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. 

An Analogical Approach to PEO Growth Stages

According to the IBISWorld Industry Report on Professional Employer Organizations in the United States, 52% of the industry gross revenue is driven by the top three players (ADP TotalSource, TriNet, and Insperity). When additional companies like Oasis, Paychex, BBSI, CoAdvantage, and a few others are factored into the equation, the industry appears more top-heavy. A more likely figure is that somewhere around 70%+ of the industry revenue is controlled by the top ten players.


With an estimated 700+ PEOs operating in the United States today, the vast majority of PEOs are focused on growth and achieving scale. This article will outline each growth stage. For this exercise, we will utilize a fun analogical approach with boats. Each stage comes with elements of success and challenges. We applaud PEO Ownership at each stage of the growth curve and wish them smooth seas!


The Rowboat Stage: Startup and/or Small PEOs

Rowboat: startup to 1,500 WSEs.

When a PEO is small and/or getting off the ground, the owner is active in daily operations. Often, it is the grit of the ownership which rows the organization into some momentum. The benefit is that ownership is acutely aware of all facets of the organization because they are entrenched in it daily. The con is that without the owner rowing (driving the organization forward), the momentum would cease. Moreover, the vessel (company) is still small and will more easily capsize (go under) than larger counterparts. The speed in which the organization can move is often slower due to capital restraints and lack of buying power with suppliers. However it can pivot (make changes or change direction) more quickly than larger counterparts.

The Pontoon Boat Stage: PEOs with 1,500 to 3,000 WSEs

Pontoon boat: 1,500 to 3,000 WSEs

When a PEO surpasses the 1,500 WSE mark, there is often room to breath for the owner. The pontoon boat has a wider base than the rowboat (number of clients) which creates more predictability when waves (unexpected business events) occur. The speed (growth) of the organization is often still slower than larger counterparts. As the organization has grown, there is more room for additional talent. The company can still pivot (change directions) quickly and it has weathered the initial growth stage. There is more confidence in the company staying afloat (surviving) than in the rowboat stage. At this stage, the owner is often faced with the decision of aggressively growing the organization or maintaining a lifestyle business at or around its current size.

The Sailboat Stage: 3,000 to 10,000 WSEs

Sailboat: 3,000 to 10,000 WSEs

Now that the PEO has grown a bit larger, it employs more people. These people can work in close harmony to harness the power of the wind (grow the organization). If the right crew (talent) and vessel (organizational design) is in place, the PEO can achieve greater speed (growth) than its predecessor. At this size, the PEO has less leverage over third-party relationships (tech providers, insurance companies, etc.) than larger counterparts. While the sailboat PEO begins to have greater leverage with external partners than previous stages, it still lacks the economies of scale to have major influence over its supply chain (third-party providers). The ability to pivot is still great but not quite as nimble as the rowboat.


The Speedboat Stage: 10,000 to 25,000 WSEs

Speedboat: 10,000 to 25,000 WSEs

Once a PEO is in the ten thousand to twenty-five thousand WSE range, they generally achieve some economies of scale. The ownership is often still manning the wheel of the vessel but is able to move more quickly (growth, changes) than past stages. The wake (brand recognition) is more visible and gains momentum during this stage. The organization can still pivot relatively quickly. However, due to the increased speed (organizational growth), pivoting (making changes) too quickly or over-throttling (over extending) could be detrimental to the organization. It is advised that conditions (sales, operations and financial conditions) are reviewed regularly to ensure the boat is going in the right direction (strategic intent and client selection) and doesn’t run out of fuel (capital).


Battleship Stage: 25,000 to 50,000 WSEs

Battleship: 25,000 to 50,000 WSEs

A PEO of this size has a strong hull (foundation) and increased arsenal (competitive advantages). In other words, there is generally more this PEO can offer than smaller counterparts. It has a larger team of professionals that are now often separated into divisions. At this stage, it has achieved greater economies of scale. Also, third-party affiliates more frequently compete for the PEO’s business. This provides the PEO with increased leverage and influence over third-party relationships (tech, insurance, etc.). This PEO still has strong momentum but begins to lose its ability to pivot and change directions quickly. It often can win in the marketplace against smaller competition due to increased economies of scale, resources and potential increased diversity in its offering.


