Limited intermediary panels have been conspicuous in the group risk market since the 1980s, but there has been a definite acceleration in their popularity during the last decade, and during the last three years in particular.
David Guy, client broking lead at Aon Employee Benefits, says: “Covid has certainly accelerated the focus on the value that can be obtained via these panels, and not just through premiums. Clients are focusing a lot more on overall value, looking at how insurers can help manage costs, for example, by the added-value features they offer.”
Most interest in the panel approach is coming from SMEs, who tend to be more conscious of costs and have less need for bespoke solutions. For many, the cost of doing a whole-of-market review can be greater than the savings realised.
Commonly-cited potential advantages of panels are keener and more sustainable premium rates, better service standards and underwriting terms and free-cover limits, and possibly even three-year rate guarantees. And intermediaries can find that dealing with a limited number of insurers makes it easier to maintain the tighter controls necessitated by evolving regulation.
Broadly the same – but magnified – advantages are volunteered on behalf of a further trend towards intermediaries aligning themselves with a single preferred provider.
Towergate Health & Protection reports that over 60 per cent of its eligible SME customers take the preferred provider approach because it offers better cover.
Iain Laws, CEO of Towergate Health & Protection, says: “Aggregating our SME book to obtain scale from a single provider can empower SMEs to get the same terms as large corporates. It’s to help the client rather than for us to obtain a superior income.
“If a client’s needs can’t be met by our preferred provider agreement, which happens with around 20 per cent of customers that have less than 50 employees, then we point them towards whole-of-market. Some will also insist on whole-of-market because they may have had a bad experience with another broker’s preferred provider agreement.”
Not all insurers will necessarily facilitate all three different approaches. For example, Zurich does not offer preferred provider agreements.
Nick Homer, head of market management, corporate risk at Zurich, says: “We prefer being a manufacturer and don’t want to carry the regulatory responsibilities of being a distributor, which you become as preferred provider. The sole product provider for a distributor would find it very difficult to distance itself if distribution does something wrong.”
Intermediaries can also vary significantly in the approaches they offer. Prosperis only gives whole-of-market advice. So almost does LifeSearch, because its ‘panel’ includes all providers except MetLife – which it hasn’t found the easiest to transact with in the past.
The largest intermediaries able to leverage the greatest scale tend to be most geared towards the more restrictive approaches but it’s not that black and white. Aon Employee Benefits offers a choice between whole-of-market and limited panels but does not offer preferred provider agreements – except for spouse/partner life cover. Towergate Health & Protection doesn’t offer panels, only a choice between a preferred provider and whole-of-market.
Feelings about the pros and cons of the different approaches are notably less passionate than they are about many other industry issues. The continued predominance of whole-of-market helps explain this. This route still accounts for “the vast majority” of group business at Zurich and for “approximately 95 per cent” of it at Legal & General.
The inability of the group risk market to offer a huge choice anyway is another contributory factor. There are only nine players and not all focus on all the major products.
Remember also that clients aren’t just using intermediaries to find the best terms. They also value their ability to advise on issues like legislation, employment law and trust arrangements – which they can still do in conjunction with panels and preferred provider agreements.
Furthermore, if intermediaries offer a whole-of-market alternative to one or both of the other options then how could the client be losing out?
Katharine Moxham, spokesperson for Group Risk Development (Grid), says: “Good practice is to offer a full review as an option and, if they are providing such a choice, it’s hard to see why clients could be disadvantaged.
Or, even if they are not offering whole-of-market, they should at least be pointing out that it could be available somewhere else.”
But Alan Richardson, head of business protection and group at LifeSearch, warns that having too limited a panel can be short-sighted because cover terms and underwriting approaches change and players can pull out of the market. He also feels that preferred provider agreements start to do down the route of manipulating a client to fit in with an intermediary’s own agenda.
He says: “If we are going to call ourselves advisers and win the trust of the public we have to be as impartial as possible. The big advantage to being tied or having a smaller panel is normally that you can build up more expertise in those providers but, because the group risk market is so small, you should be competent in explaining the benefits of each and every player.
“Additionally, there is a retention consideration. If at annual review we show a client we’ve done a market review and based our recommendation on it then the client is unlikely to look elsewhere.”
Wendy O’Callaghan, head of risk & healthcare at Gallagher, also warns that issues tend to occur when this ‘one-size-fits-all’ approach becomes the default.
She says: “These suppliers may fail to properly understand the specific needs and challenges that the individual employer is seeking to address, and end up feeling more like a sausage factory solution rather than a bespoke people-centric and consultative relationship.”
Such rumblings may inevitably increase as more restrictive arrangements grow in volume, even though providers would argue that the growth of panels or preferred arrangements aims to support growth in the SME sector in a simple and cost-effective way. Colin Fitzgerald, distribution director, group protection at Legal & General, expects their share of this book to grow from 5 per cent to 20 per cent of their book over time as they grow their share of the SME market. And Steve Ellis, associate director at Prosperis, can envisage that many intermediaries will have started using a single provider for specific business in 5 to 10 years’ time.
BOX: Current relationship considered more important than scale
When STEPS Rehabilitation selected an intermediary to assist with its group risk requirements in 2019 it never even thought about attempting to maximise economies of scale through one of the largest players.
The company, which started trading in May 2017, had been impressed by the way Wren Sterling had set up its pension auto-enrolment scheme in 2018, and looked no further.
Ray Boulger, founder and chairman of STEPS Rehabilitation, says: “I’m a great believer in relying on personal recommendation and personal experience when choosing a broker, and I was comfortable dealing with Wren Sterling. I feel it represents a good middle ground, offering some clout but not being so big that it becomes impersonal.
“I chose Zurich for life and income protection based on the market review recommendations, and the insights provided on claims and service were important.”
The intermediary also proved valuable when STEPS Rehabilitation subsequently introduced group critical illness cover last December. Unum was eventually selected despite being the most expensive on a shortlist of three.
“I asked Wren Sterling to ask the providers a couple of detailed questions about cover,” continues Boulger. “Unum’s answers were clearer, which gave me more confidence in its ability to pay claims.”