However there are things you can do around Group Risk provision to help your clients and potentially grow your business. These fall into two opportunities: to grow the market and to consult on existing schemes.
The chance is right in front of advisers for significant market growth. This comes in many forms but it is worth looking at a few simple ideas.
The single biggest opportunity is on the back of automatic enrolment (AE) pensions implementation.
Between now and 2018, the 1.8m employers going through staging provides advisers with many openings to win corporate clients.
These might be leads from other professionals such as accountants or requests from existing personal clients for assistance with their business. With every employer providing a pension, there is a need for a benefits differentiator.
Group Risk, specifically Group Life, is the perfect partner to AE and can be used both to increase revenue and to maintain a post-implementation relationship. A simple group Life product is proving to be popular as an initial starting point as it can be easily quoted for and administered online.
Another area for expansion is Group Income Protection (GIP). The questions to ask are: how aware are your clients of the level of State Benefits, how difficult are these benefits to obtain with the ‘any occupation’ definition of disability and do they understand the benefits that are initially paid to an absent employee will change over time as their personal situation changes?
Unbelievably there are still schemes with differential male and female termination ages and end dates of 60 or 65 still permeate some traditional scheme designsSo as an employee of an organisation, I would want to know how much income I would get if I were sick, who from, how I will be assessed and for how long I will be paid this benefit.
In the current, complex State Benefit world the specifically personalised nature of these benefits means that few, if any, employees have such clarity. At a basic level can anyone live on £3,801 a year? Could this fact shock most employers into action as they consider their own situation let alone their colleagues?
The other area of growth is to consider expanding some existing schemes which currently have restricted membership.
The use of pension scheme eligibility was historically popular but the introduction of AE now means that most, if not all, employees are pension scheme members. An ‘all employee’ scheme will usually have a lower average age and therefore lower unit rate i.e. a lower cost per £benefit but not necessarily a lower premium.
In addition, the expenses of pension scheme membership are higher as insurers could be selected against by people joining the pension to get the death or disability scheme benefits when they know they may need it. In addition, everyone has the extra workload and costs of medical underwriting late or discretionary entrants.
Many schemes still have executive/limited membership. By expanding schemes to include other categories, employers get budgetary certainty through unit rating and also free cover limits are higher, so there is often no medical underwriting.
It is also important to look after existing clients ensuring their benefit offers remain relevant. This could be a move to flexible benefits and online communications but there are some basic changes that can be made to specific scheme designs.
Legislation and regulation will often be the drivers for this and some schemes are not up to date. For example, termination ages still need to be reviewed in some cases. The removal of the default retirement age requirement occurred in 2011.
An exemption for insured benefits was negotiated by GRID. This means that every cease age should now be at least “the greater of 65 or State Pension Age (SPA)” but regrettably it is not – especially for Group Income Protection where there is a cost to doing so.
Unbelievably there are still schemes with differential male and female termination ages and end dates of 60 or 65 still permeate some traditional scheme designs.
Looking at products specifically, one would imagine that Group Life is the simplest to consult and modernise but with looming pension taxation reform and the lifetime allowance reducing to £1m from £1.25m in April 2016, employers will be looking at provision for higher earners.
The popularity of Excepted, as opposed to Registered, schemes is likely to increase. The traditional approach of using an Excepted policy with a Relevant Property Trust creates a theoretical liability to entry, exit and periodic 10 year charges.
There is an advice gap here, so whose responsibility is it to consider an Excepted policyIdentifying whether tax should be paid and the amount due where a scheme covers an employee in poor health is not clearly defined.
With the additional complications, each employer should consider specific legal, taxation and financial advice rather than adopt a blanket, Excepted for all, approach.
There is an advice gap here, so whose responsibility is it to consider an Excepted policy? In theory it should be the employer.
But they would not know the personal pension situation of each employee as many will have legacy pensions, some will have opted for fixed/lifetime protection and some will have personal, relevant life policies. So should it be the individual employee’s adviser who picks this up?
GIP legislation is already working its way through Parliament. Although held up by the House of Lords, the government still proposes from April 2017 Employment and Support Allowance (ESA) will be reduced by almost 30 per cent for those in the Work Related Activity Group – a cut of £1,511 a year to align with Job Seekers Allowance.
The interaction between Income Protection benefits and Universal Credit can at best be called complex.
With State Benefit amounts reducing, being much harder to qualify for than GIP, and a lack of certainty over the future of state benefits, isn’t it about time organisations removed any State deductible and just had a flat, fixed percentage of salary scheme design?
A design which guarantees 50 per cent or 75 per cent of employee income, which is not contingent on the State benefit at all, is easily understood. Consulting on the options and supporting an employer consultation exercise is just the way quality employee benefits advisers can add value to their clients through improving understanding and modernising.
Despite this opportunity to de-link GIP from State benefits, the jury is out as to whether this will happen. As part of our review, we still have schemes with a ‘Long Term State Incapacity Benefit’ (LTSIB) deductible - a State Benefit which was last available to new claimants in 2008.
There is still a small number of net pay and integrated schemes which, while relevant in the 1990s, can cost more than fixed benefit deductible schemes.
These are fairly straightforward steps that can be used with many clients. By creating an awareness of needs, and offering a range of simple solutions, we can together make the most and best out of what we have available to us.
This is before we even mention the benefits of support services such as second medical opinion services, employee assistance programmes or bereavement helplines. Perhaps a topic for another time.
