NAPEO
Cybercriminals don’t care about demographics – identity theft and other cyberthreats affect employees from all walks of life. In this sense, identity protection is a truly universal benefit.
Governance is not just a framework; it’s a mindset. Offer regular training on ethical AI to all employees, not just the technology teams. Encourage client engagement and help them understand how AI supports services and how safeguards are in place.
These principles are not just ethical imperatives—they are business imperatives. Organizations that prioritize responsible AI are more likely to earn trust, avoid regulatory pitfalls, and achieve sustainable success.
By helping people identify subsidies and navigate complex healthcare marketplaces, we’re ensuring that job displacement doesn’t also mean healthcare displacement.
AI is the avenue toward more elevated human touches. When AI handles routine benefits queries, it frees up benefits experts and call center staff to handle the truly complex cases that require a delicate touch.
AI transcription tools aren’t perfect. They may misinterpret accents, jargon, or industry-specific terms. They may generate summaries that are incomplete or misleading. In some cases, bias can sneak into outputs, even when demographic information isn’t included in the input.
From kickoff to first production workflow, the rollout took about six weeks—covering the analytics dashboard plus the payroll automation. The very first automation now saves 25% of the payroll team’s time on a weekly basis.
Years ago, HR departments embraced self-service tools to streamline routine tasks like timecards and address changes. But in digitizing these processes, many overlooked the value of human interactions, the casual conversations that often revealed deeper concerns or needs.
AI can provide personalized learning paths for career development, tailor benefits packages based on location and varying family needs. Emerging AI models even have the ability to predict employee burnout before it occurs.
Ultimately, the most successful PEOs are those who understand their core strengths, weigh the total cost of ownership, and align their AI approach with business priorities.
AI’s ability to process vast amounts of data and generate human-like text has streamlined numerous tasks. However, a significant concern has emerged: AI’s tendency to produce “hallucinations,” or fabricated information presented as fact.
From hiring to performance management, from resume review to video interviews, AI is increasingly relied upon by employers to help with a wide spectrum of tasks – and lawmakers are taking notice.
Another benefit from using deep data driven predictive analytics is that it provides a next level opportunity to solidify and personalize the PEO’s relationship with its client.
The question isn’t whether AI will transform your PEO—it’s whether you’ll guide it strategically or let it happen haphazardly, with biased decisions and unrealized value following.
Implementing diverse training datasets and regularly auditing hiring algorithms can help minimize risk when using AI in talent acquisition.
Artificial Intelligence is a topic of widespread interest and is often touted as the solution to nearly every business challenge. While AI’s complete impact is yet to be seen, most would agree that it will influence nearly every industry, including PEOs.
If asked, an AI engine like Chat GPT might say “AI can transform PEOs from being viewed as administrative vendors to strategic business partners by offering predictive, proactive, and personalized services at scale.” A shift that changes how a marketplace perceives the industry could bring significant opportunities for PEOs.
Jarryd Bradley, Chief Technology Officer at Workforce Management Agency, anticipates AI-powered PEOs will play a big role in how employees get work-related information. “Interactive chatbots have become mainstream. Most people are familiar with talking to a chatbot like Siri or Alexa, and generative AI has shifted the search engine user experience.”
“However,” he continues, “Human connections are still essential. AI isn’t a total replacement for business experts. It’s a tool that advances self-service to a place where issues and business processes can be handled much more quickly and efficiently.”
AREAS OF AI INFLUENCE IN THE PEO INDUSTRY
Task automation
Predictive analytics
Benefits enrollment and administration
HR decision-making
Employee recruitment and onboarding
Customer service
AI will affect the entire breadth of the industry, including PEOs, their HR business partners and other trusted advisors, PEO clients, and the employees who work for the clients. Some areas where AI is likely to play a part in the predicted industry transformation include data-driven matching, customer service, chatbots, and data acquisition.
PEOS
PEO platforms are ideal systems for AI deployment. They feature a wide range of functions, quickly analyzing and providing insight into large datasets as they grow. AI-influenced changes made by the PEO companies will influence entities and individuals throughout the PEO development, sales, and usage environment.
Benefit Enrollment
More than just streamlining benefit enrollment processes for PEOs, AI enables PEO companies to add personalization and intelligence to match companies with relevant benefit programs.
