According to our recently published research in Group Watch 2015, this year’s UK group risk market results are, again, very good news.
In 2014, more than 200,000 additional people gained access to risk benefits facilitated through, or paid for by, their employer. Over five years, an extra 1.25m people have been included in life and disability schemes.
We must be doing something right. Consumers, who otherwise may have had nothing in place, have cover to protect themselves and their families. This means that literally millions of UK citizens are able to benefit from having life and health insurance. This is particularly important at a time when new retail protection sales haven’t shown the same vibrancy.
Auto-enrolment has put the role of the employer firmly in the spotlight. Around 100,000 people received life cover through their employer for the first time in 2013, after being auto-enrolled into a pension scheme.
It’s not so easy to estimate a figure for 2014, as auto-enrolment staging dates impact smaller employers - but I am struck by the positive ways that auto-enrolment is beginning to stimulate wider debate, especially by intermediaries who readily shared their opinions in our latest report.
The numbers for income protection, critical illness and group life might seem modest compared with a reported 5m people auto-enrolled into pension schemes - but let’s put this into context - the growth and product awareness that comes from it is amazing for this market. And the potential for further momentum is huge.
This is especially true given that many employers, faced with auto-enrolment bills, may have chosen to meet some of these costs by cutting or trimming back other benefits. This hasn’t happened.
Auto-enrolment is a nice example of the state staging a controlled exit from one of its roles in welfare provision in an appropriate way, which has opened up much broader opportunities. It shows there is a way to move more financial responsibility back to the individual, through the infrastructure created to facilitate pensions provision as its primary purpose.
Given that the need to cut the costs of the welfare state is undeniable, the use of this infrastructure opens up exciting possibilities for areas such as sick pay, disability insurance and medical cover, with the employer as a facilitator or conduit. The fact that this infrastructure is modern and efficient should allow the lower costs to be passed to the consumer, thus enabling more affordable cover.
Of course, the sceptic might argue that any product would be expected to have a jump in its market penetration if some form of mandatory system comes into being, but risk benefit provision remains entirely voluntary.
It is difficult to see individuals moving of their own accord to take up the slack as the government pulls back on welfare provision. However, with the employer channel there is a natural fit between getting a job and protecting the income you generate from that.
There also seems to be a high level of trust that employers will provide the right types of products. Increasingly, it is feasible that employees might expect human resources and payroll departments to be in a better position to inform themselves about the options available.
The benefits of extending the success are clear for everybody. For the government, it can create the conditions for welfare provision to continue for a vast majority of people, without needing to be involved in the costs, allowing a focus on true financial safety nets. For employers, the additional efforts are offset by the excellent value proposition that these additional employee benefits bring.
For the consumer, they have access to excellent value products, which would otherwise most likely not have been taken on. There are also clear growth opportunities for providers who are able to deliver efficient and cost-conscious solutions to the both the larger schemes and smaller employers which comprise about half the UK’s private sector jobs.
As a final thought, our ability to extend the employer-provided model will need better integration between those benefits which the employer provides, and the state benefits which remain in the system. At the moment, consumers can be penalised for self-provision in the case of income, or in the case of medical covers, can wind up paying twice. There are also ongoing issues about how to deal with people who are self-employed, or those who move their jobs regularly.
It’s a balancing act in many ways - but we know which way the wind is blowing - government needs to draw back from welfare spending and people need to take more responsibility for their welfare. The employer channel can be a very positive way forward.
Russell Higginbotham is chief executive of Swiss Re UK and Ireland.
