When the excellent Swiss Re UK Group Watch report is published each year we generally hear positive and optimistic words from insurers, reinsurers, distributors and Grid.
But industry claims that there is good growth in group life and sick pay cover do not stand up to scrutiny. If we aggregate group income protection (GIP) and individual income protection together, we cover only 1 in 10 of the economically active in our society. Group life covers 50 per cent of the number of employees in the UK workforce.
If we want to achieve a decent level of life and disability cover to all socio-economic groups – our purpose – then the report card reads ‘could do better’ in life, and ‘market failure’ in disability income cover.
You may not accept that view and the purpose implicit in it. You might have a corporate ‘return on capital employed’ purpose or a personal ‘how much rent can I squeeze from my senior job in an incumbent insurer’ purpose. Please don’t be offended. I had a blend of those two purposes for many years.
Firstly, we must reflect on the operational and thinking silos that exist between group and individual insurers and distributors. It is still common to have protection industry conferences where the workplace is not mentioned as a method of reaching customers. Group and individual operating and commercial models are quite different. Despite constant complaining about indemnity commission and lapse risk exposure in individual protection, incumbent distributors and insurers show little appetite for developing the growth potential from workplace and hybrid products and commercial models.
Secondly, we need to overcome resistance to developing new routes to market. The workplace is both accessible and economical as a place to sell deeper cover, once the employer has provided the foundations.
Thirdly, we should learn from the fintechs supplying employee benefit markets. Look at Neyber, one of the fastest growing fintechs who provide consolidation personal loans to employee through employee benefit platforms. Payroll as the repayment agent enables a much lower risk for a lender and enables the much lower interest rate for the borrower. It is not a huge leap of the imagination to see that payroll can be the collection agent for the individual life and sick pay policies and thereby reducing the dreaded lapse risk.
Fourthly, we should do more to prompt the sponsors of ‘some of our people’ schemes to make them ‘all of our people ‘ schemes. This is particularly marked in group sick pay insurance where it is common for schemes to cover management grades only. Limited period payment products are now widely available and are excellent value. If there is an adviser or employee benefit consultant resistant to that or telling the employer that they can’t afford it, find a way to educate – and incentivise – the distributor.
Fifth, make it easy and economical for the employer who wants to provide life and GIP for the first time. Data already flowing across platforms from existing employee benefit schemes can be used. The government has already done much of the heavy lifting. Auto-enrolment to workplace pensions and electronic filing of PAYE has already created the data platforms and secure pipelines that make this feasible and viable.
The proposition can readily be provided in complete, secure packages to reduce advice, compliance and operational risk for all involved. Think about using mastertrusts, online nomination of beneficiary service and data self-service portals for employer data . Micro and SME segments are quite profitable. Advisers that are thoughtful in forming – and are disciplined in maintaining – appropriate operating models can build sizeable client banks quickly.
This is a communications challenge. It’s time to stop being euphemistic and to start educating people on the risks they are running. Let’s say to people ‘if you or your partner die too early’, not ‘if the worst should happen’. Let’s tell people they have a one in 32 risk of being off work from illness or injury for more than 4 weeks in a calendar year.
Let’s encourage workers to be curious about how much sick pay cover they have from their employment and from state benefits. We should encourage them to ask themselves ‘Will I be able to pay the rent in the second month of absence?’
We can do even better and to get family catastrophe cover to many more people in our society. Then we will be truly held to account for our performance relative to our purpose.