With just 3 per cent of employers reaching their auto-enrolment staging date so far, next year will see a deluge of small businesses talking about employee benefits for the first time. So is the group risk sector ready? Edmund Tirbutt reports
With around 100,000 smaller firms due to undergo pension auto-enrolment in the first half of next year, the group risk community is facing a significantly higher quantity of virgin business opportunities, even if employee numbers are getting smaller. As a result, group risk intermediaries are playing a whole new ball game and, even with commission of up to 30 per cent a year, are increasingly looking to
align themselves to a single insurer to make the numbers more attractive, while forming relationships with third-party introducers is also on the agenda.
Providers and intermediaries are adapting their propositions to meet this massive potential new market. Unum is offering a simplified life product that does not even require individual quotations because advisers establish the cost via a rate guide. The facility can be accessed by any intermediary but Unum is also looking to partner several pension providers
and interested brokers.
Aviva, which has the advantage of being a composite, is hoping for business to be introduced via its pensions side but believes the real sales opportunities are likely to occur up to a year after the pension has been put in place.
Aviva group risk director Steve Bridger says: “When advisers stay in touch on pensions issues, they could raise group risk, but it could be that at the starting point businesses will only do what they actually have to.
“The real question for group risk is whether it is practical to pay enough commission for introductions, and the answer is we don’t know because we haven’t yet done enough volume business.”
But Zurich, which also has a pension side, is notably more lukewarm towards the current AE opportunity because it does not focus much on schemes with below 50 lives. It is, however, involved in underwriting Lighthouse Group’s life master trust.
Appeal of accountants
Focus groups conducted by Canada Life this April found that businesses with between 10 and 50 employees would turn to an independent financial adviser or accountant for AE support and advice, but those with between two and nine employees would not go to an IFA, preferring an accountant, book-keeper, trade association or local Chamber of Commerce.
Canada Life Group Insurance marketing director Paul Avis says: “Larger employers said they were used to paying advisers and didn’t worry if they took commission as long as the overall premium was acceptable. But as soon as you get to the micro-businesses, commission becomes a barrier.
“The group risk industry has to find employers that want to go beyond the norm of mere compliance and accountants can identify these for them. If an accountant says ‘Go to this adviser’, it will dispel their misconception about costs.
“Relationships with accountants or other affinity groups can maximise opportunities to do segmented industry-based marketing. Within the 1.8 million businesses due to auto-enrol, there are some very large industry segments. For example, there are 72,500 restaurants, 48,000 computer consulting firms and 45,000 management consultants. Even in the smaller segments, like the 5,000 TV and film makers and 1,358 watch makers, there are still specialist skills where retention and recruitment may be a challenge.”
But even the accountants themselves may require a bit of educating. Chase de Vere, which has been working with accountants for the AE of its micro-clients, has been astounded by their lack of understanding of group risk and the advantages it can offer to their clients.
Chase de Vere AE specialist Sean McSweeney says: “Typically, business owners will have individual cover, which may be costly and attracts no tax relief. Our experience is that neither they nor their accountants understand that group schemes are an option.
“A discussion we had in a recent case with a medium-sized firm of accountants in the North-west with over 300 corporate clients was very typical. The accountant started with quotes for its own business, decided to implement and now wants to offer it to all its clients, saying it didn’t understand how low-cost and tax-efficient this was.”
Primary focus
Providers and intermediaries are embracing the new distribution challenge in a variety of ways but the common thread running through most efforts is that the primary focus is on selling group life, which is considered the logical first step. Not only is life cover simple to understand and inexpensive but, because insurers can make do without details of occupation, it can be quoted for entirely from pension AE data.
Ellipse, which is looking to set up direct datalinks with advisers who have AE platforms, can automatically generate group life quotes to all businesses taking out AE pensions without advisers having to log on to anything.
Ellipse distributor partnerships manager Chris Morgan says: “The crucial issue is whether advisers are ready because a lot aren’t. They haven’t given enough thought to systems investment to make the most out of the auto-enrolment opportunity.”
But Canada Life seems happy enough with the interest shown in the Simply Class group life assurance product it launched this June to provide instant quotes for AE businesses with up to 50 employees. In the first two months it has seen completion rates of more than 5 per cent from quotes issued.
Income protection – which normally requires details of occupation, is more costly and complex and needs more adviser time to explain – is having to take a back seat for now with AE and not everyone sees the situation changing in the foreseeable future.
Munich Re head of business development Lee Lovett says: “Getting group income protection into a similar position to group life is quite challenging and, if there are worries about advisers not having enough time to talk about life, they certainly won’t have time to talk about income protection alongside it.
“The breakthrough for group income protection will come further down the line, possibly if the government makes it mandatory for businesses to auto-enrol for it in five or 10 years’ time. It’s very much a long-term opportunity.”
It is significant that even Ellipse – which is unusual in not normally requiring details of occupation for IP – is not focusing on offering the product as an AE opportunity just yet – although it expects to in due course.
But Unum is more positive, planning to relaunch late this year or early next a revamped version of the simplified IP product it originally launched in 2012. This did not require details of occupation and
could be quoted for entirely from pension AE data.
Unum head of proposition development Andrew Potterton says: “It didn’t really fly first time but it should have done. I think it was largely a timing issue as it came too early when brokers were too busy.
“We are also soon to launch a simplified version of our group critical illness product, which could become linked to auto-enrolment in the future.”
Additionally, some intermediaries with unusual distribution approaches are not relegating IP to below life. Portus Consulting, for example, offers life, IP, private medical insurance and critical illness cover alongside each other via its Pure Benefits platform for schemes with fewer than 50 lives. Working with only a small number of insurers, this offers a one-stop shop solution for smaller businesses to buy all these covers from one place.
Missed opportunity
Premier Choice Group, which does not advise on pensions, is also just as focused on selling IP as selling life cover. Most pension referrals come from its PMI side and it takes the opportunity to talk to the businesses concerned about group risk when referring them to pension advisers in return for commission splits.
Premier Choice Group head of group risk Steve Ellis says: “Those just selling life are missing opportunities to open doors for occupational health and absence management business.
“I feel people are doing group risk for the wrong reasons at the moment. They are tagging group life on to pensions but is that really giving a good overall service?”
GRID RESEARCH: Downturn in employer enthusiasm
– 70% of employers think group life cover costs more than it does
– 49% are considering other changes/implementations to their benefits package alongside pension auto-enrolment
– 17% say they provide group risk benefits to members of their pension scheme and this still would be the case following pension auto-enrolment
– 60% believe employers have a greater role to play in protecting the health and welfare of employees.
Around half the employers involved in the Group Risk Development (Grid) research carried out in October 2015 had fewer than 50 employees. (Of 501 employers, 165 had fewer than 20 staff and
83 had between 20 and 49.)
Grid spokesperson Katharine Moxham (above) says: “Overall, this confirms many of our findings from previous research and there doesn’t seem to be any lesser opportunity just because the size of company that is auto-enrolling is getting smaller.
“Most group risk providers and advisers have solutions in place tailored towards smaller SMEs and micro-businesses, which are important to us. We recognise their constraints and work around them.”