Legal & General’s Surrey offices, based in the leafy suburb of Kingswood, could easily be described as a hidden treasure. On leaving the road and following a tree-lined avenue, it comes as a surprise to be confronted by what looks like an impressive stately home. The original building used to be a prestigious public school. And Rebecca White, marketing manager for the group risk portfolio, says it still has its educational purposes as it is now Legal & General’s training centre.
White works in the equally imposing main concourse, constructed two months after she joined in 1988. And a decade on, she explains how her current role allows her to devote time to developing Legal & General’s group critical illness policy.
The slow growth of group critical illness has been widely documented. But Legal & General was one of the first players to enter the market following its introduction to the UK in 1990. It launched its group health crisis policy in 1991 but the plan failed to perform.
White reflects on its disappointing start: “It wasn’t really the right timing. It was the recession and employers weren’t thinking about extending their employee benefit schemes. And it was an unfamiliar product.”
Current industry revenues from group critical illness premiums stand at £2.3 million, small beer in comparison to PMI sales. But compare this to figures for the year ending 1996, when premium income totalled just £1.2 million.
The financial climate is now much improved and White is optimistic about the future. She recounts how Legal & General’s group health crisis cover has recently seen a significant increase in employer interest and sales now exceed those of any previous year.
One of the key negative selling points of critical illness has always been its inherently depressing subject matter. Originally sold as “dread disease”, the idea of buying something connected with contracting cancer alienated many potential customers.
But in naming its critical illness policy, “health crisis cover”, Legal & General has taken a step away from the negative implications of “critical”.
A change in name is not the only initiative devised by the insurer. “We thoroughly researched the market and came up with a different angle. For example, blue collar workers have traditionally been excluded from income protection because of the prohibitive cost. So, although critical illness is not so wide-ranging, an employer might still have the desire to cover their employees at a lower cost,” says White.
The increased availability of health crisis cover to a greater number of employees, in a wider spread of professions, is a primary advantage. Cover is normally available without the need for employees to provide details of their state of health or pastimes. And an individual’s profession is no longer the most important factor.
Niall Munro, group risk sales director, stresses the crucial role of the employer in purchasing group health crisis: “It is really a wholesaling of products for employers. The employer chooses the benefits. And, because it is taxed like income protection schemes in that it is linked to absenteeism, it is not treated as benefit in kind. Only the lump sum is taxable, not the premiums. The employer retains control and finds it is very easy to install because they don’t have to worry about tax implications.”
It is clear Legal & General’s group critical illness plan is specifically designed with the employer very much in mind. Results from widespread research indicated employers were concerned about offering “windfall products”. In other words, employers were reluctant to hand out cheques to someone with a critical illness but who was still able to come to work.
Legal & General solved the employer’s problem. Its comprehensive cover provides benefits for 12 critical conditions. Whereas some providers offer an option of adding total and permanent disability benefit as one of the critical illnesses, Legal & General only pays out on the specified conditions. This means the benefit levels are kept low and the employer knows exactly when a lump sum will be paid out.
White says many employers prefer to sign up for a policy which provides a lump sum rather than regular payments. She attributes this to changing job market trends: “It’s simply the case that jobs are not for life anymore. A long term benefits package may not fit in with the human resources strategy. The employer may not want a continual liability.”
White is enthusiastic about an additional benefit which Legal & General offer. For an extra premium, the company can insure an amount towards the costs of the employer’s liability for National Insurance contributions and the employer’s statutory sick pay expenses.
“This option is unique. I don’t know anyone else who provides this,” she says.
Although Legal & General strives to develop products which meet the employer’s needs, it does not neglect the requirements of IFAs.
“IFAs are our main focus. It’s only the odd very large company that uses brokers for actuarial means and then approaches us direct,” says Munro.
Legal & General runs workshops for IFAs, primarily aimed at those who are keen to break into the corporate market. And White stresses smaller brokers should not be put off entering the throng: “The brokers on our courses tend to be the smaller firms. The national brokers tend to be more product specific anyway.”
But should brokers be worried about investing time and money in a stagnant market? Munro discounts this and outlines how he sees the future progression of critical illness policies.
“Everyone can relate to the need for a critical illness plan as there is a chance of everyone suffering from a critical illness. We see its growth as part of a flexible benefits package. It is almost all employer-led at the moment and we are very keen to make it more employee-led,” he says.
White points to the need for a different underwriting stance in order to achieve a significant improvement in sales geared to the workforce: “There is no selection for the individual at the moment, it covers all employees. A flexible benefits scheme would make it the employee’s decision. But the premiums would go through the roof. The question is, does the employer want stricter underwriting and a lower premium, or more generous underwriting and a higher premium?”
It seems evident that such an incentive would require increased cooperation and communication between the employer and the employee, but Munro emphasises technology would also take a key role: “For a company with say 500 people, a good technological system would be needed for flexible benefits.”
He adds that advisors would play a big part in the design of flexible benefits schemes, especially helping employees to decide their own plans, and this could be a potentially lucrative time for IFAs.
But is important IFAs do not miss out on current opportunities. And White has suggestions to help the win business with major corporations: “A lot of employers have not even considered critical illness schemes and this may make it hard to phone up and suggest the plan. But why not try suggesting it when talking about pension arrangements?
“Everyone can appreciate the possibility of a critical illness – this includes the decision maker. They need to see the benefit for themselves and their employees at a personal level,” she states.
White sees huge opportunities for critical illness policies and says Legal & General is fully committed to the market. She is confident the product knows no bounds, and that IFAs who dip their toe in the water now may reap the benefits in years to come.