Opportunity and complexity are the watch-words of auto-enrolment for group risk advisers, finds Stephanie Spicer
Auto-enrolment creates huge opportunities, but it also creates complexities for the group risk community – those firms that can make the pensions reforms work for them stand to profit from the imminent group risk revolution, said delegates at last month’s Group Risk Adviser Forum meeting in London.
The automatic enrolment of more than 10 million employees into company pension schemes, with perhaps 2 or 3 million set to then opt out again, is obviously a massive issue for the pensions industry. However there are huge implications and considerations for employers and employees beyond the core pension and into the wider area of group risk benefits. As a consequence there are huge opportunities for those corporate advisers in the group risk space to build business and offer additional value to clients.
This is nothing new to those in the market who have been advising – or trying to advise their clients of the implications ahead of auto-enrolment – which came in for larger employers on 1 October this year and will for other employers depending on the size of their workforce over the next four years.
The surprise for many employers is that their group risk consultant is approaching them at all. More than an ideal opportunity to address the benefits issue with staff, auto-enrolment will make a meeting with a group risk adviser essential where benefits are linked in with existing pensions.
Allyson Gayle, senior consultant at Premier Benefit Solutions said auto enrolment has presented a fantastic opportunity for group risk.
“Certainly what I have found is that when talking about auto-enrolment group risk is not considered, from an employer’s point of view it is the last thing on their mind,” she says. “But when you do engage in conversation about it, it is like a Eureka! moment. There are so many things they have not considered.”
Nick Cosh, consultant at PMI Health Group said employers are not thinking beyond pensions about group risk or periphery benefits around the pension.
“They are not considering eligibility or about de-linking benefits away from the pension. They are more inclined to just think about the pension until you mention benefits and then the penny drops that they are going to have another 50 to 100 people going for the life insurance contract that has four times salary and the bill is going to go up.”
While there are obviously cost implications and potentially high ones, this also is an opportunity for the adviser to add value.
“It is a fantastic opportunity for us to talk to clients about what they should or shouldn’t be doing. That need not necessarily mean reducing what’s on offer,” says Cosh.
There is an additional opportunity in the potential for increased business, within the adviser firm. Clare Dare, consultant at Broadstone Pensions and Investments said while the discussions they have could change the way the client feels about their benefits package: “For us it is also an opportunity to work more closely with other colleagues in our businesses because there is an opportunity for us to cross-sell here and an opportunity to work as a team in a way that maybe we haven’t in the past.”
The timeline for auto-enrolment presents both adviser opportunity and cost considerations for the insurers.
“For our clients, particularly at the smaller end, it is still a long way away but actually from a planning perspective it is a great opportunity to work a project plan with them. It may not happen for them until 2014 but we have time to think about what they are going to do next.”
However she adds that the onus will be on what the insurers are going to do.
“Because we have seen great premium rate fluctuations – how are insurers going to get their margin? We need to consider what we want from insurers.”
While it might be the case that there are ways of ensuring employers can keep existing benefits for those staff in receipt of them – and offer something to new members, the spectre of
reducing cover remains.
“Many employers don’t know what they are letting themselves in for potentially with the costs going forward. There is a slight concern about the reduction in benefits as they start to look to cost contain. For some companies there is going to be a huge cost on the pension side,” says Carol Porter, commercial director at Benefex Financial Solutions.
Cost containment could come in several guises. One potential cost saving for schemes is Chancellor George Osbourne’s proposal that employers be permitted to offer their staff shares in the company in exchange for a waiver of their employment rights.
MilesWashbrook, occupational therapist at Willis Employee Benefits said with many companies are feeling the pinch with the economic climate generally and competitor pressure, this could be appealing, and would ultimately lead to lower claims history.
“Some of the noise made regarding shares for employees and giving up some employment rights will be quite interesting,” he said.
Washbrook pointed out that 40-45 per cent of claims within the income protection market are mental health related. While there are people with severe and enduring mental health problems he argued, there are a lot of people who end up with an issue with their line manager where it is very difficult to have a conversation.
“The two sides become polarised and yet there is no recourse for the employee as such – they can take alternative employment elsewhere if they can find it but in many cases they will go to the doctor for advice,” he says. “If they are feeling too stressed to work the doctor can quite easily sign them off. Stress is not actually a condition under the International Classification of Diseases but we still see a lot of claims costs resulting from it.
“Removing some benefit rights in return for shares might well contain costs. You might see a lot of claims reducing on the mental health side. Group income protection, will then be there for those who really need it, for example, if someone gets struck down with multiple sclerosis. The cost of any moral obligation on an employer could be mitigated somewhat. So it will be interesting to see how well received the waiving of employee rights for shares will be but that would be quite useful in containing costs.”
Whether underwriting costs are impacted by the changing profile of the scheme membership caused by auto-enrolment however remains to be seen, said delegates.
Tristram Hawthorn, director of Beaufort Corporate Solutions said: “Consideration about benefits provision has not necessarily always been about what you are involving at the bottom end. It is not just going to be a lot of young, fit healthy people coming onboard. It could be very senior highly paid people or a whole bunch of blokes in their 50s, blue collar workforces. There are organisations where they don’t provide those benefits. Putting all of those people into a life insurance scheme will have a massively detrimental effect on both underwriting, risk profile and cost.”
However persuasive the corporate adviser and however enlightening the information they present to the client it remains that different employers will see their needs and responsibilities in different ways.
“Some employers will want the whole consultancy piece and to know how much it will cost not only for pensions but for all benefits and how to redesign their benefits so it better meets the needs of all the workforce rather than just those in the pension previously. Others just want the problem fixed in the most efficient and in some cases not a very nice way for their staff,” said Hawthorn.
Some advisers argued the group risk products currently on the market could use a refresh. But they were divided as to what the solutions should be. Acknowledging there are some hybrid solutions on the market, some delegates argued no one has come up with a fully integrated holistic solution that does the whole insurance and return to work process in one product from one provider. Others argued that you don’t need the same provider just all the providers of the product elements talking to each other and someone to co-ordinate it, adding that there are few clients big enough and enthusiastic enough to take such an all-encompassing off the shelf product and still be able to make the most of it.
“There are some solutions out there but no one size fits all hence such a variety of solutions available through group risk or outsourcing to firms providing specialist services,” says Miles Washbrook, occupational therapist at Willis Employee Benefits. “I don’t see there will be a consolidation of the market to a few consolidated products – at the moment I can’t see the appetite for that.”
Drilling down the individual products the situation with income protection is an unusual one – nothing new there one might argue but under auto-enrolment fresh questions arise. How will it fare and is this its moment to shine?
What remains is the job the corporate adviser has on – which is to keep the client informed. Cosh said auto-enrolment is one of the best things to happen to the group risk market in a number of years.
“Ours is a very competitive industry,” said Cosh. “Most of the time advisers are searching for anything they can talk to their clients about. It can be an opportunity when it is incredibly bad news as some employers think auto-enrolment is. But some think is an awesome opportunity to re-engage and communicate and talk to their staff.”