Look through the job advertisements in the Sunday papers and it is likely you will find the better jobs will all have a range of benefits for the successful applicant. But most prospective candidates are far more likely to be interested in the salary or whether a car is on offer.
At interview, not many bother to enquire what benefit levels are available. And while they may be referred to by the interviewer, they are rarely spelt out. Employers invest in benefits, but may not themselves be fully aware of their value.
Adrian Pinington, group risks actuary for Swiss Re Life & Health, which is a major reinsurer in the market, says more must be done to raise awareness of benefits. He says the advantages of company bought schemes include no cherry picking and few exclusions, which means those with existing health problems are covered. Pinington, who previously worked in South Africa, says insured benefits are far more commonplace, since employees realise there is no “nanny state” to pick up the pieces after an accident or sickness. Over here, he says, it may be time for the Government to take the lead and encourage employers to offer protection to their staff.
Despite the general apathy, anyone who has been on the receiving end of a company benefit in the UK is likely to realise the advantage of being covered.
And in the case of group income protection, this can mean an employee receiving insurer-paid benefit up to retirement age if necessary. They would be considerably better off than someone who is only paid state benefits.
Pinington explains: “Many generous employers are poorly acknowledged for the benefits they provide, except by the unfortunate few who become claimants.”
There are still many companies who offer no benefits to their employees. In the most depressed areas of the UK, a number of companies continue to be inundated with staff applying for jobs with low wages and no benefits. At the other end of the scale, some type of businesses, such as IT firms, will offer no benefits but high salaries, with the expectation that employees will provide for themselves. Around six million employees are covered by their employer – out of a total workforce of some 30 million.
The value of insurer-paid benefits has not been lost on trade unions, and some, for example printers, have campaigned for these to be available at a minimum level for all jobs.
For employers, the cost of providing benefits is not high. Years of underwriting experience and a competitive market place have combined to produce high levels of group risk benefit at a low cost. So much so that some large firms which would normally self-insure are now buying cover from insurers as costs can be lower.
Group risk products comprise death in service, income protection and critical illness. All three can be sold either individually, or as part of a total benefits package. There are about 12 insurers in the UK offering group life products.
There is very little new death in service business, which is often supplied as four times an employee’s salary, with IFAs merely re-broking the business. This is a highly competitive marketplace, and rates are under severe pressure.
Group income protection is called long term disability cover by Generali, which it believes makes it clearer for employees to know what they are covered for.
Alan Thacker, group underwriting manager at Generali, says despite the company’s efforts, many staff continue to believe their employer or the state will continue to pay their salary if they are off work.
But the message may at last be sinking in, as income protection sales are now picking up. Typically packages are offered with a six month deferment period, but some small companies, with all staff having key roles, may consider paying higher premiums for a shorter waiting time.
Income protection is likely to be the most expensive group risk product offered by an employer, and could equal up to 3% of pay roll for each employee covered. The higher costs are because of the potential claims, and compare to group death in service at around half a percent.
Critical illness is the newest product to be offered as part of group risk and is only provided by a small number of insurers. It is set to expand, however, with Generali known to be looking at adding this product to its group risk portfolio.
While this product has proved highly successful in the individual market, it has a different role to perform in the group market.
It is the role of the underwriter to provide a level of cover that provides the right level of benefit, while not acting as a disincentive to return to work.
To achieve this, Legal & General offers a lower level of benefit, which does not act as a disincentive to return if the work if the employee recovers sufficiently. Group risk manager Rebecca White says: “We feel our approach is innovative and is proving to be the right solution for employers. For employees we believe we are unique in offering a 24-hour helplines covering medical and bereavement issues line.”
Peter Anderson, group risk market manager at Royal & Sun Alliance, says an employer might pay £50 a year which would mean a pay-out of £25,000 to an employee upon a diagnosis of a critical illness.
At the same time, he says, a small firm of professionals, such as accountants or solicitors in a partnership, may prefer to pay higher premiums and should a partner contract a critical illness then the payout – say around £150,000 – would be sufficiently high for them to retire from work.
So-called flexible or menu benefits are a new challenge for underwriters. These are available from some insurers such as Guardian, but Thacker of Generali says he is reserving judgement: “Nothing comes free and the cost of setting up such as system in terms of administration may add on to cost. We will see how these work out in the UK, but obviously if there is demand will consider offering them.”
The number of lives covered in a group risk policy depends according to the underwriter. Thacker says his company will now only insure companies above 20 lives, which he says is part of a strategic move by the whole group to focus on larger business. Royal & Sun Alliance covers group risks of 10 lives and above, while Legal & General will insure companies of five and above employees. Part of the reason for some underwriters not wanting to insure very small companies is that administration costs are hiked up considerably.
Most underwriters class group risk business by the occupation of the employees. Royal & Sun Alliance, for example, has five classes with one applying to office sedentary staff and five to high risk occupations such as mining. Legal & General, says it does insure staff in manual occupations, although underwriters at many other insurers will often refuse to insure blue collar workers.
However, white collar staff are now a increasing risk, and stress claims have now overtaken back injuries as a cause of claims. Teachers are among the most common claimants.
Underwriters are judged by their record on claims, and the profitability of the business they write. Anderson of Royal & Sun Alliance, for example, says the insurer is currently dealing with some 1,500 claims and paying out over £l million a month to meet them. And rather than just pay claims many insurers are now taking a managed care approach. This may involve using an outside agency with nursing and retraining professionals to try and insure the claimant returns to work as soon as possible.
Broking in the group risk market is dominated by major national broking or employee benefit specialist firms such as Aon, Sedgwick or Watson Wyatt. But some 20% is sold by non-specialist IFAs and most underwriters believe there is considerable potential for smaller firms of intermediaries.
Thacker of Generali points out that some intermediaries may prefer to stick with pensions and key man cover which tend to offer higher commission rates, but by doing this they may be cutting themselves off from valuable business. Not least, he says, offering group risk means an IFA is more likely to protect his most valuable business, rather than risk losing this to an benefits specialist.
Insurers are agreed that the group risk market has potential, but that employers need to know what they are buying, and employees what they are gaining. Communication it seems is key. As Swiss Re’s Pinington comments: “The provision of good benefits is inexpensive and greater appreciation of these would encourage more employers to extend coverage for the advantage of all.”