Like an oil prospector turning the tap on his pipe for the first time, Jonathan Plumtree, head of Zurich Corporate Risk is glowing with satisfaction at the first on risk client for the new business unit he has created.
“We have now been three weeks in the market and we had our first case confirmed last week, so we are very happy about that,” says Plumtree, who quit as Unum finance director a year ago to take up the challenge of launching a new player into the group risk sector.
New entrants to a market can either come with something fresh to offer customers or concentrate on getting the basics right first. For Zurich, which opened its doors to group risk business just over a month ago, building a solid foundation based on service is the key to establishing a foothold in the market.
Zurich must have spent a long time looking at the group risk sector before deciding it was a market worth entering. So how would Plumtree describe the landscape before him?
“It is clearly a relatively stable marketplace and one which does not benefit from an oversupply of suppliers. The names in the market have been there for quite some time and have tended to pass business between themselves. That seems like an opportunity to change things,” says Plumtree.
“There is a genuine risk here that can be managed and it is a risk that not many employers choose to insure, so there are opportunities if we can position the right product at the right price,” he adds.
Zurich’s assessment of what the future holds for the group risk market can be summed up as ‘more of the same’ – 5 per cent a year annual growth, pretty much in line with wage inflation.
“Our expectation is that the market will probably grow at an increase of up to 5 per cent per annum, in line with the past trend, and with actual policy numbers broadly consistent. In the short term with salaries increasing downwards and with the numbers of people employed likely to reduce, there is downward pressure on the market. But as a new player coming in that does not particularly concern me” says Plumtree.
And how bad will that downturn be? “The last time I heard Zurich’s global head of life talk he was saying it will probably be the fourth quarter of 2009 when we will see some positive change, but this is the market as a whole,” says Plumtree. “What we are seeing are opportunities in some markets but not in others. Protection in many ways is a good place to be right now and we have found on the individual protection side we have seen some positive progress.”
Group risk intermediaries are only too aware of the growth in the individual protection market in the last downturn of 2002 and 2003, and Plumtree accepts that this will not necessarily translate through to the workplace this time around either.
“There are different considerations when you talk to an employer, and while individuals may make those personal choices, employers have other considerations like returns to shareholders and trying to cut costs. This actually puts the onus back on the market and the industry to demonstrate the value for money of these products. That can be quite challenging when you are talking about an employer paying a premium for a life or income protection policy, especially a smaller employer where they do not see a lot of the benefit. Benefit comes when you claim and that can be quite an infrequent event, fortunately.”
That is easier said than done, and advisers will be looking to see what Zurich can do to bring something new to the party.
“Once we have established our position in the market we will be looking at how you make group risk products more tangible to employees and employers in a way that is not just bolting on add-ons,” he says.
Plumtree won’t be pinning his hopes on something like an employee protection plan to differentiate his firm from the rest of the market.
“When you look at the current treatment of adding on an EAP to income protection, I am yet to be convinced that that is the way forward. It is quite a good gimmick in some ways but I do not know how much real value it actually brings. It depends on the quality of the EAP that is being offered,” he says.
“We did some research last year to get some feeling from employers about the value of group risk products, and we are going to take that forward and do some more research into certain areas there to try and find some opportunities to increase their attractiveness, particularly around group income protection. With group life there is a limit to what you can change. It is a fairly straightforward product. But with group income protection there are opportunities there and we would like to explore those,” says Plumtree.
So what will Zurich’s new generation GIP product look like? Plumtree admits that he does not know yet.
“We need to finish our research. But it is thinking about things like deferred periods and the fact that potentially you have six months there where there is potential for more tangible benefits, but because of the way we construct contracts, that is prevented. Having said that you have obviously got to balance costs” he says.
With companies getting more cost-focused Plumtree is predicting tighter margins on group income protection in particular.
“Finance directors will be looking for more financial justification for it. The market is competitive and there is no current question that the value equation is getting much more balanced between the employer and the providers because of that tightening. Providers have made reasonable returns on income protection in the past, but that is under pressure,” says Plumtree.
As a former finance director at Unum, advisers might presume Plumtree would be in a position to know whether this has been the case.
