Buyer’s guide to group income protection


The facts

What is group income protection?

Group income protection (GIP) provides an income to an employee when they are unable to work as a result of an illness of injury. Payment usually starts after a set waiting period, normally six months, and can continue until the employee returns to work or, if earlier, state pension age.

In addition to financial support, GIP can help an organisation manage long-term sickness absence, offer rehabilitation services, such as counselling or physiotherapy. It can also provide partial benefits when an employee is able to return to work on a part-time basis to a lower-paid role.

What are the origins of group income protection?

The first modern GIP policies were written in the 1950s but a broader form of cover, the Holloway scheme, was available from friendly societies from the late 19th century. These offered retirement benefits alongside income protection.

Where can employers get more information and advice?

Industry body Group Risk Development (Grid) has further information about the product on its website:

What are the costs involved?

Full cover costs between 1% and 2% of gross payroll, although a limited-term plan can cost as little as 0.25%.

What are the legal implications?

GIP can cover an employer’s contractual promise of long-term sick pay to employees. It is exempt from default retirement age legislation, enabling organisations to stop providing it when employees reach state pension age.

What are the tax issues?

Employers can usually get corporation tax relief on premiums and it is not a P11D benefit.

What is the annual spend?

The group risk industry paid out a total of £1.26bn in 2014, helping out a total of 24,570 UK families, according to industry data compiled by Grid, published in April 2015. GIP policies paid out annualised benefits of £338m.

What providers have the biggest market share?

No market date is available but the largest providers include Aviva, Canada Life, Ellipse, Legal and General, MetLife, Unum and Zurich.

Which have increased their market share the most?

No market data is currently available on this.

Group income protection (GIP) is an insurance policy that provides a replacement income to an employee if they are unable to work due to long-term illness or injury. Limited-term policies are also available that provide benefits for between two and five years.

Most organisations offer four different types of group risk cover: life assurance at four times an employee’s annual salary, income protection, critical illness insurance and personal accident insurance.

The latest report by the industry body Group Risk Development (Grid), published in April 2015, showed that a total of £1.26bn was paid out in claims during 2014. The report showed a significant increase in GIP on the previous year at £20m a year.

The main cause of claims across all group protection was found to be cancer, with the highest for group critical illness (68%), followed by group life (46%) and GIP (24%). For group life, this was followed by heart disease (16%), by heart attack for group critical illness (10%) and by mental illness for GIP (23%).

The Grid report also showed, for the first time, the number of cases each year where people were helped back to work before a claim becomes payable, often with the support of the insurer, the employer or both. In cases of active intervention, including rehabilitation services, such as counselling or physiotherapy, 1,529 people were able to go back to work in 2014 before they had been off sick long enough to make a claim.

Early notification

As the average GIP policy has a six-month waiting period, insurers have introduced incentives to encourage employers to notify them of potential claims as early as possible. For example, Legal and General offers an early-notification bonus that returns 5% of the premium where an employer covering more than 250 employees flags up at least 80% of long-term absences within a set period.

While the main objective of a GIP scheme is to provide benefit and support to employees unable to work, insurers have also developed a wide range of added-value services to supplement cover. These help to differentiate products but also provide a benefit to employees and employers whether or not anyone needs to claim.

Employee assistance programmes (EAPs) are the most common add-on service. These support the insurers’ early-intervention goal by offering employees access to confidential, telephone-based support and information on topics ranging from stress and mental health problems to debt and childcare. They can also support line managers by providing assistance with work-related issues.

Other added-value services are also available. For example, Aviva includes access to its Home of Health website, which contains advice and information on everything from combating stress to getting fit; and Canada Life increased its range of added-value services in 2014, introducing a treatment sourcing service from Medical Care Direct. This negotiates private medical treatments tailored to an individual’s requirements and at a fixed price wherever possible.

The GIP market continued to grow in 2014, according to Swiss Re’s Group Watch 2015 report, published in April. Premiums were higher in all product areas, with an overall growth of close to 8% for the year. The study also found that over 200,000 more people were benefitting from life and disability insurance products arranged through their employer.

The Group Watch 2015 report also showed steady growth across most lines of products. Premium growth was again strong in the group death benefits sector with £1.25bn in-force premiums reported for 2014. This strong growth continues the trend from previous years, and is the first time the market recorded annual growth in excess of £100m.

With the GIP market seeing expansion on the back of pensions auto-enrolment, many are now calling for some form of compulsion for GIP itself. This also fits with the government’s drive for welfare reform, with insurance able to take some of the pressure off the state.

In addition, the government’s Fit for Work service brings more attention to the role of rehabilitation. As part of its remit, this service provides occupational health assessments and return-to-work support to employees off work for four weeks or longer. Showcasing this approach could help to underline the benefits of GIP.

Key statistics

£1.26bn: The amount the group risk industry paid out in claims in 2014 (Source: Group Risk Development (Grid), April 2015).

24%: The percentage of employees that would like to receive income protection, but currently only 6% do (Source: Canada Life Group Insurance, May 2015).

39%: The percentage of employees that do not currently have life insurance (Source: Canada Life Group Insurance, June 2015).

475,000: The number of people with critical illness in 2014, an increase of more than 90,000 on 2013. (Source: Swiss Re’s Group watch report 2015, April 2015).