Feature -The growing popularity of group critical illness insurance

If you read nothing else, read this …
• Insurers require a minimum number of lives, so consider take up if critical illness is offered through a flexible or voluntary benefits plan.

• Make sure employees understand how a group policy may differ from a privately held one, especially with regard to pre-existing conditions.

• Get help. Insurers and brokers can provide marketing support to help you promote critical illness cover within the workplace.

Skyward premium increases for private individuals taking out critical illness (CI) cover is causing them to consider a workplace offering instead. While CI can be offered as a core benefit, one of the key advantages for organisations in offering it on a voluntary or flexible basis is that the risk/cost burden is switched to the employee. Premiums also increase with age, so critical illness will get more expensive as the policyholder matures. But as the employee is responsible for paying the premium for cover bought through a voluntary or flexible scheme, they will absorb these increases.

According to Employee Benefits/Chase de Vere Flexible Benefits Research 2004, critical illness is now the third most commonly offered flexible benefit, featuring in 41% of flex schemes.

The disadvantage of offering it in this way is that it is impossible to judge take up. “Insurers insist on a minimum number of lives,” says Andrew Smith, employee benefits consultant at Towry Law. This is usually 10 lives, although some insurers will go down to five.

Jim O’Driscoll, scheme underwriting director at insurance firm Canada Life, says that a good level of take-up on a flexible benefits scheme is around 40%, although workplace demographics dictate that this figure will vary between organisations.

Younger people typically prefer to opt for more immediate benefits such as extra holiday or medical insurance; although, for those without dependants, critical illness insurance can be a much more useful benefit than life cover.

Offering CI as a core benefit will address the issue of take up, but can be pricey and will get progressively more expensive as your workforce ages. O’Driscoll offers an alternative that can address both issues. “Some employers provide a modest amount, perhaps £25,000, as a core benefit and offer the option to top this up through a flex scheme.”

But, however you offer it, care needs to be taken when putting it to employees. Nicola Smith, communications manager at Bupa group risk, says: “You have to be very careful you provide appropriate information without giving advice. People do confuse it with the other healthcare benefits such as income protection.”

Additionally, where individuals may be aware of how privately held products work, there can be confusion because conditions in group plans can differ. Most significant is the style of underwriting. Rather than being fully underwritten, group policies automatically exclude any pre-existing conditions. Dave Kay, group product manager at UnumProvident, says: “A lot of people don’t read the policy terms until they need to make a claim and you could run into trouble if they then find they’re not covered.”

Ever keen to help the market grow, insurers and brokers are happy to provide support in this area and many will supply marketing literature, intranet copy or, where demand is great enough, run employee roadshows to help improve take-up.