Feature – In depth: Employers face delays securing critical illness and income protection cover

Case Study: Bestinvest

Article in full
Intermediaries are concerned that some insurers are taking unacceptably long periods of time to issue critical illness cover and income protection quotes for flexible benefits schemes.

On average, the process tends to take around one month, compared with around two weeks for standard group risk business, although the fact that different intermediaries have varying degrees of clout in the marketplace does mean that experiences can differ somewhat (see box over).

At one end of the scale, it can be possible to get quotes through in a couple of weeks if intermediaries phone underwriters and ask favours. But more complex cases, where there has been an adverse claims history or for which insurers have to request further information, can easily take two months. Size can also be an important factor, with delays being experienced by very small as well as by very large schemes.

Tim Gillingham, head of employee benefits at fee-based IFA JS&P, says: “If you have an income protection or critical illness cover scheme with below 150 lives you will struggle to get a quote from any player apart from Legal & General and it will probably take over six weeks. It has one person fronting that end of the market and if he’s busy you could have a problem.

“I think a reasonable time period for flex quotations for these products generally would be around 10 days and I don’t see why such a threshold shouldn’t be achieved. But the group risk market as a whole is in a right mess and I suspect that some insurers are losing a bit of interest in flex, despite all the hype surrounding it during the last few years. This could well account for their lack of urgency.”

John Deacon, head of the employee benefits division at IFA intermediary Grundy Mack, is another to take issue with the quote turnaround times he has experienced. “Unless it is a voluntary scheme, outside [of] flex you can have a group scheme in operation without the employer knowing the premium rates, but for flex schemes you must know the rates unless all the benefits concerned are core ones. In my view, insurers drag out the quotation process unnecessarily, and this can impact on the launch of flex. If you lose credibility at launch then employees don’t participate, and the whole thing goes wrong.”

But there is certainly another side to this debate. Steve Jacobs, head of flexible benefits at Gissings Advisory Services, has few axes to grind. “Four or five years ago, there was a reticence on the part of insurers to take on any risk under flex because they were very concerned about the problem of anti-selection, but over the last three years there has been a marked change in attitudes. Insurers are more willing to get involved with these and are much better at administering them. In particular, Norwich Union and Legal & General have raised the bar during recent months by producing income protection quotes in only three weeks.”

Those in the reasonably contented camp emphasise that group risk benefits offered through flex schemes can be complex to price and that there are some very real dangers with trying to rush quotes through. If all the relevant data isn’t included then requotes may become necessary or insurers may play safe and overprice benefits.

The same people do, however, acknowledge there may be a slight improvement in flex quotation times in due course because some of the factors causing delays should prove temporary.

The group risk market has been undergoing a period of significant consolidation and some insurers are therefore still grappling with communications and systems issues that tend to go hand in hand with making acquisitions. The withdrawal of Swiss Life from the market two years ago has been particularly significant, because it was the major critical illness cover underwriter for flex schemes and its business has been widely dispersed among the remaining insurance players.

Remember also that flex is still a relatively new field. Those seeking income protection and critical illness cover quotes only have access to a narrow market of players (effectively, Legal & General, UnumProvident, Canada Life, Scottish Equitable, Bupa and – for income protection only – Norwich Union). Even for these, flexible benefits schemes still only represent a small proportion of overall business. At Legal & General, for example, it has accounted for under 10% of group risk business during the last year.

Dave Kay, commercial product manager at UnumProvident, says: “Standard group risk schemes tend to follow a pretty set pattern, so computer schemes can churn through the information fairly systematically. But the longer that flex schemes are around for the more likely we are to have bespoke quotation systems for them and these could shave around one-third off quotation times.

“There are also administrative issues to be sorted out with client organisations, but over time these should reduce. We are keen that employers have a suitable administrative system in place before we quote, so we might need to check up on them at outset and ask to speak to their software house. As flex schemes become more common it is possible that average quotation times could improve to around two weeks, to be more in line with standard group risk schemes.”

For the time being, however, there are just as many commentators who feel that employers and intermediaries are suffering from unrealistic expectations because there are those who acknowledge that there are serious issues with delayed quotations.

Furthermore, even those who feel the process can be speeded up emphasise that it is not necessarily insurers that are primarily to blame. Employers and intermediaries can also play their part by demonstrating greater clarity in the information they provide.

Simon Gadd, managing director of group risk at Legal & General, says: “It’s still taking quite a long time to establish what employers require for core and flexible options. When we are dealing with intermediaries other than the benefits consultants they often don’t seem to know how much detail we need. But perhaps we should be making our requirements clearer, so there is room for improvement from both sides.”

Nevertheless, when viewed in the context of the overall length of time that it takes to implement a flex scheme, the question of whether quotations take two or four weeks to obtain does not seem an overwhelmingly important consideration.

Design, structural, legal and communication issues must all receive due attention and the data capture process can be elongated by providers of existing schemes. Even once a feasibility study – including research into employee attitudes – has been completed the overall implementation process is likely to take four to six months. So employers that want to introduce a scheme to coincide with the new tax year in April may find that they have left it too late.

Case Study: Bestinvest

As a financial services organisation, intermediary Bestinvest was aware of the importance of allowing adequate time for the implementation of its flexible benefits scheme on 1 January 2006. The design process had therefore commenced five months previously. Most quotes for income protection, which is a core benefit, and critical illness cover, which is a non-core benefit, took between three and four weeks to obtain. While this was in line with expectations, it was still noticeably longer than the five to 10 days required for obtaining private medical insurance quotes.

Ken Murphy, director of Bestinvest, says: “Flex takes a long time to implement anyway, so whether obtaining quotes takes a couple of weeks longer than they should do is not a huge issue. But I don’t think the turnaround times are very good.

“Group protection as a whole is possibly the worst part of the market to deal with because it is less well staffed than the investment side. There may be systems issues as well, because there have been a lot of mergers.”