client WSE wage segment of this revenue came in at $146.4bn[2].  This represents an average pricing markup of 15.23%.  The net revenues for the industry were $22.3bn.  The net profit for the industry in 2015 totaled $843.3MM.  This represents profit as a percent of net revenues of 3.78%. There is estimated to be between 780 and 980 PEOs in existence today according to the National Association of Professional Employer Organizations (NAPEO).


Market Dominance

The PEO industry is currently top heavy with three players representing almost half of the industry revenue.  TriNet, ADP Total Source and Insperity are the market leaders with roughly 48%[3] of the industry market share.  The market has been one of consolidation over the last decade with larger players acquiring desired regional PEOs.  This trend is likely expected to continue in the foreseeable future baring any major economic downshifts.


Market Outlook

Historically, the PEO industry rebounded nicely from the 2008 collapse with only one year (2009) of negative revenue growth as seen in exhibit A.  [4]Historical gross revenue growth from 2009 to 2015 was almost 68%. The PEO industry is currently in a growth stage. [5]  Industry growth over the next five years is projected at an annualized rate of 3.1%. [6]


Exhibit A

2007 3.6
2008 0.3
2009 -3.9
2010 5.5
2011 1.5
2012 7.9
2013 5.7
2014 20.8
2015 13.6
2016 7.4
2017 6.5
2018 3.4
2019 1.6
2020 1.9
2021 2.3


Major Industry Segments Serviced

The top industry segments serviced by the PEO industry are below.  Outlined is the macro industry description, segment revenue and percent of total PEO revenues.


  • Professional & Technical Services ($39.64bn or 23.50%)
  • Manufacturing, Retail & Wholesaling ($38.46bn or 22.8%)
  • Other Industries ($34.58bn or 20.5%)
  • Information Technology ($34.08bn or 20.2%)
  • Financial ($21.93bn 13.00%)


Regulatory Influence

As noted above in Exhibit A, the PEO industry experienced a large spurt of growth in 2014 and 2015 with year over year grow percentages at 20.8% and 13.6% respectively.   While the economy has rebounded from the 2008 financial crisis, the timing of this growth spurt suggests that it was, at least in part, driven by the regulatory changes in healthcare.  The Affordable Care Act (ACA) was officially signed in 2010 with the expectation for compliance beginning in 2014.  The administration delayed the start of compliance requirements for employers with over 100 WSE until January of 2015.  The following year, employers with a WSE count north of 50 would then be subject to compliance.


Industry Growth From Regulatory Compliance

When viewing the growth spurt in PEO revenues in 2014 and 2015, this is likely attributed, to a large degree, to the need for assistance with ACA compliance.  PEOs captured market share utilizing compliance and reporting assistance in addition to providing health insurane options to new clientele.  With a new administration in the Whitehouse and a Republican controlled congress outlining the plan of repealing or repairing the existing ACA, regulatory changes are expected.  As a result, this may provide increased growth above and beyond projected industry numbers previously illustrated, depending on how the new plan is architected.  If history is a past indicator, major regulatory shifts bode well for the PEO industry revenue growth outlook.


Additional Resource

Additional information on the PEO industry can be found from multiple resources.  IBISWorld is an excellent resource for macro trending.  NAPEO conducts an annual Financial Risk & Operating Survey (FROS) and some M&A firms provide market insight as well.  With the passing of the SBEA and the IRS now recognizing the PEO Industry as a standalone industry, increased data may be available in the future.


Author: Rob Comeau is the CEO of Business Resource Center, Inc.  BRCI is a management consulting company that works with PEO companies, investors, investment bankers and private equity firms.  For more information on BRCI, please visit them on the web at

[1] IBISWorld Industry Report 56133

[2] IBISWorld Industry Report 56133

[3] IBISWorld Industry Report 56133

[4] IBISWorld Industry Report 56133

[5] IBISWorld Industry Report 56133

[6] IBISWorld Industry Report 56133

Insurance Broker: An Aging Workforce, an Opportunity for Millennials


Insurance Sales is an exciting and rewarding career choice for the up and coming generations.

Insurance Brokers: An Aging Workforce, an Opportunity for Millennials


Unless you have an Insurance Broker in your family, it may be unlikely that you (the millennial) have sought out a career as an insurance broker.  Your generation grew up in the tech boom and therefore tech jobs or cutting edge companies may have greater appeal to you.  However, few careers offer the stability and financial growth opportunity of being an insurance broker.  Of course, it doesn’t come easy.  You need to be good to make a lasting and financially beneficial career out of insurance.


