Getting the basics right is crucial to business growth. If an adviser has any sort of decent relationship with their client, advice should be valued and important, and so it is amazing how frequently group income protection (GIP) does not include cover for pension scheme contributions (PSCs) or employer’s National Insurance Contributions (NICs) when an adviser has recommended coverage.
Where GIP does not cover PSCs or NICs, these can represent a significant additional cost to an employer when the employee is still contracted, yet unable to work. The employer may need to fund around 28 per cent of an employee’s salary whilst absent if they only insure basic income benefit.
Many look to divest themselves of the employee – this is where trouble starts. In addition to Disability Discrimination Act 1995 compliance there is a raft of GIP case law meaning that the employer has to keep the employee in service.
Another aspect to the GIP claim process is to ensure that other benefits are appropriate. Death benefits should have long term absence cover to normal retirement date, otherwise, should an employee die after 5 years of absence an insurer may not be liable for payment as disability absence may be limited to 3 years. Loss of private medical cover during sickness can be devastating and so GIP is needed for PMI clients.
Advisers must also ensure that by 5th April 2011 they have considered post A-day implications inherent within scheme rules. Traditional benefits such as 4x salary no longer apply in the lifetime limit era. Consideration should be given to the capitalisation of death in service pensions. There could be tax advantages for the beneficiary as traditional benefits, restricted to pre A-day rules, are taxable but tax free within the lifetime limit.
Another area to consider where GIP is in place is to see if the organisation has a DB scheme with ill health early retirement provision. If so, then the organisation should discuss the funding of this with their actuaries – in effect the GIP provides a better long term absence approach – if pension contributions are covered then the whole pension could be funded to retirement date.
For group life cover, a discretionary trust needs to be established and HMRC registration obtained. Good providers offer specimen draft documentation that onshore clients can use to establish stand alone group life schemes.
The group risk world has led the charge of product innovation but rate still seems to be the abiding purchase motive
Claims management is key. The potential for early intervention means that the insurance is a bolt-on to a case management service, or in other words, all is done to get the employee back to work. If this cannot be done then the insurance benefit cuts in.
To get here the adviser must undertake some work to ensure that the claims process works smoothly. This can be simply ensuring that the claim form is submitted on time, ensuring line managers are fully briefed and possibly recommending an absence management programme.
Some insurers incentivise employers to submit claims early – the real value is the impact on premiums so a good adviser should never lose a client on the basis of cost.
The group risk world has led the charge of product innovation but rate still seems to be the abiding purchase motive. To combat this the adviser has the opportunity to promote the value of the current propositions. Areas such as Employee Assistance Programmes (EAP), online health risk assessment (HRA), second diagnosis services or bereavement counselling/probate support, should not only be part of the purchase decision, but can also define the relationship going forwards.
Having chosen a value-added group risk provider, the adviser must ensure that the benefits are used and explained. This can range from launching an EAP, providing incentive plans for HRA campaigns to increase utlisation and ensuring HR staff use telephone legal advice services. The adviser is not just the benefits adviser but the business partner and the architect of the health/wellness strategy.
Reducing group risk to cost is preparing an adviser for failure. Unless the implications of a claim scenario are thought through then there is little point in having such benefits. Being proactive on claims support and scheme design, maximising value add-ons and ensuring that a full understanding of a client’s healthcare infrastructure is considered can lead to client retention and further income opportunities. The intermediary should be seen as a genuinely valued member of the organisational advice network. Which camp do you fall into?
