The arrival of two new providers into the group risk market has been broadly positive, finds Edmund Tirbutt. Advisers are hopeful more will follow
When Aegon withdrew from the group risk market in June 2009 it said it did so because it could get better returns from other markets, and not because it could not make money in the sector. Such explanations should normally be taken with a pinch of salt, but the fact that the market attracted two new entrants last year gives it a ring of credibility.
In February 2009, Zurich Corporate Risk launched group life and income protection propositions and in October 2009 it was followed by Ellipse, part of Munich Re Group, which offers both group life and critical illness cover. Whilst the jury still remains largely out on both debuts, negative feedback is hard to come across and Zurich, which is dealing with the widest range of intermediaries, has clearly been making its mark in some quarters.
Zurich reports that it is already insuring around 70,000 lives and says while group life schemes have accounted for about two thirds of business, it has also “done a few” group income protection schemes. It still has no immediate plans to enter the group critical illness cover market but it expects to do so eventually as its flex journey progresses.
Initially dealing only with the larger employee benefits consultancies, Zurich started breaking out to the better-informed smaller intermediaries last autumn but there are still some areas of the market it doesn’t address. It will not, for example, deal in schemes with less than 20 lives or in death in service widow’s pensions.
Avoiding the temptation to buy market share by quoting unrealistically low prices has always been a central part of the game plan. The fact that it already has strong existing corporate relationships through its general insurance and pensions operations has undoubtedly helped in this respect, as has the realisation that some competitors have reached their maximum catastrophe limits on group life business.
Bob Cheesewright, proposition director at Zurich Corporate Risk, says: “There are definitely parts of London and other major cities where having spare capacity has been a contributory factor when securing life schemes and there are some massive employers out there that the existing insurance market couldn’t cater for. We are committed to being in for the long haul and to becoming a top five player and we have entered the market with our eyes open, having recruited senior personnel from elsewhere who understand what it takes to succeed. We deliberately haven’t tried to be hugely innovative, planning simply to build our credentials in an established market.”
Feedback from specialist intermediaries certainly suggests that Zurich is being appreciated for its approach to the market and indicates it has made reasonable progress in view of the fact that its entry took place in the depths of the credit crunch.
Carlos Correia, senior consultant, risk benefit unit, at Lane Clark & Peacock, says: “I have recently placed two life schemes with Zurich and am also talking to it about income protection cases, and I find it quite flexible, pro-active and helpful, which is not something you can say about all insurers. There is nothing particularly outstanding about its product range but I feel my expectations for service have been met and, although it hasn’t been able to do everything that I’ve requested with regard to pricing and product development, it has at least actively considered doing so.”
Simon Derby, director at i2 Healthcare, says: “I have done life business with Zurich and talked to it regularly about both life and income protection. The key point on the life side is that it has capacity and is also more flexible than some other life offices. It has got its rating fairly keen, doesn’t have any baggage and is very keen to do business where it can. Service is very good indeed and, although it has very few clients to maintain, the parent company support should ensure that it is able to keep up its standards.”
There are definitely parts of London and other major cities where having spare capacity has been a contributory factor when securing life schemes
Ellipse, which has only been dealing with 10 large intermediaries to date, reports that it has “written some business and is trading very actively.” It is currently only in the market for large schemes but will be extending to SMEs in the fourth quarter of this year – when it also intends to start offering group income protection.
Peter Fenner, spokesman for Ellipse, says: “What we are looking to do is modernise group risk insurance supply via a model that is very much data driven. We are committed to applying technology to tightening up and speeding up processes and I think this will have a genuine impact on productivity and allow advisers to spend time consulting rather than checking what providers do. A lot of advisers are currently involved in low-value administration checking processes and the feedback we have is that a significant number of clients don’t want to pay for this in the current economic climate.”
Paul White, head of risk benefit consulting at Aon Consulting, has done a lot of quotes with Ellipse but no actual business as yet. He stresses that it requires very different information from employers in terms of scheme administration and that some employers might not be able to cope with this. Others who are used to providing monthly data could, on the other hand, find that it suits them down to the ground.
He says “Ellipse offers a completely different and refreshing approach to risk benefits, and it might be the future and it might not be. Every month the employer electronically downloads data to Ellipse as opposed to the normal practice of a single end of year adjustment. The company is relatively competitive and has a refreshingly flexible approach towards catastrophe cover, with higher upper limits than average.”
The established group risk players, whilst not exactly shaking with fear at the new entrants, clearly regard them with respect and some even offer a modicum of praise.
Paul Avis, sales and marketing director at Canada Life Group Insurance, says: “We welcome competition in the group risk market as it stimulates growth and fresh thinking but the new entrants could not have come in at a worse time. The rates versus quality aspect is skewed in favour of the established insurers, and to undercut experienced underwriters that benefit from economies of scale could be commercial suicide.
But on a positive note for the newer entrants, we have recently seen their names appear in research in a good light and so this definitely keeps us on our toes and there is no sense of complacency here.”
Advisers appreciate the greater choice the new entrants bring to the market, and like the idea of even more providers opening their doors in future. Whether their arrival will lead to a change in the way business is transacted, however, remains to be seen.
MORE NEW ENTRANTS
RUMOURS that the likes of Chartis and Axa will enter the group risk market continue to be refuted as strongly as ever by the companies themselves. Even Friends Provident, which is widely tipped to be returning to the group life market, is still denying that it has any immediate plan to do so.
A couple of other insurers have, however, made new launches of an individual product. Aviva, which already offered group life and income protection, entered the group critical illness cover market in March 2010, and Lloyd’s syndicate Sagicor launched a group life proposition in January 2009.
Kevin Murdoch, senior propositions development director at Aviva UK Health, says: “General feedback from brokers is that our group critical illness product terms and conditions are good and that we are competitive. Intermediaries particularly like our 14 day survival period and our maximum age 70 cover, including TPD. We have already won business for both stand-alone group critical illness cover and combined group risk packages.”
Sagicor reports a major increase in group life business during the January and April 2010 renewal periods and, having originally focused on schemes with up to 100 lives, reviewed its terms and conditions for larger schemes at the beginning of 2010 to bring them more in line with the rest of the market.
GENUINE NEW BUSINESS
MANY in the industry observe there is not much benefit in having new entrants if they simply take business off the existing insurers. But both new players are in fact surprisingly positive when it comes to their ability to generate genuine new business.
Zurich Corporate Risk reports that it has already put some brand new schemes on its books, although it acknowledges that these account for only a small proportion of its overall book and that some are actually the results of consolidations – where some of the parties already had group risk schemes but others didn’t.
Ellipse admits it has not written any genuine new business to date but is extremely optimistic about its chances of doing so in the future.
John Ritchie, chief executive of Ellipse, says: “We are beginning to see very large life schemes that were never insured before because they were selfinsured via a pension fund and I think that a lot of pessimism about growth in the group risk market is very overdone. The fundamental trend in business is to get risk away from the balance sheet, whether it’s mortality or short or long-term sickness. There is a lot of change out there and there will always be opportunities for agile insurers.”