Benefits Products & Services

By Thomas A. McCoy, CLU

SMALL BUSINESSES RIDE OUT THE PANDEMIC

Assessing their recovery and the impact on benefits

How might the owners of small businesses and their employees think about their employee benefit plans differently as a result of the pandemic? Insurers in the small business market are poring over data to figure this out. Long-term, they see evidence that both plan sponsors and participants will attach even greater importance to their benefits plans in achieving their personal and business goals.

Kara Hoogensen, senior vice president of specialty benefits at Principal Financial Group, says, “Unlike in the financial crisis of ’08-’09, the effect of the pandemic on businesses has been more industry-specific and less about their size. Hospitality, travel, and entertainment have been especially hard hit.” Still, as a group, she notes, “small and medium-sized businesses have demonstrated unbelievable resilience.”

For its group business (which includes life, disability, dental, vision, critical illness and accident), Principal defines small to medium-sized businesses as those under 500 employees.

Their resilience “comes from an inherent scrappiness of small business owners and their employees,” Hoogensen says. “There’s just such a connection between what they set out to do, which is to fulfill a passion of the business owners, and the drive for success. They have demonstrated a nimbleness in quickly pivoting to new ways to market their products.

“Some may not have had an online presence before the pandemic, but they quickly found that capability and deployed it. For some restaurants, carry-out business wasn’t a big piece of their revenues previously, but it is now, and it may continue to be beyond the pandemic.

“It has been really difficult, though. The cash flow concerns and just the general uncertainty that all businesses face in this kind of environment have been troubling and stressful, and we certainly saw that during the research that we did in 2020. But they never totally lost their optimism.”

According to Principal’s research, the smaller firms outpaced the larger ones in their plans to increase their revenue over the next year (70% to 60%) and to increase their customer base (62% to 38%). However, the larger firms were more aggressive in their plans for additional hiring (27% to 18%) and offering a new product or line of service (30% to 16%).

Principal sponsored its independent research on the small business market in three waves during 2020. The last one was conducted after the November election but before the second federal stimulus package was in place. It found that around half of all firms were more concerned and cautious about the economic outlook in November than they were in September.

Over those three months, 63% of the 500-plus employee firms reported that their financial condition had improved, compared to only 31% of the smaller firms. Looking to the year ahead, expectations of the two groups narrowed but still favored the larger firms; 81% of the larger firms expected some level of improvement in their finances versus 63% of the smaller firms.

Principal’s research found that in the period from November of 2019 to November of 2020, 70% of all firms, large and small, made no changes to their benefits programs; among those making no changes, 81% were businesses with fewer than 500 employees.

“For those that did make changes, there was a tendency to increase their benefit offerings,” says Hoogensen. “It could have been either a richer plan design for a benefit that was already offered or an additional type of insurance coverage.”

Unum conducted research in early December 2020 that provided similar findings. Its independent polling of employers with fewer than 250 employees found that 71% planned to keep the same benefits in 2021 and another 5% planned to keep the same benefits and add at least one more.

Michael Mazzeo, small business consultant for Unum, said, “We’ve had a lot of conversations with clients who have wanted to add benefits to protect their people now that they see what the pandemic has done.” Unum reported that disability, critical illness and viral/infectious disease coverage were the most commonly named benefits that businesses were adding due to the pandemic.

Of those businesses in Unum’s study that were offering critical illness this year, nearly 40% planned to offer an infectious disease rider in their coverage—a clear response to the pandemic.

Hoogensen says, “In small businesses, employees are ‘family’ to those business owners and to one another.” Business owners have consistently list-ed the health and safety of their employees and their customers as their top concern over the past year, she notes.

“Aside from the physical side of making the workplace safe, there’s also that element of the health and well-being of employees. That includes providing a benefits package that allows employees to have some peace of mind that they have the resources in place if something happens to them or their family members.

“Income replacement is a key one,” Hoogensen continues. “It may have been less appreciated prior to the pandemic, but we believe there’s an increased understanding, and will be for a long time to come, of the value of having your income replaced when you can’t work because of illness or injury. Our research shows that about 21% of businesses say they are going to add or increase short-term or long-term disability coverage in the next 12 months.

“Likewise, about 27% of employers say they are going to add or increase paid family or medical leave,” she says.

Principal’s research compared the top three benefits that large and small employers say they plan to add or increase in the future. Large firms named financial wellness, telehealth services and employee assistance programs (EAPs). The firms up to 500 employees named telehealth services (31%); caregiving benefits (26%) and childcare support (27%).

“Generally, childcare support is more common in larger employers than in smaller ones,” says Hoogensen. “So, I think the results for childcare support are partially due to the smaller firms going from no childcare support to at least some childcare support.

“This support can take a variety of forms,” she continues. “It could be a stipend to offset the cost of childcare. It could be additional flexibility of schedules. Flexibility can be so important for employees who are trying to do great work for their company and at the same time homeschool their children. Maybe an employee’s work can be performed outside of the hours of a typical school day. Or it could be on some reduced work schedule.”

In addition to comparing businesses’ outlook based on their size, Principal gathered data comparing metro-area firms to rural firms. As of the survey date in December, 33% of metro-area firms expected to have recovered from the pandemic within six months, compared to 15% of rural firms.

The rural businesses also were more likely to say that their local economy is declining and feel less supported by the federal government than metro-area businesses.

Hoogensen stresses that the adjustments businesses have made out of necessity are likely to be evaluated for their usefulness beyond the pandemic. “Businesses of all sizes are going to be thinking, ‘Do we go back and just assume we operate the same way we did prior to the pandemic or are there lessons that we learned, including how we support our employees and create a work environment that allows for a different blend between work and life?’

“There are so many examples of how employees have strengthened the organization they work for during the pandemic. I think of one small business with about 115 employees that has done a really good job of listening to its employees. It’s a technology company with operations all across the country, and they already had a good benefits package in place prior to the pandemic.

“Music has always been an important part of this company’s culture, so they decided to offer their employees ways they could share their musical talent with one another. They couldn’t get together in person, so they did virtual concerts on Friday afternoons so that they could all connect that way. Eventually, they invited some of their clients’ employees to participate in these concerts. There would wind up being a few hundred people on these Zoom calls for a 45-minute concert.

“It was a fantastic way for the employees to stay connected and show their appreciation for one another and to show their clients a part of their culture that was important to them.”

Benefits providers will continue to study the ways that employees’ needs are evolving. “Ultimately, benefits help drive growth for every business because a benefits program is a key way for employers to attract and retain talent,” says Hoogensen.

The author

Thomas A. McCoy, CLU, is an Indiana-based freelance insurance writer.