These are exciting times for group risk perks as schemes adapt to meet changing workplace requirements, says industry body Group Risk Development (Grid). Debi O’Donovan reports
For benefits that are rarely centre stage, group risk insurances are undergoing a dramatic, if gradual, metamorphosis. Perhaps the very fact that they are usually out of the limelight has forced them to reinvent themselves to ensure their continuing relevance in today’s workplace.
It may seem like outside events are having the biggest influence on schemes’ evolution, but David Cross, chairman of industry body Group Risk Development (Grid), says: “It is a very exciting time to be involved in group risk because if you look at the employment agenda, notwithstanding the current economic situation, it is expected over the medium term that the proportion of older employees in the workplace will rise, and also one hopes that the proportion of employees with some degree of disability will rise.
“I think that is a good thing, but it also probably means that the way in which we protect these people will look slightly different to the way we have done it before. That is a challenge for the industry at large: how do we develop solutions that speak to that new employment agenda?”
Providers have been reacting to such changes over the past decade by developing group income protection (GIP) products that have fixed-term payments, often with a lumpsum termination payment at the end – as opposed to paying out until normal retirement age, as traditional GIP schemes do.
The focus has also shifted to rehabilitating people back into work and not leaving them to drift away into a lifetime of incapacity.
Alongside these broader social shifts are changes implemented via legislation such as the Welfare Reform Act and the current government consultation on fit notes (the proposal that GPs will go through training on occupational rehabilitation).
Katharine Moxham, spokesperson for Grid, feels the new, shorter-term GIP schemes with their focus on capability, complement these government initiatives. “It sits well with welfare reform and what the government is trying to achieve in terms of keeping people in the workplace, as opposed to giving them a meal ticket out of work,” she says.
Because the Welfare Reform Act only came into play in October 2008, no one is yet sure how it will play out in UK workplaces.
Moxham believes employers with a GIP policy will be working much more quickly than the welfare state, while Cross says: “The government will speed up, not that employers will slow down. The interaction between employers’ return-to-work and state returnto- work is going to evolve quite substantively.
There are opportunities to make sure things are done as efficiently as possible.”
Whatever happens, the momentum that has taken so long to build is not going to stop now. “We have had Dame Carol Black’s report, we have had the response to that, we have put ‘fit-to-work’ out to tender, and we have got the consultation on fit notes,” says Moxham. “It took a jolly long time to get going, with the Pathways to Work launch [nearly 15 years ago], but I do not see anything is going to stop it now.”
This means providers have a great opportunity to put group risk benefits in the driving seat of change. But, to date, the group risk market has not had the best track record for adapting to new world orders. The demise of defined benefit (DB) pension schemes, with their death-in-service and ill-health early retirement benefits, and the rise of defined contribution (DC) schemes should have provided a ripe market for insurance-based group risk products, such as group life insurance and GIP.
However, as Moxham points out: “Largely, the industry has missed the boat to a greater or lesser degree. Ill-health early retirement was used and abused, and that, largely, years ago, was the reason why GIP did not take off in the way you might have expected.
“So the move from closing a DB scheme to launching whatever replaces it, really needs to also focus on ‘what do we do about this, then?’ It is important to understand that GIP is very different from ill-health early retirement and there is plenty of opportunity for dialogue with consultants, advisers and brokers around what we need to do.”
Moxham emphasises that any change must take place in the context of an employer’s occupational health goals and include policies such as sick pay. This is also important because there could be a rise in the number of people covered by GIP as more employers close DB schemes to new entrants and people move jobs and go into GIP arrangements.
Cross points out: “If confronted with an opportunity to think about it, employers do engage. They want to think about how they deal with people who potentially go off ill, to think of a value of the deal they are striking with staff in terms of the general employment deal. So I think the opportunity is there, but equally, we as an industry have got to make sure we have the right products and have the right conversations with employers.”
Over the years, it has been notable how levels of long-term sickness absence have dropped. This, in part, must be attributed to the work done by various stakeholders on rehabilitation back into the workplace, including GIP providers.
To do this effectively, an employer has to build up a relationship with a group risk provider, which can embed broader management, wellbeing and sickness practices that help prevent and reduce absences. This means that although the group risk market is competitive, with each provider striving to win new business, the current key focus is on retaining employers as clients.
Moxham explains: “The difficulty is really that a lot of work around rehabilitation and absence management in the workplace does depend on working in partnership with a provider. Employers want to be sure they have a competitive deal, but if you look at the amount of time it take to embed one of these programmes and get it working efficiently, I would suggest you do not really want to be changing every two to three years and moving arrangements somewhere else.
“If you look at group risk, it really does sit in the middle of every other benefit that is in the pot. It has traditionally been linked with pension provision just through the legislation.
And certainly, on the GIP side, it links in with occupational health, absence management, employers’ liability, private medical insurance and other health and wellbeing initiatives. So it really is quite focal and often is not treated accordingly, I suspect.”
Both Cross and Moxham agree that group risk benefits have a huge potential to support major changes in the attitudes to incapacity in the UK’s workforces, as well as to be truly valued by employees if only they understood what these benefits can deliver.
Cross says: “In fairness, a lot of employers struggle with the how. We are going to see a revolution in pensions communication – DC pensions communication, for example, with the realisation that this needs more engagement. So I see opportunities for group risk benefits to tie in with that.”
So it is clear that although group risk benefits have not been able to grasp the nettle and achieve their true potential over the years, now, with the current legislative agenda and the swing to focus on capacity rather than incapacity, the opportunity is there – to the benefit of staff, employers and the group risk industry itself
Katharine Moxham is spokesperson for Grid, and in this role is the industry commentator on issues affecting the group risk market. She joined Grid on 18 May this year after spending 25 years building a profile as a pioneering force in the evolution of UK group risk and healthcare practice, during which time she worked for Towers Perrin, Aon Consulting and, most recently, JLT Benefit Solutions, where she was consulting director of its health and risk practice.
David Cross took over as chairman of Grid on 21 May this year, after being on the steering committee for 18 months. After starting his career in pensions at Noble Lowndes, he has worked in employee benefits consultancy, spending the past 15 years focusing on risk benefits. He has worked at Towers Perrin, Aon Consulting and Watson Wyatt, and is now head of benefits consulting (looking after risk, defined contribution pensions, flexible benefits and financial planning) at Watson Wyatt.
Group Risk Development (Grid) at a glance:
Founded in 1998, Grid encourages awareness and take up of corporate group protection benefits (group income protection, group life insurance and critical illness cover) on behalf of its members, which include insurers, reinsurers and intermediary businesses.
Grid aims to enhance the industry’s profile among the media and stakeholder groups. The group provides a collective voice to government and takes part in industry-wide initiatives, such as a qualification in group risk which it launched jointly with the Chartered Insurance Institute.
In May 2009, Grid appointed its first dedicated spokesperson, Katharine Moxham, to provide expert media comment on a full range of group risk issues.