The potential impact of pension auto-enrolment on group risk loomed large in several sessions at last month’s Corporate Adviser Group Risk Forum, yet group risk professionals were in no doubt that it offered intermediaries huge potential consultancy opportunities.
In a session headed Automatic Enrolment – The Time is Now for Group Risk, Jon Ford, sales director, group insurance at Canada Life, explained how an internal analysis had established that over 50 per cent of his company’s group risk plans were pension-linked. Working on the assumption that all other providers had a similar ratio, that means around 33,500 employers needed advice on this issue he suggested.
Ford also stressed the importance of advisers having different consultancy strategies, varying from face-to-face appointments with larger employers to transactional approaches towards some SME clients. He pointed out that it could be possible to arrange a package combining very basic levels of income protection and life and critical illness cover for as little £130 per employee per year.
He said: “We’ve all heard about the growth of cash plans, which are very tangible, attractive and have high visibility, but you can make group risk products just as attractive and affordable. It’s very important to present a full range of options to the consumer, including budget plans, and to point to added-value features.”
Phil Kennedy, business development director at Legal & General, was equally upbeat in a session entitled Tools and Tips to Demonstrate the Value of Group Risk and Health & Wellbeing Solutions. He pointed to recent ORC International Research which found that 57 per cent of advisers agreed that auto-enrolment would be an opportunity to sell more group protection products.
John Ritchie, chief executive at Ellipse, also referred to auto-enrolment as an “open goal” in The Beginning of the New Reality in Employee Benefits. After describing his three year old company, which focuses on online digital delivery methods, as a “vigorous toddler,” he drew extensive parallels between group risk and the retail sector.
“Auto enrolment will undoubtedly quicken the pace at which general delivery is made through web-based platforms, and delivery will be digital, but it’s not all about either digital delivery or staff delivery because the really successful companies in other areas like retail are embracing both,” he observed.
“We need to start thinking like internet retailers but we also need to hold onto thinking like old-style insurers because we provide catastrophe cover but we rarely refer to it in those terms.”
Reminding his audience that the large insurance companies originated from mutual sickness societies for ordinary working people, he suggested that it might be time to skip the 20th century and combine 21st century delivery with Victorian values. Whilst acknowledging that Winston Churchill was a 20th century figure, he also felt he encapsulated a sense of the late Victorian era.
A Churchillian quote put forward by Ritchie opined: “If I had my way, I would write the word “insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small families and estates can be protected against catastrophes which would otherwise smash them up forever……”
Ritchie highlighted auto-enrolment as the key that could potentially unlock the door to the masses to give them access to basic cover, with employers shifting to being either just facilitators or a mix of facilitators and sponsors. Indeed, he was already seeing quite a shift towards foundation schemes where employers provide a modest amount of catastrophe cover and give employees the chance to top up.
“We insure less people than 20 years ago because there aren’t the direct sales forces there were, and people aren’t having conversations about this stuff anymore. Simpler, faster and better has to be the way, and advisers probably need to start delegating some of the things they have normally done to providers and their systems.”
But the panel debate on the future of employer protection revealed that not all intermediaries were quite as gushing as providers about the business opportunities that auto-enrolment is likely to bring. After all, the 4 per cent commission rates available on group life aren’t likely to figure in too many ‘get rich quick’ guides.
David Dolding, director of consulting at Portus, acknowledged that opportunities to sell group risk were not necessarily synonymous with opportunities to make money. He said: “Group risk can involve a lot of hard work for very little return. It basically needs to be done on a sensible basis of remuneration and this means having a fee conversation with clients. It would make sense if group risk is commoditised at the smaller end, and fees should be locked into consulting work and not the actual product.”
Simon Derby, director of i2 Healthcare, lamented the lack of a pan-industry quotation system that could be used for smaller group risk business, suggesting this showed provider claims of a desire to embrace technology rang hollow.
He said: “Provider electronic platforms are great but you all have different data input requirements, so it doesn’t make my job any easier. By the time you’ve imputed into the various systems you’ve lost all your money and by the time you’ve seen the client you’ve lost even more.”
Legal & General’s Phil Kennedy responded by pointing out that the economics of retaining clients for 10 to 15 years look very different to acquisition costs.
He said: “The cost dynamism of acquiring new clients puts cash flow strain on the front end but if you can absorb this then the economics can make it quite positive as most intermediaries keep most classes of business and most clients for the longer term.”
But Derby stressed that intermediaries seeking to provide whole-of-market independent advice have to meet the costs of conducting a market review every couple of years to retain their clients. Asking the audience to vote via a show of hands, he established that only 2 per cent of advisers present had written a brand new virgin income protection scheme with more than 250 lives during the past year.
“Everyone just nicks clients, and there are people in this room after my clients but they won’t admit it,” he continued. “There is no new business and if we all go chasing something that isn’t there then we will go broke. The problem with income protection is that it simply isn’t sexy.”
Carlos Correia, principal, risk benefit consulting at LCP, felt that the primary problem was that the average person simply didn’t understand the limited nature of state support available if they were unable to work as a result of ill health.
He said: “The private medical insurance (PMI) industry is good at making sure that bad news about the NHS gets out but on the group risk side no-one is expressing outrage about State benefits.”
Steve Herbert, head of benefits strategy at Jelf Employee Benefits added that he felt that insufficient evidence to prove the business case for income protection was also a major problem.
He said “It’s not a problem for the very largest employers as they have their own evidence but it’s very hard to make a case with numbers for SMEs. Disability is too horrific for most people to think about but we must be more overt and in people’s faces if we want to grow the market.”