With the group risk market growing at barely more than the rate of inflation in recent years the challenge of how to expand the market was not surprisingly foremost among delegates at the first Group Risk Adviser Forum, hosted by Corporate Adviser at the Caledonian Club in London last month.
Advisers identified areas where product innovation and improved working practice could facilitate the generation of new business, from solutions that export long-term sickness problems away from employers to greater transparency around charging structures.
“There are barriers to employers taking out income protection that can be removed if we can get involved in getting product providers to move in the direction we think employers want them to,” says Carlos Correia, senior consultant at Lane Clark & Peacock.
The group risk market market is growing, but not as quickly as GRAF advisers would like. This year’s Swiss Re ‘Group Watch’ report found that combined in-force group life, group income protection and group critical illness premiums rose from £1.51bn in 2006 to £1.59bn in 2007. The number of lives covered grew from 7.2m to 7.4m, although the number of schemes in force fell slightly over the period.
While the report noted a generally positive view from the market about prospects for future growth in the group death benefits sector, many contributors thought this would barely exceed inflation increases, with modest expectations for new schemes being brought to the market. Critical illness cover was up, but from a very low base.
But the picture was more downbeat for group income protection, with a fall from 1.73m to 1.72m lives covered and nearly 800 schemes lost over the year.
Advisers voting at the forum put this decline down to cost and, to a lesser extent, product design, with three-quarters of delegates pointing the finger at rising premiums to explain the fall. But while wishing higher premiums should simply go away will get the industry nowhere, advisers do see ways in which the market could be made to function more efficiently.
“Income protection can be difficult to explain to companies, so the pricing structure on income protection needs to be more transparent,” says John Russell-Smith, client director at Lorica. “Explaining half -a-million pounds’ worth of income protection to a mid-sized company is difficult.”
Despite provider service in the group risk sector often being slammed by advisers, delegates did not blame it for slow growth. Instead they felt that a lack of understanding by employers of the value of products and cost were responsible. While the idea of raising the profile of group risk products to the public at large was universally agreed to be a positive step towards solving this problem, creative thinking around added services and product innovation could also help.
Advisers placed the greatest value on added value services that support absence management, followed by those that implement preventative measures. But some questioned the value of free add-ons.
Katharine Moxham, consulting director, health & risk at JLT Benefit Solutions said: “Our view is that EAPs that come for free aren’t very good and that the paid for products are far better.”
However, she did feel that the growth of flex would help to educate employees as to the value of products. “As flexible benefits become more prevalent among employers, employees should understand more about the choices they have around benefits,” she said. This reflected a generally positive view among advisers that group risk products would not lose out in the market forces environment of flex.
The prospect of new providers entering the market appealed to delegates, with near total support for the prospect of Prudential bringing its protection expertise to the group risk sector. Axa’s rumoured entry to the market was also received positively.
Some product developments already introduced by certain providers were well received by delegates.
Rick Wilkinson, healthcare and risk consultant at Watson Wyatt said: “Unum’s Pay Direct has responded to the shift from defined benefit to defined contribution schemes, and this fits in with the culture of many companies,” said Wilkinson.
“One of the real barriers for employers around group risk is connected to employment. The company doesn’t want to deal with long-term sick employees, and it doesn’t want to have to keep a position open for that employee, or hire me to help sort out the problem,” says Correia. “Pay Direct hasn’t been copied which I find surprising, although L&G offers something similar. Another advantage of Pay Direct is that there is no national insurance to pay, so it will push people that way. The reality is that Pay Direct should be very popular.”
Like Wilkinson, Correia would like to see products develop to reflect the changes that have taken place in the pensions arena, where employers have enjoyed the benefits of seeing much of the risk and administration time take out of their hands and moved to the individual employee. Correia said: “I would like the market to move towards something akin to a group PHI policy, but that hasn’t happened yet.”
Advisers accepted that part of the problem is they themselves have difficulty persuading hard-pressed employers that they will get a return on their investment if they do take out group risk plans.
Russell Smith summed up the issue advisers face. “We will promise a company a return on investment but there is obviously no guarantee for a finance director that it will pay off.”
