The employee benefits sector has strengthened significantly in the wake of the Covid pandemic. The health and wellbeing of staff has now moved towards the top of many employers’ agenda, with the industry responding to this crisis by offering an increasingly rich suite of insurance and protection benefits.
This has included a range of ancillary benefits that have enabled employees to access services — be it physiotherapy, mental health support or virtual GP appointments — that have been difficult to get through the NHS, due to lockdowns and long waiting lists. But the new dynamic for HR professionals is a rampant cost-of-living crisis coupled with the Great Resignation, against a backdrop of challenging markets for employers.
Towergate Health & Protection CEO Iain Laws says they have seen both larger corporates and SME clients extend their employee benefits provision over the last two years, with more focused investment on health and wellbeing. But despite this sustained growth, the sector faces challenges over the next few years, he says, with a “unique set of circumstances coming into play at the moment.”
First and foremost is the cost of living crisis, with rapidly rising inflation reducing the value of employees’ salaries and impacting corporate budgets.
Laws says: “At the same time we have a very challenging recruitment market in the UK. With the cost of living rising, employees will increasingly focus on their take-home pay. This will put pressure on employers to increase pay awards in order to retain and recruit key staff. The question is whether this has a knock-on effect on benefit spend.”
While at present there hasn’t been a significant impact on employee benefits, this may change says Laws, particularly if today’s high levels of inflation do not start to fall back next year, as is currently being forecast.
“There may be some difficult decisions to be made towards the end of the year, as the economic forecast for 2023 becomes clearer. If the longer term outlook is for food and energy prices to stay high, then employers will have to look at their overall remuneration packages. They will have to look at whether they focus on pay, and either limit future benefit spend, or start to denude their benefit offering in order be able to offer higher pay awards.”
NHS impact
These decisions he says will be further complicated by ongoing pressures in the NHS. “We know there’s potentially an issue with the hangover of late diagnosis due to lockdown delaying treatments and increasing waiting lists.
“Every employer has experienced first hand the impact of ill health of employees on their business. It’s the one area many may think they can’t afford to pull back on — but it is also one of the most expensive areas of voluntary benefit provision.
“As an employer myself, and the CEO of a company that advisers employers, we can see there may be some challenging issues to face in the next few years, when it comes to looking at pay and benefits. These are not new questions, but they have been thrown into sharp relief by the current economic circumstances.
“It’s inevitable, at least in the short term, that we’ll see some employers focusing on pay to attract and keep talent within their business. But I would argue that both pay and benefits are important when it comes to solving recruitment problems.”
Employee benefits tend to be a medium to long-term strategy, he says. “At the moment we are not seeing much change in employee benefits design or management.”
Cost of living crisis
However, to help with the more immediate cost of living crisis, he says clients are starting to ask about how they can maximise the value of their employee benefits programmes.
“They want employees to perceive the value of these benefits, and are increasingly looking at whether this can add immediate value today, in terms of cash in people’s pockets.”
One way of doing this he says is adding cash plan benefits, which help can help people access and reduce the cost of regular dental, optical and physiotherapy services.
Laws says that given this economic background, communication and engagement around core insurance products and support services have become more important.
“It is important the employees understand what they have and how they can use these products. Employers want enhanced communication around benefits to generate better engagement. At Towergate we see this as a fundamental part of our role. We are helping clients inform and educate and engage their employees.”
As he points out an employer could have “a five-star gold-plated benefit programme”, but without effective communication then “the job is only half done.”
“The reality is that in many sectors employers can’t afford all-singing, all-dancing benefits programmes so they need to ensure that what they do have resonates with employees. A key part of our job is helping unlock that value in these employee benefits. It’s not just about designing, choosing and managing various benefits, communication is rapidly becoming the most important aspect of a successful health and wellbeing programme.”
Laws says that previously it would have been primarily larger corporates that would have expected these rolling communications programmes. “But we are now seeing demand for this from the majority of medium-sized businesses, and starting to see this too from smaller organisations.”
As an employee benefit adviser Towergate Health & Protection works across all sectors and sizes of corporate client. “The demographics of our business are reflective of the UK as a whole. We have a strong client base of SME clients, particularly in the smaller and mid-sized enterprises. We also work with a good number of larger employers, particularly those looking for an adviser and service that can adapt to their specific needs. This includes a number of multinationals.
Global growth
“There is a perception potential that Towergate is a UK-based SME health and group risk broker. But we have been evolving behind the scenes in recent years.
“We are a key member of the Worldwide Broker Network and work with clients around the world co-ordinating global employee benefits programmes. Perhaps we don’t shout about it very loudly, because we’ve just been busy getting on with the job.”
This global business is an area that is starting to pick up again post-Covid, Laws says, with increased demand for visibility of employee benefit options across different jurisdictions.
