The group risk market is has evolved significantly over the past year. Nick Martindale looks at how providers are looking to demonstrate value and launch broader health and wellbeing initiatives
The group risk market - combining the three elements of life assurance, critical illness cover and income protection - has long been a staple of the corporate world's employee benefits strategies. According to the Swiss Re Group Watch 2016 report, the number of people covered by some form of group risk reached 11.5 million in 2015, up by 31,000 from the previous year - an increase of almost 3% - and accounted for premiums of more than £2bn.
By far the biggest of the three areas is still group life. "The product mix over the last year tends to be dominated by group life schemes rather than group income protection or group critical illness," says Andrew Shiner, group risk consultant for The Health Insurance Group. "Cost is the overriding factor - life schemes are more affordable. Life cover is also a basic instinct of ours: if you have dependents then it's natural to protect your family and making arrangements to ensure debts could be paid is a priority."
Auto-enrolment has also had an impact on the market, with more employees joining existing pension schemes to which group life is attached for the first time, and many employers also choosing to extend life cover to those joining new schemes. "Certainly a couple of insurers have made it very easy for intermediaries to re-use the auto-enrolment pension data to do a very quick group life quote," says Lee Lovett, chairman of Group Risk Development (GRiD) and chief executive of Ellipse. "That makes it quite cost-effective for intermediaries to tag on a quick discussion about group life cover when talking about auto-enrolment. We're seeing a few schemes coming to market for the first time which is quite encouraging, because that is genuine new business and will grow the market in due course."
Not everyone sees it this way, though. Mark Witte, principal at Aon Employee Benefits points out that the growth in life assurance of around 8% in 2015 means many employers are also not looking at group life cover when tackling auto-enrolment. "While auto-enrolment has had some impact on take-up for the ancillary protection benefits often offered on the back of pension scheme membership, this has not been at the levels perhaps hoped for within the industry," he says. "With employers forced to put their hands deeper into their pockets to fund the mandatory pension costs, those clients having to balance the budget have often had to look to contain costs elsewhere within their benefits spend."
One significant development in the group life space is the increase of more than 30% in excepted group life benefits, as a direct result of the reduction in the pensions lifetime allowance from £1.25m to £1m, despite an increase of 20% in premiums. Such policies mean any proceeds from life assurance payouts would not count towards the allowance, reducing the risk of those exceeding the threshold facing a tax bill of 55% for anything beyond that point.
Another notable trend has been the continued decline of death-in-service pension schemes, which have fallen by 33% in terms of the number of people insured since 2011, and by 14% in 2015 alone, despite premiums coming down by almost 9%, largely as a result of the shift from defined benefit to defined contribution schemes. "These benefits are now becoming rarer and rarer, due to cost and a shrinking market of providers," says Simon Crew, a consultant at Xerox HR Services. "The vast majority of clients have attempted to replace any insured death-in-service pensions with additional lump sum death benefits to provide long-term cost containment." Witte, though, again points to the relatively modest growth in the insured group life market as evidence that not all employers are looking to do this.
There has also been a move in the group life space to offer employees greater choice around the levels of cover they take out, as they look to make themselves more attractive to potential and existing employees. "By allowing employees to flex a core level of benefits, so if they provide 2x cover they can flex down to 1 or up to 6, 8 or 10, employees engage with the benefits much more," says Luke Prankard, senior health and wellbeing consultant at Thomsons Online Benefits. "Some firms are now giving people a pot of money to fund their wellness, including financial and health wellness. The shift is around giving employees that personalisation and choice."
Critical illness
The critical illness market, meanwhile, has seen strong growth, albeit from a much lower base than group life. The number of people covered increased by 15% in 2015 alone, according to the Swiss Re survey, while in-force sums assured rose by 11%, despite an increase in premiums of more than 17%. Much of this, says Paul White, senior risk consultant at Punter Southall Health and Protection, is down to the inclusion of critical illness on flexible benefit schemes or as a voluntary benefit, where employees pick up the bill themselves.
The make-up of critical illness policies is also changing, partly in a response to make them more affordable. "We are seeing an increase in the introduction of lower-cost critical illness policies where fewer conditions can be claimed for, although they will cover the most common conditions," says Morag Livingston, group risk and healthcare manager at Secondsight. "These pay out a lump sum on diagnosis of a certain critical condition. It's a halfway house and is, I believe, entirely cost-driven."
Income protection grows
Income protection is also continuing to evolve. Research by Unum suggests around half (48%) of claimants now earn under £30,000 and 67% less than £40,000, implying this is becoming more of a mainstream benefit and less one reserved for those in senior positions.
The market itself is relatively flat, growing by just 1% in terms of the number of people covered in 2015, but is likely to grow in the future, predicts White. "Some factors that will influence growth include further reductions to welfare and, in particular, disability benefits in 2017, the continued shift away from final salary pensions and our ageing workforce which increasingly understands the risks of suffering a long-term disability during their working lives," he says.
