Absence due to sickness or injury is a massive drain on UK businesses. Over 130 million days are lost a year according to official figures. Some of that is down to short-term illnesses such as colds and flu, but the majority is due to long term absences of a month or more.
This can have a devastating effect on families. Our Deadline to the Breadline report showed almost half, 45 per cent, of those surveyed said they knew someone who had suffered a serious illness or injury. And most have very little to fall back on. More than a third of households don’t have any savings, and among those that do, the average is little more than £1,200. That won’t last long if the main earner can’t work.
Businesses meanwhile risk losing valuable people, and face substantial costs in hiring and training replacements. The average cost of replacing an absent employee is a staggering £30,814.
That explains the increasing number of companies taking out group protection policies, with figures from Swiss Re showing that by 2017, 12.5 million people had this type of cover.
But this still leaves a majority of the UK workforce – and most businesses without cover. In a paper published by the Department of Work and Pensions (DWP) in 2016, it estimated group income protection (GIP) covered just 7 to 8 per cet of the working population. And, unfortunately, it is often those that can least withstand the impacts of long-term absence that go unprotected.
That includes most of the 5.6 million small businesses that make up over 99 per cet of all enterprises in Britain. These businesses are the least likely to have the support GIP provides, yet, arguably, are most in need of its benefits.
GIP is not only income replacement for an employee if illness prevents them from working; it also includes services to keep employees well and at work and provides effective absence management when absences occur. GIP can also help to put in place procedures and support for a speedy and sustainable return to the workplace when this is suitable.
This support will include things like access to telephone helplines, face to face counselling and talking therapies. Whilst, for businesses, early intervention programmes and rehabilitation services help minimise the length of absences, maximise the chances of return and, in many cases, avoid long-term absences completely.
Finally, these services can also help with presenteeism, which can cost businesses even more. Sick staff turning up to work may share their illness with colleagues and are likely to be less productive. There is also the chance that they may exacerbate their condition or take longer to recover than if they had taken time off.
All these services can be invaluable to SMEs. These companies have neither the financial nor human resources of bigger businesses. That means they are less able to absorb the costs of illness and injury and have fewer opportunities to reallocate and share work around when staff are absent. For SMEs, the loss of a key staff member could be a devastating blow.
So why is uptake of GIP so low among them? Partly, it’s because many people and many businesses fail to see the need. They either underestimate the prospects of a long-term illness hitting them and their staff or are unduly optimistic of what the state would offer by way of support.
However, state support is far from generous, with the benefit assessment regime tougher and more rigorous than ever. Those with savings of £16,000 or more will be means tested and, for those that qualify, the Employment and Support Allowance is just £5,288.66 a year.
The other big myth around GIP is the cost. Research from Group Risk Development (Grid) shows that almost a tenth of employers think GIP would add 10 per cent or more to their payroll costs. In fact, the typical cost is just 1 to 2 per cent, and it can be as low as 0.25 per cent for limited term policies.
Whether it’s underestimating the risks or overestimating the costs, the real problem is widespread ignorance about GIP and other protection products. Many employers have a poor understanding of the risks, little knowledge of the costs and a lack of information about the wider benefits the cover brings.
If more SMEs and their employees are to get the coverage they badly need, advisers, product providers and others need to work together to change that.