Group risk policies often fail to include critical illness protection, even though this can be a valuable, cost-effective benefit for staff that sets an employer apart from its competitors. Nick Martinuale looks at what organisations need to consider
Critical illness cover has traditionally been the poor relation of group risk; lagging some way behind group income protection and even further behind group life insurance in terms of the number of people covered. There are a number of reasons for this, but high premiums and low levels of understanding by employees are undoubtedly significant factors.
However, there are signs that the market is starting to grow as employers review their group risk strategy in the light of better economic conditions.
According to the Swiss Re Group Watch 2015 report, the group critical illness market grew by 92,103 employees in 2014, compared to 39,477 for income protection.
“Where group critical illness has been provided on a core, employer-funded basis, this has often been seen – incorrectly – as a cheaper and easier-to-manage alternative to income protection,” says Mark Witte, principal at Aon Employee Benefits.
“While the income protection or critical illness debate may still have to play out with some employers, the progressive view of critical illness cover would be to see it as part of a targeted, evolving health and wellbeing strategy.”
Why opt for critical illness cover?
There are a number of reasons why employers may want to include critical illness cover as part of group risk policies.
First, given how few employers offer it, cover can be a good way of setting an organisation apart from its competitors.
“Only 2,840 employers have a group critical illness scheme, so if any organisation is looking for a differentiator between themselves and those with group income protection or group life, then this is an opportunity,” suggests Paul Avis, marketing director at Canada Life Group Insurance.
This has become even more important since the introduction of auto-enrolment, which means pensions are less of a differentiator than previously, he adds.
Offering critical illness as part of a group risk policy – where the employer pays for the scheme – can also help organisations position themselves as responsible places that care for their staff.
As well as helping with both attraction and retention, this can also avoid situations where ill staff find themselves in financial difficulties, creating dilemmas for the employer and risking negative feeling spreading through the workforce.
“According to the Joseph Rowntree Foundation, the minimum income required to lead a socially acceptable standard of living is £40,400 [for a couple with two children],” says Chris Hickey, healthcare account executive at Sutton Winson, one of the 12 founding members of the UNA Alliance of privately owned corporate insurance brokers and risk managers.
“The average UK income is around £27,000, so if a family were to lose this income due to incapacity there would be a major impact on their living standards.
“Given that people are three times more likely to claim on a critical illness policy than a life policy during their working life, the value and need for this cover is high.”
Having access to treatment thanks to a lump-sum payout on diagnosis of a serious illness could also help people return to work more quickly, he adds, which can also benefit the employer.
Creating a package
Indeed, critical illness fits in well with the other elements of group risk, allowing employers to create a holistic package that should help with almost any health-related issues, says Russell Davidson, managing director of Davidson Asset Management.
“Private health insurance provides a monthly benefit after a period, whereas critical provides a tax-free lump sum within 14 days,” he says. “Critical illness may provide cash until private health insurance kicks in and allow a person to pay for the specialist treatment they need.”
There are other factors to consider. Andrew Potterton, head of proposition development at Unum UK, says: “Critical illness better meets the needs those who have no dependants and don’t need life cover,” he says. “Employers need to offer a combination of critical illness, income protection and life insurance to create an offering that’s tailored to staff needs.”
He adds that Unum research found 62% of employees would expect financial support from their employer if they became ill, while a third would consider leaving their job if they didn’t feel cared for.
Employers can even use other elements of group risk to fund the cost of critical illness cover, which may make it more affordable, suggests Mark Bingham, a partner at Secondsight. “For example, it’s possible to reduce the cancer cover on a private medical scheme and use some of the saving to fund a critical illness policy,” he says.
“Make sure everyone knows how the different cover works. We’ve found that many employers haven’t reviewed their benefits for a number of years.”
Be careful how you offer cover
As well as reviewing policies regularly, organisations need to ensure these are effectively promoted. “If staff are unaware critical illness is even on offer, or don’t understand how it protects them, they won’t appreciate it,” says Potterton.
“Simplicity is the key when it comes to communicating benefits to staff. Employers should make it clear which conditions are covered, how ‘bad’ the condition needs to be to qualify for benefit, whether pre-existing conditions are covered and how repeat claims can be made.”
Avis, though, warns against employers trying to do too much themselves, at least when it comes to the content of any communication materials.
“We did some flexible benefits research in 2013 and found that organisations were creating their own documentation and that’s dangerous, because they’re not technicians and if they say employees have cover which is not included in the insurance, then they’re making an offer to the employee,” he warns.
“You have three stages – pre-selection, post-selection and claims – where the obligation on the employer is to communicate the benefit, but make sure that the insurer or adviser produces those materials, not you as an employer.”
However, employers can become involved in explaining the benefits of the cover, through emails, individual sessions with staff, brochures and presentations, intranets, total reward statements or flexible benefit platforms.
“There is also an increasing demand for wellness days or benefit fairs where they have stands manned by experts who can talk them through the benefits,” adds Bingham. “Staff tend to engage at these events as they are informal and they can ask questions in a relaxed environment.”
Generally, employers tend to do a better job at marketing health and lifestyle benefits than more financial ones, suggests Chris Morgan, manager, distributor partnerships at Ellipse.
“They don’t have to follow a ‘what happens if...’ theme,” he says. “Considering the risks these benefits protect against, they are part of any commonsense approach to planning finances.
“We encourage employers to look carefully at the product choice offered and communications plan before implementing a critical illness product,” he adds. “More attractive products and better communication will improve take-up and ultimately employers will get much more value from this product.”