Rising premiums are forcing employers to revamp the terms of group income protection plans, with some new policies limiting payout duration, says Edmund Tirbutt
If you read nothing else, read this…
- Rising group income protection premiums have resulted in efforts to reduce benefit promises and control claims.
- Popular ways of tweaking benefits have included reducing escalation and maximum benefit levels, and increasing deferred periods.
- Most attempts to control claims have focused on early intervention.
Article in full
Rising premiums on group income protection schemes have caused many employers to re-evaluate their offering. While a handful have moved away from providing the perk, many others have looked for ways to continue offering it but at a lower cost to the organisation.
Paul White, senior consultant at Mercer Human Resource Consulting, says: "Overall, the number of group income protection schemes has remained broadly constant during the last five years but premiums have been rising by around 12% to 13% a year on average. Far more clients talk about getting rid of income protection schemes than actually do so. [However], it can be written into contracts of employment that they have to offer the cover, and, even if it isn’t, getting rid of a scheme can be politically difficult."
But both employers and insurers have been placing more of an emphasis on trying to curb premium increases by reducing benefit promises and controlling claims.
The most popular method of tweaking benefits has been to cut back on the level of escalation provided, often by switching from a 5% rate to one that mirrors the Retail Prices Index (RPI) up to a maximum of 5%, or even 3%.
Other methods include reducing maximum benefit levels, increasing deferred periods or – less commonly – opting for income protection schemes that pay out for a maximum period of between two and five years.
The bulk of attempts to control claims have focused on early intervention, with absence management processes often trying to identify potential claimants after they have been off work for just one month.
Jamie Winter, senior consultant at Watson Wyatt, says: "For larger employers, the best way to try and control costs is to manage claims more effectively, so they are becoming increasingly prepared to allow insurers to work with occupational health and HR departments for the purposes of early intervention and rehabilitation."
He adds that large employers, however, are less likely to experience high premium increases from insurers. "When we do their market reviews, we find that all the other insurers tend to quote them keener rates as well. But smaller schemes with only a dozen or so members can’t exercise the same control because they are unlikely to get a claim. They therefore tend to get a premium based on the insurer’s average claims experience."
One interesting new development in claims control is cognitive behavioural therapy (CBT) such as that used by Legal & General in tackling stress claims. Employees who are off work suffering with depression can develop negative thought patterns as a result of becoming withdrawn and isolated. CBT, however, can help to introduce them to a new life philosophy which changes their behaviour.
Legal & General is unusual in using an up-front commitment to CBT as a selling point, but it has achieved results – 58% of those treated have been fit enough to return to work. So it would be no surprise if other insurers, which to date have only used CBT on an ad-hoc basis, started to follow suit.