Targeting the emerging business market
Although targeting the SME has its challenges, it presents exciting opportunities for intermediaries and life insurance companies who are prepared to do some homework.
Figures available from the Department of Trade and Industry illustrate the steep increase in the registration of closed corporations during the last ten years. This underlines the emergence of new entrepreneurs as South Africans look to create jobs rather than rely on government and the formal sector for employment, says Lisa Gibbon, Divisional Managing Director of Medscheme Financial Services.
"This is a very dynamic market. Typically the enterprise is run by an entrepreneur who is focused on making the business thrive. Time and money are tight, and side issues, including employee benefits, are the last things on the business owner's mind," she says.
Real world products
Gibbon does however believe that having a "real world" package of employee benefits works to the advantage of a small business.
"Typically employee turnover is high and this works to the detriment of the business where there is little or no spare capacity. Retaining employees and maintaining a stable workforce is good for the business and this is where employee benefits play a role.
"Companies that make some provision for employee benefits have a decided competitive advantage. Where a sensible, simple and affordable package of employee benefits has been set up, companies are far more likely to retain their employees," she says.
Intermediary has many roles
Gibbon stresses that the intermediary has a critical role to play in this market. "It is unlikely that the person running the business will have an in-depth knowledge of employee benefits and here the intermediary must fulfil many roles such as educator, pension or provident fund consultant and broker, " she says.
Choice of insurer
The choice of life insurer is also critical as many insurers have steered clear of the market.
"This is a challenging market and it is important that the insurer has a deep understanding of the specific needs and dynamics of this market," explains Gibbon. "Benefits and processes must be straight forward, and it must be easy for both employers and employees to relate to the value of the benefits provided."
Group risk benefits
This is where group risk benefits, as opposed to individual policies, have a number of advantages.
"On average, group risk rates are less expensive than comparable individual policies, and by pooling the risks, insurance companies are able to offer comprehensive free cover limits which eliminate the need for medicals and underwriting. This means automatic acceptance of the life cover from day one."
There are also tax advantages as contributions are tax deductible as long as the employee benefits are approved by the relevant authorities.
Partnership
Gibbon believes the partnership between the intermediary and the insurance company is also crucial to success in this market. "Both the broker and the insurance company must have a deep understanding of this market. This facilitates the sales process and ensures that the relationship is mutually beneficial for all parties."
