Whoever the speaker and whatever their subject matter, the importance of product innovation proved a recurring theme at last month’s Corporate Adviser Group Risk Forum. In a global view provided courtesy of Tom Gaynor, UK employee benefits director at MetLife, entitled UK vs.US vs. Europe Employee Benefits Experience, lessons could be learnt from overseas, it was argued.
Gaynor said: “Sometimes it’s a case of ‘So what! I’ve heard that a million times’ but if there’s nothing new and fresh it might be because insurers aren’t coming up with enough solutions you can take to your clients. At the end of the day it’s not a case of one of my sales guys coming to see you and having a cup of coffee and you therefore deciding to place your entire book of business with us.
“It’s about whether we’ve got something you can go to your client with that helps solve their problems. So we need to have some innovation and I genuinely believe some of the global trends we are picking up are helping to influence that.”
Unum had recently launched exactly such a ‘something’ with its Sick Pay Insurance (SPI) product, which had just completed a UK pilot after proving itself on the other side of the Atlantic. Despite involving much lower premiums, the short-term sick pay market in the US is already half the size of the longer-term income protection market there, and in a session entitled Tackling the Issue of Short Term Absence, Unum customer solutions director Glenn Thompson argued that “opportunities were begging.”
SPI provides a regular monthly income if employees are off sick for up to 12 months, and includes access to an employee assistance programme (EAP) and to claims management and rehabilitation expertise. Employers can replace a percentage of an employee’s earnings up to a maximum of £6,000 per month and choose deferred periods of between one and four weeks and payment periods of between 12 and 52 weeks.
Thompson pointed out that the workforce had changed dramatically over the past 30 years, with female workers increasing by 13 per cent, older workers by 46 per cent and ill and disabled workers by 11 per cent, but employee benefits packages had changed very little, particularly in protection. It was therefore no surprise that demand had been very flat.
But the new format was being well received, with the six month pilot having already secured a dozen schemes on the books and a further 30 in the pipeline. Businesses with between 150 and 300 staff were revealed as being the real ‘hot spot’ for the new offering, said Unum. “Our pilot has shown SMEs to be particularly at risk if they are not big enough not to feel the impact of absence but small enough to lack specialist absence management in-house” explained Thompson. “The product addresses the key areas of prevention, intervention and protection, and we have seen that companies are trying to alleviate the costs of short-term sick pay, because they recognise they are already paying out an amount, and they also want to remove risk. Typically they don’t have an occupational health department.
“SPI reduces the employer’s admin burden and provides third party validation of absence, complementing group income protection and giving employers certainty over cost. We see it as a big opportunity for advisers both to go to existing clients and to use to approach new clients,” adding that the need to manage the claims data on a regular basis meant the product could form a useful way of engaging employers in a longer term dialogue over health, wellbeing and productivity issues.
Speaking from the audience during a panel debate on the future of employee protection, Private Health Partnership commercial manager Paula Aitken described SPI as “a great idea” even though she hadn’t actually sold a scheme yet. She drew similarities to the success that cash plans had enjoyed as a low-cost alternative to private medical insurance (PMI).
Gaynor said: “I think SPI can provide employees with a really good introduction as to what full-blown group income protection can do. One of the problems with group income protection is that a lot of people don’t realise they have it, so they don’t realise the value of it. But if they have a short-term solution they’ll be back at work in a month and start to understand the benefits.”
Punter Southall Health & Protection Consulting director John Dean expressed similar sentiments about lack of awareness of traditional group risk products, and argued that part of the reason for that is there is very little differentiation between products, and further, that it is in the interests of intermediaries to play down product differentiation to allow them to be able to swap providers without employees noticing what they had lost.
He said: “Everyone has a view on PMI. They understand who the insurer is, what hospital they can use and why the chairman’s wife had a claim that was declined. But with group risk many clients don’t know if they’ve got it and they certainly don’t know who the insurer is. If you really want to build employee value they’ve got to see it.”
The virtues of more long-standing innovation in the form of limited-term group income protection were also highlighted by Canada Life Group Insurance sales director Jon Ford in a session headed The Automatic-Enrolment Opportunity – What is the Plan?
Ford identified schemes with under 50 lives as representing the “jumbo opportunity” with auto-enrolment. But he stressed the importance of recognising that such firms were already having to meet the costs of providing pensions and therefore of advisers focusing on offering budget options, possibly of £10,000 life cover, £10,000 critical illness cover and limited-term income protection covering 50 per cent of salary for two years.
He said: “Even the lowest-cost budget income protection plans still offer added-value features like free EAPs and in some cases free second medical opinion services and free helplines providing HR, legal and other information.”
Product development was also considered a high priority for group critical illness cover despite an upbeat presentation by Friends Life director of group protection David Williams in a session entitled Group Critical Illness for Today and Tomorrow.
Williams highlighted how the group critical illness market had grown by 10 per cent last year and by around a third during the last four years, with 60 per cent of business coming from flexible benefits schemes – where average take-up rates were in the 8 to 12 per cent region.
He said: “Children’s cover is included and around 30 per cent of employees take up the option of including cover for partners. When claimants come back to the workplace and say this benefit has helped us as a family and this illness could happen to you it creates a powerful engagement message.”
Nevertheless, with only around 2,500 schemes in existence industry-wide covering around 340,000 lives, there was a consensus during the panel debate The Future of Employer Protection that something really had to change if this was ever going to become a genuinely mainstream product.
Capita Employee Benefits senior health management consultant Lee Gruskin said: “Critical illness is a great product but doesn’t address the elephant in the room, which is that it’s great until the point of claim when the underwriting is done. What are you doing to help to make it a more transparent benefit?”
Williams responded by stressing both the importance of adequate communication to ensure pre-existing conditions exclusions were understood and the efforts insurers were making through bodies such as The Association of British Insurers (ABI) and Group Risk Development to demonstrate consistent claims paying information.
Thompson also acknowledged that there was a difficult balance to be struck between minimising up-front administration and paying out the appropriate amount of claims. He didn’t feel that today’s format worked but emphasised that Unum was in the process of revamping its critical illness product.
Dean agreed that pre-existing conditions did constitute a big elephant but pointed out that the facts that premiums were age-related and that the product gave rise to a P11D liability in the hands of the employee were also problematic.
Lark Life & Pensions senior consultant Richard Birch felt that tackling the P11D situation could hold the key to solving the pre-existing condition exclusion issue.
He said: “The problem with the P11D situation is that it means you can’t make critical illness cover compulsory, so this must be reflected in the underwriting. Some providers are being as fair as possible but others are relying on pre-existing condition exclusions to get around making pay-outs.
“This has to change as critical illness cover can’t evolve in its current structure where you don’t know what you’re covered for until the end of the day. It could all stem from changing the P11D position because if the product can be made compulsory we can control the underwriting just like we can do under group income protection.”
Ellipse chief executive John Ritchie said: “I think there is a problem with the pre-existing condition exclusion as you shouldn’t be comfortable taking premium for cover employees don’t have. The question down the road for us is how quickly can we fairly and comprehensively underwrite people willing to give us £10 or £20 a month, and this all boils down to technology.”