Critical future shines in the gloom

Group critical illness appears to be the one bright spot in the latest Swiss Re report says Paul Avis, sales and marketing director, Canada Life Group Insurance

The Swiss Re Annual Survey provides a cogent insight into how our market is doing – what is going well and what is not. With both group life and group income protection markets covering more employees, with little or no increase in the annual premium, the view that we are doing well by not going backwards could be a bit rose tinted. So where are the really positive bits coming out of the 2011 market performance survey?

One product that has performed exceptionally well, showing increases throughout the recession and post-recession austerity period, is group critical illness (GCI). However, as a market of £55m in 2011 it is only about a tenth of the group income protection (GIP) market and a twentieth of the combined group lump sum and death in service benefit markets. There is still huge potential for growth.

Since 2007 GCI has grown by 48 per cent in terms of premium (9 per cent in 2010/11 period) and by 23 per cent in terms of lives. This is aligned with the growth in flexible benefit schemes. 57.7 per cent of all group critical illness premiums are within flexible benefit arrangements, so this can be seen as a real barometer of employee opinion and their view of the value of this product.

In effect these results certainly highlight the popularity of GCI with employees and so a question needs to be asked – are advisers and employers missing an opportunity by not proactively promoting this valuable but under-penetrated employee benefit and, if so, how best can this be done?

Most of us know someone who has had a critical illness such as cancer, heart attack or stroke. With the emotion that follows the diagnosis of such a significant event, alleviating any financial burden allows the focus to be on what really matters – health and the opportunities for recovery.

We have recognised this by providing a second diagnosis service and the availability of specialist nurses who provide unlimited access to practical and emotional support. Our second diagnosis service is enjoying unprecedented demand in 2012, with usage in the first quarter of this year equalling usage in the first two quarters of 2011. So there is obviously a demand to gain clinical certainty when illness strikes.

Let’s turn to the thorny issue of critical illness definitions and bearing in mind that GCI schemes come with pre-existing conditions clauses. ABI guidelines rule the roost on core illness definitions, so why is there any adviser concern here? Possibly it reflects the fact that GCI claim acceptance rates are often lower than those on individual policies. The point here is that, while individuals see a financial adviser to explain their individual policy to ensure they understand what they are buying, group schemes are paid for by the employer. The adviser rarely gets the time or indeed the opportunity to explain the benefit provided to each employee. Hence, there may be confusion over what is and what is not covered. This can lead to non-valid claims being submitted. Insurers have adopted a range of traditional and innovative communications programmes to try to combat this such as claim help lines to explain policy conditions and answer queries when the employee is completing the claim form and interactive claim guides and employee webcasts, which sit neatly with flex platforms. Hopefully group acceptance rates will reflect a truer picture going forward.

The view that we are doing well by not going backwards could be a bit rose tinted

So, with insurers providing practical, emotional, clinical, procedural and financial support, how best can advisers maximise the under-penetrated nature of the market? Firstly, it is worth remembering that GCI may be attractive to unattached employees, who may not greatly value death benefits, so understanding employee demographics may be important. Also GCI costs are relatively inexpensive. We have done quotes where £10,000 core illnesses cover costs as little as £48 per person, less corporation tax, of course. Entry level, low sum assured schemes are incredibly affordable. Taking this one stage further, where an adviser has made savings on the costs for GIP and life benefit schemes, these savings could be transferred into the provision of valuable critical illness benefits?

A hugely under-penetrated market, with only 2,333 employer schemes, makes GCI appealing at every level and there is plenty of scope for market development. That means some good news and opportunity at last in group risk and perhaps a way for advisers to replace reduced commission and fee revenue from dwindling premiums in the more mainstream group risk benefits market.