David Williams: The future of group risk benefits looks flexible

This article has been supplied by our sponsor, Friends Life:

The future of the group protection flex market may remain unclear, nevertheless it is gaining momentum.

There has always been much debate about the future direction and rate of growth of the flexible benefits market. What is clear, however, is that the group protection flex market is growing year on year.

Employers are embracing both the cost-saving opportunities and technology support provided by flexible benefits, while still looking to offer valuable benefits to employees that are designed to protect them and their loved ones.

According to Swiss Re’s Group watch 2013 survey, published in April, the size of the group protection flex market as a percentage of the overall group protection market was 11.4% in 2012, up from 7.44% in 2009.

This means nearly £192 million worth of total in-force group protection premiums are flex benefit-related out of the total group protection market of almost £1.7 billion.

Business volumes

Group life cover has the highest in-force volume of in-force flex business of £97 million, with group income protection second with £58 million and group critical illness third with nearly £37 million worth of in-force business. It is interesting to note that the critical illness market may generate the lowest value of business, but the market boasts the highest percentage of flex-related business (61.4%).

But why is the group protection flexible benefit market growing? Cost management is still a fundamental driver of this trend. It has led to some employers making reductions in death-in-service pension provision as they seek cheaper lump-sum alternatives, and the trend to limited payment term income protection schemes continues.

For some employers, flexible benefits have allowed them to continue offering levels of benefit they may previously have had to reduce or remove.

Further shift to flex

More specifically, the cost of auto-enrolment is likely to see a further shift to flex as employers look to manage the cost of auto-enrolment and use the technology advantages flex systems can provide to help manage their administration requirements.

Traditional drivers of flex are still relevant and equally applicable to protection products. The opportunity to provide a wide-ranging mix of employee benefits with potential tax savings provides a compelling and competitive employee benefits package.

Is the upward trend for group protection flexible benefits likely to continue? In the short to medium term, the answer is probably yes.

Auto-enrolment staging will continue over the next five years for medium to smaller-sized organisations, along with a requirement for employers to increase their pension contributions.

This, coupled with lower-cost flexible benefit platform options, will make flex increasingly attractive to employers.

Whatever the future trend turns out to be for group protection benefits, one thing is for certain: providing access to benefits that will protect employees and their loved ones should they fall ill or die is an essential requirement for any employee benefits package.

David Williams is director of group protection at Friends Life