Every year reinsurer Swiss Re publishes a report on the group protection market, Group watch. On the face of it, more interesting to industry insiders rather than employers, there are a couple of key themes which may be of interest to employers when considering future changes to their benefit programmes.
Excepted group life, far from an exception
The number of employees covered by excepted group life has increased by 21% in the last year. An alternative structure to the normal registered scheme, and although the tax implications are more complicated and merit consideration, benefits in an excepted scheme do not count towards an employee’s lifetime allowance. With the allowance now £1m, the issue is relevant for many more senior employees with large group life and pension benefits. Making a structure change to introduce an excepted scheme for some, or all, employees typically does not affect premium rates and is simple to set up. Employers wishing to explore this further should seek help from their adviser.
Modernising death-in-service pensions
These policies, a legacy element of defined benefit schemes, are slowly being replaced by lump sum benefits as employers look to modernise, reduce cost, and provide choice to employees and their families. Many employers which retain this cover do so for only a declining pocket of membership, while employers which retain the cover for a wider group of employees would do well to consider a restructure, supported by their adviser.
Group income protection for a limited time only
There are now 5% more employees covered by group income protection (GIP) policies than the same time last year, up to 2.4 million, with the increase due to both an increase in the number of employers providing cover (1.5%) and existing schemes expanding membership. Although modest, this reverses a trend of at best stagnant growth in this benefit over the last 10 years, and suggests employers are giving the benefit renewed focus.
Much of this is, in our view, being driven by limited payment periods, where benefits are only paid for up to a period of five years, rather than until the employee retires. These are becoming more popular (20% of policies provide benefits on this basis) especially among new employers because the cost of providing the benefit is much lower. The benefit provision also better fits with the typical tenure of the modern employee, because few stay with one employer for their whole career. Naturally, employers already providing cover on a more generous basis are hesitant to reduce the level of cover despite this, and that is of course commendable. Employers choosing to provide GIP for senior staff only, may have been put off providing cover to other employees given the extra cost, but providing some cover to those employees is more than possible at a far reduced cost.
Prevention rather than cure
Employers are also becoming increasingly aware of the additional benefits included with their insurance, in particular, vocational rehabilitation and employee assistance programmes (EAPs). As employers shift their focus to prevention rather than cure, holistic wellbeing programmes have rightly become the centre of attention. Group income protection can, and should, play a role in this with the preventative benefits of the EAP and early intervention from vocational rehabilitation specialists. Insurers, employers and employees have an interest in getting this right. Employers not making the most of these services should re-consider; after all, it is better to prevent or mitigate the absence in the first place, rather than deal with the consequences.
Chris Morgan is chief marketing officer at Ellipse