Benefits of a Career as a Broker


Residual Income: Insurance brokers make residual income from commissions.  What does that mean?  It means that as long as the account remains with your brokerage, you will be paid on it.  Why is that important?  As you build up your book of business and experience, if you have solid client retention, you will continue to get paid on previous production in addition to new production.  Over time, this equates to hundreds of thousands of dollars if not millions annually but it doesn’t come overnight.


Business Acumen: Few careers allow an employee to dramatically increase their business acumen. Being an insurance broker does.  If you possess an inquisitive nature, having the opportunity to meet with thousands of business owners over your career will vastly increase your knowledge of how business works.  As your business acumen grows, so does your value to current and future clientele.  Insurance is not solely crafting and placing coverage but also advising your client with their business.  Behind payroll, insurance is often the second largest expense on a profit and loss statement (P&L).  Therefore, business owners take this expense seriously and want to partner with a knowledgeable professional to architect and obtain coverage solutions.

Fun Environment: If you are like I was, prior to entering insurance, I assumed insurance was stuffy and boring (think of the movie Office Space).  I didn’t want to work for Bill Lumbergh writing insurance policies.  What I didn’t know at the time, and what you may not know now, is that being an insurance broker is actually fun.  Brokerages are filled with sales professionals that are, for the most part, outgoing extroverts.  That dynamic coupled with friendly competition, consistent increased earnings, collaboration with your account management staff and the opportunity to learn about different businesses creates an enjoyable working atmosphere.


Equity: Equity is earned.  Do not expect to be named a partner after a few years of solid production.  However, if you put in a decade of consistent performance, are a good brand ambassador and corporate citizen, equity is an option worth exploring.  Becoming an equity partner in an insurance brokerage allows you to scale and be part of something larger than yourself.  As an equity partner, you have the opportunity to enjoy some of the benefits of business ownership without incurring the same risk of venturing out on your own.


Current Market


The market for insurance can be volatile.  Not volatile for your career but rather for your clientele.  With the Affordable Care Act (ACA) initially having so many changes when it first came out and now with the new administration vocalizing change, it is difficult for your clientele to keep up with regulatory changes.  Workers’ compensation is high dollar ticket which, depending on the State you are in, can be very volatile for employers also.  Employment Practices Liability Insurance (EPLI) protects employers against discriminatory charges among other things and has seen an uptick in claims in recent times.  These are just to name a few.  There are plenty of other insurance options for business owners, i.e. property, general liability, commercial auto, errors & omissions, directors & officers, etc.


This means that when you secure a line of coverage with a new account, you have the opportunity to secure all other lines of coverage for that business.  If the owner trusts you with one line of insurance, prove your worth for all lines and round out the account.  This will contribute towards higher client retention, increased income and provide your client with one point of contact for their business insurance needs.




The demographic for Insurance Brokers is aging.  It could be because today’s on-demand society wants everything now.  What ever the reason is, there is opportunity for younger professionals to enter the field.  Entering the field at a younger age has its benefits.  When you initially begin your career as an Insurance Broker, you likely aren’t making very much money.  You haven’t earned it yet and the brokerage is taking a chance on an unknown producer.   Normally, earlier on in your career, you have lower expenses and therefore do not require as much to maintain as someone more advanced in their career. However, once you begin to build your knowledge and book, your earning capacity increases.  How quickly this happens ultimately depends on you but the opportunity is most certainly present.  With an aging population of Insurance Brokerage Owners, the number of brokerage owners retiring will increase over the next 10 to 15 years.  If you have built up a successful book and expanded your insurance and business knowledge base, succession opportunities may arise.


Insurance isn’t going away, it is a requisite of business.  As a broker, you have the opportunity to become intimately familiar with your customers’ needs and help protect the business they’ve worked so hard to build.  Second to faith and family, an owner’s business is often the most important part of their life.  Protecting that asset is a privilege that shouldn’t be taken lightly.  If you worked hard your whole career to build a business, think of the type of person you would entrust to protect it.  That is who you need to become as a broker.


