We are not here to advise: you are! We are here to do what we are asked, whenever we can, and to make your life as simple as possible. So in the adviser/insurer relationship, that is job done. Or is it?
Part of our responsibility is to inform and think through the consequences of the products we sell. Some say this is treating customers fairly, some would say conduct risk, but let’s be honest about where we should be heading. We should all aim to delight our customers by providing best practice solutions to fulfil their needs and to sure they fully understand what they have bought. Fair and not misleading is only the minimum we should achieve.
So when it comes to Group Income Protection (GIP), a product with many options to consider, we should all be taking additional care. This benefit has struggled to gain traction and we should analyse why. 17,111 existing schemes cover 2.1m people, representing around 8% of the UK workforce but, more importantly, under 2% of employers. How many advisers take the time to truly understand GIP and actively seek to educate clients and prospects of its many benefits? All insurers now have service benefits as well as financial ones, with clear, evidenced return on investment (ROI).
The State is continuing to diminish its contribution to the amount payable when an employee is long-term sick. In July 2015, the Government announced that applicants for Employment and Support Allowance (ESA) who are assessed as unfit for work but who are capable of work-related activity (WRAC) will receive a lower level of State benefit which is equivalent to Jobseeker’s Allowance from April 2017. The value will fall from £5,312 to £3,801 per year.
As a result, there would be an increase in benefit payable for any employer with a GIP scheme on an ESA and WRAC deductible, which was and is the industry default. While a decrease of £1,511 per year does not seem a big deal, it can be high as a percentage of total benefit (especially for lower paid workforces) which could be paid for 30+ years.
A historically fairly generous State benefit, assessed on a comparable disability definition to GIP, led insurers and advisers to recommend a State Benefit offset e.g. 75% of salary less State Benefits. In the 1990’s, net pay and integrated schemes took account of all State Benefits and the taxation situation with an aim to provide an incentive for employees to return to work.
As Invalidity Benefit slowly became Employment and Support Allowance, there has been a gradual erosion of the amounts and it has become harder to qualify for. Throughout these changes, advisers and employers have stuck with a State deductible scheme design and ultimately the Long Term Incapacity Benefit (LTIB) deductible has become ESA and WRAC.
Unbelievably, despite an ongoing assault on State disability benefits making them harder to get and being much less in terms of monetary amount, we still have net pay, integrated and even LTIB schemes on our books. How much actual consulting and education is going on in this market?
For our part we have provided all of the tools that can be used to support a consulting exercise on a dedicated ‘Welfare Reform’ webpage: a legal review article on how to run a GIP scheme, including the potential need for a consultation when changing scheme designs; calculators to model various benefit profiles which are especially important for high earners, who are often decision makers; simple infographics; employer and adviser guides to ESA and WRAC, etc.
There is a consulting opportunity for the 50% of schemes with a State benefit deductible, and a real opportunity to modernise GIP by removing references to State benefits. Advisers have the tools to do this, but when will they? Many schemes are renewing on the ESA and WRAC basis. I do not know a single person who can live on £3,801 annually. The real challenge is that less than 2% of organisations have this benefit and we have the chance to address this. We are here to help, with modernising existing schemes and talking to new employers about the benefits of GIP. But you are there to advise, so will you? This is exactly the kind of opportunity to consult on that we discuss in our Round Table.