Critical illness insurance (CII) was launched into the UK market in the 1990s, making it one of the newest group health products. Until recently, employers have generally considered CII the least necessary of its employee benefits, but times are changing.
Swiss Re’s 2012 Group watch survey, published in April, shows that group risk premiums grew by 2.9% in 2011 compared with a fall of 7.7% in 2009 and 1.8% in 2010. Critical illness premiums grew by 9.4% in 2011, and the report cites changing employer roles, regulatory changes and the implementation of auto-enrolment as drivers of market growth.
Group Risk Development’s (Grid) 2011 Employer research, published in February 2012, which surveyed 500 employers, found that in the light of the pension reforms, 78.2% of organisations without group risk benefi ts would consider offering group CII.
Nevertheless, CII providers face challenges in convincing employers of the benefi t’s value, not least the expense involved in providing it for their workforce. Also, advances in medical science may mean some employees, who are eligible to claim on CII can do so without taking any time off work, which may make employers question the need for the cover.
Pre-existing conditions
However, CII does not cover all illnesses, and pre-existing conditions are normally excluded. The benefit can be provided either as a fixed amount or as a multiple of an employee’s earnings. Most CII cover is for two- to four-times annual salary, with maximum cover limits ranging from £300,000 to £500,000.
If an employer pays for cover, it receives corporation tax relief on the premiums, but is liable for class 1A national insurance contributions. For employees, the premiums are treated as a P11D benefit and are subject to tax.
Insurers say a lot of their CII business is sold on a voluntary basis, largely via flexible benefits schemes. Employer-paid schemes tend to be small scale and part of a large, generous perks package.
The voluntary approach is thought to be the most appealing because it offers very competitive cover compared with the individual market, and is easy to access. Premiums can be paid via payroll deduction and long medical questionnaires are not needed.
Although CII providers do not generally offer rehabilitation services, certain products provide links to counselling and support, offered by the likes of Red Arc, which can help staff cope with a chronic condition. Such value-added services have been helping providers differentiate themselves.
Voluntary take-up rates of CII depend largely on how well the benefi t is communicated to staff. Some employers boost take-up by holding webinars on the perk, but organisations must identify the most appropriate communications strategy for their workforce.
The facts
What is group critical illness insurance?
Group critical illness insurance (CII) pays a tax-free lump sum to an employee who is diagnosed with one of a number of stated serious health conditions and who subsequently survives for a specifi ed period of time, typically 14, 28 or 30 days. Payment is made regardless of the duration of the employee’s recovery, and irrespective of whether their ability to work is affected. Industry guidelines stipulate that CII must cover cancer, heart attacks and strokes, and most providers cover a total of about 12 conditions for which an employee can claim.
Where can employers get more information?
The Group Risk Development (Grid) website.
Who are the main providers in the market?
Aviva, Canada Life, Ellipse, Friends Life, Legal and General, MetLife, Swiss Re and Unum.
STATISTICS
£55,005,102
Total value of in-force premiums for CII in 2011, compared with £50,252,281 in 2010.
18.6%
of employers cite cost as the most important factor when choosing a provider for critical illness insurance.
