The group risk market is going through a great period of change at the moment, according to Nick Lomas, marketing manager at UNUM. This is good news for IFAs and for product providers. Traditionally there have been four or five main product providers, and the intermediary market has been dominated by national brokers such as Aon, Sedgwick and Hogg Robinson.
But changes in this market have created opportunities for regional brokers and IFAs.
Colin Fitzgerald, broker sales manager with Generali, says: “The client base of most IFAs offers a lot of opportunity for cross marketing. Many are advising company directors and businessmen on a personal level and it is worth asking who advises their company on health, life and pension products.”
More smaller companies are now looking to provide health and pension benefits for staff. And there is even potential to sell to larger corporates – many of which are now looking to extend the benefits on offer to staff.
A large corporate may have always provided free healthcare for its top executives. But financially most employers are unable or unwilling to provide this same level of cover for the entire workforce. This has forced insurers to design and market new products that meet the financial restraints and needs of this new customer base.
These changes have largely been driven by economic factors. In the recession many employers cut back on the benefits they offered to staff – and this obviously included perks like free medical insurance. But as economic conditions have improved, and unemployment has fallen, companies are again using the lure of employee benefits to recruit and retain staff.
But, as the name implies, group risk products are about more than providing benefits for staff. Primarily the different products that make up a group risk package are there to benefit the employer not the employee.
By offering perks such as free healthcare, an employer can reduce the risk that key members of staff will leave. And, if they do fall ill, staff can be treated immediately, or at a time that is convenient for work.
Other elements of group risk packages, such as death in service or life insurance, long term disability cover or income protection, group critical illness, and personal accident cover, help control the employer’s costs.
Lomas says: “Most employers have a responsibility to provide sick pay if staff are absent from work for a period of time through illness or injury. Employers buy long term disability insurance primarily to cover that risk.
“Similarly, many feel a moral obligation to provide some lump sum or salary to an employee’s family if they die in service, so again life insurance offers financial protection for the employer as well as the employee.”
Critical illness is one of the newest covers available and has only been available on a group level for three or four years.
Peter Anderson, group risk marketing manager with Royal & Sun Alliance, says: “Sales of group critical illness have been comparatively slow, especially when compared to the buoyant sales in the individual, market.”
But with many people now surviving heart attacks and strokes, staff are more likely to appreciate this cover. However, some employers are still reluctant to provide it. Anderson says: “If staff automatically receive a couple of thousand pounds when they suffer a mild heart attack, this is not much of an incentive to return to work.”
Insurers are now looking at hybrid products. Legal & General offers one which pays out if the employee is unable to return to work, rather than simply on diagnosis.
The other major element of a group risk package is pension provision.
With the erosion of the state benefits there has been a boom in personal pension provision over the last 10 years, and staff are likely to value a good pension package as a key benefit.
One of the biggest changes in the group risk market has been inspired by moves in the American market.
Many US companies now offer their employees “cafeteria” or “flex” benefits. These let the employee choose which benefits they want.
Workers with families are more likely to choose comprehensive life cover, while younger single workers an more likely to value a few extra days holiday a year, or additional payments to a pension plan.
Some players, such as Guardian, are pioneering this idea in the UK. Guardian’s Corporate Protection Menu offers a complete range of group risk products. But generally it is still the employer who chooses which benefits are available to which staff.
For employers this approach has the advantage of dealing with just one provider, cutting down on administration and often costs.
But most employers in the UK still chose from a range of providers. This is where the IFA clearly has a key role to play, both in trawling the market to find the best deal and handling much of the administration.
At Generali, Fitzgerald says: “In the UK market the intermediary has a big role to play. First identifying the right product to meet the employer’s needs, then finding the right company to provide this product at the right price. Most companies are reluctant to put al their eggs in one basket.
“ One of the strengths of the UK market is that there are a number of specialist providers. Generally IFAs are not looking to provide off-the-shelf products but to work with both the insurer and the employer to provide tailor-made solutions.”
