Jump start from group risk – getting British employees back to work

Discussion on how the group risk market can be expanded to help UK Plc meet its big challenge on productivity has typically been dominated by whether the Government could be persuaded to provide tax or NI incentives to employers that offered group inc­ome protection schemes.

The argument has tended to be highly polarised. One camp puts forward the theory that the Government was trying to slash welfare spending and that GIP insurers, with their expertise in early intervention and rehabili­tation, are ideally placed to help with this by improving workforce productivity and tackling sickness absence.

The opposing camp claims the likelihood of getting the Government to part with any money for this purpose is remote.

They point out that group risk products already enjoy a significant tax break by being corporation tax deductible and that Chancellor George Osborne’s obsession with balancing the books means he will not consider anything that does not guarantee an immediate payback.

Significant shift

However, during the past 12 months there has been a noticeable shift away from these theor­etical exchanges towards talking directly to government represen­tatives. The catalyst appears to be the ability of providers at last to produce figures to present a business case.

One example is research by Zurich that shows that the Government gains by over £200m a year as a result of GIP. Meanwhile, Aviva reports that when it intervenes within the first four weeks of absence it gets 67 per cent of employees back to work. It also explodes the myth that GIP is merely a perk for senior managers by revealing that around half of those it insures earn under £30,000 a year.

Perhaps more importantly still, data compiled by industry body Grid shows that, during 2015, group risk providers as a whole paid out £1.4bn-worth of claims and helped 1,878 people return to work with some form of active early intervention support.

Whether post-referendum chaos leads to political paralysis remains to be seen. But the industry is now getting heard in Whitehall.

The Association of British Ins­urers would not shed light on a roundtable understood to have been organised this May with a Department for Work and Pensions minister at which tax breaks for GIP schemes were up for discussion. But it acknowledges that it meets regularly with the DWP and relevant ministers to discuss issues on behalf of its members.

Advising the Government

It is common these days to hear from senior group risk experts who have spent time meeting government representatives. For example, Legal & General executive managing director for workplace health and protection Martin Noone was invited this April to talk to senior civil servants looking for more creative ways of funding sick pay.

He says: “We were talking about whether there could be a fixed benefit – reductions in either tax or employer’s NI – to offset the cost of providing income protection or rehabilitation. In principle they liked the idea, but they warned us there could be problems with getting the Treasury to loosen the purse strings.

“The reality is that we need a kickstart to get directors of SMEs to think seriously about income protection. The average cost of the product is around 1 per cent of payroll but our research shows that the average SME thinks it would cost around 10 per cent. One per cent relief on employer’s NI would be a good start.”

Unum head of public affairs John Letizia reports that his company has been talking to the Government since last year’s general election and has put forward a policy suggestion for a temporary 12-month incentive for SMEs that offer income protection and rehabilitation to their entire workforce.

He says: “We think a reduction in employer’s NI would be best as it can be done easily via payroll. At the moment it is 50/50 that it will happen but, if things go well, it could be introduced in April 2017.”

Time lag

However, not everyone expects such swift progress. Portus Consul­ting director of consulting David Dolding does not anticipate any such incentives for at least 10 years and Aviva managing director, group protection Steve Bridger points out that pensions auto-enrolment took seven years from conception to reality and doubts that group risk would be any quicker.

Even if government incentives were achieved, some doubt they would boost sales on their own. Dolding feels they would be unlikely to do so unless accompanied by government support to increase awareness, which he does not envisage.

Providers should perhaps be realising that the ultimate responsibility for raising awareness lies with themselves and that the communications piece is probably now more important than product development.

Jelf Employee Benefits interim business development manager, group risk Andy Stephenson says: “The Government’s simple products proposals have gone very quiet and, while Unum has tried to be innovative with simple inc­ome protection and critical illness products, it has not been overly successful thanks partly to poor timing. Pension auto-enrolment and changes to welfare have seen group risk take a back seat.

“Many employers don’t really know what they have in place, particularly with regard to added-value features, and few understand the benefits of early inter­vention. We also need a lot of line-manager training to spot signs of mental health issues earl­ier, and I would like more promotion of group risk among trade bodies like the CBI and IOD.”

Added complexity

Ellipse chief executive John Ritch­ie thinks group risk products as a whole are already inherently “simple” but are made complex by being given inappropriate names, with providers not working hard enough at communicating them. He also stresses that the Government cannot be expected to solve every problem.

He says: “The issue for me is not fiscal stimulus but the willingness of providers to invest in technology, marketing and communications.

“Auto-enrolment of pensions is very conducive to growth and it’s up to us as distributors to use technology to enable those companies to have broader workplace schemes with life, income protection and critical illness cover.