With budgets for group risk and business protection being so tight, any kind of low-cost health related benefit that offers a high perceived value deserves due consideration. Group personal accident cover certainly falls into this category.
The product covers accidental death or injury (see Box 1) and – when cover is company-paid – the claims benefit goes to the employer, who often passes some or all of it onto the employee. Some small schemes providing £100,000 of cover can cost under £100 per employee, although premium prices depend to a large extent on the exact cover features selected. For several thousand scheme members prices can even be as low as £30 or £40 per employee.
But for the past two decades employee benefit consultants and independent financial advisers (IFAs) have had little to do with personal accident cover. Between the 1960s and 1990s they would often use it for the purposes of covering manual labourers who were too expensive to provide life assurance and income protection for. But improved health and safety legislation has seen a significant reduction in the costs of insuring such risks with standard group risk products.
Unum, which stopped offering personal accident cover over a decade ago, describes it as “a very specialist niche area in which we didn’t have critical mass” and cites a desire to focus on core markets. Although composite insurers involved in group risk such as Aviva and Zurich offer the product through general insurance arms, the bulk of business is written by pure general insurers, and is sometimes combined with business travel cover. Significant players include ACE, Chartis, Chubb, RSA and Groupama Insurances.
Steve Coleman, senior underwriter at Zurich General Insurance, reports that – excluding the Lloyd’s market – the combined annual premium for group personal accident and business travel cover is generally taken to be around £400 million. He estimates that personal accident cover accounts for some two thirds of this and that around 95 per cent of the business is sold via intermediaries, which are mainly general insurance brokers. Stephen Ranzetta, London accident and health manager at Chubb Insurance Company of Europe SE, even observes that the only time employee benefit consultants seem to come to the personal accident market is if catastrophe limits on life cover have been reached.
The general insurance pigeon-holing is logical in the sense that personal accident cover is subject to insurance premium tax (IPT) and is annually renewable. But the latter point hardly seems an insurmountable barrier in view of so much group risk business being rebroked annually nowadays, and the intricate health references in the policy wordings are arguably more suited to the expertise of an intermediary specialising in health insurance than one specialising in liability and property damage cover.
Neil Thunstrom, head of personal accident and travel at Groupama Insurances, acknowledges that personal accident cover sits well with group risk and is keen to break the myth that it is somehow too specialist for anyone other than general insurance intermediaries to handle. He points out that businesses don’t think twice about insuring against fire and theft but that it is rare to see premises actually getting burnt down. A little cost effective insurance of flesh and blood could therefore prove a good investment.
Thunstrom says: “If a business is trying to cut back on staff in these times of economic hardship then those left are more critical. Personal accident cover can be especially attractive for smaller companies wishing to offer meaningful but not excessive benefits to all their employees for a total annual premium of hundreds rather than thousands of pounds.”
Lorica Employee Benefits, which is trying to interest more clients in company-paid personal accident cover because of its high perceived value, has just arranged a scheme with 9,000 lives. A restructuring of the client’s pension arrangements reduced its group life premiums and some of the saving was reinvested in a personal accident scheme with ACE. Scheme members receive death cover of two times salary and disability benefits of four times salary as well as numerous additional cover, ranging from rehab case management and a limited amount of medical expenses to chauffeur and taxi benefit and enhanced death benefit for each dependent child.
David Dolding, head of consulting at Lorica Employee Benefits, says: “When you summarise all the extra bits and put them into a communications package it looks like a huge amount of benefit, although you must make it entirely clear what is and isn’t covered. I think it comes well within the employee benefits remit and it’s another tool employee benefits consultants should be looking at when putting benefits packages together. We certainly feel we should be doing more of it and we are trying to up the ante, but general insurance providers work slightly differently to group risk providers so there are some cultural differences to overcome.”
But John Dean, director of health and protection at Punter Southall, is concerned about potential dissatisfaction around claims. He points out that some cover definitions are very strict and that there is a danger that an employee could become very disappointed if, for example, they thought they were due a pay-out after losing a foot but found that they didn’t qualify as a result of not having lost the entire limb. He also highlights exclusions of the type that you don’t tend to get in group risk for things like armed services activities, suicide, Aids, pregnancy or childbirth or any accident that follows being in any way under the influence of alcohol and drugs.
