Upsell opportunity

Nick Homer, proposition development manager at Zurich Corporate Risk, says: “We are definitely seeing a trend towards more browser and intranet based electronic access to benefits, both inside and outside flex. This gives employees easy access to information or insurance at their desktops, so even if the employer isn’t paying it still has its advantages. The fact that the employer has already undertaken some due diligence on products and providers will give employees confidence that the products available are credible and offer value for money.

“Such confidence has become increasingly important in the wake of so many financial services scandals and trust issues during recent years, and the shift in the pensions world to auto-enrolment and the need for employers to have pensions platforms also gives me reason to have a lot of confidence in the development of new voluntary website channels. Group administration of individual contracts would undoubtedly help the voluntary sector.”

In theory the voluntary approach can help employers cope with the costs likely to result from a cash-strapped Government’s attempt to shift the responsibility for sickness benefits from the State to the workplace.

Katharine Moxham, spokesperson for industry body Group Risk Development (Grid), says: “State support is dying and with this is coming greater responsibility, along with a move away from paternalism. The employer landscape is changing and I think we will see a shift in the employer’s role from one of being provider to one of being facilitator.”

State support is dying and with this iscoming greater responsibility, along with a move away from paternalism

The bulk of voluntary business has traditionally been confined to flex schemes and has involved life cover and critical illness cover. Because insurers have been scared of adverse selection, income protection within flex has tended to offer an employer-paid core component of cover which employees can top up. But Unum’s Select product, launched nationally this March for income protection, critical illness cover and life assurance following a soft launch in November 2010, enables employers to offer pure voluntary or company-paid cover or a combination of the two.

Personal Group (see Box) has already been selling voluntary group income protection with some success since 2007. Nevertheless, it has primarily sold direct to employers and only started paying commission to intermediaries a year ago.

Unum Select only provides a free-cover level which avoids the need for scheme members to undergo medical underwriting if the voluntary component is purchased by at least 20 per cent of scheme membership. Otherwise applicants have to answer six underwriting questions.

The product is also unusual in having been built within Unum’s own platform. This means that when used for flex it isn’t administered on the same platform but can be made to dovetail with the flex scheme to work effectively alongside it. Tom Dupuis, head of products at Unum, estimates that around half of Select business is sold in this way.

Dupuis says: “Select brings flexibility for employer and employee for sharing the cost, and is most successful for pure voluntary cover when we get appropriate access to staff and are able to communicate the alarming facts about what the State provides together with what we can offer. We feel we have unique advantages in terms of knowing group income protection well, being experienced in voluntary funding in the US and having invested heavily in our platform and enrolment organisation.”

We just don’t have a voluntary culture like in the US, and I don’t think voluntarygroup risk benefits will make a significant impact in the next five years

Sean McSweeney, principal corporate consultant at AWD Chase de Vere, says: “Select allows employers to dip their toes into the income protection market without facing major costs and has plugged a big hole because there was previously no pure voluntary income protection for flex. We also had a number of clients who only wanted to cover senior people but now these are increasingly looking to offer pure voluntary cover for the whole workforce and company-paid cover for senior staff. If Select is successful then other insurers won’t be scared of adverse selection for voluntary group income protection, and underwriters have certainly started becoming more comfortable with voluntary group life schemes during the last three or four years.”

But some other commentators, whilst expressing broad support for the concept of Select, are more lukewarm. Mike Izzard, managing director of Premier Choice Group, points out that his company has £2m gross group income protection premium with Unum but no pure voluntary schemes at all. Lee Gruskin, consultant at Bluefin, is concerned that intermediaries could feel they are losing control over clients because the insurer will be getting a lot of information which potentially could be used to deal with the client directly.

Paul Avis, sales and marketing director at Canada Life, highlights that, whilst it is currently understood that company-paid group risk products are not subject to the new gender equality legislation, if voluntary schemes have no core benefits they are treated as individual products and should therefore have harmonised male/female rates. Perhaps most importantly of all, many experts are concerned about the ability of employees to pay for cover at a time when their incomes are squeezed.

Mark Johnson, business development manager at RGA, says: “The harsh reality is that these products are not going to cause too much excitement compared with childcare vouchers and discounted CDs. That’s the challenge but it doesn’t mean we can’t crack it. We have got to find a way of getting across that group risk products are very tangible in the worst case scenario. I’ve come across a couple of examples of employers getting employees to form Facebook groups to discuss voluntary benefits as a whole. This could be a way forward.”

John Dean, director of Punter Southall, says: “People aren’t paying into pensions so why should they want to pay into voluntary group schemes? We just don’t have a voluntary culture like in the US, and I don’t think voluntary group risk benefits will make a significant impact in the next five years.

“To sell through canteens an insurer has to get its price down to such a low level and be able to sell the product in a few minutes, and employers will inevitably question whether they want to open their doors to a sales force like this and endorse its products. If a claim isn’t paid the employer may in some way be implicit, and allowing a salesperson to say that your company won’t currently help you if you go ill or die is quite a negative message.”

Unum argues that, because its messages are reviewed by both broker and employer, there is no danger of them being perceived as negative. Nevertheless, Both Unum and Personal Group do have unusually strong experience in worksite marketing communication, and other companies looking to follow suit could find this hard to emulate. Indeed Bupa Group Risk (now part of Friends Life) made an apparently unsuccessful attempt to enter the voluntary group income protection market in 2009.

Peter Webb, spokesperson for Friends Life, says: “This was a one-off arrangement which ran between 2009 and 2011. It was then decided that this is not an area of the market we are looking to focus on.”

So while it remains questionable whether voluntary benefits will reignite group risk in the foreseeable future where there is no employer contribution, they are likely to figure more prominently when employers pay for a low level of core benefit, either within or outside flex, and allow employees to top up. Tellingly, Unum reports that it is seeing its greatest success with Select when there is a level of employer contribution. n
Personal Group, which has offered voluntary group income protection products since 2007, has over 40 schemes with an average take-up rate of 35 per cent. These have proved popular with virtually every type of business and size of company from 150 employees to 6,000.

Employees have to answer six basic underwriting questions and to provide more detailed information if the answers are not satisfactory. But there is no medical underwriting if take-up reaches 50 per cent.

The approach can cover up to 75 per cent of salary to a maximum of £30,000, and can pay out for up to either two, three or five years. Most importantly, it uses salary sacrifice, meaning that

the employer saves 13.8 per cent National Insurance (NI) on all staff who take up cover.

Katrine Johnston, director of Personal Group, says: “Based on average take-up, for every 1,000 employees there is a saving of £14,000 on employer’s NI alone. We’ve never had a problem with adverse selection because of our high take-up rates and communication skills, and we’ve established that it definitely creates an appetite if people realise how paltry State benefits are when sick pay stops. We have mainly specialised in sophisticated worksite marketing and feel that the reason that others haven’t followed suit is that they don’t have the necessary communication skills.”