AI-driven systems can analyze a company’s HR, benefits, and compliance needs, then match those requirements against a broad array of PEO offerings. This data-based analysis ensures a precise fit between client and PEO. As they select the best PEO solutions for a company, AI algorithms may consider factors such as industry, company size, risk profile, and desired benefits as it makes its recommendations.
Customer Service
Manual methods dominate the actions PEOs take to maintain client relationships today. With AI on board, PEO companies can be more strategic about how they ensure their clients are happy, satisfied, and likely to renew their contracts.
AI could, for example, monitor each client’s use of various aspects of the PEO platform and issue quarterly personalized reports showing each client how much time and money they saved with the PEO services. Client communications generated by AI might also include informational content about underutilized PEO services, automating part of the process to connect businesses with important improvements to their operations.
A.I. FOR PEO ADVISORS AND HR BUSINESS PARTNERS
Bringing on a new client for HR and PEO service providers can occupy the time of many individuals working over a number of weeks. AI technology can automate many of the tasks an organization must complete, such as analyzing data or composing inquiries sent to the entities involved. The technology offers an opportunity to shorten the implementation process and use fewer people to do it. This allows these organizations to grow and prosper while reducing overhead.
Task Automation
Mundane tasks, such as managing appointments, client outreach, prioritizing, and scheduling, can be done more efficiently with AI assistance. The technology can help track implementation objectives, manage required documentation, and monitor compliance deadlines.
AI-powered virtual assistants can also provide answers to client questions, guiding them through claims or onboarding processes and keeping them up to date on progress.
Businesspeople have become comfortable with AI assistance very quickly. Every search engine has AI built in and the degree to which many people have experimented with prompting far surpasses most other recent technological innovations. The barrier to entry and acceptance level of using AI to support customers through a business process are quite low.
Data Collection
AI tools can automate data gathering activities and extract information from company applications, contracts, and other documents PEOs require for underwriting and onboarding. The act of requesting information and waiting for responses typically slows PEO onboarding efforts. AI-powered quality control features can catch data inconsistencies or highlight missing information, eliminating many of the delays caused by communication loops that occur between PEO underwriters, brokers, and clients. AI never sleeps, takes breaks or gets swamped by emails. This allows businesses to complete the data submission process much quicker; possibly in a single session.
AI FOR PEO CLIENT COMPANIES
Intelligent features built into PEO platforms can offer PEO clients enhanced performance in many areas of their businesses. The technology can often turn tasks traditionally handled with in-person, phone, or email communications into self-serve applications that deliver satisfactory results whenever they are needed.
Interactive HR Chatbots
Specialized AI chatbots supplied by the PEO and made available to the client’s employees can reduce the need for company HR professionals to answer common employee questions. AI can handle questions such as “Is my doctor in-network?”, “What is my co-pay for office calls?”, or “How do I start an FMLA request?”.
AI chatbots might also help clients with business questions about workers’ compensation claims, payroll and tax questions, employee compensation rates, etc.
This always-available resource could allow employees and their family members to deal with problems as they arise, allowing the issue to be dealt with instantly without drawing key resources like HR away from other critical tasks.
Will AI dispense medical advice? Probably not. Employees should not rely on AI for medical diagnosis or treatment plans. However, it could supply general guidance for things like remembering to make doctor appointments for follow-up visits or providing suggestions for physical therapy from highly rated providers covered by their health plan. AI might send wellness reminders for recommended tests or check-ups according to the employee’s age, health history, and physical condition.
Existing data from previous cases and similar conditions lets AI offer more clarity to the people that need it most, enabling them to ask the right questions of the professionals delivering the final course of action. After all, being as informed as possible about your condition and potential solutions are key to getting the best medical treatment.
Employee Recruitment and Management
AI can review resumes of job applicants to find candidates to fill a new vacancy. It can also speed up screening and ranking of new job candidates, identify employee retention risks, and highlight workforce trends.
AI-driven onboarding platforms can guide new hires through paperwork, training modules, and benefits selection, making the process faster, more intuitive, and less stressful. Chatbots can answer questions instantly, ensuring new hires feel supported from the beginning of their employment.
