Protection needs to progress

Having worked with providers in the group income protection marketplace for more than 15 years, I feel qualified to express frustration at the lack of product development and innovation.

corporate adviser january 2009

Providers continually ask the same question of advisors – how can we grow the marketplace? On face value this is a reasonable question, given that only 10 per cent of the employed workforce actually benefit from this product, although more than 10 per cent of companies buy the product but don’t offer it to all employees. What the providers don’t ask enough, however, is “what is wrong with the product if only 10 per cent of the employed work force benefit from it?”

If you consider that the product was designed some 30 or more years ago, with very little upgrading during that period, it is little wonder that there is such a small uptake. The product that we have for our corporate clients is outdated and old-fashioned. In addition, it is being sold in a marketplace today that is very different to the one it was originally intended for.

We have seen a very few changes made to group income protection offerings over the past decade, such as in relation to limited payment periods, differing definitions of disabilities, and changes to take into account welfare reform. But these changes really only amount to tweaks to the contract. In the big scheme of things, and considering how the world has moved on in the last 30 years, these changes are insignificant and actually amount to very little.

Another area of progress in the last 10 years is claims rehabilitation. Some providers do provide a good service to their clients. The results are often very positive when clients engage. But the percentage of engagement is very low. In addition, I do not know of any provider that offers rehabilitation as a part of their policy terms and conditions as a standard to clients. If this could be achieved it would possibly make the service more visible and increase engagement.

Furthermore, when a provider tries to promote an income protection policy the real benefits of early intervention and rehab tend to be ignored or overlooked. This leads me to suspect that providers do not realise that employers’ needs are very different today than they were 30 years ago.

However, all is not doom and gloom. One provider has broken the mould with its new GIP product, called ‘Dual Benefit’. It provides a traditional benefit to the employee from four weeks for a period of two years, and a short term benefit to employers to help them cope with costs associated with short term absence. The policy really does help a small employer manage and fund their absence costs. What our industry needs is more of this type of innovative thinking.

In the current economic environment employers are looking to reduce, minimise and contain costs. Flexible benefits are an ideal mechanism to achieve this aim. Typically, the employer offers the employee funding for a core benefit of, for example, 40 per cent, of salary and allows employees to choose benefits that suit their own needs. At present it is pretty much impossible to give the employee any choice other than increasing or reducing their benefit level to suit their current needs.

Why not allow choice in deferred periods, payment periods, termination dates, escalation, and definition of disabilities? Underwriters are concerned with anti-selection issues, but I would like to think that with a bit of innovation, and the tearing up of the current rule book, these choices should not be impossible to achieve. This would provide a benefit programme that is mutually beneficial to both employers and employees.

In addition, offering a voluntary income protection benefit to employees, where no core benefit is in place, would be a major step forward for employers looking to offer a range of voluntary benefits. We all appreciate the odd scheme has been put in place on this basis, but voluntary income protection is not encouraged by the providers, which is a shame as it would help grow the market and satisfy employer and employee needs.

Finally, a more extreme idea for innovation would be to create a hybrid healthcare/income protection product. This would be an employer product that supports an employee’s return to work from sickness absence, perhaps a 12 -24 month period, providing appropriate medical care from, say, 10 days’ absence, with an income protection benefit kicking in at four to eight weeks if RTW is not achieved in the intervening period. That, however, may be asking too much of the current market place.