Group risk – a functioning market?

Is the group risk market unfairly balanced in favour of incumbent players? As ever, there are two sides to every argument. John Greenwood reports

Monthly or annually, truly sealed bids or home insurer advantage, some in the industry question whether group business is transacted in the best way possible. While the sector is celebrating a record-breaking year in terms of lives covered, could the market function more efficiently if providers, employers and intermediaries took a different approach?

Perhaps not surprisingly, opinions divide between those incumbent providers with big books of business and those newer entrants looking to shake up the market.

Ellipse has put the efficiency, speed and clarity of pricing that a full technological model offer at the heart of its proposition. Ellipse chief executive John Ritchie sees issues with what he describes as the old-fashioned way of doing things. He agrees that most insurers have upped their game from a few years ago when tales of service nightmares were not uncommon, but believes there is still a better way to go. And it is not just the incumbent providers he sees at fault, but also intermediaries, pointing a finger at employee benefit consultancies who he argues can find a less than straightforward way of operating suits their own business needs.

Ritchie says: “Overall most insurers in the market have got better. But we are in a transition period, and when things go wrong EBCs still see it as their role to assert the hierarchy of power in the market. I am not saying they like it when things go wrong, but it can be to their advantage for things to be messy if you are charging fees for handling data and swinging punches at providers.

Ellipse’s tech approach sees employers uploading data every month and invoices coming back every month. This gives them accuracy in charging, so there are no surprises months after the cover period has gone, as well as the comfort that they know the cover has been paid for, and so is definitely in place.

LCP partner Carlos Correia says that this level of accuracy is not necessarily what all employers want, if everything can be done in one go. He says: “In my experience a lot of HR departments do not want to reconcile everything every month. It all depends on what their systems do. Doing things the traditional way does not have to be messy. The snapshot once a year approach does rely on averages, but there is no reason why it can’t be efficient. There are pros and cons to each approach.

“I don’t think it is the case that consultancies like creating complexity. There might be some people out there doing that, but not the majority.”

It is a view shared by Canada Life Group Insurance marketing director Paul Avis. He says: “I don’t agree that advisers like the chaos of the current system. I think they like the simplicity of simplified admin. Why should people pay 12 accounts when they only need to pay one? We have just reduced the limit for simplified admin down to 10 lives. Employers get a three-year unit rate and at the end of each year if numbers have gone up, we average it that they all joined in the middle of the year, and they pay extra. But if numbers go down they get a rebate. That is pretty simple, and employers seem to like it.”

Ritchie on the other hand disputes that the monthly process is complicated. He says: “In the mid-corporate market and ask for the data close to the source you can get it pretty easily. If you ask for the March payroll for a 30-man company, they can give it you in a day. If you ask for it three months later it can get messy.

“The most sceptical advisers, once they understand the way it works, they will get out of the way. But the bigger EBCs remain sceptical.”

Ellipse says that 50 per cent by number of its in force cover is fully self-servicing for data. It also points to its own research of intermediaries that use its systems which shows that more than 80 per cent of advisers find it better than the old manual, once a year sweep-up process once they have tried it.

Avis argues that Ritchie’s approach can work for groups of employees where the data is collected in a way that dovetails with the cover being provided. But he argues for the majority of schemes, which have been set up on different bases, this is not the case. He says: “It is great when you get new data, for example with auto-enrolment, where the definition of eligibility is ‘all pension scheme members’. With new schemes you can define eligibility and start afresh, but with existing group life schemes the data is more complex than the payroll.”

Avis argues that his company has been ready to do more interaction with platform-based providers for some time now. But, he says, they have not been ready to play ball.

“We have been ready to undertake e-linking to advisers platforms since 2011, but macro factors such as auto-enrolment and real time information have undermined advisers’ efforts to achieve this. We have been having conversations with them about it since 2011 but no-one can articulate what they want from us,” says Avis.

Ritchie has also questioned the current system whereby insurers give sealed bids but the holding insurer always gets the chance to quote against the winning bid. This, he argues, does not incentivise holding insurers to offer the best possible terms to their customers.

Correia sees both sides of the argument. He says: “I can understand the frustration of a new player who thinks that the holding insurer has an advantage. But if it is in the interests of the client to do it in this way then that is what we have to do. If all other things are equal, it is always easier to stay with the holding insurer. But I can also see the argument that the system does not incentivise the holding insurer to offer the best terms possible in the first place.”

Avis says: “In the procurement process the Competition Act says that information available to one insurer should be made available to all of them. But there are other factors at play that make sticking with the holding insurer advantageous to the client. If you have people in long-term underwriting or in the middle of claims, it can be easier to leave it where it is.”
The market has developed rapidly in terms of technological function in the last five years and is only going in one direction. Holding insurers will always have an advantage, but technology will gradually make barriers to switching less significant. Revolution or evolution? Once auto-enrolment is out of the way, insurers and advisers will re-evaluate their position.

Record-breaking year for group risk

A record-breaking year for group risk saw the number of lives covered grow by 300 000 in 2013, according to Swiss Re’s Group Watch 2014 report.

The UK group risk market grew by 2.8 per cent overall, with nearly 11 million people covered in some way at the end of 2013.

The report identified strong premium growth across all lines, led by a 9 per cent increase in in-force death benefits and a 12.8 per cent increase in critical illness premiums.

For the first time, over 2 million people in the UK are insured in long term disability income schemes offered by their employers

The report estimated 100 000 more people are covered by workplace arrangements as auto-enrolment is implemented in large companies.

Most market participants surveyed for the report predicted growth will continue in 2014 as overall economic conditions improve and auto-enrolment is implemented by small and medium sized companies. 
Excepted group life premiums grew by 17.4 per cent.

The report says the trend away from death in service pensions (DISP) towards lump sum benefits is continuing and is likely to accelerate when compulsory annuitisation is removed in April 2015.

The report identified Canada Life Group Insurance as having the greatest market share by employer numbers, employees covered and annual premiums.

Swiss Re UK & Ireland chief executive Russell Higginbotham says: “It’s great news that the numbers are up for a second year. Auto-enrolment has driven growth and when fully implemented, millions of UK workers will have a pension – which is a great accomplishment. But there is still work to do. Even with auto-enrolment, only around half of the UK will have life cover and about 10 per cent will have disability protection. We need to improve on that and employers are a trusted way to deliver financial protection.” 

 Group Risk Development spokesperson Katharine Moxham says: “It’s great to see that the group risk industry has continued to build on last year’s positive growth and remains resilient. There is also confidence that improving economic conditions are likely to bring more growth during 2014 and beyond. Overall in-force group risk premiums are up 8 per cent on 2012, sums insured have increased across all three products and, as was the case for 2012, 300,000 more people are protected through group risk arrangements against financial devastation from loss of income through illness, injury, death or disability.”