With companies feeling the pain in 2009, delegates at the Group Risk Adviser Forum saw three areas where work needs to be done to bolster the sector – sensible trimming and realignment of benefits for those employers under real pressure, the development of new products for if and when the rebound happens and, most important of all, the launch of a wide-ranging campaign to market the benefits of group risk products.
Advisers present at the event, held in London last month, saw a real need for benefits to be efficiently aligned with the needs of employers and employees.
But however creative marketing departments of life insurers are, delegates felt that pressure on balance sheets means new spend will be limited this year. This in turn means that products which are demonstrably more efficient for employers will be valued.
But with some delegates looking beyond the downturn, a consensus developed to say that as well as developing leaner products to help those employers facing serious day to day financial challenges, the industry should prepare now for the future so that better products are ready to be taken to market if and when the economy recovers.
Fundamental to all discussions of product development and advice to employers is the basic desirability of group risk products generally, an issue advisers felt should be the first priority of the industry, to the public, employers and government.
Paul Burt, director of Xafinity Consulting, expressed the view that despite the dire predictions of market contraction over the next 12 months, now is not the time for short-term fixes that could have long term consequences.
Burt said “Employers will need to hang onto people when things turn around, and the value of group risk benefits at that point is likely to become more important. We should be telling people that cutting back on benefits is a short-term measure and that the recession will end.”
“We have got an education job to do here. If all we focus on is cost, we run the risk of losing sight of the fact that when we do start to come out of recession, benefits will become more important. We should be telling employers what they do now should be part of a five-year plan and that maybe we need to make immediate hits now, but there will be a time when we have to look forward as well,” says Burt.
Delegates felt there was a sense that employers are using employees’ fear of job losses to get rid of benefits they perceive as not giving them good value. To deal with this the industry needs to overcome the fundamental problem of raising the value that is attached to protection products in the workplace. Delegates felt this single issue remains at the root of all issues faced by the sector.
Simon Derby, director of i2 Healthcare, said: “Employers will use the downturn as an excuse to fundamentally review the benefits that they provide, yet all the insurers are doing at the moment is tinkering around the edges. Yes, there are two-year benefit or capital options, but this does not grow the market, this reduces and erodes what is there.”
Carlos Correia, senior consultant, risk benefit unit, at Lane Clark & Peacock, said providers had put the issue of raising the profile of group risk on the agenda at GRiD meetings and that action is said to be in the pipeline. “Providers are aware of the problem, but whether they will do anything about it is another matter.
They are all pulling their horns in and worrying about cost, and I can understand that, but I think until the man in the street says that he wants some sort of disability insurance there is never going to be the demand that we think there ought to be,” he said.
“There should be a strong demand for financial protection if you are sick. And at the moment the structure of income protection is such that it requires a high commitment from the employer. What employers want is to be able show some financial security without having this long-term commitment with something like Unum’s Pay Direct structure, where the employer can step away, provide them with the support they need, but then don’t have to remain involved with them or get sucked into whatever issues may arise in 10 years time, such as age discrimination,” said Correia.
Geraint Williams, independent financial adviser at ORB, was in no doubt that intermediaries must start to find a way of promoting group income protection themselves if insurers are to be slow to do it.
He said “The pensions market represents a good analogy. In a pension scheme you get income from signing up a company, but you still need to get people into the scheme. Every time you get more people in there is more money, and that is why pension providers spend so much money on getting people like me to get employees to sign up.
“But this doesn’t happen with group income protection because, whether we are commission or fee based, we get a wedge of money when a company renews. It doesn’t actually directly matter from our own income point of view whether we tell everyone in the workforce about the scheme but it does matter to employers and employees.“
With group risk as a whole, and particularly with wellness type products, the government was also stressed as having a potentially important role to play. Moxham said: “You can’t expect employers to fund it all. There surely has to be a contribution from the State, whether it comes in reducing National Insurance (NI) contributions or whatever. Why should you pay twice as an employer through your group income protection premiums and your NI contributions?”
After all, if employers are providing for employees it relieves the strain on the State. So, as more than one attendee pointed out, current governmental taxation policy palpably fails to reflect this. Advisers called for stronger lobbying on this point.
Correia said: “I suggest a weakness of the industry is that it is not close enough to government, so its messages are not reaching government ministers.
PMI was perceived as being anti-NHS but we are talking about benefits that are not anti anything and if we can present our case in a way that would make political capital we may be able to get concessions. Maybe giving the idea to the Conservatives could get Labour to act on it!”
When it came to dealing with the economic downturn, designing new products was considered something of a luxury – employers have limited resources as it is, without taking out new products. That said, Bluefin’s Laurence Power did believe there would be a trend towards redesigning benefits so they can be targeted to more closely suit individual employee’s requirements. The main emphasis was clearly on making do with what was available whilst waiting for the next bounce of the corporate ball. But he added that there was a strong message that can be put to employers on distributing through the workplace, once employees value and desire the products.
