Cross purpose

If there is one single message that David Cross, Grid chairman and head of group risk at Towers Watson would want to get across to the industry, it is to look beyond the headlines.

While some may see default retirement age and auto-enrolment as unwanted rain clouds looming on the horizon, we would do well to consider the fundamental drivers behind them, argues Cross. Looking at issues on a piecemeal basis misses the bigger picture, that the various challenges before the industry are just consequences of the changing face of our workforce.

For Cross, broader socio-political dialogue is needed to address the massive challenge that our ageing society presents.

With the NHS strapped for cash yet facing increased demand from an ever growing numbers of older workers as well as retirees, something will have to change, and he would like to see that lead to evolution in the benefits that are offered.

“We see an ageing workforce and an increasingly positive working environment for those with an element of incapacity. There are many employers who are embracing the notion of an ageing workforce in a practical way. There is concern in some quarters that lack of decent pension provision means people will be looking to stay work longer than the employer might like. We have an ageing workforce and let’s make sure we have an optimal benefits package that speaks to that workforce.

“I do not think that enlightened employers or those looking to aid healthy employment want to walk away from the disability and health of their older workers. Of course this commitment can’t come with an intolerable cost commitment but we need to see over a 10 or 20 year period an increasing flexibility in products,” says Cross.

“I also think there will be increasing individual tailoring of the products. I can see a future for the notion of health savings accounts and making it easier to fund risk contingencies over a lifetime. It would take changes in legislation to create and it would need to be tax efficient. But if you look at the direction of travel it seems clear there will be changes. But I am glass half full in this regard and I think this is exciting an opportunity for us in industry,” says Cross.

That said, default retirement age reform is clearly one part of the Government’s response to dealing with our ageing society, and is going to be one of the biggest issues faced by employers. So how does Cross think the group risk sector will be treated by lawmakers?

“We are still going through a consultation and we are waiting for final details. Clearly there is a risk that it might be removed. But the Grid point is that if removal of the default retirement age means it is difficult or impossible to price group income protection benefits or even if they are priced then that price goes up substantially, there is a risk that small and medium-sized companies may decide to not provide group income protection,” says Cross.

“I can see a future for the notion of health savings accounts and making it easier to fund risk contingencies over a lifetime. It would take changes in legislation to create and it would need to be tax efficient”

“And we think that would be a shame where everybody agrees it provides a valuable benefit to employees and also could be seen as ameliorating state benefits.”

“The hoped-for outcome is that special acknowledgement is given in some way. I would not like to predict the way it might be made, but hope there is an acknowledgement of the value of its benefits and that employers can go on providing them with some specific limitation being allowed,” he says.

But Cross warns that the industry should not just accept it will get what it has asked for, and should start thinking about what life might be like without a default retirement age exemption in future.

“We have to accept equally that there may not be a specific opt-out or that any opt-out that is given may be temporary, in which case the other responsibility of the industry at large is, and I am thinking not so much for Grid itself but more for the participants in Grid, to think about what income protection and disability benefits look like in the future in a world where retirement ages naturally fall away.” he says.

“We are very hopeful but one has to deal in contingencies and ’what if nots’, but it is wait-and-see at the moment,” adds Cross.

Cross says Grid’s pan-industry nature means its role will always be limited. “Because we bring together parties from across the industry we have a responsibility to make sure we are not acting in any kind of anti-competitive way. So we have very strict rules about not being seen to be collusive in any way and that means there are limits on what we can come together on. But fundamentally we all agree would be better thing if employers and employees were more aware about the benefits and value of risk benefits,” he says.

Cross is confident an increased public awareness can only help the industry in its interactions with government and other regulatory authorities. His period at the helm of Grid has seen a step change in its public profile, with the appointment of Katharine Moxham as spokesperson and a broader PR campaign on behalf of the industry that has been generally well received.

“All too often in the past risk benefits have been accidentally affected by legislation that is aiming in a different direction or fallen into difficult tax traps. So raising awareness applies to government too.

“Awareness always was and remains the greatest challenge but it is very positive news that over the last year and a half there have been giant strides in raising awareness,” he says.

Arguably the other big issue on the horizon is auto-enrolment, another challenge to society thrown down by our ageing population.

So will advisers find themselves struggling to justify to employers why they should maintain group risk spend when pension costs start to rise?

“Certain companies, in particular retail businesses and others with a high turnover of staff are facing an increasing cost issue anyway so it is an issue for them. How that ties in with their eligibility for risk benefits means we might see something of an increase in the provision of risk benefits,” says Cross.

“But for some companies it may spark a rethink of what they do across all benefits for their work force. Depending on the commercial situation of their particular business some of them may look to extend the risk benefits, while some won’t and will continue giving it to the class of employees that they are at present, and some may look to dilute or remove.

“That is a risk but we are realistic enough to accept that any business faced with increasing costs may look to cut costs elsewhere.

“I would say that would be a mistake but I have to accept that it may be a business decision that is made. I understand why benefits would be looked at in the round but I would be hopeful we could make a very strong case that employers should extend group risk benefits because of the value they provide.”

So does Cross believe auto-enrolment will be net positive or negative for group risk premiums?

“There are many employers who are embracing the notion of an ageing workforce in a practical way”

“This is a personal view but I am hoping spend increases. But I expect some of the increase will be an element of voluntary expenditure either bytopping up what the employer gives or by making it easier to purchase voluntary benefits,” he says.

Cross also believes initiatives such as Unum’s direct TV advertising campaign will help.

“With insurers looking to advertise direct and reach out to the individual, then they will gain an appetite for this benefit and will want to purchase. Then reaching out to them makes perfect sense,” he adds.

The Retail Distribution Review is another issue creeping onto the agenda. While other parts of the financial services industry are coming to terms with the changes to remuneration disclosure it will bring in, as yet it remains unclear whether group risk will be affected.

“RDR is a point of discussion and firms are considering their own positions in light of it. Once we have a series of firm views we will look to consider whether we have an industry view but I do not think we have an absolute consensus view on its precise impact as yet,” he says.

That does not mean Grid is not pushing for professional standards to be raised in the sector.

“I am a huge advocate of the exam programme we have started. We intend to move towards a second more advanced exam next year and I personally would like to increase it beyond that,” says Cross.

DRA, auto-enrolment, professionalism and consciousness-raising are all in his inbox at present, but Cross believes the industry needs to keep its eye on the big picture.

“The employment profile in the UK is changing and it’s going to carry on changing. I do not expect instant solutions in the product space but I do think that intermediaries, reinsurers and insurers all need to be thinking 10 to 20 years out.”