Voluntary schemes, cover for partners and the senior executive market: just some of the options advisers should present when setting up a group critical illness (CI) scheme.
Corporate risk experts have identified a need for new sales tactics if group CI is to rival the success of its cousin, group income protection (IP). They also see a need for improved education and new marketing techniques. In short, many advisers need to think again about how they sell group CI.
The good news, according to Unum director of marketing Eugene McCormack, is that early evidence suggests group CI is helping to increase the overall group risk market, rather than taking business from existing products. “Premium income has the potential to be as big as group IP. It should be sold as an addition to this product, not an alternative,” he says.
McCormack says IFAs must first educate employers on how the product can help them run their business. For example, IFAs could show smaller companies that it is a good way to reward long-serving staff. “The chance of making a substantial ex gratia payment to loyal staff is rarely understood, because IFAs are not articulating this particular benefit,” says McCormack.
Legal & General group risk director Jane Dale believes one constant problem faced by the industry is that, while individuals appreciate CI, their bosses are often reluctant to open their pockets. “There is a lot of interest from companies, and we are doing a lot of quotes, but that is not always translating into sales,” she says.
“It is a big commitment for an employer to offer a new style of benefit.”
In this environment, IFAs must pitch the product carefully. Dale says: “Often group CI is more about offering a choice of benefits than committing the employer to ever increasing costs. A lot of employers prefer to match different products to individuals’ needs, rather than giving everybody, say, life cover. CI may be better for many staff, notably single people.”
The product often works best either as a voluntary benefit or menu-style cafeteria benefit. “We offer a traditional group scheme where the employer pays, but we also have an employee-paid scheme – where we see the greatest potential,” says Dale.
Product innovation is unlikely to drive new sales, according to Dale. “Most employers are looking at value for money and a good reputation for paying claims promptly,” she says.
Legal & General has been looking to combine group life with group CI cover, but its attempts have foundered on underwriting technicalities. The two products are underwritten in completely different ways. Most group CI policies exclude pre-existing conditions, but life policies are not individually underwritten, and it is quite difficult to marry the two.
Swiss Life communications manager Nicola Smith says advisers should promote group CI as more than just a cash payout.
When Swiss Life relaunched its policy in April, it added health advice service Red Arc Access.
This service shows people how to access data and charity care or contact people with similar conditions. It also advises claimants how to spend their lump sum to help them recover or improve their quality of life.
The message to employers is that the product is more about protection than simply being a perk. “It benefits the employer, because the money can be used to get the person back to work, not just to pay off their mortgage,” says Smith.
Smith even suggests that group CI can play a role where private medical insurance is deemed too costly. “CI is a way of covering major private medical risks such as heart surgery. It can help people escape a long wait on the NHS waiting lists,” she says.
Like most industry experts, Smith believes group CI should not be sold as a substitute for IP. Yet when the two types of policy are made available on a voluntary or flexible basis, it can often prove the more popular. “People buy it because they understand it. They often think about the short-term consequences of illness rather than the longer-term difficulties,” says Smith.
Generally, group CI is still sold as a perk to senior company executives, but Countrywide Independent Advisers protection researcher Dale Tranter has also identified staff in technology companies as another key sector. He says: “These employers must compete to attract staff, and are looking for ways to attract people beyond up-front salaries.”
However, Tranter believes companies with established IP plans are unlikely to add CI. “I would target companies that have group life cover but nothing else. CI would be the next step up the company benefits ladder,” he says.
Group CI can also work as a substitute for IP for higher-risk blue-collar occupations, where protecting income can be prohibitively expensive, often two or three times the cost of critical illness. Tranter says: “Offering £20,000 or £30,000 in this market would be seen as a significant employee benefit. For relatively low outlay you can provide at least some cover, and it would be much appreciated.”
Swiss Re Life and Health group risk manager Ken Richart agrees. “With higher-risk professions, many insurers find IP too risky,” he says. “They will not touch the police force or nurses with a barge pole, but why not offer critical illness cover?”
Richart sees opportunities for affinity groups and other bodies to provide schemes to their members. “Trade unions could provide say, £10,000 cover for their members by upping their annual subscription slightly. Motoring organisations like the AA and even issuers of store cards could offer this in the same way as accidental death benefit. It would not cost a great deal to offer £5,000 to £10,000 cover. The industry should explore the opportunities for unconventional group schemes to expand growth on a broad front,” he says.
However, experts are not predicting rapid future growth.
Richart thinks growth will be “steady but not spectacular”. He says: “We know this type of cover is important, but employers have a lot of other things to think about. These things always take longer than you think to sink in, and we can’t expect to see growth rates double or treble overnight.”
Royal & SunAlliance updated its group CI product in August. Group risk market manager Peter Anderson said the company was concerned that while many IFAs were asking for quotes, a relatively small proportion of employees were signing up.
However, research has identified several areas where brokers face difficulties.
The first is the pre-existing conditions exclusion. “This also extends to related conditions, which means the exclusions can be quite broad. High blood pressure, for example, could preclude a claim for heart attack or stroke. IFAs are reluctant to recommend the product if claims are excluded and the employer sees no benefit for its premiums,” says Anderson.
Royal & SunAlliance has attempted to overcome this by providing free cover for related illnesses, within set limits. The free cover limit on the scheme is £2,500 multiplied by the number of employees on the scheme — giving a member of a scheme covering ten employees up to £25,000 free cover.
The second problem is overcoming employer scepticism over the windfall nature of a CI payout. Employers’ concerns have been magnified by the fact that many IFAs have been automatically offering quotes on four times salary, as they do for death-in-service benefits.
Anderson says: “This is quite expensive and a no-no for many employers. By asking for expensive quotes the IFA may immediately have lost the opportunity to talk about what is a very valuable product.”
Royal & SunAlliance believes IFAs need to reassess their marketing. “It is important to pitch the right level of benefit for the company,” says Anderson. “This will be different than for an individual contract, where you are generally looking for the biggest benefit the client can reasonably afford. Employers don’t want to give their staff early retirement courtesy of CI cover.”
Anderson believes group CI has two roles – as executive cover, effectively personal cover bought through the company, and as a general staff benefit. “Group CI is more complex than many IFAs realise. The IFA must understand what the individual employer wants to do, rather than having a set idea of what they need,” he says.
Another opportunity is to extend cover to employees’ family members. “The biggest hidden benefit is to extend cover to a spouse and even children. The potential impact on a business if a key member’s spouse falls ill is massive. It could affect their ability or desire to be in work every day, particularly if the kids need looking after. CI can help meet the costs of care and support, and it is not that expensive to extend cover,” he says.
Finally, Anderson says the relatively small number of group CI schemes currently in place gives companies with a scheme a competitive advantage. “A lot of businesses in the UK are struggling to find and keep good quality staff, particularly in areas such as information technology,” he says. “CI gives them the chance to offer something their competitors do not have.”