The workplace protection and wellbeing market has seen strong growth in recent years across all main product lines, as detailed in Corporate Adviser’s latest Workplace Protection & Wellbeing report. But could this progress be derailed by the economic storm clouds on the horizon? GET A PDF OF THE ROUND TABLE SUPPLEMENT HERE
This was one of the topics under discussion at Corporate Advisers’ House of Lords roundtable event. Advisers and providers agreed the sector faces a number of challenges in the years ahead, with the spectre of rising claims potentially pushing premiums up further down the line.
Claims experience has been ‘lumpy’ in recent years. The pandemic has caused a large rise in claims on group life policies, but a significant fall in healthcare claims and group critical illness claims. However, as primary healthcare services slowly return to normal these are expected to rise again.
Canada Life sales director Dan Crook said it was important to take a broader view, not focus solely on the pandemic. He pointed out that claims were rising prior to Covid, for physical conditions like cancer as well as for mental health, and he anticipated this trend continuing.
Missed diagnoses
“Personally speaking I don’t believe that the number of people that have cancer or need to be diagnosed with cancer has reduced over the last couple of years.” This is far more likely to be due to missed GP appointments and routine screens, he said, which could signal higher claims going forward.
Advisers attending the event pointed out that there was also uncertainty about an increase in claims arising from chronic conditions, including Long Covid, while changing working pattering could negatively impact MSK claims.
Crook added that this uncertainty also extends to mental health conditions which now account for a growing proportion of GIP claims.
He said the issue of potential rate rises needed to be seen against wider economic changes, which have resulted in a slowdown in recruitment and fewer redundancies. This can have the knock-on effect of ageing schemes, he said. “When the scheme ages by one year, actuarially speaking you get a significant increase of costs for those policies.”
Aviva head of distribution Jason Ellis pointed out that the cost of group risk policies could be affected by wider inflationary factors. “With products like group income protection, we are insuring somebody’s salary. So if these benefits go up, then the cost will, although proportionately the rate doesn’t change. However, the total cost of the scheme could increase.”
Cost of extras
Davidson Asset Management (Dam) Good Pensions corporate benefits consultant Alex Keddie was also concerned about future price rises. “Providers are offering all these wonderful benefits now, like virtual GP services and digital support. But what does that mean in terms of costs going forward? These services have been welcomed by members, and used a lot. But the more they are used, the more they cost. Will this impact prices in a couple of years time?”
Those attending the debate agreed that all of these factors may cause rate rises further down the line — but advisers said the market remained competitive and this had kept a lid on price rises to date.
Advisers welcomed the fact that prices had remained stable since the pandemic, particularly in the light of significantly higher group life claims. Broadstone head of proposition risk & health Susan Bourke said: “I’ve been surprised there haven’t been hikes in rates so far. This has been appreciated. Our clients don’t necessarily want the absolute cheapest rate on the market, but a rate that is sustainable.”
Katharine Moxham, spokesperson for the trade body Group Risk Development said this was a reflection of the fact that insurers across the industry had sustainable pricing policies that had been able to absorb increased claims, while remaining solvent and financially sound.
“As an industry we model for events like this. Not one insurer has run into difficulties, or indicated that it might be a challenge to meet these claims. There has been no need for FCA action.”
Sustainable prices
In fact rather than rising prices, advisers said there had been lower premiums in some cases, particularly from smaller providers looking to buy market share. This is reflected in some of the significant increases in market share, detailed in this report.
Ellis said: “We are all making out best estimate right now for what the future will look like. I think every adviser round this table will recognise quotes they’ve had from different insurers, generally speaking, used to be fairly consistent in terms of pricing and suddenly everything went haywire, with some prices 20 per cent more expensive or 30 per cent less than expected.
“But I think most insurers are beginning to get some common agreement around what shape future pricing might take, although there are still outliers.”
Gallagher head of health & risk Wendy O’Callaghan said there will always be clients who take the opportunity presented by lower rates. “This is a cyclical business. We’ve seen providers coming in with cheaper rates to increase market share, and those increasing premiums because they don’t want to play in this space anymore. This has always gone on, and clients will take opportunities when they arise.”
Barnet Waddingham head of workplace health Kevin O’Neill said some of these smaller providers were offering attractive rates plus “great added value benefits.” Rates might go up in future, he said, but this is likely to be true across the board, so there was an argument for securing these lower-price deals now.
However, other advisers pointed out that cheaper premiums can mean lower service standards, for example longer periods before a life insurance claim is paid. Cavendish Ware associate director Roy McLoughlin said clients wanted sustainable pricing, that did not leave them vulnerable to sudden price hikes. He added: “I’m old enough to remember when Aegon was a player in the group risk market and pulled out, virtually overnight. This was a hard conversation to have with clients. Now there’s certainly a focus on sustainable pricing as you want to make sure that the provider is still around.”
Keddie pointed out that it was not cost effective for advisers to recommend schemes that need re-broking every two years because of price changes. A longer-term solution can be a better option for both client and consultant he said.
Ellis said that providers were trying to recognise the challenges faced by both consultants and employers when it came to pricing, and were increasingly moving to guarantee rates for a three-year period, rather than two years.
“In this case you have only got to worry about salary inflation on scheme costs. Clients don’t have to worry about rates hardening.” As he pointed out it is the provider that is taking the risk, with advisers free to rebroke the business if better deals become available. “If things improve you can always come and retest the rate, but clients have the guarantee that they are not going to pay more than this.”
Cash plan claims
Delegates agreed this would be welcomed by large corporates and SMEs, given wider inflationary pressures in the market. While many PMI providers have offered rebates to employers to reflect falling claims, cash plan providers have not. But given the lower price of these products, and the fact many had added digital support services, advisers did not criticise providers, and said they hoped this meant they continued to offer these important benefits.
Looking at the market as a whole O’Callaghan added: “There are challenges ahead around pricing of group risk and healthcare products. Employers budgets will be under pressure, thanks to rising wage demands and other rising costs. Wage inflation is also driven by acute staff shortages in some areas.
“This will bring benefit budgets into sharp focus. These may have increased in recent years with the focus on wellbeing and supporting employees through the pandemic. Our role will increasingly be to demonstrate the value these products can add, how they can support the business, in terms of recruitment and retention, and the return on investment.”
She added: “We don’t know what the future holds, but if you put higher claims, an ageing population, rising salaries and changing working patterns into the melting pot it is clear there may be challenges ahead for employers over the next few years in terms of cost.
“This comes back to the central point — are we delivering benefits that justify these costs, and are we doing a good enough job of communicating these benefits?”