Moxham mooted whether it would be possible for advisers to connect fees to results, and Iain Taylor, director of City Assurance said that it would be possible to go for remuneration on a performance basis, although acknowledged it would need a very complicated contract to make it work. He suggested that there was potentially a model for advisers to ask employers how much, for example, absence was costing them, and agree a slice of costs saved. Taylor said: “With absence management, a company says ‘we think we have a problem but can’t quantify it’. We can record it and say to them ‘we will reduce it going forward, and you can pay us accordingly’.”
GRAF delegates saw the greatest potential area for the development of new business as being the cross-selling of benefits to existing clients.
While the consolidation in the market that has seen many intermediaries take on businesses that do different disciplines, to give them a holistic offering to all their clients, delegates agreed that in reality these larger conglomerates were yet to properly exploit the opportunities of targeting pension and healthcare client banks with group risk solutions. Instead, many supposed multi-discipline intermediaries still operate as several individual businesses sharing a common brand and switchboard but little else.
Raising the status of group risk benefits amongst employers, employees and the government is crucial to the expansion of the sector. Advisers want providers to lobby ministers hard on the issue reports Nick Golding
Special report group risk adviser forum
Getting employees to place a higher value on group risk products is a priority for expanding the market, according to delegates at the Group Risk Adviser Forum (GRAF) last month.
Advisers accept that the government has been working hard at raising the profile of absenteeism among workers in the UK, but argued there is still more to be done with regards to the broader group risk agenda.
According to forum speakers the government is not taking seriously enough the link between group risk products and what they can do to help UK employers effectively manage absence.
David Williams, risk benefits consultant at Hewitt, said: “If the government could chip in and make group risk products more cost-effective for employers that may certainly help the market. After all, these are voluntary benefits.”
Tax-breaks may be an aspiration rather than an immediate target at the present, but such a development would also encourage employers to take on group risk for the first time.
“In terms of incentivising employers to provide income protection for staff, I wholly agree that additional tax-breaks on corporate-sponsored income protection would grow the market,” added John Russell Smith, client director at Lorica.
“Group risk products benefit the individual, the employer and also society, and this should be recognised more by the government. The benefit can relieve the financial strain on the State,” said Carlos Correia, senior consultant at Lane Clark and Peacock.
Offering tax-breaks on group risk products for employers was one remedy that was discussed at the forum, as this would encourage employers across the UK to promote the products to their staff.
Another method of increasing awareness among employers in the UK is to encourage the government to request companies to report each year on the measures that they have in place to deal with absenteeism in their annual accounts. While it is not proven whether companies with good human capital management perform better because of their treatment of staff, or they treat their staff well because they are good companies, there does seem to be a correlation between profitability and best HR practice.
Companies are constantly in competition with one another, and if it was necessary to report on the measures in place to deal with absence, having a range of group risk products in place to deal with sick staff would soon become best practice, and other employers would be sure to follow their competitor’s lead, said Correia.
“Perhaps some sort of corporate responsibility section where employers could comment on what they provide in terms of wellbeing for staff should be incorporated. I wouldn’t like to see it made compulsory to provide group risk, but if it was seen as best practice maybe more employers would be encouraged to value it and start providing it,” he said.
So who should be trying to make this change happen in Whitehall? When it comes to the responsibility for lobbying the government around the promotion of group risk products to employers, GRAF delegates were agreed that it was down to insurers.
“If there is any lobbying of the government going on it would have to come from the insurance providers and insurance companies, simply because it is in their interest more than anyone else, to get tax-breaks on these products,” Williams explained.
Guy Roberts, director of Portus Consulting agreed. “In reality it does not matter to my business whether the market grows or not. The effort that is required for me to go and get somebody to take on a scheme where they haven’t had one before is so much more than targeting those already with schemes, that it is not in my firm’s interests to do it.”
Not only do the insurance companies have the budget, they also have the experience of lobbying the government, so could use this experience effectively, said Correia.
“The insurance companies are in a financial position to lobby, and they are also familiar with lobbying the government on other issues as well,” he said.
If successful such activity would undoubtedly be a positive step in raising the profile of group risk. The fact that health and wellbeing is commonly found in television, the national newspapers and magazines should be fertile ground for promoting wellbeing products, say advisers.
“The wellness debate is growing and is even reaching breakfast television. This is a level of debate that I don’t remember seeing in previous years, so this has to be a step in the right direction from a group risk perspective, because when you talk about wellness and absence it will ultimately lead to group risk,” explains Correia.
The forum also explored the possibility of there being a lack of confidence from employers in the group risk market and also with intermediaries.
