Need to know:
- Providing group risk benefits through a flexible benefits scheme enables employers to set a base level of cover at a fixed cost, which helps to manage expenditure.
- Larger employers can consolidate multiple group risk policies in order to use their scale to generate a more competitive price from providers.
- The additional rehabilitation and support services linked to group risk benefits can be embedded into an organisation’s health and wellbeing strategy; early intervention measures can then be used to reduce long-term absence costs.
In 2016, 24,925 claims were made for group risk benefits, such as group life insurance, group income protection and group critical illness, according to research by Group Risk Development (Grid) published in May 2017.
Providers, such as Maxis Global Benefits Network, have observed that employers have been interested in controlling group risk benefit spend on a local level for the past 20 years, however, there is now an increased focus on managing these costs at a global level, particularly among larger organisations. So, what can employers do to control this spend?
Make use of economies of scale
Employers with multiple policies for a group risk product should consider consolidating their policies for a competitive price, says Pauline Iles, principal risk benefits consultant at Quantum Advisory. This is because insuring a large group of employees presents a more balanced risk for providers, and can also generate a higher free cover limit because this sum is calculated based on the number of employees being insured. This means that if more employees are covered by the policy, a higher free cover limit can be achieved. A free cover limit is an amount of benefit that an insurer provides to each employee covered in the group policy without the employee needing to first provide evidence of good health.
The maximum level of free cover commonly sits at £1.25 million, with many providers offering approximately £20,000 of sum assured per employee insured, says Iles.
Employers can also take advantage of better group rates from a provider without merging policies, says Iles. Rather than amalgamating policies and perhaps losing historic features, they could amalgamate all the renewal dates and get economies of scale from their provider aggregating the overall risk.
Multinational employers can achieve competitive rates across global locations by using a multi-national pooling arrangement. This method can save employers between 3% and 5%, says Simon Ball, head of international risk and healthcare at Fidelity Benefits Consulting. Multi-national pooling creates cost efficiencies by consolidating individual local insurance policies into one international arrangement, supported by a global network of insurers.
Set costs using flexible benefits
Providing group risk benefits within a flexible benefits package is key for managing costs, says Nick Homer, head of marketing management, corporate risk at Zurich. This enables employers to set a fixed level of cover for employees, while staff can purchase additional cover or trade down their benefit to suit personal requirements. This means employers will know their exact expenditure.
Re-visit protection policies and benefits design
Re-visiting historical policies and benefits design can help manage group risk costs. For example, some insurers charge more for if a group income protection policy has a shorter deferred period before it pays out, says Homer.
However, employers with a shorter deferred policy in place may sometimes be more focused on the group income protection and rehabilitation process, which, in turn, will influence the success of an employee returning to the workplace, adds Homer.
Aligning group risk policies with internal organisational policies to shorten the time employers pay out benefits may also reduce premiums, says Ball. For example, in the oil and gas sector, many organisations align long-term disability benefits with an industry ‘physically unfit’ policy, which either releases the employee or enables them to medically retire after two years. “Instead of paying until retirement age, [employers] have reduced the cost significantly by moving to a two-year payment period from the first instance,” explains Ball.
Limited-term income protection policies, meanwhile, enable employers to cap payment terms for example at two or five years. This fits with the fact that employees no longer expect to have a job for life, and instead move between multiple employers during their working life.
Employers can mitigate costs further by making use of a government exemption that allows them to cap group risk benefits at the state pension age. This means employers may not be liable to pay for benefits as former employees reach old age. “Without a default retirement age anymore, these benefits could potentially become expensive for employers to provide over a longer period,” Homer says.
Iles adds that group life cover after the state pension age can typically be provided up to the age of 74, however, cover must cease by an individual’s 75th birthday at which point the benefit is classed as investment business. If group income protection cover is required post state pension age, meanwhile, this is typically available to the age of 70.
Utilise rehabilitation group risk add-on services for long-term cost savings
Group risk benefits should be integrated with an organisation’s health and wellbeing strategy to tackle the long-term costs of employee absence. “[Employers should] actively engage early with the rehabilitation services available because they can massively reduce [the] costs of providing the insurance because of the expected outcomes in helping to support people back to work,” says Homer.
Employers could also offer annual employee health checks. This data could forewarn employers about possible health risks in their workforce, and enable them to construct a wellbeing strategy to counter some of the potential risks and thereby help reduce to claims in the longer term, says Mauro Dugulin, chief executive officer at Maxis Global Benefits Network.