Key to it all

Key person, personal accident and sick pay insurance are often overlooked by group risk consultants. Edmund Tirbutt investigates whether they are missing a trick  

Lack of new business” has probably been the most commonly uttered phrase by employee benefit consultants about the group risk market during recent years. But, somewhat curiously, these very same individuals could be charged with having demonstrated a marked reluctance to diversify into other product areas complementary to group risk.

This contrasts noticeably with many other fields. Hard-up farmers, for example, never seem to be slow to offer bed and breakfast facilities and, somewhat closer to home, many mortgage brokers have kept themselves afloat during the recent housing market downturn by trawling through client bases to sell individual protection products they never had time to discuss initially.

So are employee benefit consultants and advisers missing a trick by not making more of an effort to sell key person and personal accident cover, not to mention a further area of opportunity beckoning with the recent launch of Unum’s Sick Pay Insurance?

Key person cover even involves the same core products as group risk – life, critical illness cover and income protection – albeit written via the individual market. The cover is taken out on the life of the individual but the company pays the premium and receives the claims pay-out to protect future profits and ensure continuity should the key individual die or become seriously ill.

There are obvious synergies with relevant life cover and plenty of business to go round, especially with so many new directors’ loans in need of protecting. But the main opportunities lie with businesses with under 100 employees as larger firms tend to be less reliant on a few key individuals.

Commission, which is typically around 180 per cent of the first year’s premium, can easily amount to several thousand pounds for a single case, and insurers are willing to provide intermediaries with effective training, technical support and access to decision makers. Yet the major key person players derive the vast majority of their business via IFAs rather than employee benefit consultants. Aegon reports that it is not doing any business via employee benefit consultants at all whilst Bright Grey estimates they account for less than 10 per cent of its business. 

Bright Grey head of product development and technical support Ian Smart says: “We see opportunities with employee benefit consultants and are looking to increase the business we do with them as we do think that key person cover fits alongside group risk. But lack of relationships between the employee benefit consultants and individual protection providers is undoubtedly a barrier.”

Nevertheless, there is at least some evidence that the penny is beginning to drop. Both Zurich and Legal & General report increasing interest from employee benefit consultants, and Jelf Employee Benefits, which has always done a little keyperson cover, is planning to move its activity up a gear this October.

Jelf Employee Benefits director of group risk Chris Ford says: “I think other employee benefit consultants are overlooking opportunities here. The main problem is that it has tended to be pigeonholed as individual business but in the SME sector you are often dealing with the same person as for group risk and the two should be discussed in harmony.”

Providers argue that employee benefit consultants could also do worse than consider personal accident cover, which covers accidental death or injury – when cover is company-paid the claims benefit goes to the employer, which often passes some or all of it onto the employee. This has traditionally tended to be sold mainly via large commercial insurance brokers dealing with property and liability covers.

Zurich Corporate Risk protection manager Nick Homer says: “It’s probably the historical way it’s been sold that has stopped the product from realising its full potential but this is definitely an opportunity for employee benefit consultants going forward. ” 

As with key person cover, providers can offer intermediaries all the technical assistance they require, and some are more than happy to accompany intermediaries to client meetings for larger clients. 

AIG head of UK group accident and health insurances Guy Wilson says: “Personal accident cover dovetails very nicely with life cover and is certainly something that employee benefit consultants could easily sell. I think it has just as much synergy with group risk as it does with commercial insurance but it is often packaged together with business travel insurance, and employee benefit consultants might feel uncomfortable selling that.”

The cover, which can cost even less than life cover, can have obvious attractions for employers who want to offer a low-cost benefit but, although commission levels can be as high as 20 per cent a year, remuneration to intermediaries is always going to be modest unless sizeable schemes are involved.

But PSHPC director John Dean believes commission levels are a non-issue on the grounds that most good advisers charge fees for their services and should discuss a wide range of benefits with clients, whether they like the products themselves or not.

He says: “Personal accident cover should certainly be put in the mix as it can be appropriate in some cases, especially when an employer wants to offer at least some benefit at quite a low cost. Some of my clients buy the product as they see it as a useful addition to a broader package.”

The greatest synergy with group risk of any of these products is, however, undoubtedly sick pay insurance. Unum’s sick pay insurance is designed to complement both existing short-term sick pay schemes and income protection schemes. This launched this June after being piloted since October 2012.

It provides a regular monthly income if employees are off sick for up to 12 months, and includes access to Unum’s employee assistance programme (EAP) and claims management and rehabilitation expertise. Employers can replace a percentage of an employee’s earnings up to a maximum of £6,000 per month and choose deferred periods of between one and four weeks and payment periods of between 12 and 52 weeks.

Unum chief marketing officer Marco Forato says: “Our piloting experience has shown businesses with 150 to 250 employees to be the real hotspot. They are trying to alleviate the costs of their short-term sick pay policy and to remove the risks of being accused of discrimination by offering the same deal to all employees.

“Because they don’t have occupational health departments like larger companies, they greatly value the
ability of our claims analysis department to analyse how long the person should be off sick for, and the free people management services provided by our EAP are very useful to those without HR departments. We think this has massive potential and, if our competitors follow suit, we feel we can make this market as big as, or even bigger than, the group income protection market.”

The pilot phase has produced around 200 quotation requests, with around a dozen cases already being on risk. Premiums, which are determined by claims experience, have tended to be between £150 and £200 per employee per year, and ongoing annual commission is 12 to 15 per cent.

i2 Healthcare director Simon Derby has discussed sick pay insurance with a number of clients since his firm went whole-of-market this June but has not yet sold a scheme. He feels that it is “a product with legs” but one that is likely to prove a “slow burn.”

Derby says: “The key problem is that my clients don’t have a handle on what their sickness absence costs are and therefore won’t realise how valuable the product is. But it’s an important addition to the market and dovetails nicely with income protection, whereas I don’t perceive key person cover as being part of group healthcare and so I don’t do it. Personal accident cover has a little more mileage for employee benefit consultants, and I do have some client schemes, but only for senior people.”