Group risk underwriters remain remarkably upbeat, despite the potential for the NHS crisis to boost claims.
And the fact that intermediaries have few gripes to express about their activities might suggest their sentiments can be taken largely at face value.
Interestingly, the one apparent major broker beef is actually raised by an insurer. Nick Homer, head of market management, corporate risk at Zurich, reports concerns about insurers applying different interpretations about a broker’s duty of fair presentation under The Insurance Act 2015.
He says: “My feedback from brokers is that some insurers are not clear enough on what they require for a fair presentation and that this has introduced an element of uncertainty into the underwriting process.
“For example, the small print may state the need to inform the insurer of employees who have been off work for three months. But, if someone has been off work for one month with cancer and will obviously be off for three months, there is uncertainty whether this should be disclosed or not.”
Insurers stress that existing well-established processes for pricing risk have largely avoided significant underwriting issues, although a nuanced approach was certainly required to evaluate the impact of the pandemic.
Aviva’s group protection sales director Jason Ellis says: “We are not currently treating any particular industry or client size with more caution than before. Our risk assessment processes are robust and data-driven, ensuring that we respond to changes in UK mortality and morbidity rates by adjusting our pricing and risk factors accordingly.”
Whilst underwriters acknowledge they are starting to see the impact of the NHS backlog, they report no significant premium increases yet.
In particular, group income protection has benefited from having to reserve less in the high interest rate environment and from a slightly improved claims experience coming out of the pandemic.
Canada Life’s head of scheme underwriting Craig Garland says: “I think that home working and hybrid working could be helping to reduce claims because of the greater flexibility afforded. And the cost of living crisis could be making employees who might have been absent for mental health reasons carry on working to receive full salary. But this could exacerbate long-term claims if conditions aren’t resolved.”
Free cover limits
Much of the lack of intermediary angst stems from generous free cover limits, avoiding the need for most individuals to be medically underwritten.
On group income protection the limit can vary from £55,000 a year on a small scheme to £150,000 a year on a large one, and limits on group life and critical illness cover can be between £500,000 and £2 million, although the benefits for the latter product are severely diminished by pre-existing conditions being excluded at the claims stage (see box above).
Nevertheless, Steve Herbert, independent wellbeing consultant and communications coach says: “I think the industry still fails to explain free cover limits well enough, and employers often
don’t understand the very generous levels available. The industry should really focus on pushing that existing good news.”
Even in rare cases when the free cover limit is exceeded (which Zurich estimates to typically involve under 1 per cent of scheme members) no financial underwriting is required on individuals.
Garland explains: “We do need to look at the credit history of employers but it hasn’t been throwing up any issues with credit risks, although we have noticed a growing number of cancellations or failures to renew since the pandemic. But, overall, the number of schemes is still growing.” This growth is seen in the latest market statistics, provided by Swiss Re.
Furthermore, on medium and large sized schemes the emergence of ‘once only underwriting’ is removing the requirement for repeated medical underwriting following salary increases. But this comes with a caveat.
Swiss Re head of group risk, UK & Ireland, Keith Williams explains: “On a ‘once only’ basis there is a greater responsibility on the intermediary to maintain accurate records of which lives have been underwritten, as schemes may move from one insurer to another many times following the initial underwriting process.”
Technological advance
YuLife refers to a ‘revolutionary’ approach it is piloting with the University of Essex to see how gamification can affect risk outcomes and how this feeds back into underwriting.
Several customers are being monitored and, potentially, this could provide companies with far greater opportunities to influence their own risks.
Most other technological progress, however, relates to the continued evolution of existing practices. For example, Canada Life originally launched its CLASS system for SME business in 2005, but most providers now offer their own versions, and the original 100-life maximums have now moved on to 250 or even 500 lives.
Homer says: “The reason technology really works at the smaller end is that these schemes are not influenced specifically by claims experience, like larger ones. So, there is no requirement for a scheme underwriter’s judgement and, because the portals are rules based, you don’t really need artificial intelligence (AI) to drive outcomes.”
AI is, however, more likely to make an impact on larger schemes, particularly around speeding up the data for the minimal medical underwriting that is done, although there has been little adoption
as yet.
Ellis says: “AI could enhance data analysis, improve risk assessment accuracy, and streamline the underwriting process. The potential for it to transform group protection underwriting is real, and we are closely monitoring advancements.”
But such predictions about AI are unremarkable in comparison to those being made in most other areas of insurance and, indeed, commerce as a whole.
Group Critical Illness: Exclusion penalty
Excluding pre-existing conditions on group critical illness cover severely limits the product’s appeal. But insurers are beginning to turn their thoughts to this area.
Steve Ellis, head of employment benefit consulting at Prosperis, points out that Unum’s Simplicity plan now covers pre-existing conditions to some extent, although this is only available to employers with 50 or more employees and has a maximum benefit of only £60,000.
He says this is the only Group CI provider covering sun conditions at present, but others are looking at this issue. Since 2020 Canada Life has been working on the soft launch of a product which at outset uses a basic question set with risk tolerance built in, instead of either a pre-existing condition exclusion or full medical underwriting.
Meanwhile, Jonathan Roomer, co-founder and head of customer success at YuLife, says: “There is a clear opportunity for niche insurers to offer group CI cover with some kind of modification to pre-existing condition exclusions. It could be something that we look at in a few years’ time.”
BOX: Market data: No cause for alarm
According to Swiss Re’s Group Watch 2024 data, 2023 was another positive year, with the number of people insured overall by group risk increasing by 6.2 per cent, when compared to the year before.
In-force group risk policies overall increased by 5.1% in 2023 — from 87,376 to 91,796.
▪ Death benefit policies increased by 5.2%
▪ Income protection policies increased by 3.2%
▪ Critical illness cover policies increased by 10.2%.
In-force group risk premiums overall increased by 9.9% in 2023 — from £3,114,602,701 to £3,422,043,273.
▪ Lump-sum death benefit premiums increased by 13.3%
▪ Income protection premiums increased by 6.6%
▪ Critical illness cover premiums rose by 15.9%.
