Heading for the security door

As the economy takes us to hell in a handcart, employees
are finally starting to value group income protection
says Simon Derby, director at i2 Healthcare

The rational ones among us knew there was a recession coming. But if 18 months ago I had written about banks around the world being rescued, nationalised or closed and a complete meltdown of markets, I would quite rightly probably have been certified.

So here we are in April 2009, unemployment at 2 million-plus, base rate at half a per cent, company closures and foreclosures every day, and companies that remain in business fighting to survive, with most looking days and weeks ahead, not months and years. A leading EBC publishes a survey saying that group income protection has topped employees’ benefit wish list, beating its nearest rival, critical illness, by more than 20 per cent. If someone had said this a year or so ago they would have definitely been certified. But in times of financial turmoil people head for the door marked “security”.

If times were normal we would be out there shouting this from the rooftops to a receptive employer audience who know that this benefit is what their employees want and is really valued. But here we are with the economy going to hell in a handcart, employers looking to cut costs, not increase them, reducing or even worse cancelling employee benefits, making staff redundant and companies closing.

We can take heart that for once income protection has beaten all other benefits on the employee’s wish list. Will it remain so? No.

But where do we go from here? If we look at the insurer market, I think it fair to say that all insurers are looking to increase their group income protection business. I have heard increases ranging from 10 per cent, 20 per cent, 30 per cent and even 100 per cent (that will be Zurich then, who I believe have already achieved this). However, with the exception of Zurich, this cannot be realistic.

If we look at where the insurers’ growth will come from, will it be new-to-market schemes? No. Will it be by acquiring business from other insurers? Yes. Will it be by dreaming up a new benefit basis or other wheeze that makes their product better? Yes. Will API increase? No. Will API decrease? Definitely.

Don’t get me wrong. There will be new business written this year, but in what volume? Although at the end of 2009 we may have 3 million unemployed there will be over 20 million people still employed in the UK. But will the new business written exceed the existing business that will be lost? While the 2009 Swiss Re report will be interesting, the 2010 and 2011 ones will be even more so.

If we use the figure of 650 million as the API for the group income protection market, losing 10 per cent or 20 per cent of this in the next couple of years would be a huge blow to our industry. If this happens will all the current insurers still be in the market for group income protection in two years’ time?

We all have different ideas regarding how we can increase the group income protection business. We need to get better at lobbying to government, employers and employees, unions and the rest. This issue is, hopefully, going to be addressed by a resurgent GRiD (Group Risk Industry Development). Some think we need a more “joined” up approach to benefits with some government, employer, employee compulsion or even tax breaks for providing this benefit. However I doubt tax breaks will be likely bearing in mind the Government’s need for income and what happened in 1998 with the removal of tax relief on pensioners’ private medical insurance benefit.

We need to become more sophisticated at acquiring business, not just nicking it off another insurer as that ultimately changes nothing.

There will be another “bounce” of the corporate ball, and as an industry our first and foremost challenge is to survive with all current insurers intact and hope our API and client bases are not totally decimated. Secondly we must prepare ourselves properly for the future by working together to ensure this product is still as high on an employee’s wish list as it is currently and if employees value it employers cannot fail to hear them, or can they?

Anyhow, getting back to the handcarts, I have plenty in stock for immediate delivery at 1 million Zim- babwean dollars for one, 3 million Zimbabwean dollars for two. Well that’s inflation for you.