Some argue that employee benefits consultants that turn a blind eye to the potential opportunities of expanding into areas such as business protection, group personal accident (PA) cover and Unum’s sick pay insurance (SPI) are looking gift horses in the mouth. But there has actually been a trend away from such diversification.
Steve Herbert, head of benefits strategy at Howden Employee Benefits, says: “When I entered the industry more than three decades ago it was not uncommon for intermediaries to be generalists rather than specialists. The individual that advised on the group pension scheme might also be the same person delivering group risk, key person and personal accident cover. But this has now changed. “Over the last few years, with the increasing costs and requirements of regulation, the industry has become more specialist-driven, with these specialists often only registered to write certain classes of business. This has been a good thing for the professionalism of the industry but it has meant that the opportunity to discuss wider issues may have been overlooked.”
Whilst there are sti ll opportunities for enterprising intermediaries to buck this trend, some furrows are clearly more lucrative to plough than others.
Business protection — key person cover, shareholder and partnership protection and business loan protection — provides the most compelling case for diversification. nvolvement may necessitate recruiting new personnel with the appropriate regulatory authority and expertise, but the additional evenue streams on offer from a still relatively untapped market could make this worthwhile
According to Legal & General’s most recent State of the Nation’s SMEs report, more than half of businesses don’t have key person protection, yet 53 per cent think they will cease trading in under a year if a key person died or became critically ill.
The products involved — ife, critical illness and income protection cover — are broadly similar to those used for group risk but are shorter term and, although the benefits go towards protecting the business, are taken out on the ives of employees and require medical and financial underwriting. Sales in this area also often centre on the finance department rather than HR, which tends to deal with employee benefits.
Canada Life Group Insurance marketing director Paul Avis says: “We find there is often a Berlin Wall between corporate financial advice and personal financial advice in the same intermediary. It is rare that a personal financial adviser will refer a director to the group market and even rarer for a corporate adviser to be talking about business protection and referring them back.”
But history shows that a Berlin Wall can come down, and there is widespread confidence from business protection providers that such obstacles can be overcome if two old chestnuts can also be successfully tackled. The first is the idea amongst advisers that business protection is somehow too complicated.
Legal & General’s head of intermediary development Richard Kateley, says: “Key person is not complicated, and is basically often no more than term assurance and a trust form. Advisers seem to find valuing a key person and coming up with a sum assured particularly complex but we say that as a rule of thumb it should be 10 times their salary or remuneration package. Several providers also have calculators on their websites.”
The second long-standing problem is that most businesses simply aren’t aware of the products. The Vulnerable Business, a recent special report produced by Swiss Re, suggests little has changed.
Swiss Re technical manager Ron Wheatcroft says: “I think it’s a simple awareness piece. For me, the key area for business protection should be SMEs, but I suspect a lot don’t even think about it. The premiums involved should seem attractive for intermediaries.”
Providers are producing excellent literature and support via seminars and workshops, but advisers simply have to be more proactive because small business owners are clearly willing to listen to them. According to Legal & General’s State of the Nation’s SMEs report, 84 per cent of businesses that took out business protection did so because of advice from a finance professional.
Kateley, says: “Whenever we do training with financial advisers we tell them that if they want to be successful they must go out and talk to businesses about key person cover and not just relevant life plans. The minority who take it seriously sell bucketloads of policies.”
Sick Pay Insurance
Opportunities to sell Unum’s SPI, which can provide financial support for absences as short-term as one week, seem more limited in comparison. But advisers should be aware of how it works in case of client enquiries.
Although SPI has undoubted conceptual appeal, feedback from the marketplace — and the fact that Unum avoided answering any questions from us about demand — suggest it is no more than a useful niche product.
Premier Choice Group quotes for SPI and has arranged a couple of schemes for businesses which, after looking at their absence figures for the past three to five years, it worked out would have been better off with the cover.
Premier Choice Group head of group risk Steve Ellis says: “If you have no issues with short- term absence there is no point in having SPI and you might as well self-insure. The clients I discuss it with love the idea but, if no other insurers offer it, there’s nothing to benchmark against and no-one to switch to if prices go up. I also find the way it is presented by Unum wordy and outdated.”
For the time being Canada Life clearly has no intention of joining the party, pointing out that the concept requires an amazingly quick claims assessment process and, because businesses are esentially paying for a margin and a level of support, it really becomes an exercise in money exchange.
Avis adds: “If there was a demand from advisers and employers for this type of product, and our competitors offering it were waxing lyrical about it, then we would be very interested. But we have seen nothing to encourage us.”
Group Pesonal Accident, which is often combined with business travel insurance, also appears to make a reactive approach forgivable.
Premier Choice Group reports that it doesn’t feel it’s worth getting the necessary regulation and expertise on board and so refers PA enquirers to a specialist intermediary that provides commission splits and reciprocates by referring private medical insurance (PMI).
Whilst the likes of Aviva and Zurich have the ability to offer PA alongside group risk, the former is demonstrating little joined up thinking in this respect and the latter, whilst attempting to take a more holistic approach, acknowledges that there is a long road ahead.
Zurich Corporate Risk head of market management Nick Homer says: “We have customers that we provide both group risk and PA solutions for, but in most cases this will have happened from different arms of our business and will have been sold via different intermediaries.
“It’s still very much part of an ongoing conversation we typically try and have with big brokers and, whilst progress is currently limited, we expect covers to be far more aligned in the future. Ultimately, securing services jointly gives the opportunity for better terms and more aligned processes, and has the potential to present us with a much richer view of the customer.”