Group risk benefits have always played a role in recruitment and retention, but some employers are now using them more strategically in their reward package.
If you read nothing else, read this:
- Many group risk schemes are the result of legacy business rather than current strategy.
- Employers are increasingly valuing income protection for its ability to reduce absenteeism.
- Auto-enrolment could result in employers taking a more strategic view towards group risk.
In an ideal world, group life, income protection and critical illness schemes are implemented to help employers meet their business objectives. However, the reality is more often than not a case of employers managing legacy schemes.
Many life schemes commonly exist because they used to sit under pension trusts while many income protection schemes arrived within organisations as a reluctant purchase to cover ill-health early retirement following the closure of their defined benefit (DB) pension schemes. Meanwhile, a number of group risk schemes have been inherited through mergers and acquisitions.
John Dean, sales and marketing director at Punter Southall Health and Protection Consulting, says: “The great majority of group risk schemes haven’t been pre-planned, and some companies even have 15 or 16 sub-sections of benefits to reflect their different origins. The ideal client starts with a blank piece of paper and wants to design benefits, but this rarely happens.”
Nevertheless, the economic recovery, albeit slow, is prompting some employers to take a more strategic approach to their group risk provision. Some employer, for example, are aligning their group risk benefits with their overall wellness and absence management strategies, and treating them less simply as a recruitment and retention tool.
Income protection, which provides valuable early intervention and rehabilitation benefits, inevitably figures more prominently than life and critical illness cover on organisations’ agendas.
Aviva UK Life reports this shift in employer attitude to have been coming through very strongly in all the pitches and beauty parades it has been doing in the last couple of years. Legal and General tells a similar story, with its research, Legal and General Group protection product research 2012 – Business Insight, published in February 2012, showing that 72% of employers strongly agreed that they were active in encouraging employee health and wellbeing.
Common sense dictates that auto-enrolment, which was introduced on 1 October 2012, might have also prompted some employers to reappraise their group risk provision and take a more strategic approach towards group risk benefits. But this has not happened, despite both premiums and employee numbers covered increased last year, suggesting that some employers are insuring new pension scheme members.
Nevertheless, Will McNaughton, senior consultant at Lorica Employee Benefits, says that some of the adviser’s clients are beginning to consider their group risk benefit provision more closely than they have previously, and that one or two employers have, as a result, tweaked their benefits.
Paul Avis, marketing director at Canada Life, says: “The most advanced employers are taking advantage of auto-enrolment to review current benefit spend and see how it can best be used. In the main, they are extending benefits to previously non-insured employees, although not always at full cover. But it’s really just a minority.”
One of the approaches most commonly taken by this minority is to switch from group income protection that pays out until retirement to that which pays out for a limited term of two to five years. This fits in with cost-cutting objectives by realising significant premium savings and reflects the realisation that jobs are now rarely for life. Interest in this approach further increased last year (see box below) and could really start to come of age when the volume of employers starting to auto-enrolling their employees increases in 2014/15.
A trend towards voluntary income protection, on the other hand, remains far less certain. Personal Group has been enjoying success with its approach to selling voluntary income protection directly to employers, which it started in 2007, and reports average take-up rates of 35% and average premiums of £25 a month.
Katrine Johnston, director of Personal Group, says: “The feedback we are getting is that, even though it’s voluntary, [income protection is] still a fantastic retention tool and provides the ability to look after the wellbeing of staff in a cost-effective way.
“We are experiencing demand both from employers switching from company-paid schemes and from those who’ve never had a scheme. We’ve even had some [employers] taking away company-paid income protection and giving the premium they’ve saved as a pay rise to [employees] whilst providing them with the option to buy voluntary cover.”
But progress with voluntary income protection hasn’t been so rosy at Unum. Unum Select, launched in 2011, offers employers a choice between voluntary or company-paid cover or a mixture of the two, but according to Unum, demand for the pure voluntary approach has lagged behind the other two.
No other intermediated insurers have followed suit and offered voluntary cover, and some in the industry blame the fact that the approach offers insufficient financial rewards to intermediaries.
