Group risk covers extra half million as excepted group life surges

Excepted group life plans grew by almost 30 per cent over the last year, as individuals looked at ways to get round the new £1m pension lifetime allowance, according to Swiss Re’s Group Watch 2017 report.

The report shows that group risk products covered 520,000 more people in 2016 than in the previous year, an increase of 4.5 per cent on the previous year, bringing the number of people covered by group schemes to over 12m.

In-force death in service pension benefits fell again, by 6.8 per cent, as employers continue to withdraw cover or switch to providing lump sum cover only.

Critical illness policies continue to grow with in-force sums assured up 9 per cent and premiums up by 11.5 per cent.

The number of long-term disability income policies increased for the first time in more than ten years, increasing from 17,111 in 2015 to 17,168 last year. Total insured benefits increased by more than 9 per cent and the number of people insured grew by over 130,000, an increase of over 6 per cent.

Despite the positive headline numbers, Group Watch 2017 calls for regulatory and legislative change to further enhance the market. It calls on the UK government to reconsider its decision not to grant an exemption from new salary sacrifice restrictions affecting excepted group life and long-term disability income policies to encourage wider participation and remove the disincentive that employees suffer double taxation if they contribute towards their employer’s DISP.

The report also calls on the UK government to exempt from taxation discretionary trusts where the sole trust asset is an excepted group life policy.

Swiss Re technical manager and report author Ron Wheatcroft says: “This year’s results paint a very positive picture at a difficult time for the UK economy.

“The stand-out figures in the data show the increase in excepted group life cover and there are other good signals too, including a reverse in the decline of long-term disability income in-force policies.

“The growth in excepted group life policies reaffirms the need for clarity across the whole market around these arrangements. An exemption, where the EGLP is the sole asset, would confirm these arrangements as an efficient and effective way for employers to provide life cover as the link between pension provision and death benefits becomes less direct.”

Group Risk Development spokesperson Katharine Moxham says: “Everyone needs a way to safeguard their family’s financial stability against the financial disaster that can often follow unexpected death or disability. Employers therefore continue to play an important role in facilitating affordable financial protection cover through the workplace, and the DWP/DH Joint Policy Unit’s Improving Lives Work, Health and Disability Green Paper has identified group income protection (GIP) as having a greater role to play in the delivery of the Government’s goals for reducing the disability employment gap.

“This year, Swiss Re has collected data on size of membership for GIP policies for the first time, and it makes interesting reading. With 68 per cent of policies having fewer than 50 members, this either gives lie to the perception that smaller employers don’t offer GIP to their staff or it indicates a raft of employers who may only offer GIP to a select few at present – but who may be persuaded to extend this to a wider population. It will be telling to watch how this potential for growth develops over the next 12 months.”

Canada Life Group Insurance managing director Tim Stoves says: “Our products are clearly fit for purpose as almost 520,000 additional people are now covered and this positive growth additionally increases industry premiums. So with around 2.4m UK employers of a size where they could purchase our benefits, why is it that under 73,000 schemes are in place across our three product areas? In such an under-penetrated market, with products valued by customers, it is the same old story for the group insurance market: more employees covered with more premiums but there are still significantly too few employers as customers.”

Cavendish Ware associate director Roy McLoughlin says: “The increase in group IP is a breath of fresh air mirroring the excellent numbers on the individual side. The 7 families campaign was as much about group as individual and the increased awareness has undoubtedly played a significant part in these numbers. The feedback from employers from our roadshows revealed an appetite for knowledge on state benefits in particular and the increasing paternalistic attitude to looking after valuable staff in the event of illness. It is vital that this message of awareness continues and would urge our group insurers to continue with their invaluable backing of the 7F campaign alongside Grid.”