The evolution of group risk benefits

Over the last 20 years or so, the working world has changed dramatically. But while staff no longer expect their employer to look after them from the cradle to the grave, group risk benefits have hardly evolved accordingly. Brian Morgan, business development director at Heath Lambert, says: “Many companies have archaic benefits in place that no longer suit the workplace.”

Sales figures certainly suggest current products have a limited appeal. Swiss Re’s Group Watch 2008 report shows that group life cover is the most commonly-offered group risk benefit, with 7.42 million employees covered in 2007. Group income protection and group critical illness insurance are much less widespread, covering 1.72 million and 0.26 million employees respectively.

Sales of the products are fairly flat, apart from group critical illness. According to Swiss Re, the number of people covered by group critical illness rose by 14.9% in 2007, however, this is from a relatively low base. The increase for group life cover was much smaller at 2%, while the number of people covered by group income protection, however, fell slightly by 0.4%.

This suggests group risk perks are not meeting employers’ needs as well as they could be and may be in need of a revamp. Of the three main products, life cover is the one with the least scope for change. Graham Clark, head of group risk at Bupa, says: “Provision is largely determined by the rules laid down by HM Revenue & Customs. Where insurers could make products more attractive is through ancillary services.”

Group income protection is probably the product most in need of an overhaul if it is to better meet organisations’ needs. Morgan says: “The traditional product is very old-fashioned. It used to make sense when it covered [a] 55-year-old employee who suffered a heart attack or stroke that stopped them from working for the last five years before they received their pension. Today, though, claims are more likely to be about 35-year-olds unable to work due to stress.”

Alongside this change in the nature of claims, employers and staff no longer expect the working relationship to be for life. As a consequence, employers are rarely prepared to provide for an income until retirement.

Insurers are beginning to respond to these changes in society. Wojciech Dochan, head of commercial marketing at Unum, says: “We have launched a variety of products to address not just cost but also the commitment and responsibility that employers have to staff.”

Its product offerings include its Capital Option plan, which pays income for up to five years and then can provide a lump sum if staff are still unable to return to work; and Dual Benefit, which supplements the benefits of Capital Option, with additional payments to enable the business to pay for cover for the absent employee.

Other insurers have adopted some of these elements. Steve Browning, group protection product manager at Friends Provident, says: “We offer limited-term plans of two, three and five years but can do anything if asked. The only issue is once you get beyond a term of five years, there is very little saving in terms of premiums compared with a plan running to retirement.”

Ron Wheatcroft, technical manager at Swiss Re, believes limited-term products will prove popular. “A limited-term product certainly fits working patterns. I think we will see more employers taking this type of scheme out, especially where they are taking out cover for the first time,” he says.

The government’s welfare reform agenda may also influence product design. This will make it much tougher to get state benefits and encourage employers to facilitate the return of long-term absentees to the workplace. Heath Lambert’s Morgan says: “There will be a greater awareness of the need to make self-provision. [Schemes] would provide a fairly low level of income that would give a safety net but would encourage people back into the workplace.”

Group critical illness insurance is also long overdue a makeover in order to better meet employers’ needs. Wheatcroft says there is “a fundamental conflict” with critical illness insurance. “Employers are reluctant to pay for a benefit that could mean the employee decides they don’t have to go work again, [so] we expect growth to continue to be where it is an option in a flexible benefits package,” she explains.

Lowering the average sum assured on group critical illness insurance, which currently stands at £60,000 could also prove popular with employers, says Clark. “A payment of £10,000 could be used to pay for treatment or nursing or to fund any changes to the person’s home if this is required. It’s a bit of a blunt instrument given the range of severity of the conditions that would qualify for the payment but it does create a lot of goodwill for the employer,” he adds.

Further product evolution for critical illness may be driven by developments in the medical insurance market. Pressure on insurers to provide cover for cancer is forcing premiums up here, so critical illness could prove to be a valued additional benefit, says Wheatcroft. “Critical illness insurance may well evolve into a complementary product to medical insurance, providing a payment to enable the employee to fund cancer treatment,” says Wheatcroft.

With all group risk products, insurers are looking at ways they can increase the value of the proposition for employers. Added-value perks such as the health information line Bupa includes with life cover are becoming more common. For example, Canada Life includes second opinion service Best Doctors and business support service Business Care which are included in its group income protection plans, and Norwich Union includes health information, GP and stress counselling lines within its schemes. But Browning warns about extending these lists of add-ons. “They don’t always work and some employers will see a long list of extras and, if they don’t want them all, will find it difficult to justify the cost. To ensure products appeal to as many employers as possible, insurers need to be flexible about what can be [included],” he says EB New developments As well as tweaking existing products, it may be necessary to design new products to meet employers’ group risk requirements.

Group income protection could provide the inspiration for one new product. Colin Micklewright, head of income protection business development at Canada Life, says: “We have seen a lot of employers that have been self-insured move to insured arrangements so they can take advantage of the claims management. Providing the rehabilitation support on a stand-alone basis may be possible.” Glenn Laming, group protection sales director at Legal & General, adds that he would like to see such a rehabilitation product extended further. “There is a real need for a product that provides proper management of absence. More employers are looking at this and a plan that packages day-one absence management with rehabilitation tools could help them reduce the risk of long-term absence,” he explains.

There are already indications that this style of product will become more common, with insurers such as Bupa and Norwich Union working on integrated health products. For instance, at Bupa, organisations with more than 500 employees can take advantage of its 360∞ Health Risk Management product, which case manages employees from as early as the first day of absence. Graham Clark, head of group risk at Bupa, says: “We will discount income protection premiums if [employers] offer it, in some cases by more than the cost of the 360∞ service.” How have products developed? Product Old New Life assurance Up to four-times salary • A flexible multiple of salary allowing employees to choose cover that suits their needs • Added-value services to help with health issues and bereavement Group income Two-thirds of salary • Limited payment terms from two years to five years protection paid until retirement • Payments direct to the individual if they are at age 65 years removed from the payroll • Flexible payments, both income and lump sums, to suit the employee’s and employer’s needs • Smaller payments to match welfare benefits to encourage employees to return to work • More focus on claims management and rehabilitation with schemes looking at day- one absence Critical illness A lottery-style payment • Smaller payouts to support the employee insurance when a critical condition during the crisis is diagnosed • Added-value services to provide advice and support to the employee and their family