What factors do you take into account when preparing a recommendation for design and implementation of the risk benefit package for a client? Good question, especially when the new company is a Belgian chemical company, with little experience of UK employee benefits.
The benefits being considered in this instance are group life, group income protection (IP) and group critical illness (CI). Naturally, group private medical insurance is an extremely important component that needs to be examined in conjunction with risk benefits, but for the purpose of this summary we will focus on the risk benefits.
The group has 90 employees, with a salary roll of around £2.5m. Some 60 per cent are process operators, site operatives or maintenance technicians, 15 per cent administration, ten per cent in field sales, ten per cent are management and five per cent are directors. The average age is 45, causing initial concern from the risk perspective, and reflected in subsequent costings.
The cost budget was straightforward at four per cent salary roll or £100,000 a year. But the objective was not so straightforward. We had to match a self-insured package that was provided under the arrangements with the previous parent company, a global multinational. Some of these benefits were odd, to say the least, and not standard types of coverage. But when you make the rules, the rules can say whatever you like!
The next stage was to assess what we needed to provide from a contractual standpoint. After all, we achieve little if we do not insure the liabilities for which the client is contractually obliged. And from an employee relations point of view, the client was anxious to keep employees on side.
The first benefit we assessed was group life assurance. The coverage was straightforward but the contract had to provide continued cover in the event of absence due to long-term illness or disability.
Without the long-term absence cover, we could face the situation where an employee on a group IP claim would not be covered under the life assurance or dependants or children’s pension scheme. This could be a catastrophic situation as the company would still be liable to pay out and for a senior executive this could result in a seven-figure liability.
The former company pension scheme was a defined benefit arrangement, which for employee relations reasons the new owner decided to mirror. From a risk benefit point of view, this meant we also had to provide insurance cover for the dependants’/children’s pension.
We needed to establish the accrual rate, whether the pension was based on actual or prospective service, dependants’/children’s pensions as percentage of member’s pension, qualification criteria for dependants/children, pension increase factors, definition of pensionable salary – this was different from the basic salary used for lump sum purposes.
Secondly, we assessed the group IP scheme. We identified the benefit design required, covering eligibility, definition of disability, percentage income replacement, insurance of pension fund contribution and National Insurance contributions, deferred period, claim escalation, ceasing age, exclusions, and definition of salary.
How does the management of group IP claims fit in with the company’s overall absence management programme? We are always seeking providers who can add real value to clients through proactive early intervention on claims.
Many of the considerations of group CI are similar to those for the group IP scheme and, again, we need to assess the requirement for temporary and long-term absence cover.
Group CI differs from the other two in terms of taxation treatment. Cost of provision of the benefit is a P11D item to employees. This highlights the importance of clearly explaining the taxation treatment of premiums and benefits for both the employer and the employee.
In terms of claims on Group CI, as the market is currently quite small, we seek a clear claims policy. After all, the test for insurance is when a claim arises – without this area neither the concept nor our industry would exist.
Cost is obviously of high importance when considering an appropriate insurer. However, further criteria for selecting an insurer include comprehensive contractual terms and conditions, proven efficient and sympathetic claims handling, current group risk position and market experience and, last but by no means least, efficient ongoing administration.