For too long, group risk had something of a Cinderella image. It has been undersold, undervalued and arguably, is in dire need of a makeover. But, there are a number of enticing future developments in the pipeline, which certainly bodes well for the future – so is the invitation to the ball on its way?
The shape of the future market was a key subject of discussion at last month’s Group Risk Adviser Forum, held in London last week in association with Aviva, and one crucial factor for the market will be quality of its people. With pensions and investment advisers required to up their game in terms of training and competence as a result of the Retail Distribution Review, there had been a risk that group risk advisers could have been left looking like the poor, unqualified relation, had the industry not taken it into its own hands to get qualifications in place.
There is no doubt that specialists in the market want all advisers in this market to achieve a required level of competence. In 2008, GRiD, in association with the Chartered Insurance Institute, developed the first UK group risk examination. Now there are firm plans in place to launch a further, more advanced version.
According to Group Risk Development (GRiD) spokeswoman Katharine Moxham: “In terms of what we have now, the exam sits slightly below the CII’s level 4 qualification. We are now working on another examination which will be more advanced and will be along the lines of consulting scenarios. The next exam will be launched in 2011 or 2012, and while there is a case to perhaps look at having essays submitted, I think with the resources we have, that it will still need to be multiple choice, albeit at a more challenging level.”
Jamie Barnes, senior director – development of partner and service offering at Enrich, added: “It’s a process of evolution. The exam we launched is now in place and has been really well received. But, everyone agrees this is set at a fairly basic level – it is now time to move to the next stage.”
Meanwhile, Rebekah Haymes, risk and flexible benefits director at BDO pointed out that a more advanced examination will also remind those working in the industry that learning within group risk is an ongoing process. “There have been some people who specialise in pension who think the group risk exam is easy and that they know it all. The exam we have is a first step and it is important you remember that. Simply passing does not make you an expert.”
And, as Moxham emphasised: “There is some intellectual snobbery – we want to get rid of that. Let’s face it, if an adviser does not understand what they are doing, some big mistakes can be made.”
There has been a switch towards more fee-based work and this has been combined with a squeeze on the revenue being earned by consultants. So, if future earnings are going to remain constrained, what impact will this have on advisers?
It would appear that most feel it will be a case of you get what you pay for – and those companies not prepared to shell out may be vulnerable.
As Simon Fletcher of Johnson Fleming commented: “It is hard to give high levels of service to a small client – it is possible we will see more clients start to go direct or to the one man band IFA.”
And, Haymes observed: “You are always going to find some companies are only interested in low cost and they will go direct, but they are not thinking about the risks of no or limited advice.”
There is no doubt that group risk needs a boost or sales figures are likely to remain static at best. One option for the future which would set providers putting champagne on ice could be compulsion – leading to a massively inflated pool of subscribers.
According to Moxham: “In the future we would like to see a level of compulsion with group risk. In Australia, this has been successfully achieved, with protection provided along with superannuation plans. It is early days, but GRiD has spoken to the government and providers about ways this could be achieved.”
However, while the concept has a lot going for it, as Fletcher said: “The problem with compulsion is that something like life assurance is not going to suit everybody. Income protection, however, does have a place.” Moxham continues: “I think there are ways round these obstacles and I would agree, the case for compulsory income protection is compelling.”
Further, Stav O’Doherty of Perfect Health, commented: “The future of group risk is tied up with growth in the economy and other issues such as what is happening in the public sector.”
“You are always going to find some companies are only interested in low cost and they will go direct, but they are not thinking about the risks of no or limited advice”
It would appear that a key government announcement in the future could prove a catalyst for group risk growth, which will be of particular benefit for advisers and employers dealing with automatic enrolment where group risk entitlements come with membership of pension schemes. Moxham said: “I cannot say too much at this stage, but GRiD is in discussions with the Inland Revenue about ways in which life cover could be provided alongside pensions and that it could be far easier to administrate – we want to remove a lot of the red tape.”
Another way the government could assist the group risk market would be through allowing corporation tax refunds if cover is in place. It would seem there is confusion around this as in some scenarios tax can be reclaimed if it relates to a registered life scheme. Jamie Winter, head of healthcare and risk consulting at Towers Watson said: “There is tax relief on pensions, and with life cover, it can depend on how this interacts with the pay roll. We want simple solutions that encourage clients to take out cover through having to pay less tax.”
