Any concerns about the lack of popularity of group income protection are magnified many times over with group critical illness cover, which continues to be a highly impoverished relation and has never threatened to get off the ground in a company-paid format.
According to Swiss Re’s Group Watch 2009, in-force market premiums for group critical illness cover in 2008 totalled £45,403,103 and covered 288,551 lives. This compared with in-force group income protection premiums of £648,902,366 that covered 1,757,365 lives. Furthermore, voluntary group income protection schemes are virtually non-existent, but Ron Wheatcroft, technical manager at Swiss Re Life & Health, estimates that 90% to 95% of group critical illness cover is paid for by employees – either via a flex arrangement or from their own money.
The consensus view is that there is going to be no meteoric progress linked to recovery from recession or in response to improvements to wordings made by the Association of British Insurers (ABI). Whilst tight corporate budgets and lack of product clarity are definitely issues, they are merely two of a whole host of barriers to progress.
The consistency brought by the generic terminology and model wordings for critical illness definitions and exclusions detailed in the ABI’s Statement of Best Practice has certainly helped because group critical illness insurers’ practice of imposing blanket exclusions for pre-existing conditions has been known to cause problems at the point of claim.
Nevertheless, disputed claims are less of an issue than in the individual critical illness cover market. This could be because employers are making purchasing decisions and putting considerable emphasis on getting the right product and on explaining it properly. Additionally, when claims problems do arise they tend to be more a reflection of critical illness cover being an inherently complex product than a consequence of variations in wordings between different insurers.
John Dean, head of health and protection at Punter Southall, says: “Insurers are pretty consistent but the product itself is not that easy to explain and people don’t like the survival clause. I would like to see a lower level of cover, of around say £10,000, but one that is much easier to understand in that it pays out for every single level of cancer and other major condition. This would be simpler to sell even though the price would need to be comparatively higher.”
The only claims beef specifically volunteered by an insurer in fact relates to what is more an administrative and educational issue than a problem with wordings. Canada Life did a major analysis of group critical illness cover claims during 2009 and observed that it was receiving a lot of highly speculative claims.
Marion Ware, head of marketing at Canada Life, says: “We worked with Munich Re to see if there was anything we could do to stop the problem and it suggested we looked at the communications aspect of critical illness cover for employees as well as employers. The employee has to complete the claims form but often doesn’t understand what’s involved because little communication is aimed in their direction. So we have devised a range of materials for company websites and will develop these further during the next quarter.”
In truth, claims issues are dwarfed by other fundamental problems that are holding the market back. The fact that company-paid cover constitutes a P11D liability for employees has always been a major stumbling block, as has the realisation that an employee who suddenly finds themselves the recipient of a significant lump sum might be able to temporarily step off the treadmill and consider alternative careers.
People accept that they may get a critical illness like cancer as they believe this is the result of bad luck but they tend to underestimate how likely they are to have a stress or back related claim as there is the idea that you can do much to prevent these from occurring
Unlike income protection, which provides extensive early intervention and rehabilitation facilities, critical illness cover offers little direct benefit to the employer and its pay-outs are not even
linked to an ability to work. So in its current format it is never likely to be viewed as more than a low priority ’nice to have.’
Carlos Correia, senior consultant at Lane Clark & Peacock, says: “Employees do like it as it’s quite emotive. People accept that they may get a critical illness like cancer as they believe this is the result of bad luck but they tend to underestimate how likely they are to have a stress or back related claim as there is the idea that you can do much to prevent these from occurring. But the product is a long way down the shopping list for employers.”
So no major breakthrough in company-paid sales is likely to occur without significant product innovation and, if his happens, the product may no longer warrant being called critical illness cover as such. If, for example, it started to pay out according to an employee’s ability to work there would be an obvious blurring of boundaries with capital options on group income protection schemes.
One possibility could be for an insurer to come up with a group critical illness scheme that doubles up as keyperson cover – in a way similar to Unum’s Dual Benefit Group Income Protection. Splitting the lump sum payment between the employer and employee could possibly have the additional advantage of reducing the P11D problem.
There are also clearly opportunities for critical illness cover to be adapted to cater for shortfalls in cancer cover on private medical insurance (PMI) schemes. Legal & General in fact reports that it has already worked with a couple of employers to introduce a tailored version of critical illness cover for this purpose.
For the time being any real progress made with a traditional critical illness cover format is likely to be via the flex market. Lee Lovett, head of group reinsurance at Munich Re, actually singles this out as the one area of the whole group risk market likely to show some growth in the near future, and Rebekah Haymes, risk and flexible benefits director at BDO, observes that she has seen less drop-off in take-up of critical illness cover than of income protection within flex. This is because people tend to focus more on cost than on value when times are hard.
Aviva, which will be re-entering the group critical illness cover market at the end of this March, also leaves no-one in much doubt as to where it feels the main opportunities lie, referring to “an increased interest in group critical illness cover over the last year, particularly as part of a flexible benefits package.”
One could argue that because Aviva puts forward the message that it provides a truly integrated approach, it is perhaps no surprise that it wants to offer the full suite of group risk products. But the fact that Zurich Corporate Risk and Friends Provident still don’t offer a group critical illness cover product at all point to a more damning interpretation of the perceived commercial potential in this area.
Best Flex Combination
Jamie Winter, head of healthcare and risk consulting at Towers Watson, reports that less than 1 per cent of his stand-alone group risk clients offer company-paid critical illness cover but that around half his flex clients incorporate critical illness cover, virtually always as a voluntary benefit.
He has, in particular, become keen on the idea of including the Best Doctors second opinion service in a flex scheme alongside critical illness cover as he feels that the two concepts dovetail neatly together.
Winter says: “There is an argument that, although critical illness cover provides a tax-free lump sum, it is not targeted to lifestyle. Best Doctors gives the employee something to spend their money on, so the two sort of go hand-in-hand.
“We have included Best Doctors as a voluntary flex option within one client’s broader flex scheme that also includes voluntary critical illness cover. The critical illness cover
originally had a 12% take-up rate but when we introduced Best Doctors two years ago it pushed up the critical illness cover take-up rate to 15%. Best Doctors’ own take-up rate was also around 15%. We are therefore now talking to other clients about Winter: Some argue CIC is not targeted to lifestyleincluding a similar combination.”
The Case For Combining
Stephen Ellis, head of group risk at Premier Choice Employee Benefits, would like to see insurers starting to combine group income protection and critical illness cover within a single product.
He feels that including a small amount of critical illness cover with income protection forms a sensible part of absence management as it can aid recovery by giving the employees the option of paying for private medical treatment or of taking a holiday for recuperation purposes.
Ellis says: “I’m a great believer in giving modest earners around £10,000 of critical illness cover as it can solve a lot of financial problems, so providers need to start packaging it with income protection. I have asked insurers about it but at the moment none of them do this, so we need to do a full market review and mix and match from the various options available.
“I would like to see more insurers look at innovative solutions that can make critical illness cover work for employers. It just needs one provider to take the bull by the horns, so let’s Ellis: “I would like to see more insurers look at innovative solutions”challenge them all to come up with something we can actually sell.”