In total Towergate Health & Protection has over 15,000 commercial clients, and 300 staff who are sited in six offices across the UK.
Private matters
Given the ongoing demand on the NHS, Laws says he would like to see more concerted action by the broader health insurance industry, to help change the narrative around private healthcare.
“I wonder if there’s an opportunity for us as an industry to acknowledge the important role private healthcare has to play in society: it isn’t replacing the NHS but supplementing it.” As he points out employers offering healthcare benefits — be it a cash plan or a PMI policy — are helping to relieve demand for NHS services.
Laws points out that both employers and employees are now paying higher National Insurance to help the NHS tackle Covid backlogs. But at the same time, employees taking private healthcare from their employer also face benefit-in-kind tax payments, which can be significant with PMI policies. Employers also pay additional insurance premium tax.
He says it will be interesting to see whether these additional costs cause more people to opt out of these benefits, given the rising cost of living. If so this will only serve to increase demand on an already overburdened state system.
“A narrative that helps broaden understanding of the private healthcare sector could help. There may be some simple measures that could make a real difference. I would like to see an industry-wide approach to this, perhaps being led by the larger healthcare providers.”
Pensions opportunity
While Towergate’s current focus is on health, group risk, and protection, Laws says that it is looking to develop a pension proposition in the near future.
“Currently we specialist in employee wellbeing, employee health and employee protection, and all various adjunctive services that sit around and complement these areas.
“We recognise we already have a communications platform, and we are about to launch the next evolution of this later this year, which will be focused directly on providing employees with an easy-to-use and signposted health and wellbeing programme, that will be web-based.
“More of our customers are asking us if we can provide the same help with financial wellbeing as we offer around health and wellbeing. In most businesses this translates into either protection benefits, which we already offer, and pensions and savings.
“So in the longer term we will evolve from our current focus around employee health and protection into a broader employee benefits business that can meet a greater range of customer requirements, and in doing so strengthen the communication and engagement platforms around this.”
However, Laws says that this does not mean that Towergate will become a pensions investment adviser. “We are not trying to compete with the Willis Towers Watsons, or Mercers of this world.” He says this will be about providing a broader service to clients with a focus on employee wellbeing.
Data drive
When it comes to the future, Laws says two significant trends look set to impact the employee benefits market. The first is ‘big data’ which he says is already starting to improve the way employee benefits are being designed, managed and communicated.
“Sucking up this data allows advisers and consultants to address issues, not just the product. When we look at health and wellbeing we are looking at four broad areas: physical wellbeing, mental wellbeing, social wellbeing and financial wellbeing.
“By looking at the data associated with the different products, we can start to see which issues these are tackling. For larger employers, where the data sets are substantial, we are starting to get really powerful insights into employee behaviour that are really important when it comes to health, wellbeing and engagement.”
He says this isn’t just utilised for larger corporates. Firms like Towergate can now access information across their clients’ book providing powerful customer insights.
He adds that this big data approach will be further enhanced with artificial intelligence. “I think this is really going to help in health when it comes to understanding the risks an individual may present, and then prompting them to relevant benefits. It’s still relatively under-used in our industry at present, but I think we are going to see more signposting, with computers analysing multiple data sources to suggest which individuals could benefit from certain products, or services.”
Sustainability concerns
The other big change on the horizon is the shift towards sustainability and increased reporting of companies’ track record on environmental, social and governance (ESG) issues.
ESG reporting is already having a major impact on the workplace pensions industry. Laws says that it is not a major issue in the benefits industry yet but he adds that “it certainly should be”.
“This is probably the single biggest issue we face. We have kept an eye on what has been happening in the pensions space and I think it’s amazing the progress that has been made.
“Over the past three years we have started to see ESG questions be included in tenders from larger organisations who have a formalised procurement process.” However he says these often ask a series of standardised questions, such as ‘do you have a carbon neutral policy’? “These seem to generate the pre-formatted formulaic response that demonstrates that the questions have been asked, but don’t necessarily dig deeper.”
Laws says that clients will ask advisers like Towergate about their own ESG credentials. He adds that advisers have a role to play in asking clients about their ESG policies and how these can be supported through their choice of suppliers.
“I expect many clients haven’t thought about ESG in relation to employee benefits. But we have to make sure that those ESG questions sit within the tenders we issue to the insurance market on behalf of clients.”
Despite the challenges ahead, Laws sees the employee benefits market as being in a good position. “Wellbeing has become central to the employee benefit proposition. Employee expectations around wellbeing and health have changed since Covid and employers across all sectors are waking up to this, even in sectors that have traditionally offered lower pay and benefits.”
He says providing effective health and wellbeing programmes makes cultural, compassionate and commercial sense for many companies — be it helping with issues like absenteeism and presenteeism, or attracting and retaining the talent needed to grow their business. The economic clouds may be gathering, but, he concludes, this basic premise is not going to change.