Advisers felt that the new examinations that have been created by Grid will encourage more employers to purchase products from intermediaries that have passed the exam. But the exams will be targeted at group risk specialists who are starting out in the industry, as opposed to those at the front line, which may not lead to too much more confidence among employers, as actual product sellers will not take the exam, said Williams.
“They may give employers a bit more confidence in products, but I think these exams are more for backroom staff, to give them a grounding on what the group risk industry is all about,” he explained.
However, others were more supportive of the new exams, saying that they will encourage confidence among employers and are a positive step in weeding out the individuals in the market that are misleading employers. “If the exam raises the standard in the industry it can only be a good thing for us all. Hopefully it will mean that less people will be misleading clients into buying products that they don’t actually want,” observed Correia.
One talking point at the forum was not necessarily whether employers understand the true value of group risk products, but whether this knowledge and understanding is being successfully passed on to the members of staff that are using the benefits.
Russell Smith said that employers he deals with understand the benefits themselves but are not extracting maximum goodwill for the benefit spend through employee awareness. “My clients do place a value on the provision of group risk benefits. They understand the benefits of offering them, but there has, on occasions, been a general reluctance to communicate the full value of these benefits to eligible staff,” he said. One reason for this reluctance to pass on the true value of group risk perks, income protection especially, could be down to the fact that a small section of the workforce may see such perks as an opportunity to take paid leave from the workplace without genuine illness.
“Part of this reluctance to effectively communicate group risk products to staff is for fear of creating a ‘sick culture’, whereby employees that know they have an income protection product, decide to take advantage of that, especially in an economic climate when many employers are downsizing,” added Russell Smith.
However, other delegates see this as less of a problem, simply because insurance companies tend to be thorough when they are paying out to employees claiming illness benefits.
They argue that insurance companies will be quite sure that the money they are paying out in an income protection scheme will only be to those that cannot make it to work through illness.
“I do hear and know of companies that keep benefits a secret because they don’t want employees claiming on them, but it is pretty rare. It is highly unlikely that an insurer will let someone get a claim through unless they are genuinely sick,” said Correia.
That said, the general message from advisers present is that if the value of group risk products is to rise amongst employers and employees there is a need for the government to play a more active role in promoting the advantages of the benefit.
GRAF delegates see the current raft of modifications to the legal framework in which they operate as generally positive. John Greenwood finds out why
Special report group risk adviser forum
This October’s introduction of the Welfare Reform Act, the arrival of personal accounts in 2012 and the continued fallout from the age discrimination debate will all mould the environment in which consultants operate. Most GRAF delegates saw positive outcomes from the changes. Advisers also had a few ideas of their own as to how Government could shape the market to encourage employers to take public responsibilities into the private sector.
One innovative idea that Katharine Moxham, consulting director, health & risk at JLT Benefit Solutions would like to see is the philosophy that allows contracting out of state second pension extended to the group income protection market. She argued that with state provision likely to extend to 28 weeks of statutory sick pay and a further 13 weeks of looking to getting people back to work, employers are likely to be duplicating cover through the private sector.
Moxham believes that group risk has been the poor relation to other forms of benefit for too long. “When it comes to legislation group risk is often an afterthought. Legislation is usually built around other issues. Employers are effectively paying once through their income protection policy and once through their National Insurance Contributions. Why should that be?” she says. “Why should these employers who insure against sickness benefit be allowed to contract out of the state provision of long term disability benefit? This could be an attractive incentive to attract employers to group income protection products.”
When it comes to ongoing legislative changes, advisers were generally positive about what effect they would have on their businesses. Dan Lamb, head of group risk at Jelf Group remains to be convinced over whether the government’s aims behind its Welfare Reform Act will be achieved, but feels the exercise gives consultants a perfect excuse to talk to clients about what they have in place. “It is up to us to raise the profile of welfare reform, but how successful this new concept will be at getting people back to work is yet to be seen. However, this is definitely an opportunity for us to talk to clients about product design.”
Rick Wilkinson, healthcare and risk consultant at Watson Wyatt agreed. He said: “The Welfare Reform Act is if nothing else going to be a catalyst for change, because it will force employers to look at their IP offering. Many companies may well stay as they are, but this is a great opportunity for us to get a foot in the door. If you can’t speak to them now, when can you?”
A poll of advisers found two thirds saw welfare reform boosting their business, with the remainder seeing it stay the same. None saw negative consequences from the change.
