Furloughed workers will generally be considered to be employed under their prior terms of employment for group risk purposes, but the fine detail of precisely how payouts will work is yet to be determined.
Speaking at an emergency Corporate Adviser virtual round table on group risks’ response to the coronavirus epidemic yesterday, providers Canada Life Group Insurance and Aviva both said the general principal they would apply is that furloughed workers would be covered by group risk for their pre-furlough earnings, though there is detail to be clarified over certain specifics, particularly in relation to group income protection.
AIG has told Corporate Adviser that it will cover life and critical illness cover payouts in full. This would mean the death benefit payout for a furloughed worker earning £2,500 a month who was previously earning £100,000 would be £400,000. Full premiums would continue to be payable.
When it comes to calculating benefits due under any group risk policy, both Canada Life Group Insurance and Aviva agreed that it is likely that benefit levels will be calculated on pre-furlough salaries, not any lower payment made during this economic shut down. This should apply to both life insurance and group income protection but would be subject to the decisions each insurer makes as it tries to respond quickly to ever-changing Government legislation.
Cavendish Ware associate director Roy McLoughlin points out that in some cases this could lead to members being better off financially, making a claim on a group income policy, than they would be receiving their furloughed salary.
This counters the normal principles of income protection in particular, in that policyholders should be better off returning to work, rather than relying on these payouts.
One of the immediate challenges is to ensure there is clarity and transparency on what will be covered via a group risk product, be it death benefit, group income protection of group critical illness, said advisers at the event.
Canada Life Group Insurance marketing director Paul Avis said that is it not a case of changing policy terms or wording, but clarifying them. For example, for furloughed workers how will the industry decide when deferral periods will start, and whether these will take into account, for example, periods of self-isolation.
Avis said this requires considerable technical work to ensure it is done properly and comprehensively. Insurers have already established working groups to address these issues.
Avis said the over-riding concern will be ensuring good customer outcomes and to ensure policyholders are treated fairly. However he says there must also be consideration on the potential impact on claims pushing up premiums going forward.
He added: “As insurers offer temporary absence clauses in their contract, albeit product specific, the general principal is that furloughed workers will be covered for their pre-furlough amount, though there is detail to be clarified to clarify what this means in the current legislative environment.”
Providers were cautious about making blanket payment promises, citing the complex nature of the claims process, particularly in relation to group income protection. Advisers at the event acknowledged the fast-moving nature of events and the difficulty providers face in understanding the full legal and technical ramifications of the extraordinary issues created by the Covid crisis. Providers said their legal and technical teams were working hard addressing advisers’ queries and that more clarification could be expected in the coming days and weeks.
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