New structures

Advisers gave a mixed report card on innovations that have been introduced to the group risk market in recent years, supporting new structures that tie in clients in return for reduced premiums akin to those available in the mortgage market, but less keen on some new solutions already on offer.

Although it was agreed that there was a trend in the direction of limited income protection benefits, not a single attendee felt that the market was moving towards lump sum income protection, and only one in four felt that the recent holiday pay legislation represented an opportunity for income protection providers to alter benefit scheme design.

And despite the increasing prevalence of annual rebroking, only 38 per cent said that they would be interested in one-year rate guarantees because, although the concept had obvious appeal in theory, it also had considerable practical downsides.

Speaking at the third Group Risk Adviser Forum in London last month, Simon Derby, director of i2 Healthcare, said: “The industry can barely cope with doing rate guarantees every two years so it hasn’t got a snowball in hell’s chance of catering for a one-year rate guarantee. The players’ operations are not slick, sophisticated and designed like the private medical insurance (PMI) offices, so, although the idea sounds great, it won’t happen.”

Some advisers suggested that the slowness of some providers’ administration systems were a deliberate business retention tool.Fiona Kennett, group risk manager at Orb, confirmed from practical experience that offering one-year rate guarantees is great in principle if providers can deal with the admin quickly enough to make them happen, but that the reality is going down that road can prove severely disruptive to existing service standards.

Kennett said: “We have arranged special terms for some insurers and, while I can see the advantages of one-year rates, they do clog up the system for new business. Our quotes have been delayed quite substantially when we have had new business in because advisers come in with one-year rate requests as well.”

Carlos Correia, senior consultant, risk benefit unit, at Lane Clark & Peacock stressed that if a one-year rate was to work, insurers would have to introduce a much bigger price differential from a two-year rate to reflect the considerable additional administration involved.

There was, on the other hand, far greater appetite amongst adviser delegates for the idea of longer-term arrangements with exit penalties – in a format similar to that used in the mortgage market.

Two thirds of attendees said that they would consider advising their clients to agree to be tied into a long-term contract in return for lower premiums. This way, providers could share some of the cost savings they make by hanging onto business for longer with the client, suggested delegates.

But Steve Herbert, head of benefits strategy at Origen, said: “The only way it’s going to work is somebody coming in hard on rates and therefore locking into something attractive for the client. not hearing any noises suggesting it’s going to happen.”

Other advisers considered the approach as being unlikely to take off if it was introduced by one insurer in isolation. It would, according to i2 Healthcare’s Simon Derby, require three or four major insurers to offer it for it to really catch on. GRiD spokesperson Katharine Moxham felt that success would probably need agreement from almost the entire market, which would clearly raise competition issues.

Lane Clark & Peacock’s Carlos Correia felt that longer-term lock-ins were most likely to appeal to insurers with large market shares but that the smaller players would be more interested in shorter-term contracts – as these would enable them to take more business off their competitors. He also pointed out that insurers who believe they are offering high quality service levels have an incentive to offer lock-ins on the grounds that the longer a scheme remains with them the more likely it is to appreciate the service proposition.

The area in which adviser opinion was most polarised was with regard to whether it would be desirable to see more integration of healthcare and group risk products from providers.

Pessimistic on the subject was i2 Healthcare’s Simon Derby. He said “Health insurance and group risk are different animals and have different renewal times and, although there is a need for organisations to do both, you couldn’t have the same individual doing both in the large corporate market.

“You have to be a master of what you are doing and both fields require great expertise and involve different agendas. People may think they could do it but I’d bet huge money that they couldn’t cope with the complexities and demands of both types of insurance.”

Carlos Correia, however, feels that there will inevitably be more integration between the two camps. Whilst acknowledging that there is a big difference in business practices and cultures and between group health insurance and group risk, he felt that it was quite possible to do both if everyone worked a bit harder. He argued that while individuals within firms would find it challenging to do both streams of business, from a client perspective, offering both options meant an intermediary had a more comprehensive and integrated service.

He said “Having separate people won’t be sustainable in the long term and there must be some advantage in having integrated programmes. There are cultural divides and I think these have prevented the integration from happening as much as perhaps it might have done.”

Allan Beal, an analyst in the health and risk practice at HSBC, said: “The fact that some income protection providers now include EAPs shows that there is at least now a soft cross-over between group risk and broader healthcare operations but I agree that group risk and healthcare are different animals.”

Stav O”Doherty, director of risk services at Perfect Health argued the goal of true integration between group risk and group PMI was worth fighting for, but was being held back by structural issues within both providers and advisers. She said health and wellbeing solutions could be a valuable part of an integrated strategy because the absence management benefits they offer make claims on group income protection, life and PMI less likely, allowing premiums to be reduced. “The whole point of an integrated strategy is that you are trying to manage the cost of absence at its most basic level, whichever part of the insurer’s menu you are going to tap into, and clients who miss out on this are missing a trick,” she said.

“The problem is one of co-ordination between the different parts. Both insurers and advisers tend not to be integrated in the way they deal with healthcare, wellbeing and group risk. The trouble is that they are different skill sets. It needs somebody to sit above the two streams to see what benefits of a co-ordinated approach can be given to the client.

“There are insurers wanting to get both bits of the client’s business. So there should be some sort of discount for placing both with the same provider,” said O’Doherty.

Where there has been innovation in the past, it has taken time for the end users to actually appreciate it. Steve Herbert, head of benefits strategy at Origen, said “We’ve had quite a lot of innovation over the last eight years or so but most clients don’t yet actually know about it, particularly in the SME sector. They may have been told about it but it hasn’t registered. So, until we get that embedded with corporate clients, moving onto the next level and adding anything extra is some way away.”

What they will appreciate, however, will be lower premiums. Advisers were universally of the view that innovations that can deliver efficiencies to employers will be welcome.

Adviser poll Innovation in the group risk sector

Q With annual re-broking now becoming prevalent would you be interested in one-year rate guarantees?

Yes 38%

No 62%

Q Would you consider advising your client to agree to be tied into a longer term contract in return for lower premiums?

Yes 62%

No 38%

Q Is the market moving toward group income protection lump sums?

Yes 0%

There is interest, but it is unlikely to be translated into action at this point 62%

No 38%

Q What impact will the recent holiday pay legislation have on group income protection schemes?

It is an opportunity to alter benefit design 25%

Employers will look to terminate the contract of employment earlier paving the way for an increased demand for Pay Direct and Lump Sum 38%

It will have little or no impact 38%

Adviser poll Business in a tough market

Q How will group risk business stand up to the downturn?

Business will shrink but less than other forms of employee benefit 25%

Business will reduce but only at the same rate as other employee benefits 50%

Group risk business will be hit worse than other forms of employee benefit 12.5%

It will be largely unaffected 12.5%

Q Are you seeing any clients already cutting back on group risk benefits?

Yes, clients are reducing core benefits 50%

Yes, but only in terms of restricting qualification criteria 38%

No 12%

Q What proportion of your clients are engaged in or talking about cutting back on group benefits in the future?

Less than 10% 25%10-25% 38%25-50% 38%

More than 50% 0%

Q Where employers offer flexible benefits, what effect will concerns over economy have on employees’ decisions to select group risk products?

Group risk products will be less attractive 13%

Group risk products will be more attractive 25%

No change 63%