Closing Thoughts


Many large brokerage firms have intern programs that will allow a prospective Broker to learn the ropes.  Some also have career path programs to help guide you along your journey.  Regional or retail agencies may not have these programs but you will likely have greater access to the brokerage owner.  Having a mentor in this industry is advisable.  Choosing the right mentor is important.

When reviewing a career as an Insurance Broker, do your homework.  Learn about what it takes to become successful.  Reach out to Insurance Brokers on LinkedIn and ask if they have some time to chat with you.  Most brokers I’ve met are willing to share their experience, just be respectful of their time.  This information could prove valuable in your decision making process.  You may also want to identify some top brokerages in your area and request a meeting with a Principal.  This will provide you with an opportunity to learn more about insurance and the brokerage can also evaluate potential new talent; you.


Just remember, the first year or two won’t be glamorous.  You will need to pound the phones searching for new clients and you likely won’t make very much money.  However, don’t be shortsighted!  In 5 years, 10 years or 15 years, you won’t regret the decision you made if you’ve put in the work.  Being a Broker allows you to create a lifestyle that is lucrative and one that will provide for you and your family for years to come.


Author: Rob Comeau is the CEO of Business Resource Center, Inc.  The MGA division of BRCI works with many of the top brokerages in the US.  BRCI frequently consults with brokerage owners on training new producers and shortening the validation curve for new talent.   To view the sales training cycle that BRCI offers, please click here.  

PEO & Private Equity

PEO - Private Equity

Private Equity Interest in the PEO Space


Investment interest into the Professional Employer Organization (PEO) space has increased from Private Equity firms in the last 10 years.  PEOs generate positive cash flow from operations and the ongoing residual nature of revenue coupled with the high customer retention rate (90% on average) can provide a lower risk investment option to private equity investors.


Multiple PEO Acquisitions


In addition to positive operating cash flow and high client retention, when a private equity makes additional acquisitions to integrate with the existing PEO in their portfolio they receive two major benefits.

  1. The private equity is able to realize cost synergies post acquisition between the two PEOs.
  2. The larger the PEO, the higher the multiple on EBITDA received based on historic information.


3 Ways to Maximize the ROI at Exit


Let’s explore some of the variables that impact profit and future performance.  The seller of a PEO is looking to maximize their profit at the time of sale.  The private equity is looking to maximize their ROI post acquisition. It makes logical sense that the only way for a PE to garner a positive return is one of three ways.

  1. Negotiate a lower than market price for the PEO in order to capitalize on the resale.
  2. Purchase multiple PEOs so that the exit multiples are higher based on the accumulated size of the assimilated PEO.
  3. Find a PEO with a propensity for organic growth so that it is larger when you sell it than when you bought it.


So which of the three should a private equity aim to achieve?  If available, all three.  A PEO that you purchase at a reduced price and combine with future acquisitions (acquired growth, synergies, economy of scale) with a historic track record of growth (organic growth) will yield the highest ROI upon exit.


The Often Overlooked Impact of Culture


Another variable to consider is organizational culture.  If you are planning on purchasing multiple PEOs prior to exit, cultural alignment is essential yet can be overlooked during the due diligence process. Culture can help expedite the assimilation and synergy process or wreak havoc during this transitional phase.  There are proven ways to analyze culture and provide valuable insight that will determine if an acquisition is right for your portfolio.


The Bleed Factor


Profit in PEOs often hinges on mitigating the bleed factor.  What are the variables that can be detrimental to a PEO’s profitability?

  1. Insurance: workers’ compensation or health insurance can have a positive and/or negative impact on a PEO.  When a PEO has a risk bearing program (internal deductible) they are often able to provide more aggressive pricing to the marketplace.  When these programs are not appropriately managed, the tail from workers’ compensation claims or the impact in health care severity claims can punish a PEO’s profitability.
  2. Client retention is important to profitability.  Retaining a PEO’s clientele allows for predictability with revenue.  A poor client retention percentage works as an erosion of organic growth.  For example, if a PEO brings on 100 new clients a year and has a 20% attrition factor, they are losing 20 out of 100 clients annually.  When the PEO is only 100 accounts in total size, they still retain 80 accounts.  However, as the PEO client base grows, that 20% equates to a greater number annually.  Let’s assume that the PEO has a client base of 1,000 and still grows by 100 new accounts per year.  With a 20% attrition rate, they are losing 200 accounts annually (1,000 X 20%).  If they are only growing by 100 accounts annually, they are netting -100 accounts.  A higher client attrition rate forces higher organic production requirements in order to offset the loss of existing clientele.
  3. A poor service model can act as an indirect bleed factor because it impacts both the pricing advantages and attrition rate of a PEO.  If a PEO has a less than average service platform, they are more likely to sell on price.  This makes them live and die by the pricing sword.  Additionally, if a PEO has a poor service platform, their client retention rate will most certainly suffer.


