Govt: Make GIP cheap and simple – Insurers: It already is

The Government has called on group income protection (GIP) providers to develop cheaper, simpler products before demanding financial incentives, but insurers say they already meet the criteria it has set out.

The Government says Green Paper responses supported its assessment that some employers, particularly smaller ones, can lack sufficient incentives to invest in GIP, but stopped short of recommending proceeding with developing fiscal incentives for GIP. It did however commit to maintaining dialogue with the insurance industry over the structure of GIP products.

The statements were made in the Government’s policy strategy, called ‘Improving Lives: the Future of Work, Health and Disability’, which was published today following last year’s work, health and disability green paper, which called for a comprehensive change to the UK’s approach to disability employment, and which responded to the Stevenson/Farmer report into mental health.

The paper says the Government ‘would like the industry to consider developing a product that retains the positive aspects of GIP but which overcomes the existing challenges – complexity, perceptions of cost and benefit’ to make it likely to be more widely taken up.

It says it welcomes the ‘significant engagement’ it has had with the insurance industry through the consultation and will continue to engage with it ‘as part of our wider work on employer incentives’.

The paper cites DWP research that shows that only 16 per cent of micro employers and 33 per cent of small employers provide access to occupation health services compared to 85 per cent of large employers.

But figures from the group risk industry say existing products are already relatively low cost, simple and offer valuable benefits, with some limited term options available at one hundredth the cost of full level auto-enrolment contributions.

The paper says: “To ensure any policy measures that we introduce are effective they need to be considered as part of a wider coherent package for reform, not in isolation.

“We are therefore considering research and consultation findings, against a range of options, including some that have been proposed since the consultation – the Stevenson/Farmer review’s recommendation on considering financial incentives for SMEs. We will also consider how to take forward a National Insurance Contribution holiday alongside wider work on employer obligations and incentives.

“In considering further work in this area, the Government remains committed to the social model of disability. We also want to ensure that any options taken forward avoid creating excessive burdens on employers that could discourage recruitment, are appropriately targeted, considering the variety of employers in the UK, and the different challenges that they face, and consider the services that employers can already access to support employees, such as occupational health and group income protection insurance products.

“Addressing these challenges relies on having robust knowledge of current employer behaviours and how decision-making differs across different types of businesses. For this we will run a comprehensive programme of analysis and research examining the wider framework of incentives and expectations within which employers make their decisions. We will report back on our preliminary work in 2018.”

Unum head of public affairs John Letizia says: “It is good to see them taking forward fit note and the Farmer/Stevenson recommendations, although my concern there is that they could overlook musculo-skeletal and cancer. They also recognise group income protection is good, but come back with the argument that it is too expensive, although they are happy to keep the door open to the insurance industry to maintain the dialogue.

“We will provide the Government with evidence again that GIP products are already simple and not that expensive. I am less positive than I was before this paper came out, but I remain positive that we can get somewhere with further dialogue with Government.”

Canada Life Group Insurance marketing director Paul Avis says: “As the Stevenson/Farmer review said, it is up for the industry to establish the business case for GIP and the many benefits it can bring.

“The premiums are already an allowable expense, the cover for NI and pension contributions can put the employer in a cost-free environment when in claim and costs start at 0.1 per cent of salary for limited term arrangements, which after corporation tax is one hundredth the cost of full employer/employee auto-enrolment contributions.

“So I am stunned that we are being asked to do more product development on what is an already valuable, simple and low-cost benefit. I don’t think the product lies with the product or proposition. It lies with the distribution of it and advisers’ appetite to sell it. We can clearly evidence ROI, and there are valuable reasons why key decision makers within employers would want it – with state benefits of £3,801, they have the most to lose if they become incapacitated.”

Grid spokesperson Katharine Moxham says: “Group income protection offers hugely valuable support to the State, employers, employees and their families, and we call on Government to use the industry’s expertise to help drive the  ‘Improving Lives: the Future of Work, Health and Disability’ strategy forward, especially as it considers its response to the 40 recommendations of the Stevenson/Farmer Review of mental health and employers.

“We will continue to work with Government to drive the strategy forward.”