AI can analyze performance data and compare employees against industry standards, providing personalized feedback and identifying areas for growth. Employees benefit from clearer expectations and more constructive, actionable reviews based more on verifiable facts, and less on opinion. The AI can recommend training and career pathways that lead employees to their desired career goals.
THE PEO TRANSFORMATION
Companies involved in developing AI see a future where people develop high trust in AI and come to expect digital assistants to do things for them. With access to calendars, communications, individual history, personal and professional objectives, current events, and other information, these digital assistants can relieve humans from routine tasks that occupy our time and our mental bandwidth, freeing us to do more creative thinking and problem-solving. AI will definitely change the way PEO professionals and users work, and it might even change the way clients think about their PEO partners.
In the race toward automation, we can’t forget that what sets us apart is the ability to offer real, thoughtful, and personal support when it matters most.
AI tools are a partner, not a replacement, in HR departments. In an AI-driven HR department, striking that balance is critical, and can be beneficial for everyone involved.
As trusted advisors, PEOs are uniquely positioned to guide their clients through the complexities of integrating AI into HR operations. The goal should be to improve efficiency, but also to ensure that legal and ethical responsibilities are met.
As the Product Manager at Armhr, I’ve had a front-row seat to witness how a thoughtful technology strategy can transform a PEO. Our approach isn’t just about implementing fast solutions – it’s about crafting lasting experiences that resonate with our ideal customers while leveraging and innovating on proven technology foundations.
THE POWER OF STRATEGIC PARTNERSHIP
One of our guiding principles at Armhr is “When we are good, our partners are good.” This philosophy shapes every decision we make, particularly in how we approach our technology stack. At the core of our platform lies a proven technology that powers our operations. This strategic choice reflects a deep understanding of what matters most in our industry: reliability.
Think about how Marriott International approaches their hotel portfolio. The Courtyard, Westin, and Ritz-Carlton properties all operate on the same core booking and rewards platform. Yet, when you walk into a Ritz-Carlton, you immediately know you’re experiencing something different. It’s the warm, personalized welcome, the premium amenities, the refined ambiance. The underlying technology managing your reservation might be identical, but the tangible experience is transformatively different. This is exactly how we think about technology at Armhr – technology facilitates experience, but it is not the experience.
GETTING BETTER EVERY DAY: THE JOURNEY OF CONTINUOUS IMPROVEMENT
Developing core technology from scratch is an arduous journey, riddled with countless edge cases and complex scenarios. It takes years to get right, and even then, the work is never truly finished. That’s why we chose to partner with a trusted, established platform to build our foundation rather than reinvent the wheel. Like Marriott’s approach to hospitality platforms, we recognized that true value lies not in rebuilding foundational elements, but in crafting and innovating on the experiences that surrounds them.
Our “Getting Better Every Day” philosophy manifests in how we enhance and customize this foundation. We’re not trying to rebuild a reservation system – we’re focused on creating the premium experience our ideal clients expect and deserve.
UNDERSTANDING OUR IDEAL CUSTOMER PROFILE (ICP)
Our product vision started with a critical first step: defining our Ideal Customer Profile. This wasn’t just a marketing checkbox—it was the backbone of our technology strategy. We immersed ourselves in deep listening sessions with clients, our sales team, and key market players to truly understand what “good” looks like for this specific segment.
What we uncovered was eye-opening. Our ICP isn’t fixated on the technology itself—they want the Ritz-Carlton experience. It’s not about the system running in the background; it’s about how it feels to engage with our platform. They expect white-glove service, seamless integrations, and a frictionless experience that transforms complex HR processes into something effortless.
CRAFTING PREMIUM EXPERIENCES AT SCALE
Like Marriott’s mastery in creating distinct experiences across their brands while using shared platforms, Armhr excels at delivering premium PEO services built on proven technology. This isn’t redundancy – it’s expertise in knowing where to innovate and where to leverage existing solutions.
Our approach allows us to:
LOOKING FORWARD
As we continue to grow and evolve, our technology philosophy remains constant: build on proven foundations, focus on experience-defining elements, and stay true to our “Getting Better Every Day” mindset. We’re not just another PEO platform – we’re crafting the Ritz-Carlton experience in the PEO space, where every interaction reflects our commitment to excellence.
