Creating a sustainable market

With so little genuine new business currently on offer in the group risk market, rebroking has become a way of life for the intermediary community. And insurers can hardly be accused of bending over backwards to stop the practice. Yet some providers have been unable to make a profit in the group risk sector, raising the question of whether today’s market functions in an efficient way and whether intermediaries are doing their part to create and maintain a sustainable business sector.

Speaking at the GRAF event last month, Guy Roberts, business development director at Portus Consulting, quipped: “Insurers are keen for you not to rebroke in the middle year for their own book of business, but they are certainly keen for you to do it to take business from other insurers.”

Simon Derby, director of i2 Healthcare, observed that the rebroking is being driven by insurers trying to increase market share by picking up business from other insurers. He referred to a “feeding frenzy” with insurers “trying all the time to outdo and outwit.”

There was a general acceptance amongst delegates that the current rate of rebroking turnover was far from ideal. Three-quarters of delegates felt that it was not an efficient and sustainable way for the industry to be run. But there was also a realisation that there is a limit to what intermediaries can actually do in terms of taking any remedial action in the current economic environment.

The issue of whether several advisers should be asking the same insurer to quote for the same client split attendees. This practice is clearly one that advisers can actually do something about, but only 50 per cent of attendees said they were concerned about it, with the remainder seeing it as a sign of a functioning market.

Steve Herbert, head of benefits strategy at Origen, said: “The current situation in group risk is not sustainable but it’s inevitable that everyone is pushing down on costs and this will continue until the end of the recession. So there is nothing much we can do until then. All clients are focusing on the bottom line and, therefore, we as intermediaries have to do so as well. “

As a result of this situation advisers were considered to be being widely misrepresented as being price obsessed, when they were in fact placing great emphasis on engaging with their clients to ensure that they had everything they needed. 75 per cent of attendees expressed the opinion that advisers were not too preoccupied with price. David Williams, a lead consultant in the health and risk benefits practice at Hewitt Associates, said: “It’s a misconception that we are just focusing on price. If the client is focusing on price we are bound to pay attention to it as well. We are still looking at the underlying terms, but the client preoccupation with price makes it much easier for us to sell our services along price lines.”

Derby pointed out that as car insurance and virtually everything else was price- focused at the present time it would be illogical to expect the group risk market to be immune. He said: “Employers are looking at group risk more from the point of view of whether they have to provide it rather than whether they can provide more of it.”

In the context of such forces largely outside their control, intermediaries were clearly intent on trying to ride the storm rather than on coming up with some magical solution to snuff it out. Nobody disagreed with the observation made by Carlos Correia, senior consultant, risk benefit unit at Lane Clark & Peacock, that advisers could not really be expected to be out there getting new business in the current market as it was often not cost-effective to do so.

The same fatalistic attitude was very much in evidence with regard to whether further group risk players would be exiting the market following Aegon’s recent announcement of its withdrawal. A sizeable 63 per cent of attendees felt it was possible that we could see another provider exit the market during the next 24 months, while 38 per cent considered such an exit “very likely.” None entirely ruled the possibility out.

Allan Beal, an analyst in the health and risk practice at HSBC, said that he wouldn’t be surprised if a small player pulled out but pointed out that composite insurers like Aviva have more than a vested interest in staying in because of the name awareness that their group risk activities create amongst employees for other products such as home and car insurance.

Stav O’Doherty, director of risk services at Perfect Health, did not feel that exits by the smaller players in fact presented much of an issue but was more concerned about the possibility of further mergers amongst the major insurers. She said: “Because a handful of insurers control the vast bulk of group risk business, any movement from them would have a real impact”.

Correia was not too concerned about the prospect of further departures, on the grounds that it would not be long before other new entrants took their place.

He said “It’s a soft market at the moment but things will change eventually. The situation is sustainable as long as there is a proper market in operation because providers will all put prices up in a couple of years’ time when things pick up. Unlike with PMI, the barriers to entry are pretty low in group risk, so if a major player like Unum pulled out there would be others who are not in the market at the moment ready to step in.”

Most advisers were clearly hoping to raise awareness of the importance of group risk products via GRiD both through media exposure and lobbying. It was appreciated that governments are always influenced by public opinion, so raising the profile of group risk should help in this respect. But it was also accepted that the current government now had little money available.

GRiD spokesperson Katharine Moxham expressed concern about a number of government reports which made no mention of insurers in conjunction with references to rehabilitation. Perfect Health’s Stav O’Doherty also warned that, although a lot of work had been done behind the scenes to give the government information, efforts were often largely wasted.

She said: “In work I’ve been involved with I’ve found that dealing with civil servants within the various departments has often been difficult. The individuals you were dealing with were frequently changing roles so you never actually got a reaction from them.”

There was considered to be some mileage in Correia’s suggestion of feeding the opposition parties – who are always being criticised for not having any policies – with group risk policy angles. Nevertheless, Herbert warned that there was little point in making any efforts in this respect until after the next general election on the grounds that you need to know who the opposition is.

How GRAF delegates voted

  • Are advisers too preoccupied with price?

    Yes 25%

    No 75%

  • Are you concerned at situations where several advisers are asking providers for quotes for the same client?

    Yes 50%

    No 50%

  • Do you think the current rate of re-broking turnover in the market represents an efficient and sustainable way for the industry to be run?

    Yes 25%

    No 75%

  • Do you think providers can afford to sustain today’s premiums over the longer term?

    Yes 29%

    No 71%

  • How likely do you think it is that another provider will exit the market in the next 24 months?

    Very likely 37%

    It is possible, but I do not expect it to happen 63%

    I cannot see another provider exiting the market 0%