The changes to state benefits could have a particular impact, says Leighton Churchill, corporate account manager at Jelf Employee Benefits. "We expect to see an increase in amending the benefit basis of income protection policies to accommodate that from April 2017," he says.
The product itself is also changing. The Swiss Re survey backed up a trend Aon Employee Benefits has also noted, says Witte; namely the move away from payouts until the age of 65 or state pension age and towards fixed term payments. "Only 63.4% of employees covered under an income protection policy are now insured up to 65 or state pension age," he says. "This is especially a trend among the larger employers where premium spend is at its highest."
The amount of fixed-term payment periods is likely to increase in future too, as these are becoming standard for new entrants, says Andrew Shiner, group risk consultant for The Health Insurance Group. "Two-to-five-year payment periods are typical for group income protection," he says. "Any company offering this type of cover for the first time is likely to put in place a scheme with a limited claim payment period, rather than a scheme which would potentially pay a claim through to the age of 65 or beyond." Another trend among smaller businesses is to reduce the traditional deferred period of 13 or 26 weeks, he adds, with some now preferring a shorter period of between four and eight weeks.
There has also been a move, says Prankard, to scale back the amount of payouts, either reducing this down to 40 or 50% of salary or paying out a lump sum. "Again, this is about giving employees that flexibility and choice, and allowing employees to buy back into it if they want to at a higher level so the employer is not shouldering the full cost of that," he says.
Income protection firms, meanwhile, are continuing the focus on early notification, diagnosis and treatment of illness and absence. "Insurers would typically want to be informed about any long-term absence as soon as possible and certainly at the four-to-six-week stage," says Shiner. "Having advanced warning means the insurers have an opportunity to proactively manage any situation at a relatively early stage, giving a far better chance to intervene and rehabilitate a sick employee." Some insurers have now started to link absence management software to their income protection offering, he adds, which ensures the provider finds out about any absence as soon as it happens.
Insurers are also evolving their offerings to help prevent people ensure they get speedy treatment should they become ill. "Employers are looking for ever-more robust and innovative ways to target prevention," says Witte. "Burgeoning standalone markets are springing up across a range of insured, clinical and tech-based solutions, and group risk providers are embracing this by often offering these services alongside their traditional products. While the concepts of rehab support, free employee assistance programmes and second opinion services have been around for some time, insurers are now offering virtual GPs, health apps and wearable technology either free of charge or at discounted rates."
These kinds of initiative can have a huge impact on absence rates and productivity, says Lovett, but is an area that up to now has tended to be rather overlooked and undervalued. "This means people can often go back to work before the end of the deferred period, so before the claim is even paid," he says. "That's where help and advice goes under the radar a bit, because it's not recorded in any claim stats."
Demonstrating value
Insurers, however, are now beginning to realise that they need to demonstrate the value they provide to employers as finance teams start to question the cost of insurance, says Crew. "There has been a shift within the benefits industry to focus on employee engagement and the value of benefits, and this will mean that risk providers need to innovate and start demonstrating added value if they want to maintain and ultimately grow the market," he says. There's also a greater willingness on the part of employers to work alongside consultancies and challenge traditional models, he says, to ensure insurance strategies stand up to scrutiny and best meet the needs of the workforce.
There is also a broader understanding and appreciation of the benefits of such add-on services by employers, believes Prankard. "Employee assistance programmes were introduced into the group risk marketplace about seven years ago, and it took a while for that to embed but employers have now started to realise the value of those rather than having to pay for them separately," he says. It's a similar situation with vocational rehabilitation services and return-to-work programmes for employers, he adds.
Group risk providers are also increasingly moving into broader initiatives around health and wellbeing, in addition to providing early intervention once problems arise. "If you can help them have a better lifestyle and improved health in the first place that ultimately means the probability of claims will reduce," says Lovett. "There's quite a lot that insurers are doing there in terms of enhancing their proposition." The problem, though, is that awareness of these initiatives is still relatively low, particularly among employees, despite the attempts of insurers to market them.
"Somewhere along the way the message isn't getting through to the employees," adds Lovett. "I would like to see a general programme of increased awareness and communication, in tandem with raising understanding around group risk products in general. Greater awareness of the risks people face in their day-to-day lives would be a better result for everyone."
But the good news for HR, employee benefits teams and group risk providers is that the message around the need to improve employee health as well as having measures to deal with sickness does seem to be finally getting through to the upper echelons of businesses.
"In the last year to two years we've seen that the wider business and board are more interested in understanding how an employee's health impacts a person's ability to do their work, and how their work impacts their health," says Prankard. "We've seen a shift in the corporate governance landscape, where employers are saying they do need to be more on top of this and to make sure that employee benefits all work together to deliver a cohesive strategy so it keeps employees fit and well. That's the biggest shift we've seen and that will continue over the next couple of years."
