Advisers driving group risk in the new world of auto-enrolment will encounter more of the same challenges – of perception, value, and cost. But with over 1.2m employers enrolling in excess of 10m employees into schemes in the next four years, ‘more of the same’ will in fact mean ‘much, much more’. The Retail Distribution Review meanwhile will bring new competition into the sector, meaning advisers will have to focus on the value of the consultancy they offer.
That was the view of delegates at last month’s Group Risk Adviser Forum – Auto-enrolment and beyond: Emerging opportunities in the group risk sector.
“On the income protection side growth has been flat to date,” says Miles Washbrook, occupational therapist at Willis Employee Benefits. “And looking forward, certainly limited term products are more attractive to a number of employers looking at income protection for a wider section of their work force for which they hadn’t considered providing it previously. It will be interesting to see just how the income protection market develops over the next few years with auto enrolment.”
Tristram Hawthorn, director of Beaufort Corporate Solutions saw parallels with the way the demise of defined benefit schemes for many people was supposed to be a great opportunity to increase the income protection market because of the removal of the ability to use the DB fund as an early retirement tool. That, he argued, meant there was little chance of
“When you say to a client you should be considering something comparable to income protection for those people who are not going to be defined benefit scheme members they ask for an indication of the cost,” he says. “This is often significantly less than they would have been paying under a defined benefit scheme for a contribution for that early retirement under the actuarial calculation and yet they still baulk at what you are saying. I would love auto-enrolment to be an opportunity for income protection but I have a feeling that people in charge of the purse strings will again say no.”
When it comes to value and perception most advisers concede that when they ask their employer clients whether their employees value their group risk, most don’t. Delegates identified a pecking order in perception – with income protection perceived as less worthwhile than both private medical insurance, which the employee can see the immediate potential need for, to critical illness because they can see where a colleague has claimed and come back to the office, perhaps a modified one to suit their condition.
Nick Cosh, director at PMI Health Group said age comes into the perception and value challenge. “It is an age thing,” he says. “You have to have amassed some assets – the home, the car etc and some means of achieving those assets, ie the salary, to appreciate not having either of them.”
The problem is compounded by the fact that employers can be equally unaware of the value of benefits. “The same non appreciation can come from employers as well,” said Darren Newnes, business development consultant Advo Group. “There are companies that have offered no insurance at all. Their opinion is that the workforce has never been sick – the employer has never been ill and they are all of an age where they don’t think they need life assurance. So you have to talk about basics, about payroll, about how it would impact the lowest earner and how they have a duty of care to provide something.”
The problem is made worse by the fact there is so much mistrust of the industry and a lack of understanding of the way products work said Hawthorn.
“We should educate people on the value of savings and protection and health and wellbeing. Until there is a concerted effort by us all to deliver that message then it will fall by the wayside,” he says. “Auto-enrolment is a massive opportunity to communicate. The key to growing the group risk market is the communication of all the added value of the benefits. And if you are going to be communicating with them you may as well be educating them.”
But delegates did think auto-enrolment and the RDR had meant providers had taken their eye off the ball.
Howard Cadman, director of Anton Cadman & Co said providers are less interested in product development because they are completely focused with getting the RDR implemented “and in wondering what on earth the FCA is going to do that the FSA didn’t do,” he said.
“It is not a good time, in terms of the state of the economy to ask any organisation to head out on a ‘first in the area phase’. Client businesses just aren’t looking for that sort of thing. It’s all I can do get the smaller companies to fill in the underwriting forms to take advantage of increased benefits in income protection. I know of clients who would like to do this sort of thing – who want to attract a skilled workforce and be seen to be punching above their weight in terms of employee benefits packages on offer but all their energies are just going into winning new business.”
The RDR regime will lead to a massive change in the way overall benefits offerings are advised on, with the current practice of pension commission subsidising consultancy on other benefits set to grind to a standstill.
Those already specialised in group risk, PMI, health benefits and capital management sectors are untouched by the RDR directly in that it will not impact on what they do day to day. But wealth management IFAs with corporate books who are currently referring business to group risk specialists will possibly be twiddling their thumbs and therefore eager to start doing their own group risk work.
Cosh thought the group risk market will be squeezed by the pension market. “Pension advisers are going to come in looking for alternative revenue streams and the easiest option is the group risk market. When talking about employee benefits we are always talking to the client about pensions and linking with life assurance or income protection – so it is going to squeeze the adviser market,” he said.
And technology could be another threat if providers were to try to commoditise what advisers do.
Hawthorn didn’t think technology for those purposes would impact on the work most corporate group risk providers do.
“Taking away the public sector and looking at the employer base in the UK and you have something like 10,000 employers with over 2-3000 employees, another 20,000 employers with 800 and over employees and another tranche with 50 plus staff and 968,000 firms with 50 staff or below. They employ most of the people in the UK when ignore the likes of Tesco, John Lewis, Morrisson, Asda etc. The real protection gap the industry needs to address is all the small employers who have never really thought about group risk. Technology could be the solution to that – with a reduction in the requirements for underwriting, more provision of voluntary benefits. There needs to be something done to address that smaller market but the cost of addressing it is quite high as well.”
Delegates accepted there is a risk to their own business from group risk becoming commoditised by providers looking to tap into wealth management IFAs looking for alternative income streams post-RDR, but argued consultancy would win out in the end in most situations. What the group risk specialist uniquely brings to the table is offering consultancy services that draw a bigger picture than just product for the client.
“It’s down to advisers because it’s the added value piece for many clients around the wider issues – that income protection is not just a big cheque,” says Clare Dare, consultant at Broadstone Pensions and Investments. “We have clients for whom the whose number of claims has fallen by 50 per cent because they have a good claims management programme place which means people don’t get to the end of their deferment period.
“That’s why you have a scheme in place. You do have people who will be off for more than four years but you want to get help to those people immediately. We are not doing our job properly if we don’t tell them it is not just about salary replacement but all the other things around it. For example do they know about Best Doctors or all those add-ons? There is value there but it is how they communicate it to their staff. If they don’t do that there is no value. We need to say to them ‘look at what you can have for your money if you are serious about spending it’,” she said.