Brokering small and medium business sales growth
April 25, 2018
April 25, 2018
Small and medium businesses (2-500 employees) are the lifeblood for many health insurers—these companies represent approximately 43 million of the 125 million lives that comprise the private sector employer market.1 Accenture analysis shows that while this segment represents only one-third of the private sector employer market, it accounts for more than two-thirds of total revenue (more than $150 billion in a $230 billion market). Small-to-medium business contributions to the insurer bottom line are approximately $8.5 billion; representing more than one half of the profit pool.2
However, new types of distribution models (e.g., digital brokers) are forcing carriers to compete head-to-head in a price-focused model. At the same time, customers are demanding new types of products (e.g., level-funded), which further erodes the traditional business model of selling simple, fully insured products.
Carriers need to find ways to protect existing business and find new customers to be successful. Furthermore, they must identify customers who are willing to purchase based on factors outside of price to avoid a "race to the bottom".
Brokers continue to be the dominant channel for capturing the small-to-medium business segment. However, they face a variety of threats that include pressure from carriers. See Figure 1.
Accenture research shows that if carriers are willing to reduce this pressure and move from an adversarial relationship to a partner relationship, both brokers and carriers can grow.
Carriers gain three key benefits from using the broker channel:
Brokers in the segment have strong retention rates.
60%
About 60% of brokers surveyed maintained at least 75 percent of their book of business.
95%
With 95% of brokers maintaining at least half.
The same respondents have high expectations for growth with four out of five brokers expecting growth over the next three years, and one out of five expecting greater than 20 percent growth.
In addition, brokers maintain strong relationships with their customers. According to Accenture analysis, although carriers continue to see rising Net Promoter Scores (NPS)®3 with members, their NPS with employers remains low. For employers, Accenture research found that brokers achieved an NPS of 28 compared to -2 for carriers, indicating that brokers continue to be better potential advocates for carriers than carriers themselves.
Historically, price has often been a leading driver of employer buying decisions. However, price sensitivity decreases as employer size increases. Nearly one quarter (23 percent) of employers with 2-100 employees see price as a top factor, compared to just 13 percent for employers with 301-500 employees. While price remains a top factor for many employers, Accenture research shows that within the broker channel, employers are open to considering a wide variety of factors outside of price. By using the broker channel, carriers can work with brokers to structure products and service offerings that deliver high quality benefits at better price points, helping to protect margin that would be sacrificed to win customers focused solely on price. See Figure 2.
Surprisingly, less than half of brokers shop for additional quotes every year. In addition, 65 percent of employers need a rate increase of 10 percent or greater to trigger active shopping. Therefore, if carriers maintain reasonable price increases (less than 10 percent), in the majority of cases, they should not face additional competition at the point of renewal.
Currently, carriers focus on costs associated with brokers (e.g., commissions, cost-to-service), which is an incomplete picture. Accenture’s findings show that brokers also help to support cost avoidance (via reduced customer churn) and price growth (via less shopping for new quotes). Carriers should work to understand the bottom-line benefits of these components to round out the picture on broker value.
To gain the full benefits of brokers, carriers need to re-evaluate their approach and mindset. Carriers should think about brokers as true channel partners, rather than viewing them as transactional agents. Here is how to successfully make the transition:
1 Accenture analysis of data from Kaiser Family Foundation, U.S. Census Bureau, Bank of America
2 Ibid
3 Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc