Of the nearly 27 million businesses in the U.S., more than 99 percent are classified as “small” by the U.S. Small Business Administration, including 90 percent with fewer than 20 employees. Yet the market remains largely overlooked by agents who mistakenly believe that the time and effort it takes to sell into it is not worth the returns it can generate.
Small-business owners are motivated to solve their employee benefit problems. They also tend to be extremely loyal. As a result, agents who take a consultative approach are actually investing in long-term, mutually beneficial relationships that are likely to open doors to new opportunities down the road.
The trick is to accelerate the learning curve in terms of the needs and challenges facing small businesses and the product lines that can be crafted into robust yet affordable benefit packages, as well as to establish the kinds of partnerships that can soften the market and generate pre-qualified referrals.
Small-business struggle
Over the past decade, small businesses have generated 60 to 80 percent of net annual new jobs, paid more than 45 percent of the total private payroll, and generated more than half of non-farm private gross domestic products. Yet despite the impact the market has on the nation’s economy, insuring its medical needs continues to challenge business owners and agents alike.
For small-business owners, the challenge is primarily financial. Few have been able to keep up with rising premium rates. In fact, the National Federation of Independent Businesses (NFIB) reports that, since 2000, premiums have risen at an annual average of 11.7 percent for companies with fewer than 200 employees.
Meanwhile, the Robert Wood Johnson Foundation reports that the number of employers with fewer than 50 employees offering coverage has dropped to 40 percent, a 9 percent decline.
It is not that small businesses are unwilling to invest in comprehensive health benefits. Indeed, NFIB reports that small-businesses owners who can afford to offer health insurance are three times as likely as larger employers to pay the entire premium for both individual and family policies.
The reality is that there are simply fewer options among traditional plans for which small businesses qualify. With a dearth of agents focused on the small-business market, there is also a shortage of professional guidance on the more affordable alternatives that have emerged in recent years.
The learning curve
The lack of knowledge of small-business coverage that plagues owners is also the primary market barrier for many agents.
Part of the challenge stems from the accelerated concentration process underway in the small-group medical insurance market, which can make it difficult to keep track of the top players.
A greater challenge is understanding which product lines meet the unique needs of the small-business market and why, and keeping up with the changing face of health insurance today.
While PPO and HMO/POS plans continue to dominate small-group coverage, the interest of small-business owners in finding ways to sweeten benefits packages while reducing or shifting costs to employees has introduced new options into the fray, including consumer-driven plans.
A survey by American Health Insurance Plans (AHIP) found that, among companies with fewer than 50 employees, 57 percent of employees were covered by a PPO and 39 percent had HMO/POS coverage, while 4 percent had HSAs or high-deductible plans and fewer than 1 percent had indemnity coverage.
There is also a growing interest in voluntary products and supplemental coverage that fill the gaps created by high-deductible and defined-contribution plans — all of which allow small-business employers to continue offering comprehensive benefits packages.
The other challenge confronting agents is the misperception that the small-business market is too cumbersome and headache-inducing to be worth the time it will take to develop or the returns it will generate. The belief is that maintaining a focus on large-group or individual sales will result in higher compensation for a fraction of the time and effort.
It is true that there are more touch points involved in small business sales and that compensation for individual sales is typically higher than with group products.
However, the cross-sale opportunities are enormous. Selling to a small group also lines up 10 or 20 potential individual clients for core non-medical products.
For that reason alone, the small business market is worth a second look — regardless of how insurmountable the challenges may appear to be.
Don’t go it alone
When it comes to breaking into the small-business market, the key is to establish partnerships that can accelerate the learning curve on small-business needs and products, soften the market through “trusted advisor” referrals, create targeted networking opportunities, and establish the agent as an expert resource.
An effective strategy for breaking into the small-business market is to partner up with those professionals with whom small businesses already work and view as trusted advisors. These include:
• Agents specializing in complementary lines of coverage, including property and casualty, general, professional and product liability, errors and omissions, workers’ compensation, and business interruption insurance.
• Accountants and attorneys, many of whom are involved with their small-business clients from start-up and who are considered trusted advisors.
• Banks and credit unions with small-business programs, which often provide customers with information on and referrals to services that can protect and grow their investments.
Another strategy is to join organizations that offer opportunities to network directly with prospective small-business clients. Local chambers of commerce are often good starting points. However, for maximum impact, an agent may want to focus on a specific industry, which opens the door to additional opportunities with trade associations.
Specialization can also pave the way for agents to become resident experts on insurance needs within a particular industry. That can be parlayed into speaking and other opportunities that showcase expertise in front of a motivated, captive audience of prospective clients.
There is no question that the small-business market can present unique challenges, but it can also present unique opportunities. With the right strategies and partners, you can help your small-business clients serve their employees — and themselves — well.
Jay McLauchlin is senior vice president of distribution with HealthPlan Services. He can be reached at 813-289-1000 ext. 2017 or jmclauchlin@healthplan.com.