If you read nothing else, read this . . .
• Rebroking group risk benefits can save employers significant sums, particularly if they have not done so for several years.
• Savings can be made by removing any overlap in benefits. For example, some income protection providers automatically provide EAPs.
• Employers should not compromise on cover levels to obtain a cheaper price.
• Switching to newer or more niche providers may be advantageous.
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Case study: Retaining insurer slashes price for Geotechnical Instruments
Not all cost savings achieved through rebroking involve switching insurer. An employer often stays put because its insurer offers to reduce its price once it realises the intermediary has come up with more competitive quotes. Many intermediaries offer the holding insurer the chance to requote once quotes from elsewhere have been received.
In April, AWD Chase de Vere conducted a market review of group life cover on behalf of Geotechnical Instruments (UK), a manufacturer and supplier of biogas and landfill gas portable analysers. It found other players could significantly undercut the existing insurer for the group life scheme, which covers all 60 of the firm’s staff.The intermediary went back to the holding insurer and it agreed to cut its premium by 23%.
Sue Gardner, administration manager at Geotechnical Instruments (UK), says: “We are continually looking at ways to improve what we offer to our employees. By asking AWD Chase de Vere to regularly review our group risk arrangements, we know we will be getting competitive terms, and we have been able to make savings for both the organisation and our employees on life cover and health insurance."
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Whether any savings can be won when rebroking group risk benefits is not an easy judgement call, says Edmund Tirbutt
A highly competitive group risk market has meant employers that have simply accepted renewal terms from insurers may have ended up paying well over the odds for cover. If an employer's rebroking exercise is the first for several years, which can happen if it does not use an intermediary, it could save up to 50% on premiums.
Specialist intermediaries, on the other hand, should discuss the possibility of rebroking in the run-up to biannual rate reviews, and there has also been a recent trend for annual rebroking. Unum estimates that a quarter of its schemes are now rebroked annually.
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These regular reviews can still produce highly significant savings. For example, Gallagher Risk and Reward says the average saving for organisations it has rebroked during the past year has been 12.5%, and many of these employers were spending about £500,000 on group risk premiums.
Savings can come from securing premium reductions for life cover, income protection and critical illness insurance, as well as from cutting out overlap with added-value features. For example, if access is available to the BusinessCare business and legal support service via Canada Life's income protection scheme, an employer may decide it is worth cancelling a retainer with a local solicitor. And some group income protection providers automatically include employee assistance programmes (EAPs), offering a degree of face-to-face and telephone counselling.
Chris Ford, director of group risk at Jelf Employee Benefits, says: "It can be worth seeing if there is any overlap with standalone EAPs and considering cancelling the latter. But the problem is that income protection does not always cover all staff and most insurers limit it to those insured. So a standalone EAP can sometimes be better."
Although employers often consider price to be the top priority (see box), rebroking also gives intermediaries an opportunity to conduct an audit to ensure cover arrangements are up to date and in the employer's best interests.
Carlos Correia, senior consultant, risk benefit consulting, at Lane Clark and Peacock, says: "It is all about getting the lowest price subject to the product being fit for purpose. Much depends on what is best for each organisation. For example, some value a high free cover limit, below which no medical evidence is required."
Also, employers may want group life cover payouts to be based on the date of death, but some schemes fix the sum assured at the previous renewal date. These typically cost slightly less. Temporary absence cover for those who are still employed but not at work can also differ in length, with many group life schemes providing it to benefit termination age but some limiting it to three years.
Glenn Laming, group protection sales director at Legal and General, says: "If the scheme design is not done correctly, there is a danger of creating a cheaper product that does not necessarily meet the customer's needs. These small elements may each save 1% or 2% but they can come back to haunt you, and we never want a situation in which the employee falls out with the employer or the insurer at the claims stage."
Laming adds: "It is important to ensure the review is a detailed one and, after the removal of the default retirement age, there is a need to check employers do not end up with uninsured liabilities. If, for example, an income protection scheme has a retirement age of 65 and the employer does not make changes, it could find it is liable to pay out until age 66 or 68 when the retirement age increases."
Reinvest savings
Employers could even reinvest savings they make through rebroking in other group products, says Paul Avis, sales and marketing director at Canada Life. But Lee Gruskin, health and risk consultant at Bluefin, says that at the moment, organisations often want to use the money to grow their business.
It can also sometimes be advantageous to switch to newer or more niche insurers for reasons other than price. For example, insurers typically impose overall event limits of £50 million to £100 million in certain London postcodes, but Zurich Corporate Risk has plenty of spare capacity for group life, having entered the market only in 2009.
Ellipse, which entered the same year, can be an appropriate option for employers seeking high-tech solutions, and Generali has attractions for multinational employers.
But rebroking is not advisable in every case, particularly for small firms with annual premiums of a few thousand pounds. Such employers may simply be better off asking for renewal terms from their existing insurer. John Dean, director of Punter Southall, says: "We tell employers it is not normally viable to rebroke very small schemes on a commission basis as the remuneration is so low. Even using fee-paying, it is not worth rebroking if fees exceed 15% of the total annual premium.
"Where the premium is under £10,000 for any one policy, we tend to look only every two years and then ask the employer whether it is worth doing a rebroke. There is nothing more embarrassing than telling a finance director you have saved them £1,000 but it has cost them £2,000 in fees or commission."
Read more on rebroking group risk schemes
