Will auto-enrolment actually bring the much talked-of upswing in group risk business? It depends on advice and on technology, says Edmund Tirbutt
As we enter the peak period for pension auto-enrolment, opinions are divided as to whether we will see a rise in group risk sales, with providers who are able to provide quotes based on AE data considerably more bullish.
Progress in group life sales has been largely the result of pension schemes that already offer life cover expanding membership, rather than the sale of new schemes. Although Swiss Re’s Group Watch 2014 showed that group life in-force premiums rose by 8.9 per cent in 2013, it also showed a 1.5 per cent reduction in in-force schemes.
Research commissioned by Group Risk Development (Grid) among 500 companies with between 5 and 1,000 employees found 14.4 per cent would consider a group income protection policy, 8.6 per cent group critical illness and just 6.2 per cent group life. The most common reason given for this relative lack of interest is that pensions are a compliance issue and group risk is not, followed by stretched employer budgets and low intermediary commissions.
Zurich Corporate Risk group risk proposition manager Nick Homer says: “I’ve always believed the opportunity from auto-enrolment will come but we haven’t yet seen any drive to new-to-market group risk. There has just been an emphasis on making sure pension arrangements are structured appropriately.”
Unum, Canada Life and Legal & General provide similar feedback but Ellipse is far more bullish and Aviva reports that, while the intermediary channel has been quiet, it has started to see some interest on the direct side.
The key to these different experiences may lie in the ability of the latter two insurers to provide quotes based on pension AE data. Ellipse’s unusual stance in not requiring knowledge of occupation gives it an advantage. Using details of salary, date of birth and type of business activity gained from pension AE, together with the employer’s address provided by the adviser, it is able to give a fairly detailed report of group risk requirements.
Ellipse chief executive John Ritchie says: “It’s very straightforward to make money out of auto-enrolment if you volunteer basic cost illustrations, and some very smart advisers are doing so. It’s up to the advisers because, if they sit around moaning in a negative kind of mindset, the prophecy will become self-fulfilling. Even if the client isn’t ready, start the conversation with the cost of basic life cover for all their people because employers often have no idea how affordable it is.”
Aviva also manages to provide initial quotes from this same basic information, just assuming a level of benefit, and a proxy about occupation – which it will require details of later if employers are interested in proceeding.
Aviva group risk director Steve Bridger says: “If you want full belt-and-braces information, you need details of occupation and a full postcode. But we find our approach does not necessarily have to result in quotes being adjusted for occupation if data has been used responsibly. Businesses with under 50 employees are unlikely to be spread over several sites so the postcode will come from knowing the address.
“Once you start the conversation, it’s best to mention all group risk benefits, but it’s important not to bamboozle them with information. They are most likely to start with group life.”
If Grid could liaise with providers about adapting their software to enable more data relevant to group risk to be collected during AE, it could help other group risk insurers come up with instant quotations and the body is already considering the matter.
Grid spokesperson Katharine Moxham says: “The current auto-enrolment data standards don’t capture everything we need, such as occupation, work postcode and level of benefit. So it would make sense for us to explore the possibility of adding to the data sets. If we could achieve this, technology really could do the job for us alongside pension auto-enrolment.”
But not everyone agrees that the pensions meeting is the most appropriate time to mention group risk. Unum head of proposition development Andrew Potterton observes from his conversations with brokers that most feel that employers are too preoccupied with pension matters at that time.
He says: “Views on when the right time is vary from six months to a year later. I think they’re right, or we would have seen more new-to-market business.”
But some think genuine momentum will take much longer, primarily because many plans by employers to invest in technology have been put on hold while they focus on AE.
Jelf Employee Benefits head of benefits strategy Steve Herbert says: “Once the dust has settled, many more companies will have to move to benefits platforms and these will highlight the gaps that exist in protection. If there is an upswing, it is likely to be more towards short-term group income protection than life or critical illness cover.”
Herbert takes consolation from the fact that when widespread reviewing of benefit structures starts, it will not be handicapped by any obvious end date. He says: “Although pension auto-enrolment will be completed initially in 2018, this will be only the first stage. Steve Webb has said that, whichever party is in power, there should be a debate early in the next Parliament about increasing contribution rates from 2020. We also have new rules coming on charge caps and more stringent Government requirements, and each time it’s a new opportunity for group risk.”
Technological development by providers and intermediaries should help them capitalise on these future AE opportunities. For example, Unum has announced it is moving to a new platform from January 2016. This will make it more efficient, help it to launch products more quickly and enable employees to interface flexible benefits. It may even follow the example of Canada Life’s CLASS system and enable clients to do their own renewals.
Portus Consulting – in conjunction with business partners – is developing Pure Benefits, an efficient end-to-end online solution for SMEs that will enable them to access group risk and other health-related products.
Nevertheless, while technological development can help, it will never be more than one part of the overall jigsaw. The most important thing is to communicate to employers that pensions are only the start of the journey.
Canada Life Group Insurance marketing director Paul Avis says: “Half of employers in the sub-50 employee segment due to come to auto-enrolment don’t even know what group life is and, if they do put a price on it, they think it costs in the region of 3 per cent of salary. So advisers who explain what it is and show that it can cost 0.1 to 0.4 per cent of salary can do much to rebuild revenue streams now that the big pension commissions have gone.”
Advice can send uptake soaring
John Kerr, director, Kerr Henderson
Belfast-based employee benefit consultancy Kerr Henderson is achieving a 35 to 45 per cent uptake in furthering the discussion when it mentions group risk during pension auto-enrolment meetings – despite many employers having group life already.
Operating via a separate brand for AE called incorporAtE, advisers automatically provide pension clients with a flavour of the cost
of life cover and income protection, with initial quotes provided via Ellipse.
Kerr Henderson director John Kerr says: “The fact that Ellipse doesn’t require occupation makes it ideal for providing a flavour of the cost but it is not the most competitive every time and we probably end up placing elsewhere around half the employers who want to do something. No one is offended by us giving a quote, although the odd client says it will be happy to consider group risk further down the line.
“We think auto-enrolment provides a once-in-a-lifetime opportunity and we take a coffee shop-style approach, with the pension being the coffee and group risk the meat in the sandwich. The secret for any intermediary doing both pensions and group risk is to take a holistic approach and, because we are relatively small with only 12 consultants, they are all able to talk to each other without many brick walls.”