If you read nothing else, read this:
- Take-up of group critical illness insurance has been increasing steadily.
- If the cover is below £250,000, there is no medical underwriting, reducing administration costs.
- Flexible arrangements may be the best way to offer critical illness cover.
The take-up of most group risk benefits has stuttered during the economic slowdown, but the number of employees with group critical illness (CI) cover has increased steadily.
Nearly 2,500 schemes are now in place covering almost 340,000 staff, according to Swiss Re’s Group watch 2013, published in April.
Linda Baker, market development director for group protection at Legal and General, says: “It is growing from a small base, but it is a popular benefit, appreciated by both employers and employees.”
For employers, group CI is easy to put in place. If the cover is below about £250,000, there is no medical underwriting, making the policy easy to offer and administer. Also, if a claim occurs, the payment is made directly to the employee rather than via their employer.
But group CI’s biggest appeal is among staff. Steve Bridger, head of group risk at Aviva UK Health, says: “Most people know someone who’s had cancer or a heart attack, so they appreciate the need for this cover. It’s also easy to understand. They know they’ll get a payment if they contract any of a list of serious conditions and they can spend it how they like.”
Flexibility over how the benefit is used means it could be spent on private medical treatment or adaptations for the home, clearing financial obligations or even enabling the employee to take the holiday of a lifetime.
Cancer claims
Some employers offer group CI alongside private medical insurance. Cancer claims can send insurance premiums rocketing but, with about two-thirds of group CI claims for cancer, employers can use this as a way to make some provision for private treatment without risking the sustainability of their medical insurance.
A further benefit for staff is cost. Although this depends on the group’s characteristics, it can be up to half the price of individual cover. Also, because pre-existing conditions are excluded, there is no medical underwriting.
As well as being easy to understand, group CI also suits workforce demographics. Paul Avis, marketing director at Canada Life Group Insurance, says: “The number of single people in the workforce is growing. Without financial dependants, they don’t want lots of life assurance. Critical illness insurance gives them a benefit they can value more.”
Flexible arrangements
Flexible arrangements, such as flex schemes or voluntary benefits, can be a natural home for group CI. This market has been growing, says Baker. “Over the last few years, the percentage of group CI in flexible arrangements has risen from around 50% to more than 60%. Employers like this arrangement because it enables them to offer choice while still controlling costs.”
Flex is regarded as the most effective way to offer group CI because there is more structure in the way the benefits are promoted and when staff can take them, leading to higher take-up.
But when group CI is offered on a voluntary basis, take-up can be as low as 1%, says Aviva UK Health’s Bridger. “I prefer to see it in flex arrangements,” he says. “When take-up is low, you tend to find that only people who have a real need take it out. This increases the risk of claims, so you lose some pricing benefits.”
But however group CI is offered, marketing and clear communications are essential to ensure employees not only take out cover, but also understand how it works.
