If you read nothing else, read this…
• The hardening of group risk rates is resulting in rebroking focusing on factors other than price.
• Specialist intermediaries can review group risk product features on behalf of employers.
• SME intermediaries may restrict product comparisons to two or three insurers.
• Holding insurers are now less likely to be given a second chance to quote.
Case study: Helipebs keeps pressure on life cover premium
Helipebs, a Gloucester-based manufacturer of hydraulic and pneumatic cylinders, has offered all its staff group life cover for more than 30 years. Since 1997, the scheme has been rebroked regularly by AWD Chase de Vere, typically every two years.
The last rebroking, in May 2011, considered quotes from six insurers on a commission-paying basis. It resulted in the scheme staying with Aviva and achieving a premium of £14,380, 12% less than the nearest rival. Most of the 70 scheme members are covered for two-times salary, and several of them are over the state pension age.
The premium is guaranteed for two years, but AWD Chase de Vere still checked the market this May to see whether there was any need for a further rebroking. The adviser concluded there was not.
Geoff Davis, managing director of Helipebs, says: “We rely on AWD Chase de Vere to get us the best deal, and it will always tell us whether it is worth rebroking or not. It is in regular contact over a range of benefits. The life scheme has more than proved its worth with several claims, and the payouts have made a huge difference to the ability of dependants to cope.”
Price considerations may not be the only reason to rebroke group risk benefits, but there are still some good deals to be had despite market rates hardening, says Edmund Tirbutt
Employers are becoming increasingly aware of the need to reappraise the value they are getting from their group risk arrangements. When asked in the Employee Benefits/Alexander Forbes benefits research 2012 what action they planned to take in response to economic changes this year, the most popular response (34%) was to renegotiate insurance-based benefits to achieve savings, and almost one-third (31%) pledged to review benefits providers to get better or cheaper deals.
Most rebroking has traditionally taken place in the run-up to two-yearly rate reviews and, although there has been a recent trend towards annual rebroking, this is now subsiding because of a hardening in market rates in the past six months. Price savings are not as plentiful as in the previous soft market, but they can still be found.
Lee Gruskin, health and risk consultant at Bluefin, says: “Life rates have hardened by up to 30% and income protection rates have also risen significantly, but in some cases rates are not hardening at all, so rebroking can still produce good deals. A lot of voluntary and flexible benefits, in particular, are not seeing much of an increase, and critical illness cover in flex is hardly increasing at all. Stand-alone critical illness cover is experiencing some rises, but only up to about 5%.”
Research conducted by Group Risk Development (Grid) among 500 employers in October 2011 showed employers are now looking beyond price considerations, particularly for group income protection (GIP) and critical illness cover (see below), and this trend looks set to continue.
Long-term rate guarantees
Steve Bridger, head of group risk at Aviva UK Health, says: “If the hardening continues, reviews will be more about benefit design and long-term rate guarantees, typically of three years as opposed to two. At the moment, there are not a lot of three-year rates, but I see them increasing for all three group risk products. We are starting to see less emphasis on rebroking price and more conversations about [pensions] auto-enrolment, the general legislative environment and product design.”
A departure from price comparisons makes the case for using a specialist intermediary in the rebroking process even more compelling because, as well shopping around for a good price, they can consider product features such as free cover limits and reduce costs by cutting out overlap. Intermediaries will also be mindful of added-value services offered by insurers. Friends Life, for example, offers the Best Doctors second-opinion service with its critical illness cover and the Bupa HealthLine on all its group risk products, while Legal and General provides group risk clients with line manager training to spot signs of stress, in some cases free of charge.
Mike Blake, compliance director at PMI Health Group, says: “We would be talking about having good processes in place to manage absence, such as early notification procedures, and these can increase the chances of getting better quotes. Discounts of 5% would not be unusual and sometimes they are even higher. We can look closely at benefits and at whether we want to reduce them or alter the basis of escalation.”
As a starting point, an intermediary can advise whether it is actually worth rebroking. If it is being paid by fee, it is likely to consider it not in a client’s interest for fees to exceed 15% of the premium and, even if working on commission, it may decide the rebroking process cannot be justified for very small premiums.
If the rebroking process goes ahead, intermediaries will normally consider quotes from about six group risk insurers, although for smaller schemes it may restrict comparisons to Unum, Canada Life and Friends Life, which offer streamlined online quotation portals for small and medium-sized enterprises (SMEs).
Paul Avis, sales and marketing director at Canada Life Group Insurance, says: “We recommend that advisers segment [employers] according to size because we have analysis showing they can easily spend eight hours prior to seeing [an employer] on collecting data, sending it off to six or eight insurers, getting quotes back, making comparisons and coming up with reasons for recommendations. With commission typically 4% for life and 12% for income protection, a premium of £5,000 is only going to produce £200 or £600, respectively, so they need to narrow it down to two or three insurers offering the best value and service for SMEs.”
Another chance to quote
Once an intermediary has received quotes from all insurers, it will often go back to the holding insurer to give it another chance to quote if its original price did not represent best value, although this practice is declining. Peter Fenner, communications manager at Ellipse, says: “Our stance has always been that the practice of allowing the holding insurer to match the best price is not healthy in the long run. We have seen more intermediaries starting to refuse holding insurers a second chance, which is a more efficient process and means providers are writing business on a basis they can make money from. If the holding insurer goes down at the last minute, it is more than likely to prove uneconomic.
“There is a direct link between this practice and the poor administration that prevails, as it is not worth insurers investing in better administration if they are always spending their money subsidising unprofitable business.”
Chris Wall, senior group risk consultant at Lorica Employee Benefits, adds: “I normally give holding insurers the chance to go down at the end, but there is a trend for the insurers themselves not to want to requote as they are being more commercially minded now the market is hardening. As a rough estimate, the holding insurer wins with the first quote in three out of five cases and in the remaining two, when they get offered a second chance, only around half accept it, whereas two years ago the proportion that accepted was maybe as high as 80%.”
Read more articles from the Employee Benefits group risk supplement 2012