The beauty of this approach lies in its scalability and sustainability. By focusing our energy on experience-defining elements rather than reinventing core technology, we can continuously innovate where it matters most to our clients. This is how we maintain our position as a premium provider in the PEO space while ensuring consistent, high-quality service delivery.
Just as Ritz-Carlton guests know they’re getting something special the moment they step into the lobby, our clients are looking for a different experience when they partner with Armhr. That’s not by accident – it’s by design, driven by our understanding of what truly matters to our ideal clients and our commitment to delivering excellence in every interaction.
With the continuous rise of AI and automation, every company – and PEO – is feeling the pressure to modernize. Keeping up with the Joneses has never been a more acute feeling for businesses struggling to adapt to the changing environment than right now, and that feeling isn’t entirely misplaced. As the digital transformation rolls on and our industry evolves, questions like “What outdated processes do I need to reengineer?”, “How do I drive efficiencies while not alienating my clients?”, “How can I equip my team with modern skills, not just new technology?”, and ultimately, “What’s the right step forward for my business?” may be increasingly at the front of your mind.
IDENTIFY THE RIGHT AREAS FOR IMPROVEMENT
While addressing the challenges above is necessary if a company hopes to survive and thrive in the shifting landscape, it’s critical not to modernize your business just for modernization’s sake. For PEOs who have consistently provided high-touch customer service, a balance between modernization and personal touch must be struck. In that space, efficiencies are driven, your team is empowered, and your clients are satisfied. Easy, right? Rest assured that through modernization, you can achieve your goal of building a commercially successful, innovative and secure PEO that provides your customers with the best experience.
However, before you take any steps to evolve your business, you must first identify why you’re modernizing in the first place. Identifying an over-arching goal like the ones mentioned above is a good start, but breaking that goal down into several sub-categories will help drive actions to achieve your goal. Scaling efficiently to meet customer demand, improving enterprise valuation, retaining top talent, and strengthening your competitive advantage are a handful of noteworthy objectives. From those sub-categories, determine areas of improvement. Completing this exercise of identifying your unique needs will not only help you with next steps, but also help you clearly communicate with your team when changes are eventually implemented.
Everyone is in a different stage in the journey to modernize. Many PEOs, for example, rely on 20+ year old technology and use the same processes since roughly that same time. If you’re one of those PEOs, it’s time to examine that technology and those processes. If you used to offer only payroll and benefits but now provide a host of other services (hiring assistance, performance management, time and attendance, learning management, etc.), consolidating to a single software or a few platforms – instead of ten or twenty – could be another area to examine for improvement. Start developing relationships with alternative software providers to identify ways that they can help you consolidate the tools your team is using while providing the latest look and feel to your clients.
Carefully consider each platform your business uses, and each functional area, to see if there is room for consolidation. For example, does your learning management platform also offer a performance management module? If so, that could be one area of consolidation. What about your team’s collaboration platforms? If they are using multiple – be it Zoom, GotoMeeting, MS Teams, Slack, or others – eliminate confusion and increase collaboration by choosing one. Consider your CRM. Is it integrated with your other platforms? If you don’t have one, it may be time to ask whether your business size dictates the use of a CRM system to drive consistent workflow for repeatable results.
Onboarding and upskilling are internal processes that have room for an upgrade as well. To help retain talent and more easily integrate new hires into your established workforce, explore tools that help standardize their experience. Google Classroom is just one tool to educate your new hires. A key item that many companies forget is that without hands-on application to make sure information is being absorbed, even the greatest training program is sub-optimal. When upskilling, a policy of training, testing, additional training on missed items, and then further testing, is crucial to true mastery of a skill.
OUTSOURCING AND AI: CHALLENGES AND OPPORTUNITIES
Modernizing your business isn’t just about implementing technology, consolidating platforms, upskilling your workforce, or improving internal processes. It should also encompass two massive changes moving through the PEO world right now: outsourcing basic tasks and augmenting resources with AI. Outsourcing, while having been around for a long time, is increasingly being deployed by your PEO competitors. Although outsourcing can lead to cost savings and efficiencies (just like AI), it needs to be done with care. When choosing what to outsource, make sure you do not outsource your direct connection with your customers or processes that are rapidly evolving or sophisticated. Be highly selective about what tasks you outsource and what you retain in-house, how you manage the relationship to ensure quality work, and what safeguards and best practices you implement to protect sensitive data, including encryption, access controls, and regular monitoring. Finally, when formalizing your relationship with outsourced providers, ensure you have good SLAs in place, strong data/IP protection, quality control checks, comprehensive communication, and robust contingency plans.
