It’s not just demand for group risk products that has been benefiting from a Covid-related increased awareness of mortality and morbidity risks. Other health-related products that employee benefit consultants often overlook have also received a boost.
Key person cover
Most prominent amongst these is key person insurance, which uses short-term life, critical illness and income protection cover to safeguard businesses against the loss of critical staff.
Legal & General, whose research has consistently suggested that over half of businesses would cease trading in under a year following the death or critical illness of a key person, reports double-digit growth in this cover during the pandemic. But progress could be even greater if group risk intermediaries filled the advisory gap.
Towergate Health & Protection head of internal markets Zanele Sibanda says: “The majority of businesses we speak to recognise the need and understand the risks posed by a key individual being unexpectedly absent but don’t know where to go for help. Many businesses have a dedicated accountant, legal adviser and tax adviser but they don’t always have an adviser who can help with business continuity risks.”
Although the products used technically constitute individual protection, they arguably have greater synergies with the group market. But many large group risk intermediaries ignore key person opportunities or pass them to IFA arms when their own understanding of the client company makes them best placed to take advantage.
Zurich head of market engagement Peter Hamilton says: “There’s no reason why advisers shouldn’t be talking to companies about both key person and group risk, and plenty of reasons why they should be, particularly at the smaller scheme end of the market. Business owners benefit from talking to one adviser who can solve a range of problems.
“There shouldn’t be material barriers in dealing with insurers who offer both types of cover and, from our own perspective, only one terms of business is needed.”
Indeed, some employee benefit consultants who write large amounts of SME business already have several group risk consultants who also handle key person cover, and at LifeSearch all six group protection advisers do so.
LifeSearch head of business and group protection Alan Richardson says: “The skills in taking a customer on a journey to understand protection are very similar between the two areas, and there are obvious cross-sale opportunities.”
New Key Person Income Protection Launch
The key person market for income protection – previously involving only Aegon and Royal London — is much narrower that that for life and critical illness cover.
But a launch this September by Legal & General has provided a valuable third option. Its policy can protect 75 per cent of gross profit attributable to a key employee’s contribution, cover the costs of hiring a temporary replacement at up to 2.5 times the key employee’s annual earnings, and provide loan protection.
It is particularly notable for covering those with a proprietary interest – although anyone with a shareholding greater than 5 per cent is still unable to get tax relief on premiums.
LifeSearch senior business protection adviser Alex Strachan says: “Historically, key person income protection providers wouldn’t normally cover owner-directors, but now the business can have a fighting chance of survival if they are off work.“
Personal accident
Group personal accident (PA) insurance provides a more niche opportunity. In addition to covering accidental death and disability, it can be tailored to include specific benefits like broken bones.
Although group life and income protection offer significantly broader cover, PA can provide a useful option for clients with very limited budgets because it costs only a fraction of group life.
Beazley head of personal accident Nick Newman says: “Offering a group PA scheme can help attract and retain staff, and it can appeal to blue-collar companies because serious accidents are likely to occur in some settings like construction sites.”
Mattioli Woods highlights PA’s use for very specific sectors like offshore oil and gas, where it is virtually standard, and UK subsidiaries of US companies.
Mattioli Woods employee benefits team director Sean McSweeney says: “We’ve also arranged a scheme for a major hairdressing chain because hands, which were covered under the policy, had been cited by employees as their biggest risk.”
Zurich, which is unusual in offering both group risk and PA, has recently invested in a strategy of promoting PA more heavily via UK employee benefits channels.
Zurich head of accident and health Stephane Baj says: “It’s a pity that employee benefit consultants we met previously weren’t following up on what we were trying to get across. The synergies between the two products have probably been underestimated.
“Although they fall within different regulatory regimes, most brokers will have the regulatory permissions, so they would just need to make a new agency agreement. This is purely an admin issue, and they should be up and running within a week.”
Specialist PA provider Crispin Speers & Partners, which deals with employee benefits consultants of all sizes and is willing to handle one-off schemes, can even arrange an agency agreement within 24 hours.
Sick pay insurance
Unum’s Sick Pay Insurance (SPI), which offers short-term financial support for between 22 and 52 weeks, provides a further opportunity. But feedback from intermediaries suggests its popularity is waning.
Unum’s reluctance to directly answer questions about demand does little to contradict this, nor does the unwillingness of other group risk providers to offer a similar product.
SPI, launched to great fanfare in 2013, is widely liked in principle but often proves cost-prohibitive.
Mattioli Woods’ Sean McSweeney says “We’ve had lower take up than we expected and the challenge is that, because self-insured sick pay costs won’t be anywhere on the accounts, SPI seems like an additional cost.”
Another problem is that SPI’s deferred period is now four weeks for new business – whereas previously one-to-three-week options were available. Some employers therefore prefer to fill the gap by taking shorter group income protection deferred periods.
Gallagher business development consultant David Carrol says: “A lot are going down from 26 weeks to 13 weeks and some are even looking at eight weeks. Many employers can stomach the costs If an employee is off for four, six or eight weeks.”
The lack of any competition for this product also hasn’t helped by preventing value comparisons and making intermediaries wary of leaving clients high and dry if Unum withdraws from the market.