Is the group risk industry really growing its market penetration? A dig below the headline figures would suggest it is not says Busy Bees Benefits managing director Wojciech Dochan
One of the key statements in Swiss Re’s Group Watch report is that in 2017 there were over 12m UK workers covered by group risk schemes, an increase of 4.5 per cent on the previous year. The authors of the report believe that this “result paints a very positive picture” of the group risk industry and the progress that it has made over the last few years at what has been a difficult time for the UK economy.
If the figures are taken on face value, then the industry has indeed been making progress. But the figures mask the actual poor performance of the sector. It is true that today’s 12m compares with only 9.7m 2008. But what the report forgets is that the three product categories – life, income protection and critical illness – are not mutually exclusive. The employees who have life cover provided by their employers are also very likely to be the same employees that employers provide income protection to and they are also likely be the same people that take out flex CI cover for themselves and their partners. This means that the total insured population will be nearer 9.7 million and not the 12 million as claimed in terms of unique individuals.
Table 1 – Lives covered by the Group Risk industry
|Lives Covered millions (1)||2008||2012||2016|
|Group Income Protection||1.76||1.96||2.24|
|Group Critical Illness||0.29||0.34||0.59|
|Total Covers provided||9.72||10.69||12.03|
|Notes 1 Group Watch reports 2008 -2016|
The industry must choose a better and more accurate base line by which it can measure its performance rather than simple use a year on year growth rate change, because this does not really reflect how well or badly the distributors and manufacturers are engaging with employers. A better measure is to compare the penetration of group life covers against the total UK working population. Analysis over the last eight years taking only the group life covers indicates that the industry in 2016 only managed to protect around 29 per cent of the total UK working population, critically only slightly up from a 26 per cent share in 2008. This is not a positive picture.
Table 2 – UK Working Population
|UK Working Population (2)||2008||2012||2016|
|ONS people aged 16+||29.54||29.74||31.84|
|Percentage penetrated by all 3 Group Risk products||33%||36%||38%|
|Group Life only||26%||28%||29%|
|Notes 2 Number of people in employment (aged 16+seasonally adjusted) ONS Latest LM5|
The second key statement made in the Group Watch report was that for the first time Swiss Re had collected market data showing the split of in-force LTDI schemes based on membership numbers. The report suggests that 68 per cent of LTDI schemes have fewer than 50 members and that this implies that it is possible to write business in the SME sector. However Group Risk Development spokesperson Katharine Moxham is probably closer to the truth with her comment that “a raft of employers who may only offer GIP to a select few at present” in their businesses, rather than demonstrating that the industry is successfully selling into the SME space.
Analysis of the number of overall schemes written across the three Group Risk product categories shows that apart from group life, the over all number of schemes has not grown significantly since 2008 and stands at 72,841 in 2016 compared with 63,062 in 2008. See Table 3. This more considered analysis of market performance shows that despite the clear opportunities that the changing landscape in pensions has offered distributors through auto-enrolment, health and protection distributors are not moving quickly enough to seize the moment. The growth in the number of life schemes since 2008 is vey slow given that the size of the UK SME population is around 1.3m enterprises.
Some of this poor performance is down to protection product manufacturers continuing to suffer from focusing on designing products by internal committees led by risk averse actuarial teams and failing to really engage to understand customer needs and the way that they want to do business. The vast majority of IFA distributors are also too concerned about acquiring their competitors and maintaining shareholder margins rather than trying to deliver to customer needs. The result is that whilst large corporates are well served by the existing market structure the SME space, with some 1.3 million enterprises is hugely underserved. The message that a good benefits package helps to improve how work is seen by employees and supports the drive to increased productivity is not getting through. The industry needs to drive with greater energy and respond to the Government’s Green Paper on “Improving Lives: Work, Health and Disability” as well as embrace the work of Matthew Taylor in his review about the quality of work and the workplace.
Confusion and complexity still shroud the health and protection products offered by providers. Repeated research shows that consumers are confused by the sheer number of products, unclear about the differences between them and are suspicious that they will be ‘caught out’ by schemes not paying out at the point of need. In the world of PMI, premiums continue to rise above the rate of inflation, the current consumers’ view of PMI is that it is considered a ‘perk’ if offered with a job, and the high cost prohibits it from being considered a necessity to be brought privately in large numbers. The alternatives such as cash plans are not breaking through in sufficient numbers. Group income protection’s main product features have not been altered and continue to simply focus on prevention of absence and early intervention.
There is a real need for the industry to work more closely with both the NHS and Department of Work & Pensions to look at ways of collaborating over how to fund treatment and determine a joined up role between privately funding when someone is unable to work due to sickness and disability and the role of government through incapacity benefits and treatment in the NHS. Providers should seize the moment to build products that work alongside each other and integrate private and state provision.
Table 3 – Total number of group schemes by product line
|Number of schemes||2008||2012||2016|
|Group Life only||42,366||48,068||52,362|
|Group Income Protection||18,619||17,224||17,168|
|Group Critical Illness||2,077||2,457||3,311|
|Notes 3 Group Watch reports 2008 – 2016|