AI presents – and will continue to do so as processing gets smarter and faster – massive opportunities to drive productivity and improve both internal and external satisfaction at your company and with your clients. AI can assist in filling knowledge gaps and provide insights into process improvements. Increasingly, most common tools such as the MS Office suite, incorporate AI assistants into their applications, providing even more opportunities for increased productivity.
While AI impacts the personal touch your team provides, it doesn’t have to do so negatively. Virtual assistants, automated communications, AI-driven CRM, data analytics for personalized customer service, and streamlined repetitive tasks are only a few of the practical ways that AI can empower your team to save time. Time saved can then be reinvested into engaging with customers, strengthening relationships, and providing the level of personal touch that your clients are accustomed to. By incorporating automation, your team can provide proactive service, better responsiveness, and operational efficiency.
Managing change and introducing new technologies and processes will look different for each company. To start, make sure your team knows that change is coming and then communicate the core objectives and the reasons behind the transition, whether that be improving the client experience, implementing ‘X’ system or streamlining processes. In this communication, establish a clear timeline. This will not only provide a ‘light at the end of a tunnel’ but also keep your team on task. Finally, train your employees to ensure smooth adoption, establishing internal leaders to drive results and subject matter experts (SMEs) who can help ensure accuracy. Throughout the process, maintain structured communication to drive engagement and minimize internal resistance to change.
In the current environment, it is not a choice to modernize – either you do so or go the way of the dinosaurs. The future belongs to those who innovate. You should fully embrace, not fear modernization. By identifying clear areas of improvement within your company, evaluating new technologies, and empowering your team through the process, you will truly lead our industry into the future.
PEOs have helped businesses manage HR, payroll, compliance, benefits, and more for decades. As healthcare costs soar and employee expectations evolve, traditional PEO models are being tested … to their breaking point.
As these market pressures mount, it’s no surprise that many organizations, including many PEOs, are looking to artificial intelligence to maximize return on client investments.
AI and machine learning models aren’t just back-office automation tools anymore. They’re competitive differentiators in how PEOs deliver value, client support, and workforce insights.
This is our new reality: PEOs that integrate AI into core client operations like employee support, compliance, and benefits administration will thrive.
Those that don’t will undoubtedly struggle to keep up.
HOW AI STRENGTHENS THE PEO-CLIENT RELATIONSHIP
AI is such a tired-out buzzword that it now feels like a four-letter word. However, these models have massive untapped business efficiency and growth potential, particularly when maintaining client relationships and reducing churn risk. PEO leaders can deliver meaningful value in the long run by optimizing core operations for AI on behalf of clients.
AI-POWERED HEALTH BENEFITS NAVIGATION: A GAME-CHANGER FOR PEOS
For many PEOs, benefits administration is a significant cost center. However, benefits are also a key selling point for clients. Despite this tension, benefits remain a strategic priority for PEOs that bears real fruit for client growth.
Working with PEO partners and leading organizations in the benefits and health insurance industry, I’ve seen firsthand how artificial intelligence enhances the benefits experience.
Real-time, 24/7 answers to employee benefits questions like, “Is my MRI covered,” and “How much have I paid toward my deductible?” Helping employees select best-fit health plans during open enrollment. Boosting in-network provider utilization lowers claims costs for clients and their employees. These are just a few ways AI is transforming the employee benefits landscape.
I’ve seen one of my PEO partners use AI-powered benefits guidance to normalize premiums across their client base. I’d say that’s a win-win for both the client and the PEO.
AI-DRIVEN COST CONTAINMENT: HELPING CLIENTS REDUCE EXPENSES
Health benefits are one of PEO and their clients’ most significant cost drivers. Artificial intelligence promises real financial return on investment by steering employees toward cost-effective healthcare options.
Using AI for cost containment can take a few forms, but the most common methods I’ve seen are:
AI even has the power to prevent wasteful healthcare spending by guiding employees through personalized plan selection processes. These processes empower employees to make informed plan choices by analyzing their usage patterns and recommending the most cost-effective options first. Employees get the coverage they need without paying for what they won’t use.
