2008 may well go down in history as the year in which the subject of workplace health was considered to have finally come of age. This October will see the implementation of much of the Welfare Reform Act 2007, which aims to get people back to work and to reduce the number of state benefit claimants, and this March we witnessed the publication of a significant review of the health of Britain’s working age population by Dame Carol Black, national director of health and work.
In ‘Working for a Healthier Tomorrow’, Black confirmed much of what group risk insurers have been saying for years, emphasising that work can be good for you and that there are different degrees of sickness and capability. This seems, in particular, a great advert for the ability of group income protection to pay recovering claimants a proportion of their benefit entitlement if they wish to ease their way back into the workplace on a part-time basis.
Colin Micklewright, head of group income protection business development at Canada Life, says “She is saying that more needs to be done to engage with employee needs and with work on early intervention, which is exactly the same hymn sheet that insurers have been singing from. At long last the Government is nailing its colours to the mast and saying the same, so this will hopefully increase the new trend for genuine new business as opposed to recycling.”
“Over the last two years genuine new business has improved, particularly in the SME market, which is the area where most opportunities are. There is an increased case for IFAs to focus on SMEs, who are desperate for claims management, occupational health and rehabilitation services.”
Discussion of the Welfare Reform Act 2007 has also been bringing many of the same issues to the fore, placing the emphasis on what people can do as opposed to what they can’t do. The primary aim of the new legislation is to help people back to work and reduce the numbers receiving state benefits. The poorest and most disabled members of society will be given more financial support from the Government, while those with health problems who could work will get greater help with finding a job.
All IFAs active in the corporate market should therefore ensure that they are up to speed with the new state benefit system because of the implications it has for the return-to-work and rehabilitation support available for their clients’ employees.
A new simplified Employment and Support Allowance (ESA) will replace the current state Incapacity Benefit and Income Support for all benefit claimants this October, and this will be structured in a way that removes incentives to stay on benefit for lengthy periods. Medical assessments are to be conducted within 13 weeks with the aim of preventing people from falling into benefit dependency.
There are three components to the ESA: a basic allowance paid during the assessment phase: the basic allowance plus a Work-Related Activity Component (WRAC), which is an additional payment for those who engage in a work-related programme; and the basic allowance plus a Support Component, which is an additional payment for the most severely ill or incapacitated. More detailed information can be obtained from the Department of Health’s website: www.dwp.gov.uk/welfarereform.
In theory, the fact that it will become harder to claim state benefits could increase demand for group risk products, and especially for income protection schemes, as employers could become conscious of the need to provide their workforces with financial security against ill health. A further, more minor, implication is that income protection insurers may start to incorporate the option of a 41 week deferred period – to reflect a 13 week ESA assessment period that will follow 28 weeks of Statutory Sick Pay. Indeed, Unum reports that it is already planning to introduce a 41 week deferred period this October.
But another widely anticipated implication for group risk scheme design ceased to be relevant this March when the Government finally announced the exact figures for the rates of ESA. The market had originally anticipated that it would be necessary to tweak group income protection schemes to reflect the fact that most currently deduct state benefits from scheme benefit entitlements – typically having maximum benefits of 75 per cent of salary minus Single Person’s State Incapacity Benefit. It was expected that the rate of benefit received by ESA claimants who qualified for the basic allowance plus WRAC would be significantly lower than the rate of Single Person’s State Incapacity Benefit, but it has turned out that the two rates are exactly the same at £84.50 a week.
Now all that will have to be changed are a few words in the scheme documentation to reflect the new State benefit titles, and this should be carried out free at renewal by insurers. But, because the whole issue of deducting State benefits from group income protection payments has been subject to scrutiny as a result of the expected need for changes, it could still spark off a bout of scheme redesign.
Such deductions have traditionally been considered necessary to ensure that income protection claimants don’t enjoy a level of income that is sufficient to act as a disincentive to return to work. But during recent years moral hazard has become considered far less of a problem as insurers have made huge progress with rehabilitation and early intervention and there has been an increasing realisation that most claimants actually want to get back to work. Employers have also become obliged under the Disability Discrimination Act to make reasonable adjustments to the workplace to help accommodate those wishing to return.
In expectation that the amount of state benefit offset would change, insurers had begun offering employers a range of new options, including formats that involved no such deduction at all on the grounds that this makes cover easier to understand. As far back as June 2007, for example, BUPA had begun offering the option of having a maximum benefit level of 75 per cent of salary with no offset, and Unum is already allowing 80 per cent with no offset.
Sue Sneddon, employee benefits technical manager at Aegon Scottish Equitable, says “Making group income protection simpler is probably a good idea, so going forward there could be a trend for employers to take advantage of options not to have benefits deducted. Eventually I would expect all insurers to offer the chance to remove deductions from schemes but I would still expect such deductions to be available as an option “
More importantly still, the implementation of the Welfare Reform Act provides yet another excuse for IFAs to contact clients with a view to looking at health insurance and wellness arrangements as an integrated whole. But it is important to be aware that clients could see such a meeting as an opportunity to actually try and cut back on cover in the deteriorating economic climate.
IFAs offering to conduct reviews should therefore ensure that they are fully armed with stout defences of the value of group income protection and group risk products generally. With so much data now available to link wellness facilities with the bottom line, this should not be hard to do for those who prepare properly.
Not convinced about income protection boost
advisers’ view
Matthew Lawrence, practice head, risk, at Aon Consulting, feels that the Welfare Reform changes will result in the majority of employers looking to simplify their group income protection benefit structures by getting rid of any offset for state benefits – even though the actual rate of benefit to be deducted has unexpectedly remained unchanged.
He also acknowledges that employers are going to be central to the success of the Government’s Welfare Reform agenda, and reports that forward thinking ones are increasingly wanting to work with him to understand and actively manage their policy and procedures to address their employee risk.
Lawrence says “The expectation that employers will, amongst other things, increase the provision of occupational health support for employees and will implement strategies that will enable employees to stay in or return to work following health problems has undoubtedly resulted in some group risk providers sensing a commercial opportunity. This tends to be based around the belief that employees will look to their employer to ‘do the right thing’ and that employers will benefit from insurers’ ‘expertise in early intervention strategies, claims management and rehabilitation services.”
Nevertheless, he is not personally convinced that tightening the eligibility criteria for state incapacity benefits will in itself result in employers making the decision to purchase group income protection cover.
“Until employers understand the effectiveness of their existing, and often significant, spend on their health and wellness programmes compared to their organisational risk, I do not envisage many employers simply wishing to increase their benefit spend.”