Debate over the role of group risk in giving UK Plc’s productivity a jump-start is moving from the theoretical to the practical. Edmund Tirbutt investigates
Discussion on how the group risk market can be expanded to help UK Plc meet its big challenge on productivity has typically been dominated by whether the Government could be persuaded to provide tax or NI incentives to employers that offered group income protection schemes.
The argument has tended to be highly polarised. One camp puts forward the theory that the Government was trying to slash welfare spending and that GIP insurers, with their expertise in early intervention and rehabilitation, are ideally placed to help with this by improving workforce productivity and tackling sickness absence.
The opposing camp claims the likelihood of getting the Government to part with any money for this purpose is remote.
They point out that group risk products already enjoy a significant tax break by being corporation tax deductible and that Chancellor George Osborne’s obsession with balancing the books means he will not consider anything that does not guarantee an immediate payback.
However, during the past 12 months there has been a noticeable shift away from these theoretical exchanges towards talking directly to government representatives. The catalyst appears to be the ability of providers at last to produce figures to present a business case.
One example is research by Zurich that shows that the Government gains by over £200m a year as a result of GIP. Meanwhile, Aviva reports that when it intervenes within the first four weeks of absence it gets 67 per cent of employees back to work. It also explodes the myth that GIP is merely a perk for senior managers by revealing that around half of those it insures earn under £30,000 a year.
Perhaps more importantly still, data compiled by industry body Grid shows that, during 2015, group risk providers as a whole paid out £1.4bn-worth of claims and helped 1,878 people return to work with some form of active early intervention support.
Whether post-referendum chaos leads to political paralysis remains to be seen. But the industry is now getting heard in Whitehall.
The Association of British Insurers would not shed light on a roundtable understood to have been organised this May with a Department for Work and Pensions minister at which tax breaks for GIP schemes were up for discussion. But it acknowledges that it meets regularly with the DWP and relevant ministers to discuss issues on behalf of its members.
Advising the Government
It is common these days to hear from senior group risk experts who have spent time meeting government representatives. For example, Legal & General executive managing director for workplace health and protection Martin Noone was invited this April to talk to senior civil servants looking for more creative ways of funding sick pay.
He says: “We were talking about whether there could be a fixed benefit – reductions in either tax or employer’s NI – to offset the cost of providing income protection or rehabilitation. In principle they liked the idea, but they warned us there could be problems with getting the Treasury to loosen the purse strings.
“The reality is that we need a kickstart to get directors of SMEs to think seriously about income protection. The average cost of the product is around 1 per cent of payroll but our research shows that the average SME thinks it would cost around 10 per cent. One per cent relief on employer’s NI would be a good start.”
Unum head of public affairs John Letizia reports that his company has been talking to the Government since last year’s general election and has put forward a policy suggestion for a temporary 12-month incentive for SMEs that offer income protection and rehabilitation to their entire workforce.
He says: “We think a reduction in employer’s NI would be best as it can be done easily via payroll. At the moment it is 50/50 that it will happen but, if things go well, it could be introduced in April 2017.”
However, not everyone expects such swift progress. Portus Consulting director of consulting David Dolding does not anticipate any such incentives for at least 10 years and Aviva managing director, group protection Steve Bridger points out that pensions auto-enrolment took seven years from conception to reality and doubts that group risk would be any quicker.
Even if government incentives were achieved, some doubt they would boost sales on their own. Dolding feels they would be unlikely to do so unless accompanied by government support to increase awareness, which he does not envisage.
Providers should perhaps be realising that the ultimate responsibility for raising awareness lies with themselves and that the communications piece is probably now more important than product development.
Jelf Employee Benefits interim business development manager, group risk Andy Stephenson says: “The Government’s simple products proposals have gone very quiet and, while Unum has tried to be innovative with simple income protection and critical illness products, it has not been overly successful thanks partly to poor timing. Pension auto-enrolment and changes to welfare have seen group risk take a back seat.
“Many employers don’t really know what they have in place, particularly with regard to added-value features, and few understand the benefits of early intervention. We also need a lot of line-manager training to spot signs of mental health issues earlier, and I would like more promotion of group risk among trade bodies like the CBI and IOD.”
Ellipse chief executive John Ritchie thinks group risk products as a whole are already inherently “simple” but are made complex by being given inappropriate names, with providers not working hard enough at communicating them. He also stresses that the Government cannot be expected to solve every problem.
He says: “The issue for me is not fiscal stimulus but the willingness of providers to invest in technology, marketing and communications.
“Auto-enrolment of pensions is very conducive to growth and it’s up to us as distributors to use technology to enable those companies to have broader workplace schemes with life, income protection and critical illness cover.
In Focus: Government benefits to tune of £207m
Research results published by Zurich this January show that rehabilitation services provided by income protection insurers save the UK taxpayer £27m a year.
Combined with the results of previous Zurich research, this means that group income protection as a whole saves the Government £207m a year (with £85m in lower welfare payments, £80m in higher income tax and NI contributions and £15m from individuals not making welfare claims they are entitled to).
Zurich propositions manager for corporate risk Nick Homer says: “We have had some positive meetings with government advisers to talk through our report and they generally acknowledge that income protection plays a valuable role in society.
“A financial incentive isn’t necessarily going to shift an established market but it could play a valuable part in an overall campaign to increase awareness that all parties get behind.”
In Focus: Lobbying for group life
The group risk industry is also lobbying the Government to ensure that registered group life schemes do not suffer as a result of their anachronistic link to the pension regime.
Currently, any payouts received from registered group life schemes use up part of the employee’s pension lifetime allowance, creating a 55 per cent tax charge on any part of the benefit taken in lump-sum form that exceeds the limit.
There are also fears that, if George Osborne or his successor resumes radical plans for changing pension tax relief, it could affect the ability of group life to pay death benefits tax-free and to avoid a P11D charge.
Although excepted group life schemes can get around these problems, there are concerns that this could be deemed an act of tax avoidance. Issues around tax liabilities can also arise if an individual has a terminal illness in the first or tenth year.
However, Grid, which brought the lifetime allowance issue to the Government’s attention last year when responding to its consultation on pension tax relief, is confident of a successful outcome.
Grid spokesperson Katharine Moxham says: “We have had no formal response from the Treasury but will follow up and keep the dialogue open. I’m sure our regs group has the matter under control and we can sort this out, but these things usually take a period of time and a lot of dialogue with a lot of people.”