Many business areas have been decimated by Covid-19, but group risk certainly hasn’t been one of them. Indeed, if someone glancing at Swiss Re’s Group Watch 2021 was hypothetically unaware of the pandemic, last year would have seemed like business as usual.
The overall number of people covered by group risk policies increased by 1.1 per cent during 2020 – compared to growth of 2.2 per cent during 2019. Group income protection numbers even increased by 6.6 per cent – compared to 1.6 per cent in 2019. Shrinking workforces and desires for cost cutting have been counteracted by the health crisis making people more aware of mortality and morbidity risks. The development of added-value features accessible to homeworkers has also helped.
LifeSearch head of business protection and group Alan Richardson says: “Employers, and many employees too, have certainly become more aware of the impact of not having employee benefits in place and, as more of us work from home, the areas that differentiate one employer from the next are evolving.
“Life cover and other financial benefits are becoming more important, but so too are the associated benefits of 24/7 virtual GP services and counselling services.”
It would have been easy for group risk to have simply shut up shop like some industries but instead providers have demonstrated that their propositions do what they say on the tin.
Legal & General distribution director, group protection Colin Fitzgerald says: “We feel the Covid environment has been an opportunity for the industry to step up and show what it’s made of. It has banded together pretty well to ensure employers have received support like premium flexibility, especially around furloughed workers, has paid claims in a timely fashion and demonstrated agility to maintain service levels.”
Challenges
Nevertheless, there are clearly still significant educational challenges to overcome if the group risk community is really going to make the most of the post-Covid workplace opportunity. Having the benefits in place is one thing but ensuring that employers and employees know they have them and understand how to use them is quite another.
“Workplace benefits have never had such visibility but they are still not adequately understood,” continues Fitzgerald. “Counselling line take-up rates on EAPs have definitely improved but we are still finding some companies are struggling to understand that wellness benefits are in the products.
“The communications going out are too long, too boring or too frequent, and we need to make sure they are shorter, snappier and possibly more video-based. It’s more a problem with large organisations, and we need to work more closely with employers to be more effective.”
Prosperis head of corporate consulting Steve Ellis feels that intermediaries can be reluctant to emphasise added-value features because they can subsequently get in the way of switching schemes. So, he highlights the need for a change of mindset and for considering products in the context of an overall review of wellness.
He is also critical of the way that employers typically use group income protection to insure only a proportion of their workforce, as having a ‘two-speed business’ makes it hard for HR teams to have a consistent approach to absence. But the trend for health and wellbeing apps to be available to all death-in-service scheme members is considered a positive development.
Ellis says: “This gives us as intermediaries a reason to speak to everybody and suggest giving every employee access to things like virtual GPs. The one thing I’ve really picked up on is that virtual GP services have been appreciated during the pandemic, both by employers and employees.”
But in the SME space, where market penetration is the lowest, the primary challenge is still ensuring that employers offer the products at all. With different industries feeling different cost pressures, it is important that messages are tailored accordingly. Canada Life protection sales director Dan Crook says: “It’s about using new technologies to ensure benefits are available to more people without costing the earth, and we are currently piloting a potential solution. Some employers will become educators and facilitators rather than providers by offering voluntary and flex schemes.”
Tax barriers
But the popularity of income protection within flex schemes has arguably been dented by recent HMRC clarification of the tax implications of employee top-ups. The elected element attracts a P11D liability but the benefit resulting from that element is tax-free – although the benefit resulting from the employer-paid component is taxable.
Zurich head of market management, corporate risk Nick Homer says: “Most of the clients of intermediaries I speak to no longer operate choice for employees on the level of income protection benefits because, with only a proportion of the total benefit being tax-free, the complexities around flex platforms being able to administer it and employers having to make the necessary amendments means it’s not worth doing.”
Even outside flex there are still the old tax issues that have hindered other group isk products, such as employer-paid critical illness cover constituting a P11D liability, registered group life impacting on the Lifetime Allowance, and excepted group life being subject to periodic trust charges.
Grid spokesperson Katharine Moxham says: “The rules for excepted and registered group life present a significant barrier to distribution. The charges are very arbitrary, raise very little revenue for HMRC and are highly complex and expensive for employers, whose eyes soon start glazing over when you begin talking about them. “The P11D charge on critical illness is also definitely a barrier for employer-paid cover, particularly for smaller employers. They don’t want to give employees a benefit that brings a tax charge and, although this can be tiny on the average premium of around £200 a year, it can be a real hassle to collect.”
There are still no signs of any breakthroughs on these issues and there is a general acceptance that politicians currently have more important fish to fry.
However, the government has effectively had to act as an insurer during the pandemic, paying out death benefits to frontline workers and proportions of salary to furloughed workers. So, there is optimism that this experience should eventually make it more willing to engage with the group risk industry on taxation and other issues.
