Finding Answers to Questions

Steve Browning - Group Protection Product Manager

Swiss Re have recently released their annual Group Risk report which makes for interesting reading regarding the current state of the Group Income Protection market. Even though in-force premiums are up slightly from last year, the number of policies in-force continues to fall. The increase in premiums can be explained by small inflationary increases in salary during the year. Given the current economic climate, will 2009 be the first year since 2003 that in-force premiums fall?

The report highlights that many people rely on group risk benefits as their sole means of protection. Without group risk policies the protection gap in the UK would be nearer £3trillion, 50% higher than the £2trillion it is estimated to be currently. It’s a
common theme amongst industry commentators that the key to improving the take up of group risk products and decreasing the protection gap is innovation from product providers.

There has certainly been an attempt by providers to introduce innovation to the market over the past few years. The popularity of limited term benefits has produced a cost-effective alternative for employers in not having to provide benefits up to a member’s retirement date. However, the vast majority of employers setting up limited term policies are those that are switching from providing benefits to age 60
or 65 in an attempt to save costs. It is not an innovation that is attracting true new business to the market.

Capital options have not proved as popular as first thought. The make-up of the benefit structure within policies often means the employer doesn’t save enough money to make the change viable.

Underwriting improvements by the majority of providers have (so far) meant incentives for individual members and existing policies, but has not and will not encourage new policies to the market.

Will we see further product overhauls in the current climate? I doubt it. Product providers are in the same position as all other businesses, managing costs and making the most out of their existing product designs.

The problem seems to be understanding what employers want beyond further reductions in premiums.

Do we, or the intermediaries that serve employers, know what improvements are needed to inject the required impetus into true new business? I’m not convinced that, at the moment, we really do know the answers. As an industry we need to find out!

Educating employers through improved communication and subsequent awareness is a sensible suggestion. It mirrors the problems faced by
the retail protection market where it appears there is a generation who place more value on insuring the family pet or their mobile phone than insuring themselves.

If individuals are not getting the message about their own protection, why should the same people accept they need protection for the businesses they run?

The Group Risk Development group (GRID) is starting a campaign to raise awareness amongst employers of the importance of the Group Risk
Market. Only time will tell if this initiative, along with better employer communications from the providers, will finally raise the profile of the Group Risk Market and make employers understand the valuable benefits it can provide.