Insurers jostle for position in new era for group risk market

MADELEINE DAVIES AND DAVID SAWERS

Insurers are taking different approaches as they seek to improve their footing in a radically altered group risk landscape.

The surprise departure of AEGON from the group risk market has prompted some providers to offer generous terms to attract clients previously insured by it. Others, however, remain more cautious, with Friends Provident in particular stressing that it is not interested in a “free for all” bidding war.

Last month AEGON said its immediate withdrawal was part of an overall strategy to focus on markets and products with better profit potential including pensions, individual protection, investments and annuities. The insurer had a 6.5% share of the group life market and 3% of the group income protection (IP) market. A spokesman described the group risk market as “generally mature” with limited opportunities to gain a substantial share but stressed a firm commitment to the individual market. The move is expected to release approximately €55m of capital over the next three years.

AEGON has confirmed that schemes starting after 2nd June will be honoured according to the terms of the accepted quote but that outstanding quotes will be withdrawn. It plans to see the vast majority of schemes moved to another provider within the next two years.

Initially, the provider’s withdrawal raised some concerns about the long-term profitability of group risk insurance. However, there remains cause for optimism, given the fact that heavyweight provider Zurich entered the group risk market last year, while reinsurer Munich Re is understood to be ready to start providing insurance in its own right soon.

While growth in the group risk market was sluggish last year – in-force premiums increased by 3.1% compared to 5.2% the previous year while group IP premiums grew by just 1.2% – the opportunities are as sizeable as the multi-billion pound protection gap. Swiss Re estimates that without group risk schemes the life protection gap would exceed £3 trillion and the IP gap £230bn.

INSURERS READY TO RESPOND

Intermediaries should also be encouraged by the readiness of insurers to offer attractive terms in a bid to win AEGON business.

Aviva has said it is keen to discuss bulk transfers of business with intermediaries who have a number of clients covered by AEGON. The insurer will match existing rates, honour existing free cover and event limits and waive its “actively at work” requirements so that members absent at the point of transfer will still be covered. It will also offer preferential treatment of existing medical underwriting terms.

Both Canada Life and Unum are offering a similar deal, matching or beating the existing rate and waiving the “actively at work” requirement. The former is offering access to its integrated services including Best Doctors and promising to work with intermediaries to agree timescales for the switch. Unum promises access to its employee assistance programme and bereavement services but will look at group life benefits above £4m on a “case by case basis.” Legal and General has said it aims to match charges, benefits and service levels but will impose an “actively at work” condition on lives over 100. A group risk spokesperson for Bupa could not be reached before Health Insurance went to press.

Wojciech Dochan, commercial marketing manager at Unum, advised intermediaries to think carefully about whether to run schemes until the existing AEGON guarantees expire or to switch now, taking into account whether the new insurer is offering to maintain the scheme rate until the end of AEGON’s rate guarantee period. He urged intermediaries to make clients aware of any difference in terms and conditions, which are “unlikely to be identical in all respects”.

“Advisers should be aware that within the group life and dependants market there is usually a limit on the benefit that can be moved on ‘no worse terms’,” he said. “These are quite high and in the millions of pounds. However, there may be issues in moving significant volumes of cover on one life. Insurers offer underwriting bar limits, but it is not always the case that such limits will move between insurers. As such, moving schemes could mean that members may need to be underwritten for their next increase in benefits.”

FRIENDS PROVIDENT TAKES LONG-TERM POSITION

Friends Provident is more cautious than its competitors about taking on AEGON’s group risk business. Group protection product manager Steve Browning told this magazine the provider was “not guaranteeing anything” and would avoid making any “short sighted” moves that might damage its ability to compete. It is already a hugely competitive market and intermediaries are keeping group risk providers busy, with quotation volumes up 15% this year.

Nevertheless, the insurer’s faith in the group market has been underlined by the announcement, revealed exclusively to Health Insurance, that it will shortly re-enter the group life market. Browning said Friends Provident had planned to already have done so this year, but plans were put on the backburner as the provider looked to enhance its IP offering.

News that the provider is now almost set to target group life business is further evidence that the corporate protection market, while not immune to the economic downturn, continues to attract new blood and lively competition.