Employers’ focus on cost control could see interest in flexible benefits schemes move up a gear as more organisations reach their auto-enrolment staging dates but, although these will usually contain group risk products, they will result from a more broadly-based strategy that extends well beyond group risk.
Oliver Wheatley, benefits consultant at Buck Consultants says: “We are seeing a trend towards new flex schemes, and I’ve even got one [employer] with as few as 100 employees that has set up a flex scheme that includes life cover, critical illness cover and income protection.”
Critical illness cover, saysWheatley, is normally a pure voluntary benefit and life cover a core benefit, typically at four times salary, while income protection is sometimes entirely core and on other occasions it offers limited-term cover with the option to flex up to retirement age.
“Switching to flex is obviously part of a strategy of reducing premium spend on group risk and increasing choice, which [employers] need if [they] want to attract talent,” he adds. “Employers have become a lot less nervous about offering slightly reduced benefits via flex using the sweetener of greater choice.
Auto-enrolment communications programmes are being shared to promote flexible benefits and in some cases flex platforms are being tied in with auto-enrolment platforms.”
So, although recruitment and retention considerations are becoming rivalled by the focus on wellness and absence management for income protection, they still remain an important driver for group risk products as a whole.
Peter Fenner, communications manager for Ellipse, says: “Employers are becoming increasingly aware of the type of brand image they want to project because all sorts of aspects of companies are coming under the spotlight. They are thinking about their reputation and about being seen as a caring company because the things they are associated with have become almost as important as their core businesses.”
Case study: DAS UK Group values income protection and life cover
Legal services provider DAS UK Group off ers all its 700 employees employer-paid group income protection and group life cover through a scheme that has been available since the organisation was founded in 1975.
Paul Timmins, chief operating offi cer at DAS UK Group, says: “It has been a deliberate part of our business strategy to offer these products because we want to attract and retain high-quality and skilled staff. We employ a large number of lawyers, accountants, actuaries and other insurance and legal services professionals, and all of them have been in great demand in the market, even during the economic downturn.
“The income protection scheme also fits in with our strategy of keeping staff as healthy as possible. Its ability to reduce absenteeism through the insurer’s early intervention and its help with rehabilitating employees back into the workplace is very important.”
The life scheme, provided by Legal and General, provides cover of four-times salary, and the income protection scheme, provided by Canada Life, covers two-thirds of pensionable salary
(minus state benefits).
Benefit payments start after a six-month deferred period. Last year, DAS UK Group took the decision to reduce the benefit payment period from retirement age to five years. “We found that no claims have ever gone beyond five years, so we have decided to reduce the premium by capping the benefit,” says Timmins. “We have the discretion to extend this period, self-insured by the company.”
Katharine Moxham: Crossing boundaries will make the benefits package work
As employers prepare for auto-enrolment, it might pay to look beyond pensions and consider how group risk protection benefits sit within the overall package. For example, group lifeassurance is traditionally valued by employees and has become an essential core benefit to attract and retain staff.
Group income protection can replace an ill-health early retirement promise after the closure of a defined benefit (DB) pension scheme. It can maintain an employee’s financial resilience when illness or disability prevents them from working, and it is also a business continuity tool, supporting staff to get back to work in a timely manner.
Where this is not possible, it gives an employer the financial advantage of having insured its liability to continue salary in the event of a long-term absence.
A group critical illness payout can supplement sick pay or go towards the cost of cancer drugs, allowing this expensive element to be stripped out of private medical insurance provision.
Understanding what comes with a group risk policy (such as HR support, employee assistance programmes and counselling) is vital and merits equal consideration along with price and core protection.
With the help of their intermediary, savvy employers will make full use of these additional services because they can save them money elsewhere and can be used on a daily basis, even if a claim is never made.
Employers seeking to ensure their perks package is still fit for purpose will discover group risk options ideal for crossing the pension and healthcare silo boundaries and tailoring the package to meet their needs.
Katharine Moxham is a spokesperson for Group Risk Development