The success of group critical illness (CI), compared with other risk products, such as life and income protection (IP), can be seen in its growth-rate each year. But why is it gaining popularity? And is it likely to overtake the growth of other group risk products?
GE Frankona Re’s annual survey of the group risk market, conducted on behalf of Group Risk Development, shows premium income rose over 50 per cent in 2000.
The group CI figures rose to nearly £10m with 1,117 schemes being sold – from nearly £6.5m in 1999 when 819 schemes were sold.
Over the same period, group life took £650m in total premium revenues, up four per cent from 1999. And group IP took £400m in premium income in 2000 compared to £350m in 1999.
But as these products appear to be constantly growing, is it likely – or possible – that group CI will catch up?
Stuart Gray, the director of Taylors Risk and Healthcare, has his doubts. He says: “I don’t see group CI catching up with the others as it’s small in comparison. Most clients view CI as a nice-to-have product rather than an essential – unlike the other two.”
Peter Fenner, GE Frankona Re’s marketing analyser, says: “You would expect more growth than in the group life and IP markets, which are that much more mature. Also, group CI is better included in flex and voluntary schemes.”
However, Peter Anderson, who leads the corporate team at Royal & SunAlliance Life, agrees with Fenner. He says: “Private medical insurance is at a similar stage to CI and has seen some tremendous growth. It has proved to be a very acceptable benefit which is encouraging for group CI.”
Swiss Life communications manager Nicola Smith also attributes the growth of CI to flexible and voluntary benefits. She says: “Here, the employer is the gatekeeper or facilitator of benefits and it is easy for employees to understand. They like having choices.”
Smith says intermediaries should take advantage of the increased number of opportunities to discuss welfare provisions with employers as a result of the advent of stakeholder pensions. She adds: “Group CI is still a fledgling product and used to be for top executives within a company but now it is being used across the board for the majority of employees.
“There is scope for larger schemes, although the majority of our business is small group.”
Unum’s marketing manager Eugene McCormack says group CI in its infancy was “incredibly slow to take off” unless it was tied to a mortgage or other purchase.
But he too sees the potential for group CI now that the introduction of stakeholder pensions is forcing intermediaries to consider other revenue streams.
He says: “Intermediaries made a reasonable income on giving advice on pensions but they will now struggle on the one per cent charging structure. Now intermediaries must look towards the protection market. There are great opportunities for articulate business-minded, organised intermediaries to go with group CI.”
McCormack advises intermediaries to educate clients about the differences between the products under the group risk umbrella. He says: “IP stands alongside group CI – but is not a replacement package.
“It’s very relevant in today’s world and is a good life-style protection vehicle. It is important to articulate the offering of both concepts to the consumer who may be confused by them both. This is what good advice is all about.”
However, he adds: “I cannot see it overtaking but there will be increased penetration. CI is the modern solution to life insurance. Medical engineering keeps people alive and their capacity to earn is hindered if they get any one of the critical illnesses.”
But he has noticed a trend towards more stress-related claims and declining levels of musculo-skeletal claims because the business environment is more demanding. He says: “It seems that people are less likely to hide the effects of stress, perhaps we live in a more open society.”
McCormack says: “Some employers may be reluctant to take out group risk schemes because of the perception they may be costly. However, they should recognise that without the benefits of a group risk package they are potentially self-insuring because they are likely to pick up the cost of their employees’ sickness and absence directly.”
He asks: “Are companies really aware of the cost of self-insuring?
“In the US, absence and disability costs around seven per cent of the pay-roll.”
Fenner says: “Most independent financial advisers (IFAs) seem to steer clear of the group risk market because it is a specialist market and requires a commitment to set up dedicated systems, manpower and resources to handle.
“The margins involved tend to require business to be written in large volumes for it to pay its way.”
He suggests that offering schemes where benefits are limited could be a solution. One option would be a group IP plan with limited claim payment periods. Alternatively, he suggests a focus on voluntary benefits, where the employer sets up an attractive arrangement on behalf of their employees but the individual employee must contribute to their preferred benefits.
However, the disadvantage for insurers is that these schemes are likely to pick up those people who think they are likely to claim while leaving healthy ones indifferent.
He says: “It isn’t easy coming up with ideas that grab the public – insurance is a pretty dull concept for most people and the old maxim that it is sold and not bought still holds good a lot of the time.”