A deeper understanding of the value that group risk delivers to organisations is the key to expanding the new-to-market sales channel. That was the view of delegates at a Corporate Adviser/Canada Life Group Insurance round table debate last month.
While intermediaries and provider representatives agreed on the value that group income protection in particular can bring to SMEs, those at the coalface of selling said the key factor holding them back is the lack of employer and employee understanding and appreciation of the product.
The untapped market is massive, explained Canada Life Group Insurance director Paul Avis. The UK has 1.8m employers, of which roughly 43,770 have registered schemes. So the industry should do more to endeavor to break new ground, he argued.
Avis said: “This means 98 per cent of these firms do not have a group life assurance policy, 99 per cent don’t have group income protection and 99.8 per cent don’t have group critical illness.”
He added: “This is the madness of the market we operate in. Rather than target these new employers and sell the benefits of group risk, distributors are primarily focused on the existing market.”
This he says this may be potentially damaging, as it drives down prices at the expense of value the insurers build into the product.
The question that both insurers and distributors is therefore what could help the industry expand and penetrate these new markets?
Broadstone director of employee benefits Steve Hackett says it is important to view these figures in context. Many of these ‘untapped’ businesses, will be tiny SME and micro businesses that will never be profitable for intermediaries to target.
He says there are a number of reasons why smaller businesses are less likely to offer group risk benefits: these include costs and a lack of perceived value.
“It’s often a case of juggling benefits. Smaller employers are now obliged to offer pensions, and now contributions are going up again next April.”
Capita Solutions principal consultant Lee Gruskin agreed. He said: “Benefits like income protection are not necessarily a priority for smaller employers. They are often seen as nice-to-have, rather than need-to-have products.”
LEBC group risk consulting manager Karen Gittings pointed out that group risk products remain a ‘hard sell’ with many employers failing to see the benefit. “The often only really see the benefit once they come to claim.”
She described a scenario where an SME HR director had, at review, asked her to explain why the firm had been paying £18,000 a year for 10 years for income protection cover they had never had to claim upon. It then transpired that the following year, there were three claims, one of which was for the HR director. But despite the employer having seen the value of the benefit, the following year a new HR director with a hard-wired negative attitude to income protection came in and axed the cover anyway.
Gittings said part of the challenge – for both providers and distributors – is to do more to raise awareness and communicate the benefits of these policies to employers.
Avis argued that products like group income protection can be beneficial for many smaller employers and are highly cost effective.
“It is possible to get 50 per cent of salary covered for around 0.08 per cent of an employee’s salary, which drops to 0.06 per cent when corporation tax is taken into account.
“For this you also get a range of additional services like rehabilitation assistance, second medical option, employee assistance and so on,” he said. “A small business owner on a salary of £100,000 would face a 96 per cent pay cut if they were forced to rely on state benefits following an illness. You’d think they’d be biting our hands off for a product like this.”
But intermediaries said despite the value of what is available, without deeper awareness of the product and the value it delivers, expanding the market would remain a challenge.
One way to demonstrate this value is more effective benchmarking, says Hackett. While providers will deliver this in some circumstances, Hackett argued it should be made more widely available.
Gruskin pointed out that the returns for setting up smaller schemes are relatively
small from a distributor’s point of view. “It’s a lot of effort for relatively little gain, which is why most EBCs tend to concentrate on larger corporates,” he said.
Hackett also argued that better segmentation of the SME market, could help distributors expand.
“It would be of enormous benefit to us if the insurance industry could start to personalise the education and communication material the use. Can they benchmark data on the size of company or sector it operates in, for example?
“It can be hard for EBCs to do this themselves but insurers should have this data from across the industry.” Similarly, many advisers on the panel thought insurers could do more to demonstrate the value of their product, and what the return on this investment would be to an employer.
Gruskin said: “There isn’t always evidence on a quotation to tell me how much my client is saving by using the various support services available. I am selling this as a benefit, but it would be good to demonstrate its worth.”
Canada Life Group Insurance sales director Dan Crook said the industry is already moving in this direction. “We appreciate that it isn’t always easy to demonstrate return on investment to an employer. But we are starting to compile value statements which set out in monetary terms the value of features of our products.”
The support services offered on a critical illness policy typically equate to around £205 in value, or £185 on a typical group income protection policy he said.
