Nick Boyton: GIP – incentives or employee demand?

NI incentives will help to boost group income protection, but improving employee awareness of the value of the benefit will be key says Broadstone risk and flexible benefits client relationship director Nick Boyton

nick boyton broadstoneThe recent Corporate Adviser article on the Government’s Improving Lives: Work, Health and Disability green paper raised some interesting viewpoints as to what incentives are required in order to boost the group income protection market. Unsurprisingly, financial incentives came out as a strong contender, but our view is that this should be only part of a new push to grow the group income protection market.

In the last few years the group income market has been fairly static – the last Swiss Re Group Watch report showed a small increase in the number of lives covered – 1.3 per cent – but little change in the number of employers who had a policy. This sort of performance is hardly going to put the market into boom mode so clearly whatever is happening now needs to change to encourage the growth that we all want to see.

Insurers have made good progress in showing the value of a group income protection scheme, for example incorporating early intervention and employee assistance programmes. However, many smaller schemes have limited experience of long-term absence and therefore might not feel the benefits of these added-value features. Work has also been done to show the return on investment that these schemes can provide through reduced sickness absence costs but again limited exposure and evidence can prevent buy-in to this product, particularly given the cost.

So would a financial incentive stimulate the market? Providing a National Insurance rebate would certainly get the interest of finance directors and reduce any hurdle rate required to purchase or expand a policy. However, there needs to be a desire and belief in the benefits of the policy in the first place as the NI rebate mentioned would not cover the cost of the individual in the scheme. In addition given the bumpy ride that we are constantly being warned to expect in the aftermath of Brexit, companies are more likely to be cautious in increasing any spend unless they can be certain of the benefits and/or return that they will get from that investment.

But there is one stakeholder who we have not mentioned yet who could influence the growth of the market – the actual employee. It is no secret for those of us that work in the industry that awareness amongst most employees of their benefit packages is spectacularly low. In the wake of auto enrolment much work is now being done on financial education.

This could be a great opportunity for group income protection, and other group risk benefits, to be included in these seminars/workshops and for employees to properly understand the significant benefits that these policies provide. Having a groundswell of desire for group income protection from employees could be the tipping point required to convince senior management to implement or expand a group income protection scheme and take advantage of the additional benefits of the policy. After all a benefit that is truly valued by employees is much more likely to form part of an employee benefits package than one that is not understood or even promoted.

This means more needs to be done to promote group risk benefits to employees –by insurers, employers, intermediaries and the Government or ideally a mixture of all four. Clearly financial incentives help smooth the transition for the employer but it needs the employee to actually value and even demand the product to get the levels of growth that would truly benefit society in the wider sense.