AI IN COMPLIANCE AND RISK MANAGEMENT: A PEO DIFFERENTIATOR
Keeping up with evolving healthcare regulations is a burden for businesses, yet another reason they turn to PEOs. AI can also support PEOs as they strengthen compliance by automatically flagging policy updates that impact clients.
One of the most significant areas of confusion and change regarding compliance is the health benefits space, especially as shifting fiduciary responsibilities lurk in the shadows. AI can help PEOs and their clients understand their current operations and act as a support system when scanning benefits data for compliance risks.
While AI can’t ensure adherence to ACA, COBRA, HIPAA, and other regulations outright, it can act as a secondary layer of protection — a net ready to help you catch risks before they fall through the cracks.
ENHANCING EMPLOYEE EXPERIENCES: AI-POWERED BENEFITS ENGAGEMENT
Today’s workforce expects consumer-grade, high-tech experiences in more and more areas of life, including benefits and healthcare delivery.
Artificial intelligence can support this vision of an enhanced employee experience by providing hyper-personalized benefits insights and navigation based on utilization history. By automating healthcare and benefits recommendations, PEOs can help their clients encourage preventive care and reduce long-term healthcare costs.
The employee experience goes beyond the general employee experience, diving into the specific needs of employee subpopulations. For example, AI can help clients surface point solutions, ancillary services, and mental health resources to the employees who would most benefit from their usage. An employee with chronic back pain may not know about an MSK point solution offering, so by routinely surfacing this option in the healthcare navigation experience, PEOs can increase the utilization of healthcare spending across the benefits ecosystem.
PEOs are crucial to high-quality employee experiences. I’ve seen the highest-performing PEOs win higher employee satisfaction and retention through better benefits engagement, making this a strategic value-add.
AI BENEFITS ADMINISTRATION IN ACTION
AI hasn’t just reduced administrative burden. AI has deepened PEO–client relationships by making health benefits more transparent, cost-effective, and employee-friendly.
One of my largest PEO partners has been able to streamline benefits management across its entire book of business using platforms powered by artificial intelligence, balancing cost containment and improving user experiences. AI translates into real-time savings for client success, call center, and account management teams for this PEO.
EMERGING AI TRENDS PEOS CAN’T IGNORE
Mental health support is in high demand among employees. Healthee’s recent research report reported that mental health was the most-searched care category among users last year, accounting for 8.61% of all searches.
AI-driven mental health solutions and instant-access telehealth solutions can help address this growing need with 24/7 anonymous support, reducing long-term disability claims and improving productivity.
AI AS THE FUTURE OF PEO GROWTH
AI is not replacing PEO functionalities or HR professionals. AI is here and ready to enhance the ability to deliver more innovative health benefit experiences and a better client offering.
PEOs that embed AI into health benefits will strengthen client relationships, reduce claims costs, and enhance employee engagement. Strategic implementation is key — aligning AI solutions with client needs and workforce expectations.
For PEOs, the question is no longer: “Should we implement AI?” It’s: “How fast can we deploy AI to deepen our client relationships?”
The next generation of PEO success will be defined by who uses AI best, and the time to start is now.
PEOs exist to provide reliability and security for their clients. But once a data breach occurs, that trust erodes quickly. Research shows that 68% of clients switch providers after a security incident.
As both traditional AI and generative AI technologies evolve, the insurance industry will see some tremendous changes, which will impact both insurers and PEOs. By leveraging AI, these organizations can address critical challenges, streamline operations and enhance their service offerings.
Here are six key predictions specific to the opportunities they present for PEOs.
AI WILL DRIVE NEXT BEST ACTION RECOMMENDATIONS IN UNDERWRITING AND CLAIMS MANAGEMENT
Managing workers’ compensation and employee benefits on behalf of their clients can be time intensive and complex for PEOs. This year we will see more PEOs leverage AI to provide next best action recommendations for both underwriting and claims management. When underwriting, ‘next best action’ recommendations provide PEOs with specific suggestions to adjust coverage limits or additional data sources to better assess risk, based on AI-driven insights. Similarly, when overseeing claims, AI can suggest specific next best actions such as seeking additional documentation or identifying the optimal settlement path based on previous claims data. These advanced insights will streamline decision making, reduce resolution times and create a more seamless client experience.
SPECIALIZED GENAI WILL BECOME COMMONPLACE IN INSURANCE
PEOs are continually challenged to keep up with a multitude of evolving state and federal employment laws, joint-employer regulations, paid family leave, and minimum wage requirements. AI tools and their capabilities deliver tremendous benefits, yet they may fall short when it comes to addressing industry-specific needs, like analyzing policy language or understanding regulatory requirements.
As demand grows, purpose-built Generative AI models will evolve to produce increasingly specialized tools that can better interpret nuanced insurance data. These tools will be tailored to analyze intricate policy documents and draft tailored policy language, making them far more effective than general-purpose AI. This shift will enable PEOs to better navigate complex regulatory environments and improve their ability to design personalized insurance products to align with the diverse needs of their clients.
PEOS WILL PHASE IN DIGITAL TRANSFORMATION TO AVOID LEGACY SYSTEM OVERHAUL FAILURES
Many PEOs operating with legacy HR, payroll, and benefits management systems know they need to modernize these systems to stay competitive. However, attempting to replace all core systems simultaneously can become unmanageable, leading to delays and costly setbacks.
In 2025, we will see PEOs take a phased approach to digital transformation, implementing targeted upgrades rather than complete system overhauls. This approach will allow them to focus on specific areas like customer portals or underwriting modules, integrating AI gradually and minimizing disruption to existing operations. This incremental strategy delivers immediate value while ensuring continuity of operations for both PEOs and their clients.
SPECIALIZED DATA SOURCES WILL INCREASE INSURANCE RISK ASSESSMENT ACCURACY
A PEO’s ability to provide competitive employee benefits policies depends significantly on having accurate risk assessment. Insurers typically use established data sets like historical loss data, demographic information, and general weather reports to assess risk. Current AI models handle broad categories of risk—they rarely leverage niche data sources.
In 2025, PEOs will start to integrate specialized data sources, such as climate and health data to enhance risk assessment and underwriting for deeper insights. For example, tapping into health data, like fitness-related information from smartwatches, can help PEOs differentiate between policyholders who may look the same in a policy application but actually represent vastly different risk profiles (e.g., active triathletes vs. sedentary individuals with significant latent health risks). This specialized data integration will provide insurers with a holistic view, enabling more accurate policy pricing and claims assessments.
AUTOMATED INSURANCE DOCUMENT PROCESSING WILL BECOME SMARTER AND MORE SCALABLE
PEOs may face challenges in managing tremendous amounts of paperwork, including employee records, payroll documentation, and benefits contracts. In 2025, advancements in automated document processing will enable PEOs to manage these documents faster and with better accuracy.
They will be able to process thousands of lengthy, multi-format documents efficiently, handling everything from de-duplicating redundant data to categorizing unstructured records. For example, claims involving extensive medical histories will no longer require tedious manual reviews, as automated systems will quickly summarize and catalog pertinent details across hundreds of pages. This means that claims processing will be faster, cheaper, and more accurate, allowing PEOs to manage even higher volumes of claims while reducing error rates and improving customer satisfaction.
AI MODELS WILL ALIGN WITH NEW REGULATORY DEMANDS
Regulatory compliance is a high priority for PEOs, especially when managing client employee benefits and workers’ compensation programs across multiple states. Recently, the National Association of Insurance Commissioners (NAIC) adopted a model bulletin outlining compliance requirements for insurers’ AI systems. This bulletin clarifies expectations for development, deployment, and documentation of AI technologies to ensure adherence to state and federal laws.
In 2025, PEOs will begin to adopt transparent, AI-driven models that align with both NAIC guidelines and specific state regulations. These models will also include explainable AI components to ensure clear, auditable insights into predictive processes to meet compliance demands. For PEOs operating across state lines, these advancements will streamline regulatory adherence and enhance consumer trust by offering transparent, ethical risk assessments. This shift will establish responsible AI use as a foundational standard in the industry, reshaping the role of predictive analytics and data usage in insurance.
PEOs that adopt both traditional and generative AI technologies are positioning themselves to drive meaningful change, unlock new growth opportunities, and deliver greater value to their small and midsized business customers.