Crook adds that these value statements are available to existing clients at present, and that his organisation is looking at making this information available for advisers who are quoting for new business.
Barnett Waddingham head of workplace health and wealth Kevin O’Neill says that part of the problem is that employee benefit consultants aren’t there to sell a product – they are there to advise the business.
“We talk about what the company needs, and what is the best way to achieve this. This may be via a group risk product, but this isn’t the only option.”
O’Neill suggested that if products were modernised they could better reflect some of these corporate needs. Gruskin agreed: “When we talk about products like income protection in isolation, the message about what benefits it provides is often lost. It doesn’t really make it to the top of most employers’ list of needs.
“I think we should look to radically change it. Stop calling it insurance for a start. Call it a rehab service for example, as for many employers it is this features that is of real benefit. Then we could say if the rehab doesn’t work there is an income replacement facility. It changes the whole nature of the conversation with clients.”
O’Neill agreed this more closely aligns product features to employers’ needs. “Early intervention is a key thing to focus on. Employers don’t want people out of the workforce and they know the sooner intervention starts the more successful it is likely to be,” he said.
Avis agreed that there is real potential to look at this issue and ensure that the products are renamed and marketed in a way that is more relevant to employers.
As he pointed out, part tongue-in-cheek: “No-one outside the industry understands the term ‘group’. Change would need to be industrywide, which would turn Grid into Rid, but it could be EPID – Employee Protection Industry Development.”
It was also noted that Grid itself is hardly well-supported in financial terms, fighting the corner of a £2bn-premium-plus industry on an annual budget of just £80,000, although the technical support it gets from members for free is extremely valuable.
Crook said modernising product suites, and investing in initiatives like benchmarking and value statements should help distributors. But he questioned whether there’s a more fundamental reason why the market is not penetrating into new areas.
“We know that when people get in front of employers, set out the benefits of these products and explain the cost, they love it. There is clearly a need for the product. You only have to look at state benefit calculators to understand that.
“But do distributors have the boots on the ground, or the inclination to target the SME sector?
“We’ve got the tools and the marketing material to help. But we want to work with partners who have a strategic plan and the enthusiasm to target this sector.
“Once we start having conversations about tech platforms they might use, how many calls they are going to make, what would be an appropriate hit rate to drive revenue streams, how are you representing the product, it all seems to stop at this point.”
Hackett said that larger employee benefit consultants may not be the best group to crack this market. “Some will have specialist SME teams, but others won’t have these resources. They may not have the language and local knowledge to talk to SMEs.”
He suggested a more regional approach can work better in the SME space and may also involve smaller financial advisers – who aren’t necessarily group risk specialists – as well as the banks.
Gittings said that a simplified small scheme approach can work for smaller enterprises. “It is not a whole of market review but you are recommending a proposition you know well and know will work for this business.”
Technology may also have a part to play here particularly in reducing costs. Aon head of technology and engagement Jon Bryant said: “The technology is there to develop a quotation platform which distributors can plug into daily or weekly and call up the appropriate information.”
But Avis said the danger of a ‘compare the market’ for group risk, is price becoming the dominant issue. “Isn’t it as important to understand the proposition and benefits and do business with a company that is easy to deal with?” he said.
O’Neill argued many larger consultants should also address the way their own businesses are structured to maximise cross-selling opportunities. There may be general insurance or pension divisions that are talking to corporate clients – some of whom may be smaller business.
If these separate ‘silos’ don’t talk they may be missing opportunities to discuss group risk options.
Bryant said: “As an industry we need to think about how we are structured and whether we can removes barriers to sale. Premier Choice head of group risk Steve Ellis points out that looking at sales targets can make a difference.
“Our sales teams manage their own portfolios. Setting a massive sales target means it is human nature to go for the big deals, but we are encouraging people to build portfolio gradually. In this context the SME market is a valuable asset.”
He described how some of the younger, hungrier intermediaries working through his organisation were starting to see the cumulative value of picking up £1,000 a week in commission from group risk sales – provided it was perceived as a personal extra, rather than a tiny step towards a massive group risk-only sales target.
Gittings says that at the end of the day it was impossible to escape the fact that the majority of business revenue comes from her larger clients, so most of her time and effort is spent serving them. “As a retention strategy this makes sense. But we also try to ensure we are signing up new to market schemes each year.”