O’Doherty adds: “We would welcome a blanket rule and a guidance note. One of the problems with the Revenue is they take ages to deal with matters even when there is awareness of a problem. Having to go to the Revenue and to negotiate on behalf of each individual employer is not practicable.”
The adviser of the future is going to be working smarter, and delegates at the event agreed the industry is getting its act together when it comes to technology and admin, although some problems persist.
Fletcher said: “In terms of straightforward products and administration, insurers platforms are much stronger than they were. They are now better able to deal with switches and getting information right. We were amazed to hear recently of one client who had gone direct and the insurer had no data on them whatsoever – that included sums insured or statistics on members. But, hopefully those types of problems are very rare now.”
Winter added: “We used to hold some clients’ hands more – they would pay us to keep the wheels on. It was all good stuff, but there is also a case for saying that insurers can do some of the administration – and we are more there for the complicated strategy work.” Barnes concurred, but added: “On day to day admin, insurers are relatively ok, but we have historically added value. Insurers are not able to provide a full client review.”
Asked whether this meant there was less of a role for advisers, Fletcher says: “Insurers do not have the skills to do what we do and so there is not really a conflict.”
But, could as with happening with pensions, there be an increase in in-house managers working directly for employers?
None of the delegates viewed the advent of in-house group risk managers dealing direct, in the way that pension managers do as a future threat. Barnes said: “With group risk, there is a lot of reliance on the adviser marketplace and I don’t see that changing.”
Fletcher added: “I can’t see insurers wanting to go direct either, there are advantages for them too if there is an adviser.”
Meanwhile, are advisers also set to feel the squeeze? Speaking from the largest outfit in the market, Winter remarked: “Well, I think we will still be here, but it is going to be a smaller market.”
Delegates discussed the potential role that corporate wrap platforms could have on the overall benefits market, and how that might impact the group risk sector specifically.
Fletcher said he had been talking to Scottish Widows about the move but did not believe corporate wrap will at present have any impact on the group risk market.
“The future of group risk is tied up with growth in the economy and other issues such as what is happening in the public sector”
“It would seem these are largely going to be used as online savings platforms. I don’t think corporate wrap providers are looking at group risk.”
However, Haymes questioned this. “I think it is too early to say there will be no impact. Flex platform providers are looking at this as something which potentially could be a competitor. After all, you cannot expect an employer to want two platforms – one for benefits and one for savings – for their employees,” she said. “I would want to know more as the last thing that is needed is two portals competing for space. Employers also have to ask what is more important. Allowing employees to buy voluntary benefits or having people playing around with their investments?”
Fletcher countered: “I can see there is some muddy water, I agree, but some employers have no interest in flex. They may see corporate wrap as a simpler communication tool – but certainly Scottish Widows which is most advanced in this area, does not even provide group risk, so there is no conflict.”
No one knows what changes the Pensions Act and subsequent legislation will have or what their impact will be on group risk. However if the most more wealthy company executives choose to opt out of mainstream schemes, that will lead to a two tier pension system according to the delegates.
Winter said that if the government makes changes to pension tax relief for high earners, then this could be bad news for those at the lower rungs of the ladder. While the Emergency Budget steered clear of a wholesale removal of higher rate tax relief for pensions, many experts believe now the principle of getting pension tax relief at the rate you pay it has been broken, higher rate relief could face increasing pressure. “If the senior executives pull out of the pension scheme, then correspondingly, you are likely to see the group risk benefits diminish.”
O’Doherty concurred: “Yes, if you take the high earners out then the company bosses are not going to sponsor the scheme in the same way. We have to face facts, there is far more interest in discussing a scheme if those individuals also benefit from it.”
But Winter added, on a more positive note: “Let’s not forget there are also plenty of clients out there who do care about the greater good.”
Despite the hurdles, advisers were positive about the potential future of the market, an increasingly qualified advisory sector, working in partnership with a provider community getting its technological and administrative house in order means there is every reasons for well qualified and engaged advisers to be feeling they are in the right place.