The facts
What is group income protection?
Group income protection (GIP) provides an income to an employee when they are unable to work as a result of an illness or injury. Payment normally starts after a waiting period, typically six months, and can continue until the employee returns to work or, if earlier, state pension age. Limited-term policies are also available that provide benefits for between two and five years.
As well as the financial support, GIP can help an organisation manage long-term sickness absence. Policies include rehabilitation to help support employees back into the workplace and they can also provide partial benefits when an employee is able to return on a part-time basis or to a lower-paid role.
What are the origins of GIP?
The first modern GIP policies were written in the 1950s but a broader form of cover, the Holloway scheme, was available from friendly societies from the late 19th century. These offered retirement benefits alongside income protection.
Where can employers get more information and advice?
Industry body Group Risk Development (Grid) promotes group protection products including GIP. Further information about the product including contact numbers can be found on its website: www.grouprisk.org.uk/
What are the costs involved?
Full cover costs between 1% and 1.5% of gross payroll, although a limited-term plan can cost as little as 0.25%.
What are the legal implications?
GIP can cover an organisation’s contractual promise of long-term sick pay to employees. It is exempt from default retirement age legislation, enabling organisations to stop providing it when employees reach state pension age.
What are the tax issues?
Employers can usually get corporation tax relief on premiums and it is not a P11D benefit.
What is the annual spend?
The GIP market was worth nearly £600m in terms of in-force premiums according to Swiss Re’s Group watch 2014 report, which was published in April 2014.
Which providers have the biggest market share?
No market data is available but the largest provider is Unum, with Canada Life in second place. Other providers include Aviva, Ellipse, Friends Life, Legal and General, MetLife and Zurich.
Which have increased their market share the most?
No market data is available.
Depending on the contract, the benefit is paid until they return to work, the end of a fixed term or retirement.
Benefit is payable in the event of a wide range of illnesses and injuries that prevent an individual from working. The most common have tended to be musculoskeletal injuries and mental health problems, but last year industry body Group Risk Development (Grid) reported that in 2013 the main causes of claim were cancer, which was the cause of 25% of claims, and mental illness, in 24% of claims.
Rehabilitation services
As well as being a valued benefit, employers can also take advantage of the rehabilitation services wrapped up alongside the insurance. These seek to help reduce the length of absence wherever possible by offering support and assistance to employees who are unable to work. This could include the provision of medical treatment or access to psychological support and counselling.
Where required, insurers will also work with employees and their organisations to help them return to the workplace. This could include advice on adapting the workplace or the role to enable the individual to come back to work. It may also involve the employee returning on a part-time basis or to a lower-paid position, with their income topped up through the GIP.
This type of rehabilitation support can even kick in before a claim starts. As it becomes increasingly difficult to get someone back to work the longer they are absent, if an insurer can get involved earlier, the greater the chance of reducing the length of the claim.
As the average GIP policy has a six-month waiting period, insurers have introduced incentives to encourage employers to notify them of potential claims as early as possible. For example, Legal and General offers an early-notification bonus that returns 5% of the premium where an employer covering more than 250 employees flags up at least 80% of long-term absences within a set period.
Added-value services
While the main objective of a GIP scheme is to provide benefit and support to employees unable to work, insurers have also developed a wide range of added-value services to supplement cover. These help to differentiate products but also provide a benefit to employees and employers whether or not anyone needs to claim.
Employee assistance programmes (EAPs) are the most common add-on. These support the insurers’ early intervention goal by offering employees access to confidential, telephone-based support and information on topics ranging from stress and mental health problems to debt and childcare. They can also support line managers by providing assistance with work-related issues.
Other added-value services are also available. For example, Aviva includes access to its Home of Health website, which contains advice and information on everything from combating stress to getting fit, and Canada Life increased its range of added-value services in 2014, introducing a treatment sourcing service from Medical Care Direct. This negotiates private medical treatments tailored to an individual’s requirements and at a fixed price wherever possible.
Market growth
Perhaps as a result of the breadth of cover, the GIP market has been growing steadily in recent years. For example, the latest statistics from Swiss Re’s Group watch 2014 report show that the number of employees with cover broke the two million barrier for the first time in 2013.
Another factor behind this growth is pensions auto-enrolment. Membership of a GIP scheme can often be a condition of being in the workplace pension, so as more employees are swept into the pension the number of people with GIP cover has increased too.
Market growth has also led to the emergence of new types of products. For example, rather than pay benefits until retirement, limited-term schemes are growing in popularity, especially among organisations introducing cover.
These limited-term schemes pay for a set period, usually between two and five years. In addition, it is also possible to include a lump sum of up to five-times salary, payable at the end of the term. This can be used as a redundancy payment or to boost an early-retirement pension.
Cutting the cost
As well as fitting the modern employment pattern where few expect a job for life, a limited-term product is also cheaper. While full cover costs between 1% and 1.5% of gross payroll, a limited-term plan can cost as little as 0.25%.
Some plans offer even more short-term cover. For example, Unum’s Sick Pay Insurance, which was launched in 2013, is designed to take some of the volatility out of sickness absence costs. In exchange for a set monthly premium, it provides the benefit of rehabilitation but only pays an income to an employee for up to 12 months. Employers can also select from a one-week to a four-week deferred period and there are a variety of payment terms from 12 to 52 weeks.
But while many expected to see a shift to a limited payment, figures from Swiss Re’s Group watch 2014 report indicate that it has been a much slower switch. In 2013, the percentage of schemes with a maximum five-year benefit term nudged up to 7.7% from 6.9% the previous year, although among larger-than-average schemes almost 17% are written on a limited-term basis.
Fast forward
With the GIP market seeing expansion on the back of pensions auto-enrolment, many are now calling for some form of compulsion for GIP itself. This also fits with the government’s drive for welfare reform, with insurance able to take some of the pressure off the state.
In addition, the government’s Fit for Work service will help to bring more attention to the role of rehabilitation. As part of its remit, this service will provide occupational health assessments and return-to-work support to employees off work for four weeks or longer. Showcasing this approach could help to underline the benefits of GIP.
Statistics
960,000: the number of employees on sick leave for a month or more each year on average between October 2010 and September 2013 (Long-term sickness absence statistics, Department for Work and Pensions, February 2014)
£9 billion: employers’ annual bill for sick pay and associated costs (Department for Work and Pensions, February 2014)
£318 million: the value of group income protection claims paid in 2013 (Group Risk Development, May 2014)
82%: the percentage of claims paid by group income protection insurers in 2013 (Group Risk Development, May 2014)
