Like most insurers pressed on the progress of new products, Unum has declined to reveal any sales figures for its innovative sick pay insurance (SPI), but reports good levels of initial interest and expresses confidence that this will soon be converted into concrete demand. The fact that intermediaries share its optimism about future progress suggests that cynicism is not warranted.
SPI, which was piloted with a small number of brokers in February 2013 and went whole-of- market two months later, provides a regular monthly income if employees are off sick for up to 12 months and includes access to Unum’s employee assistance programme (EAP) and rehabilitation expertise. Employers can choose deferred periods of between one and four weeks, payment periods of 12 to 52 weeks and benefit amounts of up to £6,000 a month.
All the half dozen intermediaries we interviewed are broadly positive about the product and, although none report any huge quantities of sales yet, most expect volumes to increase and welcome the opportunities it provides for them to forge relationships with employers by discussing absence management.
The main reasons cited for delayed purchase are difficulties with reaching the right decision makers, a tendency for the actual buying process to have to wait until budgets are set for the next financial year and the fact that many SMEs still haven’t really thought about absence or the cost of it.
Chase de Vere principal consultant Sean McSweeney says: “We’ve had some really interesting discussions with clients about the Unum product, which forms part of our overall auto-enrolment package, and I wouldn’t be surprised to see sales significantly increase next year. The key is that absence will have to be managed more formally for this product to work. Advisers have traditionally advised on group risk, pensions and healthcare but now with the absence management discussion they are starting to get more into clients’ overall business.”
Although available for schemes with up to 2,000 members, SPI aims primarily at mid-market companies with less than 500 employees – because larger insurers tend to prefer to self-insure. It can be used to supplement or replace Statutory Sick Pay and existing occupational sick pay arrangements, and its appeal should be boosted by the fact that the ability of some employers to reclaim Statutory Sick Pay from the government is due to end soon (See Box).
Unum points to data from the Chartered Institute of Personnel and Development (CIPD) Absence Management Survey 2012, which shows that on average short-term sickness absence costs businesses £600 per employee per year.
Unum head of proposition development Andrew Potterton says: “SPI Is giving brokers a real reason to go and see clients at the moment. A number of clients have added it to existing group income protection schemes but some without income protection have bought it, and we are hoping they will add income protection in due course. As well as helping employers smooth the volatile costs of absence through a set monthly premium it is helping with safe and sustainable return to work plans for employees.
“It can ensure consistency of treatment and can minimise discrimination risks and the potential adverse impact of absence on staff morale. Employers value our ability to tell them how long employees will be off for and also in some cases to suggest that perhaps some shouldn’t be taking time off.”
Capita Employee Benefits head of health and employee benefits Alistair Dornan stresses that
SPI is particularly good when absenteeism is eroding an employer’s competitive advantage and existing approaches to tackling the problem are not working. But he still feels there are some cultural issues affecting adoption.
He says: “I’m not sure that UK corporates or SMEs are really ready to outsource absence management to other parties. For employers to really know they are benefiting from the product they need to know what absence probably is in the first place but there is a gap across the UK in absence measurement.”
Medical Expenses Consulting managing director Ian Holmes echoes this reservation and feels that, whilst SPI is a good product, employers would be better off reducing sickness proactively in the first place. Data from his associate company WorkPoint, which focuses entirely on absence management, certainly seems to support this argument.
For one client with 600 employees WorkPoint reduced the number of days absent by 33.5 per cent and the number of instances of absenteeism by 37.1 per cent after 12 months. The return on investment for the client was £8 for every £1 spent.
Anyone wishing to play devil’s advocate with SPI could also point to potential costing issues. Unum’s core sales message is that because companies are having to spend on sick pay costs anyway the premiums don’t really have to be viewed as an additional cost. But costing has to prove profitable to Unum as well as attractive to employers.
Premiums have remained unchanged since launch but Potterton agrees there is a risk about costing as it is a brand new concept. He says ”We are watching it closely but feel we’ve got it about right.”
Nevertheless, when clients are already tuned into absenteeism SPI can undoubtedly plug an important gap. Premier Choice Employee Benefits reports how the product has proved very useful for a client in the service industry that has a lot of staff on 12 month contracts pending full contracts. These are provided with sickness cover for 12 months via SPI whilst permanent staff benefit from SPI during their six month deferred period.
Premier Choice Employee Benefits head of group risk Steve Ellis says: “We looked at using SPI to cover a 12 month deferred period for scheme members but six months proved better value. What I would really love to see is other insurers coming out with similar products so it can be sold in a competitive environment. We don’t know how competitive Unum’s premiums are as we have nothing to benchmark them against.”
Unum itself would be happy to have a growing marketplace and expects other group risk players to follow suit within a couple of years. But it would seem to have a number of unique selling points that could create barriers to entry.
The insurer has tapped heavily into its experience in the US, where the sick pay insurance market is as big as the income protection one and involves a number of players, and it has a more truly nationwide rehabilitation capability than many of its competitors. It has also developed unique systems and has worked really hard to ensure that its existing claims teams understand the need for quick payments.
None of Zurich, Canada Life, Ellipse, Legal & General, MetLife, Aviva or Friends Life have immediate plans to follow suit. But if Unum starts to get critical mass in a new business line it is hard to believe someone won’t follow.
The End To Reclaiming Statutory Sick Pay
Businesses can currently apply to have Statutory Sick Pay refunded by the government when their total Statutory Sick Pay payments reach above 13 per cent of their National Insurance liability for the same tax month. But this February the Department for Work and Pensions (DWP) announced that this right to reclaim will be abolished to help fund the new Health and Work Service due to be established “at some point this year.”
Any financial loss to businesses that result are, according to the DWP, more than likely to be offset by a reduction in lost working days resulting from the Health and Work Service – which will help employees who have been on sickness absence for four weeks to return to work and support employers to better manage sickness absence.
The DWP, which describes the ability to reclaim Statutory Sick Pay as “an outdated system which does nothing to promote or support active management of sickness absences by either the employer or employee,” expects the new Health and Work Service to save employers £70 million a year and cut the time people spend off work by 20% to 40%.
MetLife Also Innovates
ProActive Protection, an innovative group income protection product launched by MetLife this January, has broken new ground on two main fronts.
Each employer has its own MetLife client relationship manager who will phone them regularly and ask questions about absences.
The product also has an usually strong focus on preventative health and wellbeing, providing employees with access to a Wellbeing Hub run by Axa PPP Healthcare. This enables them to obtain personalised health and wellness information – including calculating their “health age” – and to access an EAP. Additionally, employers receive valuable absence management data.
Jelf Employee Benefits corporate account manager Leighton Churchill says: “As with Unum’s SPI, the innovative angle provides a good opportunity to broach the subject of health and absence management both with clients who have group risk schemes already and with those that don’t have. Both products, although very different, provide clients with more options and give us the chance to engage them.”