“I probably would not want to talk about specific figures or margins, but IP has generally been priced at higher margin or price than group life,” he says.
“With income protection there is more ability for providers to manage risk. Life risk is what it is – you can manage it upfront in the underwriting, but you can’t influence the claims incidence, whereas in income protection you can do the underwriting and manage the claims piece. That is what is potentially value-adding about the product,” he says.
With Munich Re also on record as planning to enter the group risk sector, and others taking a long hard look, it is clear that employers should be benefiting from keener pricing in 2009. But Plumtree says Zurich is not in the business of buying market share at a discount right now.
“I keep hearing rumours of one or another company looking to come in and then they pull back. I wonder if they are waiting to see how we do. There are opportunities for others to come in as well, but equally you have to think that in the current climate we will see people go out,” he says.
“We have seen some quite incredible things in financial markets recently so I don’t think it would be surprising at all if we saw some players exiting the market,” says Plumtree, adding that intermediaries are going to be increasingly concerned with financial strength going forward.
Plumtree sees opportunities for corporate intermediaries in broadening the scope of what they offer.
“Employers are not just managing their employee benefit risk. They are managing their property risk and their liability risks. How we help employers manage all their risks is an opportunity for the providers.
“It is a question of thinking in a less silo-like way. We like to think of ourselves as the life or the general market, but employers are one entity,” he says, suggesting that corporate intermediaries may wish to broaden the scope of what they offer. He says there are a few employee benefits consultants who have already spoken to him about looking at breaking down the barriers between life and general insurance. But he does accept that this will not happen overnight because consultants need to be expert in the area they are covering.
This cross-fertilisation approach is one that Zurich is itself taking, offering as it does a full range of products for employers. This means that when a corporate pension comes up for review, the group risk arm of the business will know about it.
Plumtree has recruited a team with a track record in the sector, notably taking on former Friends Provident group risk stalwart Bob Cheesewright in the role of propositions director. Plumtree expects his team to play a role in the development of the sector in due course.
“As newcomers in the marketplace we obviously had to earn our place, but I would definitely see us as having the opportunity to influence and shape thinking. I feel very positive about GRiD and we will be very active participants with it,” he says.
But he would like to see a higher profile for the body and its work, something that GRiD has already set up a task force to deal with. So what about getting the public at large to value group risk products more?
“The issue of individual protection has been muddied by the PPI stuff and people automatically link it to that and think they are being ripped off. If you think of who operates in the group risk market, it is a relatively small group of people who actually understand the technical aspects of all the products. But they do not normally market them very well. We could spend a lifetime creating a perfect risk management tool but it would not sell at all unless people actually value the product,” says Plumtree.
So should GRiD members put money up to market the sector properly?
“Should it be GRiD? Should it be other bodies? The insurers themselves, and Zurich has a part to play, can surely use strong retail brands to help promote the benefits. I am not a technician, I’m an accountant. But actually I am much more about what these products mean to people and what is going to attract them,” he says.
All about Jonathan Plumtree
1989 BSc Exeter University
1985-89 Royal Navy – sub-lieutenant. Officer cadetship provided sponsorship through University and meant spending a year prior to University undergoing basic officer training at Britannia Royal Naval College, Dartmouth and Hong Kong Squadron.
1989-97 Coopers & Lybrand – senior manager. Specialised in financial services, particularly insurance, and spent two years working in the USA.
1997-2007 Unum – finance director
Joined as senior financial accountant reporting to director of finance but promoted to director of finance within first year and subsequently joined the board as finance director in 2003.
January 2008 to date – Zurich Corporate Risk – head of group risk
Trustee director and audit committee chair for children’s cancer charity CLIC Sargent. Plumtree got involved with CLIC Sargent after his son was diagnosed with leukaemia in 1999. Plumtree organised a corporate charity running relay from John O’Groats to Lands End, which raised over £125,000 for CLIC Sargent over five years.
Married to Nicola, lives in Hartley Wintney, Hampshire with two daughters, Olivia (aged 9) and Jemima (aged 7).
Running – Ran the London Marathon last year in 3 hours 41. Enjoys squash, playing the piano and supporting his local community.