A £30 per employee flat rate reduction in National Insurance could see a further 1.5m UK workers covered by group income protection and save the Government £220m over 5 years, says the ABI.
The ABI’s response Government’s green paper on work, health and disability calls for a per-employee cut in NI – of around 10 per cent of the average cost of a policy – rather than a percentage reduction, to increase the value of the incentive to lower paid workers. It also suggests that the reduction could only be offered to schemes where all employees are covered, reducing the deadweight cost to the Treasury of giving a tax break to employers already offering GIP.
Detailed ABI economic modelling showings fiscal gains for the Treasury over a 2 to 3 year period through a reduction in welfare spending and an increase in tax revenue. The ABI argues a tax incentive would send a strong signal to employers that GIP will a positive impact on their business.
The submission cites evidence from a range of insurers showing the treatment and specialist back-to-work support provided as part of an GIP scheme reduces the length and frequency of long-term sickness absence. The submission points to figures from Canada Life showing 8 out of 10 referrals to its early intervention service resulted in recovery before the claims stage and, where claims were made, their duration was shortened substantially; it also cites Unum’s figures showing it supported 1,470 people back to work with its early intervention service in 2015. Around a third of those were over 50 years old and another third were under 40 with 15 per cent under 30. Of those returned to work, 41 per cent had a mental health problem, 19 per cent had a musculoskeletal problem and 9 per cent were recovering from cancer.
The submission also cites the 66 per cent of the cases reviewed by Zurich’s case managers that are referred for some form of rehabilitation support, of which 82.5 per cent are returned to work before the claim stage, and cites the 85 per cent of all cases referred to Aviva in 2016 that were referred for early intervention, rather than support delivered after a prolonged period of absence where state or insurance based income replacement has been required.
The ABI says intermediaries are facing obstacles in distributing GIP beyond its current population because of low awareness of the product, perceived poor conversion rates and lower levels of commission to be earned from selling a product to an SME than a larger company due to the lower total premium. The submission challenges the assertion in the green paper that GIP is currently incentivised by the tax system, arguing that employers are discouraged from covering their staff such as where an employee is off work sick and claiming on a GIP policy, an employer must continue to pay employer’s NICs for that employee potentially until they reach retirement, having already had to replace them with another permanent member of staff. The ABI is not calling on the Government to remove this charge, but highlights that employers who take positive action to protect their staff are actually disincentivised from doing so.
The ABI also points to the negative impact changes to salary sacrifice will have for employers offering GIP through flexible benefit arrangements, warning that many employees will no longer top up their cover, and some may close down flexible benefit arrangements entirely.
The ABI also calls on the Government to address the disincentives within Universal Credit (UC) to encourage self-employed individuals, as well as employees, from being able to protect themselves with individual IP (IIP). The interaction between UC and IIP will significantly reduce incentives for individuals to purchase IIP under current rules, making self-provision less attractive and dramatically harming the financial resilience of over a million working people and self-employed individuals, the ABI warns.
ABI assistant director, head of health and protection, Raluca Boroianu-Omura says: “Households in the UK are among the most financially exposed in the developed world. Serious illness and death often lay bare the fragility of households in the face of economic shocks. Our suggested measures are a win-win, with more consumers being protected while saving the Government money.
“If implemented, the ABI’s proposals for change set out in the response to Improving Lives: The Work, Health and Disability green paper could help to provide security and peace of mind to millions more households in the UK, bringing a whole range of social and economic benefits.”
