At the end of 2007 the number of Group Income Protection and Group Life schemes was lower than at the end of 2006. It is expected that this trend will continue for 2008 as the number of group risk schemes reduces further due to mergers and acquisitions and firms going to the wall under the harsh economic conditions. This poses a huge threat to future revenue streams for both intermediaries and product providers.
Even in previous more benign market conditions, product providers were guilty of not producing true product innovations that reflected the modern day needs of employers. Intermediaries concentrated on acquiring those clients who already had Group Risk benefits, but struggled to sell the concept of Group Risk to employers who did not provide such benefits.
Those employers – and there are lots of them – will only be switched on once there are propositions out there that are designed to reflect their needs and which can be easily communicated by intermediaries to create demand.
The downturn is already leading companies to review their employee benefit packages. Employers are currently weighing up which benefits provide the most value to their employees and themselves. The longer the economy takes to turn around the more likely they will tighten their definition of value. Is a Group Risk package of sufficient value that an employer would want to keep it?
The decision to retain Group Risk benefits will not be helped by the recent European Court of Justice ruling regarding long term sickness and holiday entitlement. This landmark ruling states that employees are entitled to take all holiday they have accrued when they have returned to work from a long period of sickness.
Alternatively, if they leave employment they must receive holiday pay equivalent to the time they were unable to take during their period of absence. This is another blow for employers who will have to bear the cost of the ruling.
Perversely, there are opportunities in the current market for intermediaries. Those employers who are currently self-insuring sick pay costs may feel vulnerable in the present market and may want to insure their liability in the short term. In addition, the closure of defined benefit pension schemes also provides an opportunity for ill health early retirement cover.
So what will happen to the Group Risk market when the upturn begins? Will the market look the same or will employers have fundamentally revised their benefit packages as a consequence of the recession? One thing is for sure, companies that survive the recession will need convincing about the concept and value of insured employee benefits. Intermediaries will need to recommunicate the value of Group Risk to their existing clients and revisit their strategy for acquiring new clients in order to replenish those who were swept away in the credit crunch. Product providers will need to understand better the needs of UK employers and their attitudes to employee benefits. The big question for all of us is how long will we have to wait for the upturn to begin. We may not be able to answer that question now but we should all be reviewing our strategies to identify new product opportunities that meet the changing future needs of employers.
Declan White
Group Risk Marketing Manager
declan.white@friendsprovident.co.uk