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Insurers at a crossroads for group risk growth

Insurers at a crossroads for group risk growth

Insurers must “step up” to the new reality of the next government having to make cuts to the welfare budget and the impact on existing group risk business, according to the chief executive of Swiss Re.

The statement came as the provider stated while the group risk market is resilient, there are still challenges, particularly the number of new to market disability income schemes.

There was premium growth of 7.9 per cent across all lines at Swiss Re in 2014 - an 8.9 per cent increase in in-force death benefit premiums, 6 per cent in long-term disability income premiums and a 7.8 per cent increase in critical illness premiums.

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‘Excepted group life’ premiums grew 27.9 per cent and benefits by 29.4 per cent, reflecting the response to changes to the lifetime allowance. These policies allow employers to offer tax-free benefits for their highest earners by providing lump sum benefits that do not count towards their lifetime allowance.

The number of new schemes grew as more employers set up ‘excepted group life’ policies and critical illness schemes, but long-term disability income schemes continued to decline during 2014.

Russell Higginbotham, chief executive at Swiss Re UK and Ireland, said that the good figures hide the fact the industry is at a crossroads.

He said: “The welfare state cannot continue to fund at current levels and the next government will have to make cuts to the welfare budget.

“Insurers need to be ready to step up and adapt to that new reality. If we don’t, we may find existing models under threat in the same way that reforms have reconfigured pension provision.”

As in 2013, ‘excepted group life’ premiums performed well, with premiums growing by 27.9 per cent, reflecting the reduction of the lifetime allowance, which imposes a cap on pension savings of £1.25m.

With the limit set to be reduced further to £1m from April 2016, employers are likely to continue preferring the simplicity this option presents, stated Swiss Re.

The number of people insured for long-term disability income protection through their employers increased by 1.9 per cent for 2014, while in-force premiums were up 6 per cent to nearly £634m, although there was a decrease in the number of in-force schemes of 0.4 per cent to 17,119.

Critical illness covers again experienced strong growth, with almost 475,000 people covered last year, an increase of more than 90,000.

Ron Wheatcroft, technical manager at the firm, said the industry needs to decide if it wants to carry on as it has done for the past few years or offer something more ambitious.

He said: “Auto-enrolment could be the way to increase coverage if we are unable to deliver growth to begin to fill the gap which will be left by declining state provision.

“Employees tell us that they would value greater workplace access to products and services but, somehow, this hasn’t translated to more coverage.”

peter.walker@ft.com