Reaping the benefits: Why insurers need to start thinking small…to medium

In a highly competitive and saturated market, insurers must look to refine their value propositions, enhance product offerings, and deliver superior customer experiences to maintain a competitive edge. One of the historically most underserved segments when it comes to accessing affordable and competitive employee benefits is the small-to-medium business (SMB) segment in Canada.

Expanding employee benefits to a broader segment of the Canadian population is a compelling enough reason for, but there are also significant opportunities to access new revenue streams when the appropriate operating model and infrastructure are put in place. Insurers are increasingly turning their focus to the SMB sector, with 68% of medium-sized businesses identifying comprehensive coverage as a critical component of their overall talent strategy.

Many insurers are looking to prioritize the SMB market as a strategic focus over the next three years. But to penetrate the market effectively, they’ll need a differentiated value proposition and business model that meets the unique needs of this segment. To help discover opportunity areas, we surveyed 250 Canadian SMB group benefits sponsors, gaining valuable insights into their specific needs, purchasing priorities, and the coverage options most important to their employees. These findings provide insurers with a starting point to tailor offerings and strategies that address the unique demands of the SMB market in a scalable manner.

Paying the price
52% of respondents highlighted price as a key factor, with micro and small businesses ranking it as their top priority in choosing a benefits provider. It’s also a major reason why 45% of respondents would consider switching carriers. This means insurers must balance enhanced services and digital experiences with competitive pricing strategies to attract and retain clients. Insurers will need a scalable business model with embedded technology, automation, and standardization needs as part the solution they bring to market if they’re looking to invest in this market.

Keep health care coverage at the heart
Despite offering dental, vision, and other core health products, many businesses—particularly smaller ones—feel this coverage is insufficient. Many feel their benefits packages aren’t keeping pace with rising healthcare costs and failing to cover mental health issues adequately.

Healthy mind, healthy body
There is a growing trend towards prioritizing employee well-being and preventative services. 74% of businesses report their employees make substantial use of well-being services, and 77% are willing to pay for additional services. SMB leaders appreciate the link between employee well-being and productivity and are increasingly willing to pay for it given the value delivered to employees.

Bundling up!
88% of sponsors want to purchase group benefits and group retirement solutions from the same carrier. Businesses feel that bundling benefits allow them to provide value-added services, enhanced coverage options, and time savings. This trend highlights the importance of offering comprehensive benefits packages that cater to the diverse needs of employees. If an insurer can integrate both, they could create a compelling and more standardized offering for the SMB market.

There’s no one-size-fits-all
Purchasing preferences vary based on business size. Micro businesses prioritize alignment with their corporate goals & purpose, while small and medium businesses focus on price and comprehensive offerings. Insurers must tailor their products. Micro businesses may benefit from customized products, while small businesses may be more attracted to value-added services. Modularity will be key.

Decide to go digital
While traditional brokers and third-party administrators (TPAs) remain important, particularly for smaller businesses, there's a noticeable shift towards digital distribution channels, improved insights, and online self-service options. The growing desire for digital advice for employees is just one indicator of this shift. Insurers should invest in digital capabilities and omnichannel strategies to meet these evolving demands from both SMB sponsors and members.

Tailoring your strategy: How do the needs of SMBs vary by business size and sector?

Micro businesses feel under-protected, especially in wellness, value-added services, and streamlined administration and claims processes. Insurers can address this by offering tailored packages that simplify administration and provide more modular coverage options.

Small businesses frequently cite insufficient dental coverage as a major concern, highlighting the need for insurers to help balance cost of coverage with breadth of core health benefits before introducing new wellbeing services. Medium businesses, while generally well-covered, express concerns that their core health services will be impacted by rising healthcare costs. There is an opportunity for intermediaries and insurance carriers to improve their partnership model with medium businesses. In doing so, they’ll be able to identify further opportunities for cost containment, advisory services, plan design optimization.

Smaller businesses rely heavily on TPAs and brokers for guidance and support. Insurers need to cultivate strong relationships with these intermediaries and provide resources and insights to elevate the advice being provided. Medium businesses, with greater internal resources, are more likely to engage with consultants and directly with insurers. That means insurers need to develop strong advisory, sales, and service capabilities to complement their intermediaries.

Medium businesses exhibit the highest retention rates, often staying with carriers for over 10 years, likely due to the complexities associated with switching providers. Smaller businesses, facing fewer barriers to switching, are more prone to change carriers, especially if dissatisfied with service or seeking better prices. Insurers must prioritize responsive customer service and address unmet needs to retain smaller clients.

Identifying the blind spots

So, you want to tap into the SMB market and need to know what the pain points are for SMBs looking for a group benefit provider? Here’s where you can start.

Product differentiation: Micro, small, medium. Your product portfolio needs to feel tailored and personalized to each of these sub-segments. Sector and demographic differentiation needs to be considered as well, with sponsors looking for coverage that caters to the unique needs of their employee base. Modularity in product offerings can help with competitive pricing for smaller businesses. Options for mental health and wellbeing services to complement core benefits offers and robust value-added services for larger organizations.

Distribution channels: As distribution preferences vary by sub-segment, a multi-channel distribution strategy is essential. Insurers must cultivate strong partnerships with TPAs and brokers while developing effective internal advisory, direct sales, and service capabilities.

Demand for integrated wealth and health: SMBs don’t want to manage or offer siloed benefit plans. And almost 60% of SMB plan sponsors want a benefits solution that integrates financial planning services as part of their core benefits offering. The opportunity here lies in insurers ability to offer a highly integrated retirement and health benefits solution.

Prioritizing digital and self-serve capabilities: 85% of businesses consider online and digital capabilities as table stakes. They also see convenience as a priority, with 86% agreeing that using online self-service options is an easier touchpoint for accessing their benefits information and gathering insights into their employee wellbeing.

Using technology to enhance well-being services: 89% of sponsors are open to insurers using AI and technology to enhance their well-being services. Individual consumers are more willing to share personal data with insurers in return for tailored well-being solutions and insights that allow them to take more ownership over their health.

Continue the conversation

Deloitte is here to help insurers navigate this promising yet complex market. We’ll help craft a bespoke strategy and business model that meets the specific demands of SMBs, position you for success in this evolving landscape.