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Down Market Opportunities Beckon Benefits Insurers

You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits insurers. The small business market is often viewed as an opportunity attractive to growth-minded insurers because the focus of the majority of carriers is on the larger, highly-competitive end of the market.

Yet there have been notable instances of carriers moving down market to win smaller cases, and failing. What is different about today’s down market opportunity? How big is it and what is driving new interest in it? And why is new technology making capture of the opportunity more possible today than before?

Are you feeling the squeeze?

A slow premium growth rate of two to three percent in the benefits market is pushing interest in small case markets. Add to it the fierce competition in the large/jumbo case market where most new business is “take over” business, and a down market strategy is compelling. The numbers appear to support it. Overall, the small case market of firms with between two and 100 employees, accounts for approximately 90 per cent of all firms in the U.S. and approximately one-third of the total U.S. workforce.

Is small the new big?

The majority of the employees in the small employer market of 100 or less employees are currently not buying voluntary benefits products. This amounts to a big opportunity that gets greater as it gets smaller. The smaller the firm, the fewer the products offered. Micro firms (between two and nine employees) employ approximately 20 percent of the total workforce, but well over half do not offer a single voluntary product.

Across the whole market segment, a full 36 percent of employers do not offer single voluntary product, according to Celent. However, the take rate is high where they are offered. Within companies of 10 to 49 employees, 48 percent of employees own at least one voluntary product, according to Eastbridge Consulting Group. This signals a receptive market, if it can be reached.

Too big to succeed?

Several insurers have staged down market expansion only to find out they were ill-equipped and lost time, money and a bit of reputation in the process. They were stymied by underwriting and business processes tailored to the large-case market and experienced difficulties trying to support the level of automation and service required to be profitable with small cases. 

The small-case market requires a different product mix, underwriting, and distribution approach and employer and employee expectations for service differ. For example, small-case producers work with a smaller roster of insurers and expect more support from them for enrollment and other services. And small-case employers expect streamlined interactions and more recordkeeping from insurers.

What is now allowing benefits insurers to cross the divide is newer more flexible technologies that can deliver both the straight-through, high-volume processes for small cases and also accommodate the bespoke product packaging, self-administration, and high touch desired by large cases. Add the agility to put products to market many months quicker and with less cost than is the norm for the market and what was once untenable is now a real possibility. 

Go where everybody knows your name

Another appealing market characteristic for strong, growth-minded brands is the penchant of small employers to work with a single carrier. Almost half of the employers in the small case market of 10 to 99 employees use only one carrier compared to the 100 and over market where only 15 percent of the employers use a single carrier, according to Eastbridge.

The bottom line? Small businesses offer a loyal market with lower levels of competition and an employee base that is receptive—an attractive target for business expansion. Carriers that can unshackle themselves from their legacy constraints, embrace new flexible technology and leverage their brand will go down market and win.

Tony Grosso is vice president of product and Industry Marketing at EIS Group, and can be reached at agrosso@eisgroup.com





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