Look for a PEO with a solid service platform, risk bearing insurance programs with a well-executed risk mitigation strategy and a history of high client retention.


Target Market


A service model is generally tied to the type of business the PEO services.  In other words, if a PEO has a white collar focus, the following is generally most important:

  • Good health benefits options/pricing
  • ACA compliance and reporting
  • Superior tech platform with online access
  • High level HR support


If a PEO has more of a blue collar focus, these areas for a service model are often most important:

  • Good workers’ compensation options/pricing
  • Successful risk mitigation strategy/underwriting
  • Risk management consultative service and training
  • HR consulting and solid claims management


While either PEO would likely have overlap on what they offer, the emphasis to safeguard internal profitability should be on protecting the areas of exposure for the PEO and their chosen clientele.


Scaling a PEO


The ease to organically scale a PEO geographically often depends on the type of service model employed.


For instance, if a white collar PEO handles their HR consulting in person, telephonically or via the web, they can generally scale quickly.  The rationale behind this is that a physical presence in close proximity to their client base isn’t necessary.  A web based platform can cover all 50 states immediately and if they are licensed for health insurance in all 50, they can provide coverage without a physical presence.  HR consulting can be handled via the phone and web and therefore a PEO with locations in only a few States can service a national footprint of clientele.


If a PEO is geared more towards a blue collar focus, it becomes more important to have a physical presence close to its clientele unless they have a phenomenal underwriting matrix.  The reason is that safety training is generally most effective for a PEO and its clientele when safety consultants are able to visit client locations and job sites.  The rest of the offering may be handled remotely.  To scale a blue collar centric PEO quickly, without acquisitions, a combination of a proven underwriting matrix coupled with local experienced risk management consultants is advised.


Which Risk is Better?


From my experience, PE’s often view a white collar centric PEO as a safer bet due to the lack of workers’ compensation tail exposure.  It is understandable that this assumption is made and it can prove to be true.  However, with a PEO has a risk bearing platform for health insurance and/or workers’ compensation insurance, historic results are more important assumptions.

Health insurance plans can blow up and cost the PEO much of its quarterly profit.  It can be argued that it is easier to change the safety behavior in a workplace to protect against the workers’ comp tail than it is to change how your workforce lives their lives in order to protect the health insurance exposure.

Whether your private equity is looking to acquire a blue collar, grey collar or white collar PEO, it is recommended to focus on the level of exposure with the risk bearing platforms vs. how well the PEO has historically mitigated its risk.   Look at the type of business that has been brought on in the last 2 to 3 years and contrast that with the preexisting book prior to 2 to 3 years ago.  Are they cleaning up their book or increasing their risk?  This will always be a moving target due to claims maturation but this may serve as a good indicator to gauge their success of protecting cash flow generated from operations.


Organic Growth


It is our belief that organic growth must be evident to warrant a competitive purchase price.  Acquisition growth is great and can expedite plans for expansion but should not be the only means for gaining market share.  If organic growth is reducing, stagnant or slow, the company is at the mercy of their next acquisition for growth. Organic growth provides confidence that the PEO can continue to generate cash flow from operations and provides a shield against client attrition.

If organic growth is absent, it would warrant due diligence in a few areas.

  1. Is the go-to-market strategy effective?
  2. Is the value proposition appropriate for the targeted industries serviced?
  3. Is pricing competitive and in line with the value proposition?


Final Thoughts

Due diligence is the time to identify if a target fits within your strategy.  Whether you currently own a PEO or are looking to get into the space, it is advisable that a pre-acquisition strategy is formulated prior to bidding.  What is your timeline to exit and what is it that your investment committee is trying to achieve in the short and long term?  Once this is clear, identifying the appropriate PEOs for acquisition becomes an easier process.


Author: Rob Comeau is the CEO of Business Resource Center, Inc., a management consulting company that works with PEOs and Private Equity during the M&A process.  To contact us, please visit us on the web at or via email at