Employee benefit consultants should be revisiting their clients to explain the options open to them in the event of staff being made redundant, according to several group risk insurers.
Since the onset of the economic downturn, companies across the UK have been making large chunks of their workforce redundant, introducing reduced hours and lowering salaries. These measures impact group risk benefits from both an employee and employer perspective.
In theory, an employee must be on the payroll in order to receive group risk benefits. However, most insurers have an option in their group life policies which allows cover to continue for a period of up to two years or until the individual gets another job. This can be arranged when the policy is taken out or can be added in advance of a redundancy exercise. Some insurers charge for redundancy cover, while others provide it for free.
Jamie Barnes, director of client services at employee benefits consultancy Enrich, said: “In this climate all clients should be thinking about providing redundancy cover. Employers generally want to provide it and the cost is so minimal that they just do it as part of their redundancy package.”
On the group income protection (GIP) side, cover will cease when the employee is made redundant because the very definition of GIP relates to having an occupation to go back to. However, if an individual has already made a claim before being made redundant, it may be possible for claim payments to continue. Unum, for example, may agree to pay benefit directly to the individual although they will only be covered for basic benefit and the definition of incapacity will change to “any suited occupation” after 12 months.
“Employers must talk to their intermediary immediately when a redundancy is planned so they can get the best terms,” said Barnes. “Although insurers will allow direct payments, they do look at each case on its own merits. Insurers will change the definition of disability but we can potentially negotiate that out if we are given enough time to do so. If an employer makes people redundant and then tells the insurer they will be in a weakened position.”
However, Jamie Winter, head of risk and healthcare consulting at Watson Wyatt, is not a great believer in continuing GIP payments: “If someone is already a claimant when they are made redundant they should be treated in the same way as anyone else and the benefits should cease. We preach consistency of approach to well and ill employees.”
If an employer makes a large percentage of the workforce redundant which results in a 10%-25% variance in the number of people covered, insurers can invoke a clause allowing them to review group risk rates. This could result in the rates either increasing or decreasing, depending on the make-up of the workforce.
Hélène Gullen, commercial marketing manager at Unum, said: “If it is all young people that are made redundant then the rate per member will increase because the company will have an older profile. If mostly men were made redundant rates would also increase because women attract higher rates.”
Insurers will often allow intermediaries to negotiate rates, so it is essential that intermediaries are aware of a redundancy exercise before it happens.
Catherine Baxter, product manager for Bupa Group Risk, said: “Most policies will allow the premium rates to be reviewed in these circumstances, but we are obviously aware of the economic situation and want to be reasonable and will seek to maintain the existing rate wherever possible.”
Instead of full redundancy, some companies are introducing shorter working weeks and unpaid sabbaticals to try and get through the recession. These will also have an impact on group risk benefits because there will have been a reduction in salary.
Enrich’s Barnes said: “Life and GIP insurers will generally base cover on the lower salary, but some are open to negotiation and will base cover on the salary that existed before the reduction in working hours. Insurers are being quite flexible and to maintain cover is quite a concession. We have done this for three or four clients over the last couple of months.”
It seems that there are numerous options for employers to consider before engaging in a redundancy exercise. Now is the perfect opportunity for intermediaries to revisit their clients and guide them through this difficult period.
REDUNDANCIES AND EMPLOYMENT ISSUES IN NUMBERS
900,000 – the overall number of jobs predicted to be lost in 2009(Source: Ernst &Young ITEM Club) • 500,000 – the overall number of jobs predicted to be lost in 2010 (Source: Ernst &Young ITEM Club) • 11,000 – the number of financial services sector lost in the final three months of 2008 (Source: CBI) • 30,000 – the additional number of financial services sector likely to be lost in first half of 2009(Source: CBI) • 244,000 – the number of people out of work in the first three months of 2009 (Source: Office for National Statistics) • 2.22 million – the overall number of people out of work (Source: Office for National Statistics)
BUT SOME GOOD NEWS – 65% of employers now expect their permanent workforce to remain the same over the next few months, with 12% anticipating a reduction and 17% predicting an increase(Source: Retail and Employment Confederation)
STRESS AND COUNSELLING SERVICES
Employers should also think about the impact that redundancy will have on employees who do not lose their jobs. Bupa has seen an increase of around 183% in the number of people in fear of redundancy since September 2008 and an increase of 41% in the number of calls to its counselling helpline about stress at work.
Dr Peter Mace, assistant medical director for Bupa Wellness, said: “The recession means that it is even more important for employers to monitor the mental wellbeing of their staff and give employees free access to counselling services to help them manage a problem before it gets to a point where they need to take time off work. This has the benefit of being a cost-effective and efficient way for employers to help their staff.”
Insurers believe the take-up of employee assistance programmes (EAPs) could increase, although if employers are cutting costs it might be difficult to persuade them of their value. Unum’s Gullen said that if employers do introduce an EAP they must ensure employees are aware of it and know how to use it.
“A number of EAPs are introduced on the back of a group risk policy and employees aren’t told how they can help, how to use them or that they are confidential,” she said.
GROUP CRITICAL ILLNESS
Insurers will consider redundancy cover on critical illness (CI) policies on a case by case basis. Under Unum’s terms, the member must be employed for cover to be effective. If the insured CI event occurred before redundancy the member must still be a member after the 14 day survival period. If the member is made redundant during this period a claim will be considered.