How to align group risk with an employer’s total risk policy

For most businesses, the issue of risk is never far down the corporate agenda.

EmployeeBenefits GroupRisk May2014

If you read nothing else, read this…

  • Most risk management and insurances are generally handled by risk teams, but people-related products, such as group risk cover, often remain with HR or benefits departments.
  • People-related risk can represent a business risk to the organisation, particularly if the employer’s pay and reward strategy cannot attract or retain top talent.
  • Failing to handle people risk adequately, such as that of employees dying or becoming seriously ill, can also be a reputational risk for an organisation.
  • Group risk arrangements should be reviewed regularly to avoid duplication of cover and to incorporate new services.
  • Employers need to communicate with staff better and maintain their internal administration around group risk policies.

Whether it is the threat of service disruption caused by freak weather, supply chain chaos resulting from ash clouds or tsunamis, or the danger of litigation arising from health and safety failings, risk is the one topic guaranteed to keep chief executives awake at night.

Such issues are generally handled by corporate risk management teams, underpinned partly by various insurance policies. Yet alongside these sit people-related risks: the threat of staff becoming unable to work or leaving the organisation, which tend to fall under the remit of HR or benefits departments.

This is largely because the policies designed to alleviate these risks are viewed as benefits that can help to attract and retain employees, and with good reason. Group Risk Employer Research , published by industry trade body Group Risk Development (Grid) in January 2014, found more than half (56%) of employees put income protection in their top three benefits, with 47% doing so for life insurance products and 41% for critical illness cover.

Total risk management

John Ritchie, chief executive at insurer Ellipse, says there are a number of areas where people-related risk could, and should, be seen in a broader context, as part of an organisation’s total risk management strategy.

“The disability, absence and health risk is acknowledged as a risk to the business and sometimes purchased through the risk manager, so the [person] who would be buying the buildings insurance and the liability cover for products,” he says. “Aside from all the chatter about engagement, there is a basic issue here: is [the employer’s] pay and related benefits package competitive for the people it needs to hire?”

Other matters that could come under a broader risk management strategy include key person risk: the risk of a particularly important employee being unable to work; and reputational risk to the employer brand, which can be affected by issues such as how employers respond when personal crises strike their staff.

“If you have a reputation-based business, then the way people are treated and how catastrophes are handled is hugely important to the brand,” says Ritchie.

Sharing information

Paul Avis, marketing director at Canada Life Group Insurance, says closer relationships between internal stakeholders, such as HR and benefits professionals, can also lead to greater sharing of information, ultimately helping to minimise the risk of staff being unable to work, thus reducing the financial damage to employers.

“For example, health and safety is likely to keep work-based accidents and incidents reporting and would be expected to work with the employer liability insurers,” he says. “Group income protection providers undertake vocational rehabilitation programmes to limit the duration of absence and would work with employers’ occupational health providers and HR team.

“The aim is to reduce unnecessary absence, thereby limiting employers’ occupational sick pay liability and, most importantly, returning valuable employees to the workplace.”

Regular reviews

Katharine Moxham, spokesperson at Grid, says it is sensible to review group risk policies regularly, not least to help identify opportunities where rationalisation of provisions could save paying out for unnecessary cover. She points to a number of areas where this could happen, including employee assistance programmes (EAPs) under group income protection policies which could replace a standalone service, and double death benefit payouts as a result of group life and personal accident policies.

The market is evolving constantly, with providers increasingly looking to stand out in terms of the services they offer, says Canada Life’s Avis. “As well as EAPs, second medical opinions, and online or telephone legal and health and safety support, most insurers now offer vocational rehabilitation services,” he says. “Even the most rate-driven product, group life, may offer added-value services, such as bereavement counselling and probate helplines.”

But one area where employers need to improve is how they communicate and administer policies, says Ellipse’s Ritchie. “A lot of [employers] provide good life cover but don’t tell people how much they’ve got, and they don’t maintain the nomination of beneficiary process,” he says. “We often find we are ready to pay but the employer isn’t ready to receive.”

Viewpoint: The wider business risks on which employers should focus


FTSE employers spend a significant amount of money on risk-related benefits, as well as other forms of employee compensation. Organisations are, more frequently, putting a spotlight on these benefits to understand the value for money they represent, but also how they help to mitigate risk.

To answer these questions, employers are increasingly turning to the HR analytics community to uncover relevant insights. This is typically achieved by simulating the likely implications of risk incidents and the consequences for risk-related premiums.

Analyse workforce data

To begin this process, the key is to analyse workforce data from three perspectives: behavioural, financial and performance.

Behavioural risk could involve the people employed by an organisation, what they do on the premises or how they deliver brand values. Financial risks can range from the cost of attrition to being exposed to liabilities, such as fraudulent or negligent activity. Performance risk relates to whether employees are providing the level of output required to meet objectives, for example sales targets.

Data analysed in these ways reveals far more about a workforce and the factors affecting it. From there, employers can move from reactive to proactive interventions. 

Proactive interventions

Proactive interventions could include benefits such as employee assistance programmes (EAPs). These are typically designed to provide employees and their families with advice, information or counselling on a particular issue they are facing. 

For example, take an employee who is suffering from stress. EAPs could give them access to resources to better manage the problem before it becomes a longer-term issue. 

Another example would be the analysis of employee travel patterns and identification of any inefficiencies.  This can be used to shape new policies and to achieve significant cost savings. The tax treatment of travel, both within a home country and for internationally mobile employees, can also be overlaid to expose any potential tax risks.

Ultimately, the aim is for employers to understand what risks their organisation could be exposed to and what benefits might help to minimise the likelihood of these happening. In turn, employers will be able to best optimise their spend on mitigating benefits.

Laurence Collins is workforce analytics director at Deloitte 

Case study: DPD divides responsibility for risk provisions


Express parcel delivery business DPD, part of Geopost, has traditionally divided its risk provisions into two, with people-related aspects sitting with HR, and travel policies, such as vehicle and accident insurance, handled by a corporate risk team.

Debbie Morey, compensation and benefits manager, says much of the reason for this is historical, with critical illness and life assurance traditionally coming under the business’s group personal pension scheme , now provided by Aegon.

Working alongside its consultancy firm Lorica Employee Benefits, DPD recently revisited this set-up, largely because pensions auto-enrolment is looming. Under the new arrangement, only existing scheme members will continue to receive critical illness, and staff that had not joined the group pension plan were given a final chance to do so: they would receive life assurance but not critical illness.

“Those that decided not to join when we staged went into The People’s Pension scheme, and we don’t offer life assurance to those,” says Morey. “Only new starters now get the option of the Aegon scheme with the life assurance.”

DPD is also likely to review its level of life assurance this year. “Anyone who is under 30 gets eight times their salary, and anyone between 30 and 50 gets six times,” she says. “We may decide to put everybody on the same level.”