Aircraft Carrier Stage: 50,000 WSEs to 150,000 WSEs

Aircraft Carrier: 50,000 to 150,000 WSEs

During this growth stage, the PEO is often making a number of acquisitions which increases its economies of scale and potentially diversify its offering. These airplanes (acquisitions) become tuck-ins to the carrier (platform company) and allow it to out maneuver competition. The vessel has more fuel (capital) for longer sustainability at sea (in the marketplace) and it can support the airplanes (acquisitions) with resources to ensure the whole of the organization optimizes results. The hull (foundation) is much less vulnerable to penetration (competition) and its pace (growth) is steady.  It cannot pivot (make major changes) quickly and it is required to secure all on-board planes (acquisitions/divisions/departments) prior to making a major directional change.


Fleet Stage: 150,000+ WSEs

Fleet: 150,000+ WSEs

This stage would encapsulate the largest players in the industry. While there are varying sizes of fleets in the industry, this size of PEO has high influence and control with its supply-chain (third-party relationships). It generally possesses greater diversity in its arsenal (scope of offering) and has many affiliate ships (acquisitions/divisions/locations) to coordinate with while covering more of the sea (geographic footprint). Often, at this stage, acquisitions have been transitioned into divisions of the macro organization. Economies of scale have been realized, talent is abundant, and controls are tight to ensure compliance and financial gain.

With economies of scale and an increased arsenal greater than previous stages, the fleet often wins in the marketplace. In battle, it is generally focused on other fleets and aircraft carriers (larger competition). The fleet has tremendous resources and moves (grows) at a steady pace. Directional pivoting (large changes) for the fleet require great coordination, cooperation and time. The fleet focuses on long-term strategy as moves are made more slowly but methodically. The fleet is more visible than smaller competition and as a result, is often a target of smaller competition and other fleets.

Some fleets merge to create larger fleets while other may do battle (compete) to win ground (market-share) on a macro level or in a particular region. The fleet has multiple layers of command (Board, C-Suite, Divisional Heads) in the decision-making process for major organizational decisions, and it must answer to its citizens (investment community)  for the moves it makes.


The Submarine: Strategy

Submarine: strategy

The submarine is representative of under the radar strategy. The submarine is generally part of the fleet sized PEO and would be indicative of a competitive advantage. Some competitive advantages are publicized while others are purposely kept under the radar for as long as possible. Competitive advantages not clearly recognized by competition cannot be copied by another fleet. Therefore, the submarine can provide a PEO with the ability to sneak up on competition and win in the marketplace or weaken competition. Eventually, submarines are discovered and matched with submarines from other fleets. A submarine of a fleet can sink (beat) a vessel from any previous stage if its torpedoes (competitive advantage) are effective enough.


Wrap Up

This was a high-level review of the different stages of PEO growth delivered in a fun spirited manner. Hopefully the analogical approach provided some memorable mental pictures to the different growth stages. Remember that each stage comes with its own pros and cons. As the organization grows and graduates from stage to stage, it should be cognizant of the required shifts it must undertake for optimal success. Each stage has its own specific requirements. Oars are not applicable on a sailboat, just like a sail is not required on a battleship. A PEO should consistently review its crew (talent), course (direction), speed (growth), vessel (organization), and any leaks (liabilities), in order to make adjustments when/where it is necessary.

Each stage outlined in this article is a general overview. Some PEOs migrate to different stages prior to the WSE ranges illustrated and the value prop, talent, capital, and capabilities vary from PEO to PEO.

In some regions, a sailboat or speedboat may be sufficient. For example, you wouldn’t need an aircraft carrier on a lake (smaller region) but you would be better served to have a fleet on the ocean (national footprint). Moreover, a fleet (large PEO) will likely have smaller vessels (locations/divisions) to compete on the lake (smaller region) with sailboats and speedboats. It is important to note that the sailboat/speedboat may have the advantage of more intimately knowing the current (buyer’s behavior) and topographical layout (regional presence).

Hopefully this article provided your team with a general overview and some high-level insight for each stage. Smooth sailing!


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. To learn more about strategically transitioning through the different growth stages and the consulting services BRC provides, please contact us on the web at or by calling (949) 888-6627.

There are 4 Key Elements that Determine a PEO’s Value Proposition

There are four keys to a successful value proposition within the PEO model.

There are 4 Key Elements that Determine a PEO’s Value Proposition


A value proposition is your company’s proposed value to your clients. This value is measured to determine the strength and longevity of the client relationship. It determines if a PEO’s price is commensurate with, you guessed it; its value.

