Company provision of group risk insurance products

Apart from pension provision, the next big-ticket item on many organisations’ employee benefits package is the group of insurance products collectively termed ‘group risk’ by employee benefits consultants. The key components of group risk are death-in-service benefits and various life assurance options, group accident insurance, income protection and critical illness insurance, the latter of which pays a lump sum to an employee if they are affected by any of the critical illnesses defined in the insurer’s policy document. Private medical insurance is another large part of this, though PMI is now increasingly lumped together with wellbeing and health benefits.

Legal & General has been providing group risk products to corporates for many years. Linda Baker, the company’s marketing and product development director, says that while recession has caused companies to take a close look at all aspects of their employee reward programmes, they are not so much cutting back on group risk products as looking to purchase benefits more efficiently. Not surprisingly, companies are looking at cost and one of the products changing to reflect this is group income protection ­ where employees have most of their salary, typically 75%, guaranteed until retirement should they fall ill and be unable to work again.

“Businesses are questioning whether cover to age 65 is realistic in the current commercial environment, where many employees have a portfolio career and really only stay with the company for five to six years,” says Baker.

As a result, providers have been changing the product to offer, say, a maximum of six years of cover, with a lump sum payment if the employee is unable to return to work after that period. The cost to the employer of providing this benefit is considerably less than a whole working life benefit, being usually around 60% of the cost.

Fine tuning
There are opportunities here for savvy providers to fine tune the package to make their offerings more attractive than the competition. Legal & General, for example, will continue to pay the employee until retirement if their illness falls into certain prescribed categories, which makes the package more attractive than a straightforward six years and a lump sum approach.

There are other ways providers can add value in a way that they can’t with, say, death-in-service benefits, which are now pretty much a commodity purchase where the competition is virtually on price alone, though supplier reputation and solidity might come into it for some companies. Baker points to the fact that employers are very concerned about the cost of absence, so if the provider has a programme that can get help and support to the employee quickly, that is very attractive to employers.

“There is a six-week tipping point with long-term absences. Once people have been off for six weeks, the statistics point to it being very difficult to get them back to work. So it helps everyone if the provider can get the employee the treatment they need before they have missed six weeks of work,” she says.

Dual benefits
Paul Davies, marketing and business development director at Unum, agrees with L &G’s Barker that with products where added value can be achieved, providers are looking to ensure their product offers more than the competition. Unum, for example, throws in free employee assistance programmes with its income protection benefit. This gives employees telephone access to a range of counselling options.

Another angle is to look to provide benefit to both the employee and the employer. Unum provides a benefit to the employer as part of its income protection product. “The employer is going to be out of pocket through having to advertise or recruit for temporary staff while the employee is off. So we give the employer a six-month benefit which covers the advertising and recruitment costs.”

Davies says the UK market is about 8% down over last year in group risk premiums. “The major change in the market through recession has been the way the upsell business has vanished. In normal times we get a tremendous amount of business from selling more benefit products or upgraded benefit products to existing clients and this year that business has completely vanished,” he says.

There is some obvious shrinkage in the premiums derived from risk products because of the number of UK employees who have been made redundant. But on the whole, companies are not cutting back on benefits ­ they are just not buying any new benefits. On commodity products such as death-in-service insurance, provider rates have come under tremendous pressure and corporates are now able to force through some very good deals.

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