It is not every day that the Government tells the group risk industry that it likes what it does. Nor does it often ask how it can change things so more products can be sold. But the Improving Lives: Work, Health and Disability green paper, issued by the Department for Work and Pensions and Department of Health last month did precisely that. In it Government called on the insurance industry to spell out the role it can play in supporting the recruitment and retention of disabled people and people with health conditions, and wants views on how employers of all sizes can be encouraged to make better use of group income protection.
Advisers are key to achieving greater take-up – so what incentives, if any, should the sector push for to make the intermediary’s job of convincing employers to opt for GIP easier?
The industry appears split between two different approaches – a cut in National Insurance contributions of between £30 and £50 per employee, supported by both Unum and Zurich, and not calling for a new fiscal incentive at all – the position of Canada Life Group Insurance and Legal & General.
Any new incentive will have to deal with the ‘deadweight’ issue – the fact that tax concessions available to all the 2.1m people currently covered will cost the Treasury, not save it money. Unum argues that its proposed temporary NI break could be targeted at smaller employers to get round much of the deadweight problem.
Interaction of GIP with state benefits is also a key factor – Canada Life argues sorting out the complexity of the interaction between state and private benefits would be a better place for the industry to pitch its efforts.
Ellipse argues that whatever the incentive, the industry needs to focus on ensuring the product that is placed inside it is comprehensive and simple enough to satisfy the Treasury that employers will get enough ROI to make it worth their effort.
Here industry players spell out what they think the group risk industry’s response should be to the Government’s call for new ideas.
Unum head of public affairs and CSR John Letizia
“We would like to see temporary tax break for employers buying GIP. We are calling on the Government to offer employers a temporary reduction in their National Insurance contributions when they buy GIP. Unum first called for a tax break in its General Election Manifesto in October 2014. For every staff member they provide with GIP, employers would get £30 off their National Insurance Contributions bill. This would be temporary, for say between one and three years, after which the government could review its success and decide whether to roll it on or not. The government could offer it to all employers or just those with less than 250 employees. Employers who already have GIP would also qualify.
“There is almost no fiscal risk for the government. Unum estimates that even if an SME tax break led to no increase in coverage whatsoever, then the government would only lose £4 million a year. However, Unum is sure that this proposal would increase coverage, helping the government meet several major objectives. “Productivity would be boosted, fewer people would fall out of work and those that do would be protected so less likely to claim welfare and paying tax on their GIP income, which helps balance the books.
“The sector is already producing innovative products, such as Pure Benefits, tailored to the needs of employers that haven’t purchased GIP before. Unum and other insurers are confident that they are ready to scale up coverage, claims and rehab so they can meet the surge in demand that a tax break would bring.”
Zurich group income protection manager Nick Homer
“We’ve produced two reports highlighting the benefits of income protection and the merits of a Government incentive to stimulate GIP market growth in response to a challenged welfare state.
“In our first report we called for a short term tax incentive, however now believe an incentive aligned to employer’s national insurance would be more appropriate.
“We feel that a fixed amount, say £30-£50 pa, ‘per employee’ national insurance rebate would be a good solution because a modest incentive would help to galvanise the market into action and stimulate growth – the incentive in itself will not drive the growth, as this is only equivalent to a c10-12 per cent premium discount, as is just one ‘component’ of the required campaign.
“A monetary amount, as oppose to a percentage discount, means that the benefits for employers are greater for lower earners, helping to engage wider industry sectors and smaller employers with GIP.
“The economic case for an incentive is compelling, therefore the incentive doesn’t need to be short-term (also, employees would be less willing to engage with a short-term only incentive)
“An incentive linked to employer’s national insurance would be easier to administer and has more relevance.”
Canada Life Group Insurance marketing director Paul Avis
“We don’t need an incentive – we need advisers to be proactive in selling what we already have with the employee data that already exists. We shouldn’t need a gimmick to start the conversation when the benefits and ROI are already there. Advisers just need to take what is already available in the market and put it in front of employers. They will buy it!
“Affordability is not the challenge. We can already do 13 week deferred, 50% salary scheme, payable for two years, with a free second medical opinion service, an EAP, day one practical vocational rehabilitation support from day one, all for around 0.3-0.5 per cent of payroll.
