With the change in Government and the focus on the large number of people currently unable to work through sickness, it is timely to look at how the group long-term disability income market has changed.
The eighteenth Swiss Re Group Watch report was published in April, and this providers some useful income on the market.
One of the key findings is the growing membership we have seen in recent years. Long gone are the years when schemes and members numbers rose or fell by around 1 per cent year-on-year. It has been very encouraging to see member numbers reach 3,255,85 at the end of 2023, 88 per cent more than in 2006.
There is still plenty of scope for growth. The following table shows the number of UK employers split by size — and the total number of people they employ.
However, the growth in in-force schemes has not matched the growth in the number of people covered. In 2006, there were 19,065, falling to 17,307 in 2011 and, further, to 17,183 in 2016. Thankfully, things have improved, and the number of in-force schemes reached 20,122 by the end of 2023.
The average number of members per scheme in 2006 was 91. At the end of 2023, that had risen to 162. This might suggest that the product is increasingly just for larger employers, but this is not the case.
Each year’s analysis shows that 90 per cent of all schemes cover fewer than 250 employees, a recognised definition for an SME. Furthermore, 48 per cent of all schemes each cover fewer than 20 people.
Benefits
The biggest change we have seen in this market has been in the benefits offered. In 2008, 93.3 per cent of all schemes potentially paid a benefit on disability through to retirement age. However even back then it was expected that this would change, as employers took steps to limit the benefits payable, most typically to five years, to manage costs and to reflect modern working patterns where people change jobs more frequently.
This has certainly started to happen. By the end of 2023, the equivalent percentage had fallen to 61.4 per cent. Over the same period, the percentage of schemes providing a maximum five-year benefit increased from 3.1 per cent to 20.8 per cent. Other maximum benefit payment periods are now available.
A different picture emerges when looking at the same split for insured members. The 61.4 per cent of schemes providing full cover, potentially through to retirement insure just 42.1 per cent of all people covered, indicating that the shorter benefit payment periods tend to be more commonly adopted by larger employers. Most new-to-market schemes appear to be written on this basis.
The cost of workplace sickness
Recent Institute for Public Policy Research (IPPR) findings show that the cost of workplace sickness grew by £30 billion to a staggering £103 billion in 2023. Quite rightly, this is a big priority for the new Government and an opportunity for the insurance sector, and for the group risk market in particular.
The above 10-49 employer category alone is more than 10 times bigger than the total number of insured employers. The number of people working for employers falling into that category is close to the total number of people with disability income insurance through their employer or a personal policy. The occupational health and vocational rehabilitation support embedded within most policies, including the vocational rehabilitation and occupational health support can work very well for the many smaller firms and support healthier workplaces, arguably of even greater importance given the trend towards fixed or limited benefit payment periods.
Many SMEs will be running the risk to their business of workplace disability, which should be considered along with the other risks facing their businesses such as the loss of a key person. Greater choice of benefit payment duration now allows benefits to be tailored to the needs of the employer and what is affordable. General insurance brokers and advisers could signpost or refer their existing customers where they do not choose to design the solutions themselves.
While the cost for a scheme takes account of a number of factors, including occupation, deferred period before benefits become payable, and the age and profile of the workforce, in-force data indicates that cover for a benefit payment period of two to five years, with all the additional support is included with the product could cost just £20 to £25 per month per employee. This highlights the scope to expand the market further.