Auto-enrolment for protection sounds like a nice idea – there are lots of reasons why the government, of whatever colour, would want to shift the cost of sickness absence from the state to the employer. A roster of pros including reduced welfare benefits costs, increased tax take, less strain on the NHS, happier workers and a more productive workforce make the idea sound like a no-brainer. But does the idea it really have the potential to make the leap from theory to practice?
Delegates at a Corporate Adviser/Canada Life Group Insurance round table AE for GIP- What are we frightened of?, which took place last month in London, felt that the policy has true merit. But, they argued, if the group risk sector is to present a convincing case for linking group income protection to auto-enrolment, it must itself first gain a better understanding of the product and of why it isn’t selling. With the total number of schemes still languishing at around 17,300, the government could be forgiven for asking why group income protection is likely to help solve its problems if existing demand is so poor. Unless the industry can clearly communicate, in the simplest possible terms, what the benefits of the product are to the different stakeholders in the process – employees, employers and the Treasury, it will remain a struggle to get policymakers on board with the idea, said delegates.
Some intermediaries present pointed to successes in selling new schemes to existing clients, particularly to those moving from defined benefit to defined contribution pension schemes. But no-one sought to dispute that the market as a whole is heavily dominated by churning.
Munich Re head of business development Lee Lovett said: “It always amuses me when insurers report record new business numbers because industry statistics show that the market is static. So one insurer’s new business is another insurer’s lapse.”
It was also generally agreed that the basic group income protection format wasn’t in need of any significant redesign. But the biggest barrier to growth was considered to be poor communication of benefits, a problem for two thirds of those at the event, followed by complexity of interaction with state benefits and tax, a problem for a quarter of delegates.
Jelf Employee Benefits head of benefits strategy Steve Herbert said: “There is nothing employers don’t like about the product, but as an industry we haven’t been good at pushing it down to the lower echelons of the workforce. There is also a lack of awareness even amongst medium- sized employers, and lots of HR directors don’t understand even the insured part of the product.”
Master Adviser senior partner Roy McLoughlin said: “In the smaller business space I deal with it’s incredible when you ask HR professionals what their sick pay rules are and they admit they don’t really know. There is a general lack of awareness of income protection and an obvious ignorance of State benefits.”
In a straw poll, 63 per cent of attendees thought the market couldn’t grow without radical changes to the way group risk is positioned. But the fact that the economy is now pulling clear from such a prolonged and severe economic downturn should certainly help.
Swiss Re technical manager Ron Wheatcroft said: ”We’ve been losing 1 to 1.5 per cent of the total number of schemes through a pretty tough economic period, and what comes out as positive through my research is that once a scheme is on board it does tend to stick. So I think you’re doing a great job as advisers in terms of managing schemes and keeping them there.”
Group Risk Development (Grid) spokesperson Katharine Moxham took heart from the idea that once the government’s Health and Work Service has bedded in it should help employers realise the true value of group income protection.
She said: “I think that our job will be significantly easier because employers will have got used to the idea that the expectation is to get people back into the workplace, and they will start to realise that no-one is giving them much help and that there isn’t really any tax relief for them, just a P11D saving for the employee.”
McLoughlin flagged up the point that the strictures of adviser charging requirements could benefit income protection sales by forcing advisers who have lost a significant amount of income from pensions to look for something new. With most life offices effectively turning off their pension commission streams in the next couple of months, we could soon see a new army of protection advisers targeting the market said McLoughlin.
He said: “It’s chaos out there and no-one really knows what’s going to happen but I perceive that adviser charging isn’t going to be as successful as people think. Various insurance companies are telling advisers not to worry as all of their clients are going to start paying them direct but I just don’t buy this. IFAs have always been quite a resourceful bunch, and when one roadblock comes along we tend to bypass it and find something else.”
But whilst such developments could increase take-up at the margins, the critical issue was considered to be how to increase awareness of the need for group income protection, and the first step was to decide which aspects of the overall package should receive most emphasis.
