Group risk insurance is still very popular, although much of the growth in the market is down to innovation, rather than growth. Nick Martinuale explores how the sector is changing
Every industry is evolving – in response to market conditions, customer demand and new regulation, and the group risk sector is no exception. On the face of it, the market is in rude health; the number of workers insured has risen by almost 1.25 million since 2010 and now stands at 11.5 million, according to Swiss Re’s Group Watch Report 2015.
However, according to Mark Witte, a principal at Aon Employee Benefits, much of the growth can be attributed to the ongoing shift from defined benefit to defined contribution pension schemes and the subsequent need to replicate benefits previously provided by pension funds.
“This has been a source of new income and product development for the group risk market for a number of years and is likely to continue for a little while yet but reserves are drying up,” he says.
Aon’s own survey suggests 80% of organisations are not looking to change the scope of their group life and income protection coverage, and those that are were more likely to decrease it.
Against this backdrop, much of the innovation in the sector has focused around delivering value for money and more services. “Today’s group risk proposition focuses as much on prevention, early intervention and support as it does on paying claims,” says Katharine Moxham, spokeswoman for Group Risk Development (GRiD). “Employers are focusing more on the health and wellbeing of their employees, rather than only covering the cost of absence, and these extra support services complement employers’ own health and wellbeing strategies.”
Unum is one company doing just that, says Andrew Potterton, head of proposition development, making its employee assistance programme available to life assurance and critical illness customers as well as those with group income protection policies. “It’s in our interests to remain relevant,” he says.
It’s also developed its AgeingWorks tool, designed to provide support to employees worried about elderly relatives.
There are also a number of innovations in particular areas. In the group life space, one trend is to create simpler and more tailored products, suggests Paul Avis, marketing director at Canada Life, including single-illness policies.
“Product design is being made simpler and technology platforms are driving the ability of advisers to actively quote additional benefits,” he says.
Another trend, says Witte, is the erosion of death-in-service benefits, although this is not necessarily leading to an increase in the lump sum market.
Another development is the growth in excepted group life schemes, which grew by 30% in 2015, according to the Swiss Re report. “This is largely due to a reduction in the lifetime allowance, down from a high of £1.8m in 2011 to £1m in 2016, which is prompting employers to set up excepted schemes for their higher-earning staff,” says Chris Morgan, distributor partnerships manager at Ellipse.
It recently launched an excepted life trust designed to offer a ready-to-use discretionary trust deed, along with professional trustee services, for employers looking to go down this route, and expects other providers to follow.
In the group income protection space, the emphasis is very much around early intervention, something that Avis says is encouraging existing employers to extend coverage to other employees.
“The innovation here is about evidencing the return on investment that we can provide to employers in terms of reduced occupational and statutory sick pay, increased productivity and a reduction in recruitment costs,” he says. Management information dashboards help with this, he adds, by allowing employers to identify where their issues lie and track the impact any action has on metrics such as days’ absence or private medical costs.
Alongside this, there is a blending of income protection and wellness products, says Paul White, a senior consultant at Punter Southall Health & Protection. “A good example is our Havensrock income protection product,” he says. “Employees are provided with a movement and sleep tracker and given access to an annual health MOT and wellbeing tracker as well as their online health portal. The product is designed to empower employees to become healthier and more productive, yet provides financial support if they become too ill to work.”
The decline of income protection
Income protection, however, is in a less attractive position.
“Often ringfenced and excluded from a flex programme, our 2015 survey didn’t register any notable response from employers looking to bring this into the flex programme,” says Witte. “If flex is the evolution of the benefits programme, there seems to be little place for income protection, with critical illness the popular alternative.”
Another trend has been to adopt shorter benefit payment periods, partly as a result of cost pressures and also a lack of appetite from employers to retain long-term absentees on the payroll.
“Employers have said a maximum benefit of two, three or five years is enough to protect people for normal periods of absence, and that certainly brings the price down,” says Potterton.
He suggests a compromise option may be to remove the annual increase in line with inflation or a fixed percentage, but to carry on offering cover for a longer period. “We’re a bit worried about stopping it at the end of five years when the person has a deteriorating condition,” he says. “Something is better than nothing.”
Employers may also have to think about their approach once the government’s employment and support allowance – primarily affecting disability claimants – comes into effect in April 2017, he adds – something that could lead to organisations moving from offering employees a percentage of salary minus the government allowance to a smaller percentage of salary.
Simon Crew, consultant at Xerox HR Services, says he welcomes the recent move towards evolving products across the group risk space. But he believes innovation in this sector often fails to meet the needs of employers, citing the development of sick pay insurance as an example of something that has not taken off.
“Intermediaries can see the benefit, but if clients are not prepared to pay for it then it will have very little impact on the market,” he says. His view is that insurers are often prevented by intermediaries from getting the kind of access to employers they need, making it harder for them to identify what is really required.
“Many employers aren’t given sufficient information by their intermediaries to challenge the current benefits structures, and develop tools and products that more closely meet their needs.”