The debate about whether pension auto-enrolment is likely to help or hinder demand for group risk has traditionally been highly polarised but opinion may well be shifting. Not one of 10 group risk commentators interviewed by Corporate Adviser predicts that the impact on their field is likely to be negative over the next few years. Seven expect it to be positive and three declare the outlook “impossible to call.”
Those in the positive camp, however, express some very different shades of optimism. Nick Homer, proposition development manager at Zurich Corporate Risk, refers to a “slight upturn” while Steve Herbert, head of benefits strategy at Jelf Group, thinks that “auto-enrolment will be incredibly positive in that it will open up new markets.”
Herbert says: “To a degree it has already been happening as there has been a lot more talk going on about group risk during client meetings. Over the last few years I can think of many conversations when clients have taken risk products directly as a result of pension conversations, so there would have been a downturn in demand for group risk without it.”
Ron Wheatcroft, technical manager at Swiss Re Life & Health, says it is important to distinguish between the prospects for group life and group income protection. He feels that the impact on the former will be “broadly positive” as many companies will simply enrol pension scheme members into their group life schemes. With income protection, on the other hand, he suspects that it will be “only very slightly positive.”
Auto-enrolment will bring loads of people who are not joining the pension scheme at the first opportunity because they have declined membership before
When it comes to the numbers of new schemes actually sold, however, it seems that group income protection is attractive to employers, in theory at least. Research commissioned by industry body Group Risk Development (Grid) in October 2011 found that 52.6 per cent of employers would consider introducing group life with auto-enrolment, compared to 67.8 per cent for group income protection and 78.2 per cent for group critical illness cover.
Grid’s corresponding research for the previous year did not ask the same question about income protection and critical illness cover, but it did about life cover, which only 49 per cent said they would consider introducing with auto-enrolment. So could this be the beginning of an improving trend?
Auto-enrolment is bringing opportunities through communications as well as through direct cross-selling because once people are enrolled in a company pension scheme they are far more likely to be aware of their overall benefits package. Indeed, Peter Fenner, spokesman for Ellipse, observes that whenever he meets an Australian – for whom pensions are compulsory – “they always seem to be very aware of what employee benefits they have and haven’t got.”
Iain Oliver at Aviva recalls how he went to see a pharmaceutical company in January to discuss how to present benefits to the workforce in a more engaging manner. The company found that, because it hadn’t been communicating its income protection scheme effectively, a lot of employees didn’t realise they had company-paid cover and had actually spent heavily on buying individual income protection policies.
Oliver says: “Risk products must be properly communicated, and auto-enrolment will help. It could put pressure on group risk budget lines by absorbing a higher proportion of employee benefit budgets, but what we do see is an opportunity for us to inform employees about a wider range of financial planning benefits.”
But positivity of thought is quite a different matter to concrete action, and views are notably less robust when it comes to steps that have actually been taken to specifically target employers who will be offering employee benefits for the first time as a result of pension auto-enrolment.
Although auto-enrolment begins in October 2012 for the larger companies, people are quick to point out that many of these already have pension schemes and group risk products. The greatest opportunities are therefore not likely to occur until the smaller players start coming on board, and most of these haven’t yet given the matter too much thought. Research published by The Pensions Regulator in December 2011 found that 68 per cent of employers had yet to discuss auto-enrolment and that 46 per cent said that they would leave it as late as possible before thinking about how to comply.
Sometimes an intermediary can boast well-orchestrated tie-ups between pensions and group risk consultants to capitalise on cross-selling opportunities, and some insurers active in both fields report more liaison between departments.
Katherine Baxter, head of product development at Friends Life, says : “We have been talking to our pensions people for several months about how group risk will fit into the ways they have been developing to make it easier for employers to cope with auto-enrolment. But there are no regular meetings as such.”
At Legal & General things have progressed a stage further. Six months ago group risk and workplace savings personnel created a joint working party that meets monthly to explore synergies between the two areas and looks at opportunities where they can help each other out, although it has nothing concrete to report as yet. Zurich Corporate Risk, on the other hand, merely says that it has always had an active interest in cross-sale opportunities but that this hasn’t yet increased with auto-enrolment.
The consensus view is that those employers that have actually started to focus on auto-enrolment are too pre-occupied with it to pay much attention to group risk, although hopefully this will change a few months down the line.
Helene Gullen, senior manager, channel development at Unum, says: “I’ve noticed more broker meetings being arranged by intermediaries looking to take opportunities to consult but there has been no increase in quotes yet as a result.”
Most provider energy has instead tended to be directed towards sorting out technical issues due to arise as a result of group protection membership being linked to pension schemes. For example, if someone opts out of the pension scheme within a month they will be entitled to a refund of pension contributions, but would they get a similar refund of group risk premiums? And what should happen to late entrants?
Over the last few years I can think of many conversations when clients have taken risk products directly as a result of pension conversations, so there would have been a downturn in demand for group risk without it.”
James Walker, group protection technical manager at Legal & General, says: “We are certainly examining our rules for late entrants. At the moment, to protect against adverse selection, if you don’t join the pension scheme within six months we have a simplified medical declaration for group risk that needs to be completed as opposed to offering a free-cover limit. Auto-enrolment will bring loads of people who are not joining the pension scheme at the first opportunity because they have declined membership before, so we will need to simplify our group risk terms.”
In truth, arguments about whether auto-enrolment has proved positive for group risk are likely to continue well after the whole shooting match is actually done and dusted.
While we are due to experience one of the biggest ever changes to our pensions system, we will also hopefully be experiencing recovery from one of our biggest ever economic downturns. Any boost that auto-enrolment gives to group risk over the next few years may therefore be likely to be very hard to distinguish from that provided by economic recovery.
INTEGRATED APPROACH UNEARTHS OPPORTUNITIES
When Jason Cannon (left) joined Lorica Employee Benefits as a senior corporate pensions adviser a year ago one of his first tasks was to conduct a pensions training session for 30 group risk and private medical insurance consultants. He now regularly provides new joiners with individual sessions.
He says: “As a business we are evolving very much in the direction of not thinking in silos, which is different from other employee benefit consultants I have worked for. I am encouraged to have a good working knowledge of group risk, and our group risk consultants are encouraged to have a really good understanding of pensions. If a consultant spots an opportunity in a colleague’s specialist area we ask the client if they want to arrange a meeting with them.
“The key thing we are all trying to ensure is that all existing clients know what’s going on in terms of both pension auto-enrolment and RDR. All know at least something about auto-enrolment but many have never heard of RDR. I find that additional meetings tend to be about both these subjects together, and that’s when we mention group risk.”