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.
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.
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
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
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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