It seems simple enough, but often a company’s scope of service is mistakenly presented as the organization’s value proposition. A company’s value proposition can readily be defined as the results and benefits it provides to its customer. Therefore, the value proposition cannot be limited to the scope of offering.

The PEO model is a hybrid of outsourcing and consulting. This model utilizes an internal offering coupled with third party partnerships. The internal and third-party offering is then administered by internal and external talent. It is the combination of these four elements: 1) internal scope of offering, 2) third-party scope of offering, 3) internal talent, and 4) external talent that determine the PEO’s value proposition.

Growth, profitability, and sustainability hinge on the PEO’s value proposition. This article will discuss how all four elements require design, harmony, and execution to create a viable PEO. Beyond the value proposition, a PEO requires controls to ensure compliance and profitability. We will take a look at controls in a later article, but the emphasis of this post will be on the importance of a solid value proposition.

PEO Scope of Offering

The traditional PEO offering includes:

  • Human Resource Services and Consulting
  • Safety and Risk Management Services and Consulting
  • Workforce Management Technology
  • Payroll Processing
  • Retirement Plans
  • Compliance Assistance
  • Workers’ Compensation Insurance
  • Health Benefits Insurance
  • EPLI Insurance
  • Claims Management

While PEOs may offer additional services beyond the aforementioned items, this list is sufficient to illustrate the importance of the value proposition. The above scope of services is provided by the PEO internally and via third party relationships. The list is repeated below in figure 1 to illustrate this point.

Figure 1

Description Offering Delivering Party
Human Resource Services and Consulting Internal Offering Internal Talent
Safety and Risk Management Services Internal Offering Internal Talent
Workforce Management Technology External Offering Internal Talent / External Talent
Payroll Processing Internal Offering Internal Talent
Retirement Plans External Offering External Talent / Internal Talent
Compliance Assistance Internal Offering Internal Talent / External Talent
Workers’ Compensation Insurance External Offering External Talent / Internal Talent
Health Benefits Insurance External Offering External Talent / Internal Talent
EPLI Insurance External Offering External Talent / Internal Talent
Claims Management External Offering External Talent / Internal Talent


As we review figure 1, it becomes glaringly apparent that the combination of internal/external offerings delivered by internal/external talent is essential for an appropriate value proposition within the PEO model. These four elements largely determine a PEO’s propensity for growth, profit, sustainability and viability within the marketplace.


Internal Elements

It is recommended that a PEO first focus on items within its direct control. This would include the design of the internal scope of services and the internal talent.

The PEO must design an internal offering that aligns with its chosen client segmentation. All facets of the PEO model are applicable to all PEO clientele. However, the emphasis will largely be determined by which industry verticals the PEO most often services. High level, a blue-collar focus will require adequate safety and risk management services, whereas a white-collar focus may have a greater demand on human resources consulting. Both HR and safety are important to every company, but the level of importance may be skewed based on the client segmentation. Payroll and reporting capabilities may be of greater emphasis for a contractor that requires certified payroll and job costing whereas a technology company where all the employees are salaried may not deem it as important.

Beyond the design and framework of the scope of services, internal talent is vitally important. A PEO’s internal talent is the executing agent of its value proposition. In a model where consulting is a pivotal part of the value driven, lack of talent will destroy the value prop. Hiring the right talent to execute the PEO’s value proposition is essential. The internal talent will often work with the PEO’s third-party relationship’s talent to provide a cohesive solution to the PEO’s clientele. Ultimately, the PEO’s internal talent must be adept at working together internally, working with the PEO’s clientele, and working with third-party talent to ensure that appropriate value is provided to the PEO clientele.

Third Party Elements

Third party elements that are common in the PEO model include: workforce technology, workers’ compensation insurance, health benefits, employment practices and liability insurance, and retirement plans.

Each of these elements come with agreements, price points, and external talent to support the internal PEO talent and its clientele. These third-party relationships become part of the value chain within the PEO model. The capabilities and limitations of these third-party offerings, become the capabilities and limitations of the PEO in these areas offered to its clientele. It is of great importance that the PEO choose the appropriate third-party products to add value to its clientele. Likewise, a third-party provider that lacks internal talent puts the PEO at risk. If a PEO and its clientele are not able to receive appropriate support, the PEO’s value proposition suffers.

