Providing protection benefits for staff is often down the priority list for cash-strapped small businesses. But, as regular HI Daily contributor Sam Barrett reports, the low cost and high perceived value of group life cover means it often proves a surprise winner with employers and employees alike.
With a handful of employees and tight budgets, SMEs are rarely seen as a natural home for group risk benefits. But, while these factors might put many insurers and brokers off, some believe this market offers solid opportunities for group life.
The key driver for this is auto-enrolment.
“Now that it’s become the norm to offer a pension, employers who want to attract and retain key employees are realising they need to do more,” says Liz Walker, HR director at Unum. “They want to be able to offer benefits their employees value.”
Step forward life assurance. Its low cost and high perceived value means it’s a winner with employers and employees alike.
“Everyone needs the financial protection that life assurance offers, regardless of the size of their employer,” says Katharine Moxham, spokesperson for Group Risk Development (GRiD). “SMEs are competing in the same talent pool as larger companies so they need to offer an attractive benefits package.”
And, while few would want to use the policy, employees do find life assurance an attractive benefit. Chris Saunders, head of business development at specialist advisers The Health Insurance Group, says employees often perceive it as having a greater value than a pay rise.
“They like the fact their family will have some financial protection if they’re not around,” he explains. “It shows them that their employer cares about them.”
But while there may be a solid business case for group life for SMEs, there are barriers to taking it out. Cost is a major issue, not least because SME employers will already be feeling the financial squeeze as a result of auto-enrolment.
While some will inevitably baulk at any additional expense, research by Canada Life shows that many employers over-estimate the cost of group life. In research conducted in focus groups in April 2015, it found that 91% of employers thought group life would cost more than 1% of pay roll costs, with 5% thinking costs would exceed 5% of pay roll.
Paul Avis, marketing director at Canada Life Group Insurance, adds: “Employers think group life is expensive but it can cost as little as 0.1% of salary costs for a fixed benefit of £25,000.”
But, even with an understanding of the cost of cover, employers can often shy away due to the hassle associated with offering employee benefits.
“SMEs won’t have an HR department so arranging benefits often falls to the office manager or the owner,” says Andy Stephenson, business development manager for group risk telebusiness at Jelf, the national intermediary. “Without the expertise, it can seem overly complicated.”
There’s also reluctance from advisers to tap into this market. As these firms lack the scale of a scheme with 250 or more members, commission from an SME sale can seem very slim. Likewise, justifying a fee is difficult, especially where it might be larger than the total premium. Avis says this is a misconception.
“Advisers can get up to 30% commission for every year a scheme is in place. This can help them build renewal commission to replace lost pension revenues,” he explains.
Alive to these issues, several of the insurers have launched products specifically for the smaller end of the market. These are more streamlined to make them easier to understand and sell.
Unum offers Simplicity Life, promoting it as ‘an affordable solution for employers who want to give a basic level of life cover to their employees for the first time’. To achieve this it offers cover in multiples of £10,000 up to £100,000 per employee. The plan is flexible enough to allow employers to offer different levels of cover to different groups of employees, and there is no medical underwriting.
Canada Life has also gone down the SME route, offering Simply Class to groups with between two and 50 employees. All employees must have the same level of cover and employers can choose from four levels of cover – £25,000, £50,000, or one or two times salary, subject to a maximum of £150,000.
As well as the big boys of group risk, smaller players such as Ellipse and Optimal Protection are courting the SME market. Ellipse, with its strap line of being the digital group risk insurer, has always provided cover for groups as small as two members while Optimal Protection launched its Simple Group Life to cater for those with up to 300 members.
“It’s a huge untapped market,” says Emma Grogan, business development manager at Optimal Protection. “We keep it simple, with two options for cover – £50,000 and £100,000 – and it’s priced per person per month. There’s no need to collect information such as age and occupation.”
Cash plan providers have also ventured into the group life market. For example, BHSF offers benefit levels of £25,000, £50,000, £75,000 and £100,000, for groups of 100 or fewer employees. Larger groups can take out the two lower levels of cover but are subject to approval for the higher cover levels.
Although different designs, all of these SME friendly products have a number of key features in common. While Canada Life offers an option for multiples of salary, most stick with set amounts of cover. This helps to streamline the application process but also makes it easier for employers.
“Multiples of salary are difficult to communicate and budget for,” says Unum’s Walker. “A set amount of cover gives certainty and sustainability. The employer knows what it will cost, even if salaries increase.”
Master trusts are another common feature. These ensure the group life policy is tax-efficient and saves the employer the hassle and cost of setting up and administering a separate trust themselves.
Simplified underwriting is also a must on these plans.
“We only need the date of birth, gender and postcode of their workplace to provide cover,” says Avis. “There’s no need to provide details of occupation. This makes the process simpler and faster; advisers can quote and place a policy on risk in less than five minutes.”
Plans also include additional benefits, for both employees and their employers. For example, among the benefits on offer, Unum provides a bereavement support service, Canada Life, bereavement counselling and a probate helpline, and Optimal Protection an employee assistance programme. Moxham says these alone can be worth the expenditure.
“Extra benefits can help to keep employees engaged,” she explains.
Designs on distribution
But a streamlined, fuss-free product isn’t the only answer to the problem. Stuart Gray, chairman of Pure Benefits, says:
“What’s changed to make SMEs want to buy group life? There’s been plenty of focus around the product but distribution is what needs to change to tap into this market,” he says.
Understandably auto-enrolment is the key trigger for many advisers. This is the route taken by Jelf’s Stephenson.
“Auto-enrolment offers a great opportunity to promote a wider range of employee benefits to SMEs,” he explains. “Group life is one of the cheapest and should, therefore, be one of the first they consider.”
Group life is also seen as a potential add-on to a medical insurance sale. Saunders says his firm had always sold group life when asked by clients, but it had started to promote it much more proactively in the last couple of years.
“At the smaller end of the market, group life doesn’t generate a lot of earnings for us but we view it more as a way of being seen as a trusted adviser,” he explains.
While there are obvious synergies with these two product lines, Gray has taken it a step further and overhauled SME distribution through Pure Benefits. This offers SMEs access to a range of benefits including group life, medical insurance, business travel and dental insurance, that can be purchased online to save time and hassle. Administration is handled online, making it easier for employers to manage benefits, and they also receive a free HR solution to help manage holidays and so on.
As well as being able to buy the products they want, employers can also get online support to help them chose benefits that suit their workforce. For example, if they specify a budget, an adviser can recommend an appropriate benefits package.
An important part of this model is Gray’s decision to go for a preferred provider rather than a whole of market approach.
“At the smaller end of the market, a whole of market review might give you quotes ranging from £1,700 to £2,300 but if your fee is £1,500, it’s immaterial that your preferred provider came in at £2,000,” he explains. “Our research found that as long as they got a fair price and the process was quick and simple, SMEs really weren’t bothered about a whole of market approach.”
This is an approach taken by other advisers too. For instance Stephenson says his firm has a preferred provider for SME group life, with the vast majority of clients more than happy to take this route rather than rack up costs associated with a whole of market review.
Keeping it simple, with easy to understand products and a slick, hassle-free sales process, is key to switching the SME market onto group life. And, with just under one million firms with up to 25 employees, getting this combination right could be very rewarding.