The numbers reported in Swiss Re’s Group Watch 2015 give much to be pleased about: almost 1.25 million more people have been covered since 2010. Benefits and premiums have increased across group life, disability income and critical illness as the market has continued its recovery from a drop in premium income at the end of the last decade.
It would be easy to be complacent in the face of these results but they hide one uncomfortable truth: with the exception of steady growth in new CI schemes, which now total 2,870, few new group protection schemes are coming to market.
There are 2.6 per cent more group life schemes in force but this is largely a result of some market reconfiguring between registered lump sum, dependants’ death in service pensions and excepted group life (EGL) as employers exit dependants’ pension plans and react to the fall in the lifetime allowance. We can expect to report more EGL growth in 12 months’ time as the market reacts to the next lifetime allowance reduction.
The decline in the number of in-force long-term disability income schemes has been slow, consistent and worrying. Although the schemes that remain have more members, the number of active schemes keeps falling year-on-year and is now 10 per cent less than in 2006. Unless we have missed it, there are not many new self-insured employer arrangements either.
It is not as if there has been a surge in public interest in self-provision. Around 90 per cent of existing coverage is workplace-led already, yet that leaves 80 per cent of all employees with no cover at all.
New individual policy sales hover around 100,000 each year; publication of claims data has not translated into more business. Maybe the 7 Families income protection awareness campaign will show that the public reacts better to real people than to numbers.
No matter what the make-up of Parliament after 7 May, further reductions in state spending and provision of disability benefits are inevitable. This will place more responsibility on the private sector to step up; the reality is that the shift will continue and the Government will be looking to the private sector to fill the gap.
There is nothing very surprising in this. People are already expected to provide more themselves towards a decent amount of retirement income, with the staging of auto-enrolment bringing five million more people into pension saving. We will see a similar directional shift when the new rules for social care funding come into force from April 2016. Disability income provision will not be any different.
The market must be ready to respond. While we can draw some comfort from covering more people, we need to decide if we want to carry on as before. The modest fall in the number of schemes each year suggests that closures may be more a result of mergers and acquisitions than due to any inherent customer dissatisfaction. In general, employers with schemes in place see the value they bring.
The status quo, however, would see scheme numbers continue to decline. A few self-insured arrangements would come to market to take advantage of some very competitive prices.
The options seem clear. We can use our marketing skills to reinforce the very positive benefits that coverage can bring to an employer, as a consequence increasing the number of people covered. Otherwise, the Government may see little option other than to intervene directly to reshape the mix between state and private provision. This may be based on pension auto-enrolment; the infrastructure to deliver is largely in place and there has been little consumer backlash when we look at opt-out rates.
Employees tell us they would value greater workplace access to products and services. We need to build on this very positive finding.
The staging of auto-enrolment provides an opportunity to broaden discussions with employers. More training may be useful to increase the number of intermediaries with the specialist skills to identify and execute risk solutions, particularly as staging reaches smaller employers.
Looking more broadly, employers generally show little awareness of other potential risks faced by their businesses. The excellent work published by Legal & General shows the scale of the business protection gap
and under-provision of protection against key person and succession planning risks. Taken with the group data, this indicates a great opportunity to engage more effectively with the business community.