He is backed by Anderson, at Royal & Sun Alliance, who says: “There are advantages in using one provider who can offer everything, but many employers still feel they can get better value for money, plus a better product by using a number of specialist insurers.”
He adds: “Economic generalisation is dangerous is this area. To sell successfully in this sector IFAs and brokers have to understand the different drives that motivate employers to buy these products.”
Anderson advises that IFAs should first look at the sector a company work in. Traditionally the benefits provided will depend to a certain degree on pressure from competitors.
He says: “The financial services industry for example historically has always provided excellent staff benefits. Employees working in this field are going to expect a similar level of cover if they change jobs.
“Industries with strong links to unions are also likely to provide a reasonable level of staff benefits. Whereas newer industries, such as the IT sector, where pay is well above the national average may feel that they do not have to pay for the same benefits.”
Within these different sectors there will be different company cultures. Some may take the attitude that if they are paying above average wages, then it is down to individual employees to decide whether they want to use that money to arrange their own pension plan, fife insurance or income protection cover.
Reputation Other companies may build up a reputation of offering staff a comprehensive benefit package.
As well as price and cover, IFAs are now looking at the additional features that many products offer. Peter Timberlake, public relations manager with Legal & General, says: “With so many products in the market these additional features can help to differentiate certain policies.”
Many providers now offer employers access to helplines as part of a group risk product. Legal & General operates a bereavement helpline as well as a medical helpline.
Not only are these valued by staff, but by providing free counselling and advice they can reduce absenteeism.
Timberlake adds: “Insurers are not just interested in providing cash in the event of sickness or death, they are also looking to provide some sort of care.”
Risk management is another area where both the IFA and the provider can work together to provide an added value package for the employer.
With income protection claims, many insurers now offer services to help the employee back into work.
Anderson says: “Lots of employers are now looking to insurers to provide a managed claims service. If someone is off sick for 12 months there needs to be regular contact and assessment to help them back into the workplace. If they cannot do their old job, then insurers can work with the human resources department to ensure that training is given so they can return to work.
“Recent legislation has strengthened the position of disabled employees in the workplace, so it important that insurers, IFAs and employers work together to help an employee back to work where possible.”
IFAs should also look hard at an insurer’s claims record. This is of particular importance to the employer. Timberlake says: “If there is any delay in paying a claim, whether it is an income protection claim or a critical illness payout, then it is the employer that is going to seen as dragging its feet, not the insurer.”
One of the biggest areas of growth is in voluntary schemes. Peter Fenner, a marketing consultant with Swiss Life, says: “There has been a huge surge of interest in voluntary benefits. Most of the new business we are writing is in this area.”
As most of the new business is coming from small companies and larger corporates looking to extend their benefits package, it often makes financial sense to introduce a voluntary scheme. These cost less for the employer as they make little, if any, financial contribution to group PMI or critical illness policies.
But by negotiating on behalf of a large group with an insurer they are able to offer their staff big savings on any these schemes. So they are still seen as providing a benefit, as well as keeping some control on risk.
Fenner says: “These voluntary schemes can create difficulties for insurers. Many of these schemes tend to be self-selecting, so someone with a family history of heart disease is more likely to join a group critical illness scheme. But many insurers will now offer these on types of schemes on a moratorium basis, so previous conditions are excluded for the first few years. On a life insurance policy, often it is only accidental death that is covered in the first year which helps reduce claims.”
He adds: “There are still a lot of development yet to happen in this market, particularly with regards to group income protection.
“Research shows that there are lots of people still not covered by these schemes. But the main reason employers do not provide this cover is because they simply cannot afford it. Everyone can appreciate the benefits, but for occupations such as scaffolding it is virtually impossible to get an insurer to provide cover, let alone at an affordable price.”
Fenner says he has “no idea” how insurers can develop a product that offers the cover employers want, at a price they can afford. But he adds: “There must be a way. I am sure it will not be long before insurers are offering group risk packages to these types of employers”.