Dean says: “One of the main reasons that companies don’t buy it is because it doesn’t pay out much. It’s what I call selling fresh air, and anyone looking for an inexpensive benefit is likely to be better off providing cash plans or dental insurance which employees know they can claim on regularly. People can feel very grumpy when claims get declined and it can spread to affecting the morale of other workers. So you need to ask whether you are really paying for it to protect employees or just because it looks good.”
Paul Roberts, director of health at IHC, has three corporate clients that offer personal accident as a voluntary cover via flex schemes, and he stresses that if you are tactical in the way you introduce it within flex you can achieve take-up rates in the region of 8 to 10 per cent. The key is to introduce it once the flex scheme has matured, in the second or third year, when there are fewer other important issues to communicate. Roberts also emphasises that face-to-face worksite marketing is important because it’s a product that tends to be sold rather than bought.
There is a further case for viewing personal accident cover as a business protection product although, once again, it should never be considered an actual replacement for standard cover. It is similar to keyperson insurance in that company-paid cover is written on the life of the employee but the benefits are payable to the business – although with keyperson insurance the benefits rarely get passed on to the employee.
In particular, as personal accident cover typically has a 14 day deferred period, it can be used to fill the gap created in a keyperson income protection policy’s deferred period – which is often three months. But it will, of course, only pay out for the results of accidents and will not cover illnesses like heart attack and cancer.
Jerry Bayman, head of corporate sales for Bright Grey and Scottish Provident, says: “I’ve always said that keyperson cover is basically a general insurance product anyway. I know the market doesn’t see it that way but if you have cover for business interruption or fire or flood then surely you should have it for the loss of a key person?”
Steve Casey, head of marketing and proposition development at Friends Life, says: “We talk about innovation but business protection hasn’t moved on for many years and we need to look at new ways of doing it. It works very well for small companies but for larger companies there is possibly more of a case for having small amounts and viewing it as a business interruption cover so that it’s really general insurance, and personal accident cover could be part.”
Whether personal accident cover is considered to have more in common with business protection or group risk is not the major issue and, in any case, the boundaries between the two have been blurred since the 2008 launch of Unum’s Dual Benefit income protection – which provides financial protection for both the employer and the employee. What really matters is that personal accident cover is not allowed to fall through the gap and that intermediaries appreciate that it is available as a realistic option even if it does mean looking outside their normal range of providers.
What is personal accident cover?
Company-paid personal accident cover pays claims benefit to the employer, which often then passes some or all of it to the employee, but in some cases it may use it for purposes such as purchasing specialist equipment for the benefit of the employee, paying for the costs of a replacement employee or helping to finance the reduction of employer’s liability claims resulting from accidents.
The core covers of accident related injuries, death and permanent disabilities are broadly similar amongst the major players but providers can differ in the extensions they include, which can cover everything from facial scarring and coma to hospitalisation benefit and retraining benefit.
The product’s cost tends to depend primarily on who the employer wants to insure and on what basis. Factors likely to have an influence on premium include whether cover is written as “own occupation”, whether it only applies at work or on a 24 hour basis, the length of deferred period and whether benefits are payable as income or lump sum percentages or multiples of salary or as flat lump sums.
General Cutbacks
Even if intermediaries do start taking a greater interest in personal accident cover it is unlikely to become their major income stream in the current economic environment. Commercial insurance brokers recommended by providers as experts in the product commonly report that they aren’t selling much of it.
Cheshire based Hall Insurance has over 2,000 clients but no more than half a dozen of these have personal accident cover. Hertfordshire based EIC Insurance Services and Bluefin Insurance Services also admit that they are doing less personal accident cover than they used to because clients don’t consider it a high priority.
Peter Elliott, head of marketing at Bluefin Insurance Services, says “The cover tends to be bought by more prudent employers and has broad appeal, from white collar professionals to manual trades, but in times of economic downturn it is very much a discretionary purchase. Even though it’s relatively inexpensive and a classic peace of mind proposition, if a company is looking to make
cut-backs then it’s one they consider doing without.”