Advisers were unanimously of the view that the arrival of personal accounts will have no affect on their business at all, even though employers are likely to see their pension costs soar as auto-enrolment boosts participation rates. Despite this forced upswing in pension spending, GRAF delegates think there will be no consequent reduction in the group risk spending of employers to pay for this.
Guy Roberts, director of Portus Consulting said. ” The proposed 3 per cent is not sustainable, this will have to go up in the future. But this won’t be a problem for employers with decent pension schemes.”
Lamb also questioned how wide the breadth of take-up would be . “Employees can still opt out of Personal Accounts, if the organisation gives out the message of pay rises against Personal Accounts, although this is of course illegal,” he said.
There was more muted concern over age discrimination. “Age discrimination costs will make many employers wary of legislation,” said Correia. While two-thirds said it was having no effect, 13 per cent of delegates felt age discrimination legislation is reducing their business volumes.
Legislative and regulatory change has been the stock in trade of the employee benefits consultant since the dawn of the profession. Today’s intermediaries see opportunities, not challenges, from the new laws currently in the pipeline.
Nick Homer – Senior Proposition Manager Norwich Union Whilst to on-lookers the group risk market may appear to be a stable, fairly static, market the reality is it is going through a period of considerable reform.
Group Risk Market – Tough times ahead or great opportunities?
The group risk market undoubtedly faces some challenges as the benefits package often comes under the spotlight during a period of economic downturn, rising employer costs and increasing employer obligations as a result of new legislation and discrimination law. Therefore, not surprisingly three-quarters of advisers at the Group Risk Adviser Forum (GRAF), which Norwich Union has been pleased to support, highlight cost as the main reason why employers don’t currently buy group income protection. However the group risk market is also presented with tremendous opportunities going forward in light of a declining welfare state, increasing employment law obligations and changing employer attitude towards the benefits package and the role it can play in delivering broader ‘business’ benefits. An increased emphasis on the role products like group income protection can play in helping employers manage workplace issues presents providers with new opportunities regarding product design (some advisers felt that product design was a key barrier to sales) that could also potentially address some of the cost issues.
Propositions that can demonstrate shorter term value to the business, have a greater emphasis on rehabilitation and align more with broader wellness / health management initiatives could play an important part in shaping the future of the group risk market.
The government clearly recognises the critical role employers have to play in managing the health and wellbeing of the working population. Employers undoubtedly face increasing obligations regarding their duty of care towards employees and the government, in particular, is very focused on the need for occupational health services. However, many believe that the government should introduce new initiatives that encourage employers to put in place private provision to help them protect and support the wellbeing of their employees. Tax breaks for products that promote productivity is the initiative the majority of GRAF advisers want to see from the Government to promote group risk products in the workplace.
With an ever increasing focus on the need for early engagement, management and rehabilitation of incapacitated employees, group income protection, in particular, is regarded by many advisers as a product that can help employers fulfil some of their broader business requirements. Having a group income protection scheme in place can potentially support activities such as health and safety, absence prevention and the wider wellness agenda. However, half of the advisers at the GRAF event believe that the benefits or services which support absence management are most highly valued by clients.
Whilst proposition innovation clearly has an important role to pay in the growth of the group risk market, lack of general awareness of the need for protection products and the role they can play remains a major barrier to growth, with 38 per cent of advisers believing that the biggest reason for the lack of market growth is the ‘lack of understanding by employers of the value of products’.
As well as developing the benefits and services provided by group risk products the introduction of greater flexibility enables them to be offered within an employer’s broader flexible benefits package. Flexible benefits packages are becoming increasingly popular because they both enable employees to tailor the benefits to meet their specific needs and allow employers to better manage the benefits spend without having to compromise the range of benefits on offer. Although some believe that as the overall packages become more sophisticated the role group risk benefits play could be compromised, it’s encouraging to see that 50 per cent of advisers still expect the group risk share of the ‘flex pot’ to increase.
Finally, with the likelihood of new group risk benefits and services being developed comes an opportunity to extend the market distribution beyond its current reach. Consequently, it’s very encouraging to note that half of the advisers at the GRAF event believe that the greatest potential to generate new business, if providers were to develop new products, is simply the cross-selling of products to existing clients with pensions or healthcare arrangements. This suggests there is real opportunity for rapid growth.
