If you were starting your business today and you intended to target the small employer market, what issues would you need to consider?
Well, certainly your business structure would need to emphasize operational efficiency, since the small employer market tends to be very labor intensive. In effect, your business shares the responsibility or becomes the HR department for anything benefits related. So your staff, workflow procedures, processes, etc., need to be geared to high-volume, transactional interaction. Theres no great need to emphasize a consultative approach or to take a very strategic view of their benefits program over the next three years.
In this market sector, the emphasis is on quickly and efficiently provisioning benefits, providing prompt handling of all routine service requests, and automating and systematizing as many back-office procedures as possible. Which means you better be prepared to leverage technology to facilitate all your customer and carrier interactions wherever possible. And you will need to have a very firm grasp on expense management and controls since you will be dealing with smaller margins that will become even smaller in the foreseeable future. Thats not negative; thats simply addressing reality. And there are plenty of examples of firms that have achieved operational excellence and that have planned for the continued compensation compression on the horizon.
You also will need to think about the products and services you will provide and your ability to access markets. The early market analysis is that small employers are the most likely to entertain: abandoning employer-paid benefits; adopting defined contribution plans; adopting private exchanges; and potentially giving employees a credit to purchase individual health insurance coverage. Stop and think about the implications for the business operations you are trying to create. You need to develop some financial pro formas to model the revenue implications of each of these scenarios. It likely means that how you are compensated today for all or most of your clients, will only apply to a portion of your clients. So making some objective and realistic assumptions about how your clients will plan and purchase their benefits offerings will help you to forecast your future revenues. And you need to do the same for your expenses as the mix of client choices will impact your service requirements and staffing needs. For example, does your team have expertise and servicing experience in the individual health insurance market? Will you be operationally efficient in handling routine consumer inquiries?
Another important consideration as you think about the creation of your new business model is: how will you access markets? And how will you be compensated by your carriers? As we correctly forecasted about two years ago in this column, some carriers are already developing tiers of their broker distribution partners. One or two tiers may no longer have direct appointments with the carriers and will be directed to place their business through distribution partners that will be directly appointed and will be responsible for the processing and placement of your accounts. Obviously the compensation levels will be reflective of the different roles played by brokers depending upon which tier they are in. Which tier will suit your business model? Do you have the resources and capabilities to be a GA (or whatever the new market terminology will be to describe this role)?
So as you can see, theres a lot to think about as you plan for the future of your business regardless of the markets you serve.
Kwicien is managing partner at Baltimore-based consulting and advisory services firm Daymark Advisors. Reach him at
