Keeping the market interested
Despite the challenging market conditions group protection is still a very much valued benefit by employers
According to the latest data this year from the reinsurer Swiss Re, the group protection market has held up well to the demands of the sluggish UK economy. This market, like all others, has had to weather not only this year’s soggy summer, but also a growing period of depressed economic conditions.
The Swiss Re Group Watch report for 2012 showed an increase in in-force premiums for the group protection market. Total in-force premiums were up 2.9 per cent to £1.53bn for 2011. The group life market was worth £956m, with group income protection at £517m and the group critical illness market at £55m of in-force premiums. This impressive set of figures is set against a backdrop of troubled economic times and the resulting pressures that it brings to UK employers.
So why has the group protection market held-up in such difficult times? Is it because life cover is still a relatively affordable benefit for employers and valued particularly by employees with dependents? Or is it that income protection is more than just an insurance payout and looks to get staff back to work thereby reducing absence costs? Or is it that critical illness resonates with employees through their own personal experiences and is a sought after benefit particularly when offered through a flexible benefit scheme? The answer is probably all of them and many more besides.
If this market continues to be attractive, what will help it maintain its appeal in the years to come? One key driver is the decision-making of successive governments. This provides great opportunity for all sectors of the UK economy. For financial services, social economic policy around welfare reform and retirement provision has had a huge impact on the protection and pension landscape but it can lead to opportunity too.
At the end of April this year, the government introduced its changes to the employment and support allowance under the Welfare Reform Act 2012. ESA is the nearest state benefit to income protection insurance and is paid to an individual if he is off work due to sickness. The changes will see a fundamental shift in who gets some state benefits and for how long. The reduction in welfare provision has provided a big opportunity for both individual and group income protection as the country comes to terms with the end of the adage that the “state pays” while you are off sick.
The imminent arrival of auto-enrolment will also provide an opportunity for intermediaries to broach the subject of group protection with their clients. For many employers, a reassessment of their benefits package may be required as they assess the implications of auto-enrolment for their business. The removal of the default retirement age last year also provided opportunity for intermediaries to consult with their clients to ensure schemes meet the exemption granted to the group protection market. This exemption allows employers to stop providing cover at age 65 or state pension age (whichever is the later).