“We should be addressing both the complexity and means-testing impact of state benefits, because without this clarity it is very hard for an adviser to say ‘This will have no impact on your state benefits’. Individual income protection is 100% offset against Universal Credit, whereas group income protection is only impacted by Housing Benefits, so at least an adviser can articulate that above a certain benefit level the individual will always be better off by taking it out.
“But until an adviser can categorically state that individual or group income protection claim will have no impact on entitlement to state benefits we will always struggle to grow the market. It is worth noting that in April 2017 the current ESA/WRAC system is being aligned with Jobseekers Allowance, meaning the benefit will fall from £5,312 to £3,801 a year and so who can really live on that?”
Legal & General Workplace Health and Protection managing director Martin Noone
“Insurers can only do so much to push the benefits and importance of group income protection products, but how can employers themselves become more incentivised to force the issue? The paper suggests a financial incentive but is cost really the barrier to employers taking up GIP? Realistically it is more a lack of awareness about the likelihood and financial impact of long-term absence on a business, and a lack of understanding about how GIP can help.
“Long-term absence is a prevalent issue occurring far more often than employers may realise. Our latest research revealed that almost one in five employees had a long-term absence from work in the previous 12 months, with 17 per cent being off for four weeks or more. This can pose a real threat to any business’ health, productivity and finances.
“The cost of recruiting and employing temporary staff to do the work of a long-term absent employee can be high and employers should consider solutions to get their existing staff back to work as quickly as possible. For the majority of companies, the cost of recruiting, hiring and training a new employee can run into thousands of pounds, and it is much cheaper to ensure the absent, but experienced and skilled employee, is covered and a plan is put in place to get them back to work as soon as possible. The benefits of retaining an experiencing, skilled employee through GIP therefore allows a return on investment for employers.
“Our research also showed us that there are lots of misconceptions around the actual cost of GIP, with both employers and employers overestimating the cost by about three times. The research showed us too that once employees were informed of the benefits of GIP that around eight in ten said they would like their employer to provide it.
“This Green Paper is absolutely correct in stating that GIP can play a much greater role in helping businesses support employees with health conditions We are keen to see this create a positive discussion around wellbeing in the workplace and hope more employers will begin to see the many benefits in offering it to their staff, who after all are the most important component of any business.”
Ellipse manager, distribution partnerships Chris Morgan
“For an SME a long term absence is not an everyday occurrence and most won’t have dedicated HR to handle such issues, that’s why they need simple products which provides structure for that support and communication process. So this means our products will need to do more than just insurance. One example is the early notification process. Even where an employer has group income protection they often don’t tell their insurer about the absence until they have been off for a while, this delay can prolong the absence to the detriment of employee, employer and insurer. Integrating the insurance with day one absence management and early intervention, as we have done with Sick Pay Complete, provides a more complete solution. We think this style of design is well suited to SMEs and will be a model for the future.
“Awareness of the products is a major issue, so the industry needs to look at distribution. Auto-enrolment to workplace pensions is bringing many new employers into workplace benefits for the first time. There is potential here for this to create new demand for supplementary group risk products. Approaching these new employers to expand their programme into protection benefits could create an opportunity for a new breed of adviser.
“To appeal to new employers, we also need to consider simplifying the products. On design, we need to think about what the product does and what it stands for. Our view is that for SMEs the product needs to be comprehensive, it needs to help employers deal with all aspects of workplace absence, including long-term financial security.
“Clearly the government is cutting back on disability benefits, this is likely to continue and there are parallels here with the circumstances to which AE to workplace pensions came about. An auto-enrolment style programme for disability insurance could be a solution, but it is unrealistic in the medium-term, especially as AE to workplace pensions is still ongoing. Encouragement rather than compulsion could be a medium term strategy.”
Aviva MD of group protection Steve Bridger
The main areas of focus in the green paper are great initiatives and clearly a step in right direction of managing sickness absence and workability in the UK workforce. Within our own industry, case managers have been the keystone to effective identification and coordination of the support services required by an individual to facilitate a return to work.
Group income protection can have pivotal role, but only if we can increase the awareness of how valuable it can be – both to individuals and to employers. Statutory Sick Pay is currently £88.45 per week compared to a median average post tax take home pay of around £415. Employers will only view GIP as a core employee benefit, and means to retain and attract talent to their business, if UK employees themselves see the value in having IP.
Government can play an important role in encouraging more employers to use GIP. We think there’s an economic case that could be made for tax incentives aimed at expanding the current take-up of GIP products.