If you read nothing else, read this . . .
- For years, the group risk industry has lagged behind other benefits sectors in the efficiency and accuracy of its administration systems.
The group risk industry is renowned for the shortcomings of its administration systems, but is now working to raise its standards and get up to speed, says Sam Barrett
Inaccurate quotations, slow medical underwriting and sloppy account management have plagued the group risk industry for years. With high-tech systems being introduced in other areas of employee benefits, group risk is starting to be shown up for its shortcomings.
Stephen Hackett, head of employee benefits at Bluefin Group, says: "Everything is slow and there is no guarantee of accuracy with the data. If you look at the online admin systems pension providers have, group risk insurers are way behind the curve. No one can understand how they survive."
Even providers admit to shoddy systems. Steve Bridger, head of group risk at Aviva, says: "I have been in the industry since 1989 and, although we no longer use carbon paper for medical underwriting requests, service has always been fairly poor. It is time for change."
Under-investment in group risk systems, coupled with the way in which contracts are written, does not help to drive improvement. For instance, although there is a renewal date for group income protection, even if the data is not in place, the cover will remain in force. John Russell Smith, client director at Lorica, says: "It is great from a customer retention perspective but it does not really mean the insurers have to improve their systems."
Russell Smith says he starts to collect data from employers six weeks before the renewal date or 12 weeks if there is a forthcoming rate review to increase the chances of having the correct data. "Group risk is not like any other employee benefit," he says.
Employers can add to delays by failing to produce good-quality or accurate data, says Bridger. "It is not quite garbage in, garbage out, but if the data source is not accurate, everything is slowed down."
Service standards working party
To tackle the problems, a collective push has been mobilised by industry body Group Risk Development (Grid). In October 2008, it set up a service standards working party, which has issued a declaration of service standards focusing on all key areas of the group risk business, including administration and service levels. Grid spokeswoman Katharine Moxham says: "Things are improving. This declaration will be a major step forward but, on top of this, as we get more automated processes, the industry is improving rapidly."
One area where improvements have already been made is medical underwriting, with the introduction of forward underwriting, commonly known as once-and-done underwriting. This allows benefits to increase each year without further medical underwriting and was first introduced by provider Unum.
Andrew Potterton, chief medical underwriter at Unum, says: "Getting reports from GPs can create huge delays, but when we looked more closely, we found that although it tended to apply most commonly to the big [employers which] pay our bills, we did not actually need this information very often. We also looked at this group and discovered they are very resilient. The risk just was not as big as we had assumed."
Through this, Unum was able to refine the medical underwriting process, requiring underwriting to take place only once. Unum also offers worksite interviews, plus tele-underwriting and paper forms. "Why would someone be a different risk in five years?" says Potterton. "If they have shown resilience, then this will still be the same in the future."
Once-and-done underwriting
Unum's launch of once-and-done underwriting in mid-2007 was followed by other providers and it is now used industry-wide, enabling big employers to transfer their underwriting if they switch insurer. Nick Homer, group risk development director at Zurich Corporate Risk, says everyone will see the benefits of this. "Group risk has a two-year rate renewal cycle, so most employers will have seen the improvement. It does make the process much slicker when a scheme renews or moves to another insurer."
Insurers are also taking a more pragmatic approach to the data they receive, with many imposing a deadline for employers to supply new data or face having renewal terms based on the previous year's information. "We try to avoid using last year's data, but there is more focus on getting this now," says Bridger. "Insurers will actively chase it where they would just leave supplying it up to the employer in the past. It would be great if there was a technology solution, but we must be more transparent about what is required."
Benefits consultants, possibly caught between the insurer and the employer, are looking at how they can make this data exchange smoother. For instance, JLT Benefits Solutions has launched an integrated benefit management platform, BenPal. Lee Thurston, head of health and risk practice at JLT Benefits Solutions, says: "We have consulted with the providers to agree what data is needed, getting them to compromise where something is not strictly necessary and just slows the process down. Employers feed the information into the secure platform and the providers can go and get it themselves. The platform also takes monthly feeds from the employer's HR systems, so there are no worries getting data together for renewal."
New players arriving
Another factor that might help to improve industry standards is the arrival of new players, whose shiny new systems will further highlight the shortcomings of their peers'. Lorica's Russell Smith singles out new entrant Ellipse for having a good level of service.
Ellipse chief executive John Ritchie says: "We have been able to build systems to reflect the service standards that are used by the best medical insurance and pensions providers. It uses a lot of automation around collecting data, identifying what is missing or who needs underwriting, and keeps the adviser and employer notified throughout. It is early days, but so far we have been delighted with the speed and efficiency."
So service standards are being pushed in the right direction, but Russell Smith believes more needs to be done and would like to see more investment in infrastructure. "There has been little investment in systems and this means even fairly straightforward processes require more manpower, which is frustrating and pushes up the cost. Investment would make a huge difference for everyone."
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Service standards adopted
The Group Risk Development (Grid) service standards working party was set up in October 2008 to improve standards across the group risk market. In May, after working with insurers and intermediaries, it issued a declaration of service standards for all key areas of group risk business. This has been discussed and formally adopted by Grid.
Although the final wording of the declaration is yet to be finalised, Grid spokeswoman Katharine Moxham says: "The language of the declaration is deliberately inclusive and reflects how Grid members will work together."
As well as the declaration, the working party has also published a set of quotation templates to standardise the data required from employers. These have been piloted in the market and will be developed further.
"We want to include a guide explaining why certain sections are asked for and the impact of not fully completing the template," adds Moxham. "These steps will help to improve standards."
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Case study: LeasePlan drives better service
Being an employee benefits provider means vehicle management company LeasePlan UK is very conscious of the service it receives on its own benefits package. Sarah Mengham, HR service development manager, says: "Service is important. We are shielded from poor service to some extent as our employee benefits consultants, Lorica, look after a lot of the administration, but we have noticed improvements in the service we receive from the group risk insurers over the past couple of years."
As part of its employee benefits package, the firm provides all of its 545 employees with life cover and gives income protection to senior staff and those who have it as a protected benefit on a previous contract.
"I have seen significant improvements on the underwriting side," says Mengham. "A few years ago, when we switched providers, it was very frustrating. We were halfway through the underwriting process with the previous insurer but, because we were not able to transfer the data provided for underwriting purposes to the new insurer, we had to start all over again. Thankfully, once-and-done has made significant improvements to the underwriting process."
Another area to see improvements is accounting. "We used to have issues trying to reconcile monthly premiums against direct debits, but this has stopped happening," says Mengham.
Read more from the group risk supplement