In spite of the arrival of new players and products, there has been little increase in the size of the group risk market for many years. But, with significant changes on the horizon for both the workplace and the role of the employer, the industry is confident that the future will see much healthier levels of growth.
Key to this growth is the shift of benefit provision away from the state and on to the individual and employers.
“We’re already seeing an increase in sales as a result of pensions auto-enrolment and this will pick up over the next few years as it’s rolled out to smaller companies,” says Steve Bridger, head of group risk at Aviva UK Health. “Welfare reform has even more potential to drive sales. As employers start to take greater responsibility for their employees’ health and wellbeing, this will bring plenty of opportunities, and challenges, to the group risk industry.”
How big an opportunity the Government’s welfare reform will be is still uncertain but early indications suggest the group risk industry could have an important part to play in the future. For example, the Government’s announcement of a £500 tax break for employers providing health interventions to help employees back to work, is widely regarded as the beginning of a trend to incentivise employers to take some of the welfare budget burden off the state.
COMPULSION ON THE CARDS?
Although they admit it is still a little early to call, some are even pinning their hopes on the introduction of an element of compulsion around group risk benefits.
“Between now and 2018 it’s all about pensions but after that we could see the Government look to make some form of income protection [IP] compulsory,” says Paul Avis, marketing director at Canada Life Group Insurance. “The model for a compulsory ill health benefit is already out there in countries like Australia and Sweden.”
Whether or not an element of compulsion is introduced, welfare reform is certain to drive some product development in group risk. As an example the Government’s work on sickness absence has helped to increase awareness of the link between health and productivity and this may lead to a repositioning of some group IP products.
Linda Baker, market development director for Legal & General Group Protection, explains: “Employers are becoming increasingly aware of this link and the need to increase employees’ resilience. The group risk market could build on the preventative benefits it already offers with the insurance element very much regarded as a backstop.”
Having this broader remit could also mean markedly different products. As an example Tim Johnson, managing director of Gallagher Risk and Reward, believes there is room to combine elements of medical insurance with IP.
“A hybrid product would enable employers to better manage employee health,” he says. “It would make sense but, at the moment, there’s only one provider, Aviva, that offers both.”
Combining healthcare products could also address some of the issues seen on medical insurance. For example, rather than include cancer cover on the medical insurance, an employer could use critical illness insurance to provide employees with a payout to enable them to access cancer treatment. Although not a direct comparison, this would result in more sustainable pricing.
While there is room for products to become more comprehensive, given the increased take up there is also an expectation that there will need to be simpler, lower cost options too.
Nick Cosh, group risk manager at PMI Health Group, is already seeing this demand as auto-enrolment is rolled out.
“Employers don’t always want to extend an expensive benefit to all their employees so I expect to see more insurers launching lower cost, cut down products that provide some cover,” he explains.
Insurers have toyed with this for some time with limited but growing success. For instance, Swiss Re’s Group Watch 2013 reports that 13.2% of group IP schemes have a limited benefit term, up from 11.7% the previous year. Greater take-up could help to push these figures further still.
As well as new product design, the way employers provide benefits is also likely to change in the future. While many employers will continue to offer traditional benefit packages, as a result of factors such as auto-enrolment and improvements in technology, flex and voluntary schemes are likely to become more popular ways to distribute products.
This flexibility suits a number of trends that are occurring in the workplace. Changing demographics mean employers now need to provide benefits for a more diverse workforce.
Additionally, with auto-enrolment introducing an element of compulsion, it also fits with the notion of shared responsibility between employer and employee.
“Employers will increasingly become a channel for the distribution of products without necessarily making a contribution to them,” says David Williams, director of group protection at Friends Life.
But while this will potentially put the group risk products in front of a larger audience, it does also present challenges for employee benefits professionals. Andy Stephenson, national sales manager, UK employee benefits at MetLife, explains: “Where employees have to choose their benefits, employers will have to do more to ensure they understand what they need.”
He expects this to fuel the growth in financial education and communication programmes, both online and through more traditional paper-based methods.
With greater demand for group risk products, providers and advisers will also be under pressure to improve the service they deliver. Many within the industry recognise that the technology surrounding group risk products is already showing signs of age, with these becoming glaringly obvious as advances such as auto-enrolment and real time information are rolled out.
Avis is among those who believe it is time for the industry to think more about its use of technology.
“I do see resistance from insurers and advisers when it comes to technology but it would enable us to improve functionality and underwrite risk more intelligently,” he says.
As well as more intelligent systems, it is anticipated that an industry-wide quote engine will be built to enable advisers to compare products faster and more easily.
But, while this will be a significant step forward, Avis believes it is only the start of the group risk industry’s technological revolution. He would like to see group risk insurers using more data to underwrite their products.
He adds: “Other parts of the insurance industry are using more data to price accurately and it’s something we should explore too.”
ADVISERS AND INSURERS SHARE THEIR THOUGHTS ON THE FUTURE OF GROUP RISK
Tim Johnson, Gallagher Risk and Reward
“I can see group risk products being much more closely aligned to Government policy. By using tax incentives the Government could shift some of the cost away from the state in the same way it is doing with pensions. As an example an employer might receive a tax break if it puts sickness insurance in place and employees opt out of the state system. Then once auto-enrolment has been rolled out it could also lead to more compulsion around IP, perhaps with the Government requiring employers to provide benefits that at least match current state provision.”
Andrew Potterton, Unum
“I don’t expect to see the Government introduce compulsion for group risk benefits. Instead the industry must look at showing employers how products and services can meet their requirements. Repositioning the product by highlighting the benefits and explaining that it’s not always necessary to have the Rolls Royce plan will help to increase take-up and bring costs down.”
Andy Stephenson, Metlife
“I expect to see changes in the group risk advice market. The Retail Distribution Review (RDR) is already leading to greater interest in group risk from intermediaries looking to change their business model. This helps to raise awareness of the products, although a training exercise will be required to ensure that the levels of expertise are maintained. In time RDR may also be extended to the group risk market. It would be difficult to police in the corporate environment but it would create greater clarity around commissions and fees and help to raise professionalism. That said, I do believe that, as most intermediaries do already disclose this information, they are ready for RDR, if and when it happens.”
John Kerr, Kerr Henderson
“Group risk technology must improve in the next few years. Unit rating was conceived to make life easier when arranging schemes but we’ve got computers now and the data required is readily available. Insurers need to use technology to give us a more streamlined process but also to provide an easier means to compare products. They’re working on their own quote portals at the moment but we need a single point of entry to make it easier to arrange cover.”
Steve Bridger, Aviva UK Health
“If we want group risk to have a bigger role in the future we need to kick off an awareness campaign now so that employers will understand group risk. It’s not enough to wait for state provision to decline. We need to be proactive.”