A PEO’s profitability is also partially tied into third-party relationships. PEOs that have achieved certain economies of scale have greater purchasing power with third-party relationships. This allows the PEO, in many cases, to procure third-party products/services in a more cost-effective manner. The result is a greater throughput from gross to net profit due to lowered costs of doing business.

Moreover, a PEO may enter into third-party relationships with the agreement to work more intimately with the third-party talent. For example, a PEO with a high deductible workers’ compensation policy or a minimum premium health insurance policy may employ an internal claims liaison team to work closely with the claims management talent and underwriters of the insurance companies. These teams, both internal and external, have common focus to ensure appropriate care and cost efficiencies. Superior results equate to increased profitability for both parties and drive value to the end user, the PEO client and its workforce.

Quick Synopsis

It is the combination of a PEO’s internal scope of offering and talent coupled with its third-party scope of offering and talent which make up the engine to drive value to its clientele. A PEO that recognizes this will be better positioned for growth, profitability and client retention. Remember, sales should only promise what the organization can consistently deliver. A PEO’s sales engine is vitally important, but results will be short lived if the PEO’s value proposition isn’t up to par.

If a PEO is not winning in the marketplace, has poor client retention, or thin margins, it is likely that the issues can be traced back to some area(s) within the elements that drive the PEO’s value proposition.


Author: Rob Comeau is the CEO of Business Resource Center, Inc. BRCI is a business consulting and M&A advisory firm with an emphasis on the PEO and private equity sectors. To learn more about Business Resource Center, Inc., you may visit them at or call us at (949) 888-6627.

PEO Industry Statistics, 2017

PEO Industry Statistics, 2017.

PEO Industry Statistics, 2017

A recent industry report was released on the PEO industry with updated statistics through 2017.  This article is a snapshot of the highlights contained within that report followed by author commentary.

Fast Facts

The PEO industry gross revenue for 2017 was $170.4bn, of which $148.8bn represented work site employee (WSE) wages.  This equates to an average PEO client markup of 14.52%. Profit for the PEO industry in 2017 was $1.7bn. The annual growth rate from 2012 through 2017 in the PEO industry was listed at 9.0%. [i]

Industry Structure

According to the report, it states that the industry life cycle stage is growth with revenue volatility being medium. Regulation is medium within the industry and barriers to entry are also considered medium. Competition levels are considered high and industry globalization is low.[ii]

Historic Industry Growth

Figure 1 illustrates the PEO industry growth from 2005 through 2017.  As noted, 2009 was the only negative growth year.  [iii]This represents an average annual growth rate of 7.70% from 2005 through 2017. Figure 2 illustrates the industry’s growth by gross revenue with a year over year growth percentage overlay.

Figure 1


PEO Industry growth from 2005 through 2017.

Figure 2


Year over year growth in dollars and percentage for the PEO industry.


Projected Growth Rate

The report projects that the industry gross revenue will grow over from 2018 through 2023 by an annualized rate of 0.70% to $177.7bn in 2023.  [iv]

Market Segmentation

The market segmentation in the report shows the industry is roughly 2/3 white collar focused as illustrated in figure 3.

Figure 3

Industry Leaders

The industry report states that the PEO market is currently dominated by three major players; ADP Totalsource, TriNet and Insperity. The report estimates gross revenue market share percentages of 23.1%, 18.7% and 10.1% respectively [v] as noted in figure 4 and figure 5.

Figure 4

PEO major players estimated market-share.

 Figure 5


Illustration of market leaders estimated industry revenue market-share.



The data in this article was pulled from the IBISWorld Industry Report 56133, Professional Employer Organizations in the United States. The below commentary is solely the opinion of the blog author; Rob Comeau, with respect to the aforementioned data in the above article.

Major Players

According to IBISWorld, 52% of the industry’s gross revenue is controlled by the top 3 players; ADP Totalsource, TriNet and Insperity with the remaining 48% controlled by the rest of the field. The PEO industry is more top heavy than the report illustrates. Once you factor in Oasis, Paychex, CoAdvantage and BBSI the numbers are more heavily skewed toward the largest handful of PEOs controlling a large majority of industry revenues. This is a trend that is likely to continue through acquisitions and consolidation by strategic and private equity buyers.

