Group critical illness has been with us for over a decade, yet with only 300 400 schemes in operation, it still commands just a fraction of the insurance market. And, given that latest figures show total revenue premiums standing at £2.3m, it seems that GO has yet to reach critical mass, let alone critical acclaim.
And even though progress is now being made in the market, there is still a long way to go. Adrian Pinington, group risks actuary at Swiss Re, who hails from South Africa, original home of GCI, points out some crucial differences in the two markets which partially explain the slow beginnings for GCI in the UK, but which also indicate cause for future optimism. Pinington explains: “In South Africa, one in six companies with group life schemes offer GCI – quite material penetration compared to what we have here. The lack of social security in South Africa may have created an effect on mind set. But the perceived winding down of the welfare system over here has opened public opinion towards all sectors of PMI, including critical illness.”
The validity of his comments can be seen in the figures. The voluntary sector is now the UK’s fastest growling CI sector. And, according to Brian Rawle of Guardian: “The employer may be happy to sponsor GCI and look for other advantages of going in on group terms – employers are looking hard at this at the moment.”
Pinington observes that in South Africa, GCI is almost exclusively sold as an acceleration of cover, which can make it appear cheaper. In addition clients there typically do not have to reinstate, whereas here, the individual has to survive a qualification period before a benefit is paid.
As a result he believes there are avenues to be pursued on the issue of continuing cover, right across a range of policies – GCI, group life and PHI – that would extend their attractiveness. Contracts exist in South Africa for a continuing insurability option whereby a person in a group scheme who has survived the pre-existing conditions period can effect another contract with that cover on changing job regardless of their state of health.
This is not the case in the UK and could make GCI less attractive to the employee.
But it is not as if the companies offering GCI cover in the UK haven’t tried hard enough. Skandia, a market leader in individual CI, is not alone in dipping its toe in the group market, but in the early days it seems the demand was not there. “Although we didn’t actually have a group scheme in operation at the time, our view was that we would set up a scheme for a specific case, and would then be in a position to promote that as our group critical illness scheme,” says life marketing manager Lynda Cox.
But Cox says typically she would receive two enquiries a month from companies ranging from five employees to nearly 500,000.
And she believes that first and foremost there were, and still are, some problems with GCI itself.
Firstly, the introduction suffered from the well-documented matter of timing. Initially introduced to the product at the height of the recession, employers were reluctant to increase their wages bill. If they already had in place benefits such as pensions, life cover or PMI, that was considered perfectly sufficient. Critical illness wasn’t the norm at that time, there was no pressure from unions or employees to provide it, so employers could not be castigated for not doing so.
Cox also maintains that there are wide differences in the effects of various conditions that do or do not qualify for GCI. An employee who has undergone major heart surgery, which is covered by the policy, may return to work fully recovered, having received up to four times his salary, whereas a colleague suffering from an uncovered but debilitating complaint – such as arthritis or asthma – will get nothing.
Thirdly, employers are concerned about just how quickly an employee who has been paid a large lump sum is going to hurry back to work.
At the same time, Brian Rawle, marketing manager of Guardian Employee Benefits, points out, it does not make sense for the employer who is paying the premium to see an employee back and earning after having received a large sum of money.
Legal & General, which launched GCI in 1991, also experienced a slow start. “For the first few years, nothing really happened, and it’s only in the last 2-3 years that GCI has really started to take off,” comments group risk marketing manager, Rebecca White.
Perseverence seems finally to be reaping its rewards and, although revenue figures in themselves give little to get excited about, market growth in the past year tells a different story, with an 121% increase for GCI in 1997 against 6% and 18% for group life and group PHI respectively. White says: “I certainly think there are a lot of opportunities in the GCI market, primarily because it is a product that suits everybody, irrespective of their personal circumstances.”
For working people without dependents, there is growing realisation that critical illness cover is far more pertinent than life cover. “The likelihood of someone getting a critical illness is much higher than them dying before they retire,” says Rawle.
And White believes the upturn in GCI sales has been led by the success on the individual side, which has brought awareness of the product to the forefront. As more and more individuals take out cover, so the employers will increasingly come to see it as an added benefit that they can offer in a market that is now fighting a lot harder to keep valued employees than a decade ago.
What has struck many in the industry is the diversity of people taking out the policy. According to group risk operations manager John Woolfenden at Royal & Sun Alliance, when the company first launched GCI, sceptics predicted it would only sell as executive packages – that is when GCI was used as an additional benefit to already existing benefits.
But Woolfenden says these pessimists have been proved wrong: “In reality, we have found a real cross section of policies – blue collar schemes are equal to professional schemes – and GCI hasn’t got the `elitist’ tag that people thought it might.”
This can largely be explained by the fact that the alternative, PMI, is quite expensive for blue collar workers whereas with critical illness, there is little cost difference between the two employee sectors.
There is evidence that whatever the delineation of coverage, it is employees within the workplace who are pushing to have GCI introduced on a wider scale. Martha Catterall, senior financial planner at IFA firm City Independent Financial Planning, is a strong advocate of critical illness cover, both individually and on the group level, and believes that decision makers among employers are starting to take it more seriously.
She cites increased press comment, together with the growing trend in the flexi-menu style of benefits, common in the US and becoming more prevalent over here, as factors that will play a large part in the growth of GCI. Although more expensive for the employer than life cover, she believes the employers need to be more inclined towards GCI because of its wider relevance. “One in five women, and one in four men are going to suffer a critical illness of one form or other during their working lives,” she says. “You have only to look at the premiums for life and critical illness to see that the chances of getting ill are far higher than death in service.”
Like Rebecca White, Catterall believes that pressure from below will induce employers to look at GCI more seriously, but she believes that both employers and employees need to be educated on its merits of GCI: “It is a bit of a vicious circle that needs to be broken because if employees were more attuned to how valuable benefits are, they would put more pressure on their bosses to provide them.”
She believes employees do not pay enough attention to their company benefits but if, say, a 20 year old were to be given the choice of GCI or group life, they would take GCI every time.
If GCI is to continue to grow, Pinington believes attention should be paid to a crucial area that is not currently being addressed: “Of all those parties involved in the product, insurance companies are happy to sell it, brokers are happy to get the commission, reinsurance firms are happy to share, and members are happy to have the benefit. The employer, on the other hand, sees none of the benefits – he sees only the cost.”
If this were changed to provide compensation to the employer, who may need to bring in temporary help or replacement, he believes it could alter employers’ perspective of GCI.
Lynda Cox is certain that demand will grow and the market will change. “As CI becomes more well known as a financial planning product for personal assurances, then people will start to wonder why their employers are not offering it,” she says.
“In 10-15 years GCI will be a reasonable part of a good employer’s package. I certainly believe there is a place for it and if handled properly, I think it will do very well.”
In Catterall’s experience the level of companies who offer GCI is still very low – probably less than 10%. She says: “On the other hand, this shows the potential market for GCI – it’s absolutely massive!”