Wheatcroft stressed that he felt that rehabilitation should form a prominent part of the proposition and highlighted the need for a major piece of statistical analysis to be conducted in this area. A unanimous 100 per cent of attendees agreed that group risk providers need to develop a common methodology to enable such statistics to be published, to facilitate a league table approach to comparison of rehabilitation statistics, to highlight to employers the true value of what the product is achieving.
Wheatcroft said: “The Frost/Black review had no figures on what was spent on rehab, so it’s a big gap that needs addressing. We are great at collecting figures on premiums, numbers of lives and claims but I don’t think we’ve done it yet on the bit that’s absolutely core to the proposition.”
Mercer principal David Manning on the other hand felt that the primary emphasis should be to capitalise on the current trend for employers to focus on health and wellbeing and to use income protection to open a pre-illness type dialogue. Further down the line this would lead to conversations about what the insurance mechanism provides.
He said: “Have we really explained effectively what this product can do for employers? If we look at the statistics we have then the answer is no. We’ve focused on the back end, on claims, replacement of income and rehabilitation, but this is perhaps a little bit too late in the process. This is about maintaining people in the workforce before they become ill and it’s a communications issue for the industry as a whole.”
But Herbert strongly advocated that the fundamental sales message should be simply that if someone is off sick for a long time the costs are covered.
He said: “If you can’t get that right then the rest is academic. All the value-added stuff should come in when pitching the business case to the board but if you start with it you will never get back to the core essentials of what the product actually does.”
The other major area of debate concerned the reasons for the lack of demand for group income protection, and whether that was in part as a result of poor communication.
Canada Life Group Insurance sales and marketing director Paul Avis said: “We all agree the product is fit for purpose, so why aren’t advisers routinely talking about it? Do they lack the ambition or resources to do so? I think we provide enough educational awareness and a great proposition which can be used daily without having to make a claim, so why isn’t the market growing exponentially? We do a welcome pack at inception that’s sent to intermediaries but how many of these actually make it through to employers?”
Nevertheless, 75 per cent of attendees didn’t believe providers’ current initiatives have a realistic chance of growing the group income protection market.
Lovett said: “I have every confidence in the proposition as a whole but I would question short term the insurers’ resources and operational capability to double or triple the size of the market. I would be interested to know the proportion of time they spend trying to find customers as opposed to worrying about looking after existing customers.”
Lovett also asked whether it might not be in everyone’s interests for insurers to allow advisers
to produce co-branded tools. But Herbert warned that advisers were very nervous about “bigging up insurers” in case they wanted to switch further down the line or in case clients went direct. Avis confirmed that “advisers simply aren’t asking us to contact their employers directly.”
Whilst many intermediaries, particularly the more generalist IFAs, are clearly not engaging sufficiently with insurers, others certainly are and if their practices could be replicated by competitors it could prove the key to growth.
McLoughlin explained how some employers have complained to him that they had a group income protection scheme but that employees failed to appreciate it. His response has typically been to visit the company and almost do a re-launch, explaining to staff how good and unusual the product is.
He said: “When an intermediary, as opposed to an employer, brings this message it can be very, very powerful. So when you’ve set these schemes up please go and service them as you’re getting paid for it and it will lead to other things. It makes your relationship with the insurer so strong that the likelihood of them ever going elsewhere is very slim. Maybe part of insurers’ training should be how to make the IFA’s services proposition stronger”
Willis client relationship director Peter Murphy said: “Using the stuff that insurers produce is doing some of our job for us, which is great and we can’t add value to that. But there are loads of other things we can add value to like staff engagement and reinforcing the whole idea of being at work and keeping fit and healthy. That’s where we can have some high level strategic discussion.”
While delegates at the group agreed there was potential for making a case for auto-enrolment for group income protection, it was also agreed that a more cohesive sales and marketing process, on all sides, could go some way to raising awareness of this valuable benefit.