Industry Growth Projections

IBISWorld projects the industry to grow at an annualized rate of 0.7% from 2018 through 2023.  I believe the industry will grow at a quicker pace. There is a likelihood of an economic downshift and the potential for significant inflation over the next 5 years. That being said, based on historic data, the PEO industry only experienced one negative year over year growth year during the great recession. I estimate the industry will grow from 2018 through 2023 at a range of 1.5% to 3.0% annually.

Macro External Drivers

Some macro external drivers that could affect the PEO industry are major regulatory shifts, major stock market correction, economic downshifts, and inflation. The PEO industry has historically rebounded quickly from a sluggish economy and the industry benefits from major regulatory changes, especially those that affect SMBs. However, the PEO industry has not lived through a state of serious inflation. The last major inflation the United States experienced was in the Carter and Reagan era. It will be interesting to see how the industry responds when this eventuality occurs.


[i] IBISWorld Industry Report 56133, Professional Employer Organizations in the United States

[ii] IBISWorld Industry Report 56133, Professional Employer Organizations in the United States

[iii] IBISWorld Industry Report 56133, Professional Employer Organizations in the United States

[iv] IBISWorld Industry Report 56133, Professional Employer Organizations in the United States

[v] IBISWorld Industry Report 56133, Professional Employer Organizations in the United States



Bear Market? What to expect within the PEO industry.

If a bear-market is approaching, what can we expect within the PEO industry?

Article Overview

Recent dips in the stock market have many speculating that a bear-market may be fast approaching . Overviews of recent market performance are illustrated below. January’s article Is the PEO Industry Poised for Growth? discussed the expectancy for moderate growth within the PEO industry over the next decade due to a likely downward shift in the stock market. With this shift potentially coming sooner rather than later, we wanted to cover what the industry may expect in the coming years.

Recent Market Trending

Dow Jones three month trending as of 2/9/18.


S&P 500 three month trending as of 2/9/18


NYSE three month trending as of 2/9/18


NASDAQ three month trending as of 2/9/18

Historic Data

It is important to review how the PEO industry has performed in similar past situations to help predict upcoming performance. During the last economic downturn (great recession), the PEO industry experienced only one year of negative year over year growth followed by moderate growth through 2013 (see figure 1 below).

Figure 1

PEO industry year over year historic performance (including great recession period)


If the past is any indication, any reduction in industry revenues may be short lived. Moreover, the industry will continue to add new business during a sluggish economy. However, it is important to note that the full realization of the new business won’t be immediately visible in company revenue numbers. This is due to the likely reduction of WSEs, wages and/or hours within the existing PEO client base (same store sales reduction). Any reduction in same store sales will offset some of the new business adds and therefore revenue numbers won’t truly reflect the full increase until the economy levels out. For additional information and PEO industry statistics, please read our PEO Statistics Updated article from last June.

Smart Players Within the Industry

A sluggish economy, while not preferred, still presents opportunities for smart players within the PEO industry. PEOs with good working capital or preferred equity partners will likely be able to make acquisitions at a lesser cost in the middle of a bear-market. As a result, those PEOs, once the economy improves, will realize a beneficial EBITDA growth post acquisition. In turn, this will increase the ROI for the acquisition.

Business owners will look for efficiency during a down economy. The PEO model is perfect to help SMBs achieve efficiency and levels of scale while allowing the SMB to focus their energy on critical areas such as revenue generation and streamlined operations.

When SMBs are forced to reduce hours, headcount, or wages, employment legal action is likely to increase. This can take the form of EPLI claims and/or workers’ compensation claims. PEOs equip business owners with the knowledge and resources to help mitigate these exposures which ultimately protects an SMB’s bottom-line. Protection of profit is key during a sluggish economy. When times become lean in the business world, competition becomes fierce. PEOs can assist SMBs with business and cost efficiencies which helps SMBs remain competitive in a tough economy.

Of course all PEOs are not created equal. However, those that are positioned appropriately will not only weather the storm but also capture market-share in the process.

The bear is coming, it’s just a matter of when, how substantial, and for how long. Just about everyone can succeed in a severely bullish market and booming economy but only the best will continue to elevate when the bear comes out of hibernation.

Author: Rob Comeau is the CEO of Business Resource Center, Inc., a business consulting and M&A advisory firm to the PEO and PE industries. To learn more about BRCI, visit them on the web at You may ask Rob questions on this subject or others in the Ask the Beard section of this website.