Power said: “If people want this product and their employer doesn’t offer it they have to buy it from net income on which they pay tax and which the employer has paid tax and NI on. If you the employer get it, you will get it cheaper and you will be able to cover people who couldn’t normally get cover.”
Moxham pointed out that the switch from DB to DC pensions had been a missed opportunity for the industry so far. “Many schemes have traditionally funded their ill health through the pension scheme. I have seen cases in the past where women of 30 have been put on to ill-health early retirement for postnatal depression. There isn’t that option any more. But have we as the market missed the boat here?”
Advisers discussed the compelling messages that could be presented to the broader public to raise the profile of group risk products, particularly in relation to group income protection. Aside from the work done by Swiss Re in relation to the protection gap, they agreed there was a gaping hole where the marketing of products in the national press should be.
This has led to a lack of understanding of some of the basic benefits of group protection products. Alan Thacker, senior consultant at Buck Consultants, said: “As we go into the downturn one of the things missing for employees is education. There is a statistic that shows the chances of being off for more that six months with an illness before the age of 65 are five or six times higher than death. Yet people are comfortable insuring against death but not long term sickness.”
Tim Parker, corporate consultant at Johnson Fleming, said: “A lot of employers are not looking at new things. It’s about how you can get more from the existing spread, although PruHealth is very attractive at the moment as a result of its Vitality concept.”
Although controlling costs and increasing efficiency during the downturn were inevitably considered high priorities, major cut backs on benefits were also highlighted as potential false economies.
At 42 per cent, absence management support was the feature employers were considered most likely to be interested in when discussing group risk products. There was also clearly an increasing interest in stress management services, although the majority of employers were not considered likely to want to pay for them. For this reason the importance of highlighting stress counselling facilities and on-line health managers that are included automatically on group risk products was emphasised. Making use of what is available, without incurring further costs to clients, was seen as a no brainer in today’s difficult market.
The economic climate was thought unlikely to have much impact on the way that intermediaries are remunerated. A full 91 per cent of attendees did not expect an increase in the proportion of business they transacted on a commission basis over the next 12 months, as it was generally accepted that larger clients are wedded to fees and that smaller ones are likely to stick to commission. Nevertheless, the actual quality of advice given was stressed as remaining all important. Lorica Consulting’s John Russell Smith said: “My view is that we spend a lot of time talking about ourselves and not paying sufficient attention to the end client. The end client fundamentally drives the market and if we can find solutions to their problems we will continue to be successful. It’s only really in the last six months that clients have asked us to focus on cost savings so the key is to make sure cost savings solutions are sustainable.”
Turning to other issues facing the industry, advisers considered what impact the change in medical underwriting philosophy to a ‘lifetime underwriting’ approach will have on the market place in general, and specifically in relation to switch business. “The development in medical underwriting has been a long time coming,” said Burt. “For some time, free cover limits have struggled to keep up and even with forward underwriting there was always an element of confusion. This is a welcome development. I do not see this having an impact on market growth, but may make switching business easier, albeit that each insurer has a slightly different variation.” Derby agreed with Burt’s positive outlook on the issue. “I think this is a significant step forward and will in many cases enable the client to switch to another insurer who also offers the same basis of cover without the fear of employees being underwritten again. However as always the devil is in the detail and the various insurers’ terms for switch business will need to be vetted closely at the time of any proposed switch,” said Derby. “In reality lifetime underwriting is in its infancy at present and over the next 12 to 18 months the pitfalls, if any, will become clear.”
As far as investment from providers in new technology is concerned, Canada Life’s e-commerce functionality was held up as a benchmark for the rest of the industry to reach.
“I would like to see significant investment in ecapability all round so that all providers can work in the same way as Canada Life does now and on greater tranches of their business,” said Moxham. “Arguably this could drive a move to simplify those more complex legacy schemes that can be such a challenge but I would still expect providers to be able to accommodate non-standard risks in an increasingly automated way.”
Derby said: “I am not a fan of e-quotation systems, but I am a fan of Canada Life’s CLASS system. Having access to scheme information, history claims and underwriting saves everyone a lot of time. I would like to see more insurers go down this route.”
Steve Herbert, head of benefits strategy at Origen, was of the same view, urging providers to adopt technology to drive administrative efficiencies in the same way it had for workplace pensions. “A further extension of the Canada Life on-line quotation system to all insurers would be welcome. At the moment this is a little limited in scope but does evidence that quotes can be turned around in very quick time in some cases.”
The pensions market has been forced to face huge challenges in recent years and has developed innovative solutions for the new environment. Advisers are hoping the changing market will stimulate change in the group risk sector too.