Reports of an upturn in the group income protection market have been bandied about in recent years, with few.real signs of an increase in business.
But although group and individual sales are not very different from a decade ago, the present figure of 2.7 million policyholders is ripe for improvement, as a combination of current social and economic factors suggest that a reversal in fortune is on the cards.
Group income protection covers an employee in the event of them being unable to work, whether this is for several weeks, months, or permanently. The insurer generally pays out 50%-75% of the worker’s earnings, so enabling the incapacitated employee to sustain an acceptable standard of living. The need for this type of provision is evident: 1.3 million people in the UK have been unable to work for two years because of illness.
The extent to which society has changed, both before and since the recession, has had a significant effect on long term disability schemes. The most obvious difference is the decrease in family size. Fewer relatives mean there is less family support when things go wrong at work.
And, as medicine advances, many people are kept alive from previously life-threatening illnesses. Today, a breakdown in health lasting more than six months is 18 times more likely than death before age 65. Added to this is the Government’s much-hyped commitment to regeneration of the NHS which has, so far, failed to materialise.
The lack of welfare provision has raised awareness of the value of self-protection. And the onus for disability provision is increasingly being shifted onto the employer.
Roger Capham, business manager at Norwich Union, highlights the disparity between the boom days of the 1980s and the post-recession world of the 1990s. He believes senior management used to have a stranglehold on employee benefits, leaving the majority of staff without cover. Money, according to Capham, was always spent on the directors, with the staff coming a distant second.
But as staff shortages become more commonplace, he says employees are gaining a better hand. As companies fight to recruit and retain staff in an increasingly competitive marketplace, corporate benefits are viewed both as an incentive for people to join the company as well as a method of retaining current employees.
And Norwich Union asserts that employees, when prompted, rank income protection as the second most important benefit after their company pension.
Nick Lomas, marketing manager at group income cover specialist, UNUM, thinks the potential for the market is good. UNUM wrote 30% more new corporate business last year and he is confident that numerous opportunities exist for those willing to exploit them.
Last September UNUM launched its Group Essential Ability Cover. It raised a lot of interest across the industry as it pays out linked to the ability to perform day-to-day basic activities. It opens the door to blue collar workers who were previously considered high risk and incurred prohibitively expensive premiums.
Although employees must be unable to perform the “material and substantial duties” of their own trade to qualify, they are also asked to satisfy the Abilities Test.This includes 11 different trials, and anyone unable to perform any three of these is eligible to claim.
These tests include being asked to sit in a chair for 30 minutes; stand for 10 minutes; and lift a 2kg bag of potatoes from counter height. Claimants who cannot achieve this type of activity are deemed eligible. The test also examines whether the potential claimant suffers fits and blackouts which would prevent them holding a driving licence.
Lomas says the impetus for the introduction of this policy was to extend long term disability cover to the shop floor. He points out white collar claims are steadily growing, so blue collar jobs like manufacturing and construction work are no longer such a headache for the insurer.
Capham of Norwich Union is not convinced of the merits of Essential Ability Cover.
“I congratulate UNUM for its innovation but I don’t believe IFAs will buy it. The cover is too limited. I think the likelihood of a claim being paid is remote. Whenever offices are tough on claims, it doesn’t do our business any good and will not aid the development of the income protection market. It all leads to bad publicity,” he says.
But while UNUM is a pioneer, it is early days for blue collar income protection policies and most insurers seem content to remain in the sectors where they are strongest.
Permanent, providers of group income protection, has capitalised on a number of sectors, in particular servicing computer companies. It offers a 20% discount for professional firms and a plan can include all members of staff. Avenda Burnell Walsh, corporate communications manager, ascribes this all-encompassing cover to Pennanent’s success in the industry.
“Our group income protection scheme can include the whole office. For example, a solicitor’s office could have cover for their clerks and the tea lady. It’s one form of cover for everyone,” she says.
Whatever the differing opinions on the range of products available, there is a general consensus on the key selling issues for intermediaries. The primary concern seems to be the advantage of group income cover in relation to an employee’s pension.
Peter Fenner, marketing consultant at Swiss Life, warns of letting employers and employees make pensions the sole priority: “People generally prefer to protect their income in retirement as they think that getting sick will never happen to them. Group income protection can fall by the wayside.”
A staff member without disability income protection who falls ill may have to take retirement early, thereby missing out on investment returns and further contributions to their pension. Group cover ensures the pension fund remains untouched and often payments can be resumed.
These benefits cost less than some employers expect. Group income protection often costs less than 1% of the payroll, compared with the expense of a pension scheme which can be anything from 5%-10%.
Employers who offer long-term disability cover as a benefit recognise the advantages of having a third party working on its behalf. Benefits handled by the insurer directly guarantees a fair treatment of all staff. This is especially useful when a sick employee is to be informed his income is to be withdrawn. This is an unpleasant task, particularly in a small company.
But intermediaries should remember that the greatest gains in the group income protection market are to be made by actively seeking new acquisitions, and Permanent’s Burnell Walsh has ideas for winning business (see table left).
She also suggests trawling local business directories for medium sized businesses and identifying those with an expanding payroll and at least five employees.
Above all, the intermediary must be well informed. It is essential to recommend a plan which has as few exclusions as possible as some insurers will not pay claims which are linked to alcohol, drugs and self inflicted injury or are related to riot or war.
Marketing manager at Royal and Sun Alliance, Peter Anderson, sees this knowledge as central to the role of the intermediary in the group income protection sector: “Most employers go to IFA’s for advice. This is not an area where firms can rely on their own knowledge. Most companies when looking at group disability insurance look for professional advice.”
And if an intermediary does their homework, they may be able to reap substantial rewards.